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Campbell Soup Company: Much More Than Just Soup.

Opdateret: 10. jan.


Campbell Soup Company was founded more than 150 years ago. Hence, the company has weathered world wars, depressions, pandemics, and several recessions, but it is still thriving. Investing in soup may sound unexciting, but Campbell Soup Company is much more than a soup company. It is one of the largest processed food companies in the United States. Is Campbell Soup Company a good investment? At what prices will the shares be considered attractive? It is what I am going to investigate in this analysis.


This is not a financial advice. I am not a financial advisor and I only do these posts in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me.


Since attending the workshop with Phil Town, I have decided to make some changes to the layout of my analyses. I will perform additional calculations and also provide a brief explanation of why the company is significant to me. If you want to learn more about my company evaluation process, please visit the "MY STRATEGY" section on my website.


For full disclosure, I should start by mentioning that at the time of writing this analysis, I do not own any shares of Campbell Soup Company. If you would like to view the stocks in my portfolio or copy my portfolio, you can do so on eToro. Instructions on how to do so can be found here. I don't own any stocks in Campbell Soup Company's competitors either. Thus, I have no personal stake in Campbell Soup Company. If you want to purchase shares or fractional shares of Campbell Soup Company, you can do so through eToro. eToro is a highly user-friendly platform that allows you to start your investment journey with as little as $50.



The Campbell Soup Company was founded in 1869 in New Jersey, United States. Campbell Soup Company is widely recognized for its flagship canned soup products, but it is also one of the largest processed food companies in the United States. They have two reportable segments: Meals & Beverages and Snacks. Meals & Beverages includes soup, simple meals, and beverage products for retail and foodservice in the U.S. and Canada. The segment includes the following products: Campbell's condensed and ready-to-serve soups; Swanson broth and stocks; Pacific Foods broth, soups, and non-dairy beverages; Prego pasta sauces; Pace Mexican sauces; Campbell's gravies, pasta, beans, and dinner sauces; Swanson canned poultry; V8 juices and beverages; and Campbell's tomato juice. The Meals & Beverages segment also encompasses snack products in foodservice and Canada. Snacks consist of Pepperidge Farm cookies, crackers, fresh bakery items, and frozen products. These include Goldfish crackers, Snyder's of Hanover pretzels, Lance sandwich crackers, Cape Cod potato chips, Kettle Brand potato chips, Late July snacks, Snack Factory pretzel crisps, Pop Secret popcorn, and other snack products available in retail stores in the U.S. The Snacks segment encompasses the retail business in Latin America. Meals and beverages account for approximately 52% of sales, while snacks account for approximately 48% of sales. Campbell Soup Company has a brand moat as its iconic red and white soup cans being one of the most recognized brands in the food industry. Its other brands are also highly popular, as evidenced by Goldfish being named the most preferred snack brand among teens for the fifth consecutive time.



Their CEO is Mark A. Clouse. He joined Campbell Soup Group as the CEO in 2019. Prior to joining Campbell Soup Company, Mark A. Clouse held various leadership positions at Kraft Foods, which later changed its name to Mondelēz International, and also served as the CEO of Pinnacle Foods. Prior to entering the food industry, he served as a pilot in the United States Army and completed his service with the rank of captain. He holds a Bachelor of Science in Economics from the U.S. Military Academy at West Point and also serves on the board of Brown-Forman Corporation. Mark A. Clouse has over two decades of experience in the food industry and has achieved notable success as the CEO of Pinnacle Foods. Under his leadership, the company consistently grew or maintained market share in its top categories, achieved double-digit adjusted EPS growth, and effectively integrated the Boulder Brands acquisition, creating significant shareholder value. These results are impressive, especially when compared to the performance of most other packaged-food companies, which experienced a decline in share value during the same period. Although Mark A. Clouse has achieved impressive results, his employee rating is less so, with a score of 59/100 on Comparably, placing him in the bottom 20% of companies of similar size. I believe that Mark A. Clouse has the experience and track record to lead Campbell Soup Company forward. Although the poor employee rating is slightly concerning, I will have confidence in Mark A. Spouse moving forward.


