The Campbell’s Company was founded more than 150 years ago. Over the years, the company has weathered world wars, depressions, pandemics, and several recessions, yet it is still thriving. Investing in soup may sound unexciting, but The Campbell’s Company is much more than just a soup company. It is one of the largest processed food companies in the United States. Is The Campbell’s Company a good investment? At what prices would the shares be considered attractive? This is what I aim 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.
For full disclosure, I should start by mentioning that at the time of writing this analysis, I do not own any shares of The Campbell’s 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 The Campbell’s Company's competitors either. Thus, I have no personal stake in The Campbell’s Company. If you want to purchase shares or fractional shares of The Campbell’s Company, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.
The Business
The Campbell Soup Company, founded in 1869 in Camden, New Jersey, recently rebranded as The Campbell’s Company to better reflect its diverse product portfolio. While widely recognized for its iconic canned soups, Campbell has expanded to become one of the largest processed food companies in the United States, operating through two main segments: Meals & Beverages and Snacks. The Meals & Beverages segment includes soups, simple meals, and beverages for retail and foodservice markets, primarily in the U.S. and Canada. Key products in this segment include Campbell’s condensed and ready-to-serve soups, Swanson and Pacific Foods broths and stocks, Prego and Rao’s pasta sauces, Campbell’s gravies, beans, and dinner sauces, as well as Swanson canned poultry. Additionally, this segment features Michael Angelo’s frozen entrées, V8 juices, Campbell’s tomato juice, Pacific Foods non-dairy beverages, and Noosa yogurts. It also incorporates snacking products for foodservice and the Canadian market, contributing approximately 55% of the company’s total sales. The Snacks segment offers a wide variety of snack products in the U.S. and Latin America. These include Goldfish crackers, Snyder’s of Hanover pretzels, Lance sandwich crackers, Cape Cod and Kettle Brand potato chips, Late July snacks, Snack Factory pretzel crisps, and Pepperidge Farm cookies, crackers, fresh bakery items, and frozen goods. This segment accounts for roughly 45% of the company’s total sales. The Campbell’s Company continues to leverage its strong brand recognition, with its red-and-white soup cans remaining some of the most iconic in the food industry. This enduring familiarity, coupled with a reputation for quality, provides the company with a significant competitive moat. Its power brands, such as Goldfish and Snyder’s of Hanover, further strengthen this advantage by fostering strong consumer loyalty, particularly among key demographics like teens.
Management
Mark A. Clouse has been the CEO of The Campbell’s Company since 2019. Before joining Campbell, he held various leadership roles at Kraft Foods (now Mondelēz International) and served as the CEO of Pinnacle Foods. Prior to entering the food industry, Mark Clouse served as a pilot in the United States Army, finishing 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. With over two decades of experience in the food industry, Mark A. Clouse has an impressive track record. During his tenure as CEO of Pinnacle Foods, the company consistently grew or maintained market share in its top categories, achieved double-digit adjusted EPS growth, and successfully integrated the Boulder Brands acquisition, creating significant shareholder value. These results are particularly notable given that many other packaged-food companies experienced declining share values during the same period. While Mark Clouse’s accomplishments are commendable, his employee rating on Comparably is less so, scoring 59/100 and placing him in the bottom 20% of similarly sized companies. This rating raises some concerns about employee satisfaction under his leadership. Despite this, I believe Mark A. Clouse has the experience and proven track record to continue driving The Campbell’s Company forward. While the low employee rating is something to monitor, his leadership and achievements suggest he is well-equipped to lead the company successfully.
The Numbers
The first metric we will analyze is the return on invested capital (ROIC). Ideally, I look for a 10-year history demonstrating growth of at least 10% annually. The Campbell’s Company has consistently achieved a high ROIC, exceeding 10% in nine out of the past ten years. The lower figure in 2019 can be attributed to the divestiture of some international operations and Campbell Fresh, as well as the acquisition of Snyder’s-Lance. Therefore, I won’t place too much weight on the 2019 numbers. It is worth noting that ROIC decreased in the most recent fiscal year, reaching its lowest level since the pandemic. However, the company has stated that rising costs and the acquisition of Sovos Brands impacted ROIC in fiscal year 2024. This is not a significant concern, especially as management has emphasized their focus on cost reductions and operational efficiencies moving forward, which should help improve ROIC in the future.
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 ROIC numbers have only declined in 2015, 2018, and 2019. These decreases were primarily due to The Campbell’s Company divesting some of its international operations and Campbell Fresh. Additionally, acquisitions such as Pacific Foods, Snyder’s-Lance, and Sovos Brands have impacted the numbers over the past ten years. Nonetheless, it is encouraging to see that the numbers have increased every year since 2020.