I believe that the Campbell Soup Company has a brand moat, and I have confidence in the management despite the low employee rating. Now, let's analyze the numbers to determine if Campbell Soup Company meets our criteria for possessing a strong competitive advantage. If you need an explanation of what the numbers represent, you can refer to "MY STRATEGY" on the website.


The first metric we will investigate is the return on invested capital, also known as ROIC. I would like a 10-year history demonstrating growth of at least 10% each year. Campbell Soup Company has consistently achieved a high Return on Invested Capital (ROIC) of above 10% in most of the past ten years. The low numbers in 2018 and 2019 are partly due to Campbell Soup Group selling some of its international operations and Campbell Fresh. Thus, I won't give these numbers too much consideration. I am slightly concerned that the ROIC has been the lowest in the past three years, excluding 2018 and 2019. It has been a challenging period for most companies due to macroeconomic factors, but I hope that the return on invested capital (ROIC) will grow in the future. Overall, the return on invested capital (ROIC) is satisfactory, but it is somewhat concerning that Campbell Soup Company has recently reported its lowest figures.



The following numbers represent the book value + dividend. In my previous format, this was referred to as the equity growth rate. It was the most significant of the four growth rates I used in my analyses, which is why I will continue to use it in the future. As you are accustomed to seeing numbers in percentage form, I have decided to provide both the actual numbers and the year-over-year percentage growth. Over the past decade, the numbers have only decreased in 2015, and again in 2018 and 2019. This was due to the Campbell Soup Company selling some of their international operations and Campbell Fresh. The numbers have increased every year, which is very encouraging to see. Hopefully the trend continues in the future.



Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins offer a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. It is not surprising to note that Campbell Soup Company has consistently generated positive free cash flow every year for the past decade. However, it is slightly concerning that the Campbell Soup Company has reported some of its lowest free cash flow in two out of the past three years. The levered free cash flow margin has recently decreased, as has the free cash flow yield, which is the lowest it has been since 2015. Despite the free cash flow yield being the lowest in 8 years, it is still relatively high. This could indicate that Campbell Soup Company is not trading at a high price, but we will revisit this later in the analysis. I would like to see an improvement in Free Cash Flow in the future.



Another important aspect to consider is the level of debt. It is crucial to determine whether a business has manageable debt that can be repaid within a three-year period. We calculate this by dividing the total long-term debt by earnings. After analyzing the financials of Campbell Soup Company, I found that the company has 5,22 years of earnings in debt. It is more than I would like to see, and I would prefer management to begin paying off the debt. However, the management has stated that they are comfortable with the current level of debt. The high debt is reflected in the return on invested capital (ROIC), as evidenced by the Return on Equity (ROE) over the past 10 years, which I will show below. I typically avoid companies with high debt, and I'm somewhat concerned that the management is content with the current debt levels.




Based on my findings so far, I find Campbell Soup Company to be an interesting company. However, no investment is without risk, and Campbell Soup Company also has its fair share of risks. One risk is competition. In its annual report, Campbell Soup Company mentions that it operates in a highly competitive industry and faces competition in all of its categories. The competition arises from numerous competitors of varying sizes across multiple food and beverage categories, including producers of private label products, as well as other branded food and beverage manufacturers. Private label products, in particular, pose a competitive risk because they are typically sold at lower prices than branded products. The Campbell Soup Company also notes that reduced barriers to entry and easier access to funding are leading to new competition for the company. Customer concentration. The Campbell Soup Company makes approximately 47% of its sales from its five largest customers. Their largest customer is Walmart, which accounts for approximately 22% of the Campbell Soup Group's sales. While there is no indication that Walmart or any other major customers will decrease their sales of Campbell Soup Company's products, there is no guarantee that these major customers will consistently buy the products in the same combination or quantities, or under the same terms as they have in the past. Disruption of sales to any of these customers, or to any of its other major customers, for an extended period of time could have a negative impact on their business or financial performance. High debt. In his book "Rule #1 Investing," Phil Town mentions the impact of debt on businesses, stating that "A business that carries a significant amount of debt compared to its income faces an uncertain financial future." "If there are any problems with the economy, a business with a significant amount of loans might be in big trouble". The Campbell Soup Company has a high level of debt, and I am slightly concerned that the management does not have any concrete plans to pay it off. I don't believe that Campbell Soup Group will go bankrupt, but I hope to see a reduction in their debt in the future.


There are also numerous reasons to invest in Campbell Soup Company. One reason is that the snack segment is growing. The Campbell Soup Company has identified eight power brands within their snack portfolio that will drive growth in the future. And these brands are growing. Over a four-year period, dollar consumption increased by 38%, with all eight power brands experiencing double-digit growth. The eight power brands now account for approximately two-thirds of the snack segment's net sales, and management believes that they continue to be a powerful and consistent driver of growth even in the current consumer environment. Furthermore, margins in the snack segment are also improving, with operating margins increasing from 13,1% in fiscal 2022 to 14,4% in fiscal 2023. Management believes that operating margins will exceed 15% in fiscal 2024 and reach 17% in the long term. The meal and beverages segment also has potential. Management has expressed confidence in the business trajectory as consumers increasingly rely on affordable, stretchable meal solutions, which are at the heart of the meals & beverages segment. Management has also mentioned that they are observing an increasing number of retailers actively switching back to Campbell's brands from private label, which is very encouraging. The Campbell Soup Group has also observed that new, younger consumers are continuing to discover their brands due to the renewed relevance of their product categories and the ongoing growth of home cooking. Finally, management believes that the impending acquisition of Sovos Brands will further diversify the meals & beverages segment with high-growth, premium brands and should strengthen the division as a consistent contributor to their growth. Cost savings will enhance profitability. The Campbell Soup Company has launched a multi-year cost-saving program, which aims to achieve cost savings of $1 billion by the end of fiscal 2025. The cost savings program is intended to ensure that Campbell Soup Company maximizes available funds for investment in strategic areas and to support the delivery of earnings, as desired by management. Therefore, these cost savings should enhance Campbell Soup Company's profitability in the future.



Now it is time to calculate the share price of Campbell Soup Company. I perform three different calculations that I learned at a Phil Town seminar. The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 2,59, which is from the fiscal year 2023. I have selected a projected future EPS growth rate of 5%. (Finbox expects EPS to grow by 5,4% CAGR in the next five years.) Additionally, I have selected a projected future P/E ratio of 10, which is twice the growth rate. This decision is based on Campbell Soup Company's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return is already established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $10,43 We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Campbell Soup Company at a price of $5,22 (or lower, obviously) if we use the Margin of Safety price.


The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 1.143, and capital expenditures were 370. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated for maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 259 in our calculations. The tax provision was 253. We have 298 outstanding shares. Hence, the calculation will be as follows: (1.143 – 259 + 253) / 298 x 10 = $38,15 in Ten Cap price.


The final calculation is referred to as the Payback Time price. It is a calculation based on the free cash flow per share. With Campbell Soup Company's free cash flow per share at $2,36 and a growth rate of 5%, if you want to recoup your investment in 8 years, the Payback Time price is $23,66.


I find the Campbell Soup Company to be an interesting company. I appreciate the management's extensive experience and proven track record, although I would like to see improvements in employee ratings. Campbell Soup Company has delivered solid financial performance over the past decade, with the exception of 2018 and 2019. However, there is cause for slight concern as both the return on invested capital (ROIC) and free cash flow have declined recently. Competition is a constant challenge for Campbell Soup Company, particularly from private labels, even though more retailers are starting to favor Campbell's brands over private labels. If we experience a prolonged recession, we may see that trend reverse once more. Even though I don't believe Campbell Soup Company's largest customers will cease selling their products, it is important to monitor customer concentration. The high debt will also need to be monitored, and I would like to see management prioritize paying off debt even though there are no indications. Campbell Soup Company also has many interesting aspects. The high-margin snack segment is growing and now accounts for 48% of sales in fiscal 2023, up from 46% in fiscal 2022. Margins also continue to improve. The meal and beverage segment may never experience high growth, but it will be interesting to see if Campbell Soup Company can successfully integrate the Sovos Brand acquisition and find synergies. Finally, if management succeeds with their cost-saving program, it will improve profitability. Despite this, the declining ROIC and free cash flow, along with the high debt, lead me to refrain from purchasing shares in Campbell Soup Company at this time.


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