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 provide 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 that The Campbell’s Company has consistently generated positive free cash flow every year over the past decade. However, it is slightly concerning that the company has reported some of its lowest free cash flow levels in the past three years. The decline in free cash flow over the last two years can be attributed to increased capital expenditures. For example, capital expenditures rose to $517 million in 2024 compared to $275 million in 2021. Additionally, the acquisition of Sovos Brands further impacted free cash flow in fiscal year 2024. These factors explain why The Campbell’s Company has delivered its lowest free cash flow in the past decade. Hopefully, the investments in capital expenditures and acquisitions will lead to long-term growth in free cash flow. The levered free cash flow margin also reached its lowest level in fiscal year 2024, for the same reasons that free cash flow decreased. Moreover, the free cash flow yield is currently below its ten-year average, suggesting that the stock is trading at a higher-than-usual valuation. That said, a free cash flow yield of 5% is not necessarily expensive. We will revisit valuation later in the analysis.
Debt
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. This can be calculated by dividing total long-term debt by earnings. After analyzing the financials of The Campbell’s Company, I found that the company has 10,1 years of earnings in debt, which is significantly higher than I would like to see. In his book Rule #1 Investing, Phil Town highlights the impact of debt on businesses, stating: "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." Given this perspective, I would like to see management prioritize paying down some of its debt. Until they take steps to reduce the debt level, it will remain a concern when considering an investment in The Campbell’s Company.
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Risks
Competition poses a significant risk to The Campbell’s Company due to the highly competitive nature of the food and beverage industry. The company faces challenges from a wide range of competitors, including large brands with substantial resources and private-label producers that often offer lower prices. This competitive environment affects all of Campbell’s product categories, from soups to snacks and beverages. Campbell competes on factors such as brand recognition, taste, nutritional value, price, and innovation while vying for limited shelf space in retail stores. Larger competitors can outspend Campbell on advertising and promotions, while private-label products often gain traction during periods of economic uncertainty or high inflation. Additionally, new entrants in key categories such as pretzels, kettle chips, and health-conscious snacks further intensify competition, making it harder for Campbell to maintain market share and meet retailers’ sales expectations. The company must also adapt to shifting consumer preferences by introducing products that align with evolving tastes and dietary trends. Failure to do so could lead to lost market share and declining profitability. In fast-growing categories like salty snacks, where competition is particularly fierce, Campbell has struggled to achieve growth, with flat sales reported for some of its power brands. This underscores the ongoing challenge of sustaining growth in a rapidly changing marketplace.
Customer concentration poses a significant risk for The Campbell’s Company due to its reliance on a small number of large customers for a substantial portion of its sales. In 2024, the company’s five largest customers accounted for approximately 47% of consolidated net sales, with Walmart and its affiliates alone contributing 22%. This reliance means that any disruption in sales to these key customers could materially impact the company’s financial results. The retail landscape is evolving, with slower growth in traditional grocery stores and the rise of alternative channels such as dollar stores, club stores, and e-commerce. These emerging channels often demand lower prices, increased promotions, or customized products, presenting challenges for Campbell in maintaining its margins. Additionally, many of these retailers are expanding their private-label offerings, which compete directly with Campbell’s branded products and are typically sold at lower prices. As these retailers gain greater negotiating power, they are increasingly able to demand more favorable terms, further pressuring Campbell’s profitability. This dynamic underscores the importance of diversifying the company’s customer base and continuing to innovate to remain competitive in a shifting marketplace.
The Campbell’s Company faces significant risk if consumers do not maintain a favorable perception of its brands, as its business relies heavily on the strength and value of its iconic products. Consumer trust and loyalty are built on the perception of high-quality products and a positive overall brand experience. However, this trust can be quickly eroded by factors such as adverse publicity, quality issues, or misaligned marketing efforts. A striking example of this risk is the case of Bud Light, where a marketing campaign featuring a transgender influencer triggered a substantial backlash among its core customer base. The controversy led to boycotts, with Bud Light losing an estimated $1.4 billion in U.S. beer sales and over $27 billion in company value. Retailers responded by reducing shelf space for the brand by as much as 7.5%, and Bud Light’s U.S. market share was halved. This example underscores the speed and scale at which consumer perception can shift, particularly in the age of social media, where negative sentiment can spread rapidly, causing lasting damage. For Campbell, such risks are heightened by the increasing use of social and digital media, where negative comments or viral stories about its products, packaging, or practices could harm its reputation quickly. Missteps in marketing - such as failing to resonate with the core customer base or address evolving consumer preferences - could lead to similar consequences. If Campbell fails to uphold and enhance its brand perception, it risks losing consumer trust, loyalty, and market share, which could significantly impact its financial performance and long-term growth. The Bud Light incident serves as a cautionary tale of how swiftly public sentiment can turn and the profound financial repercussions of failing to align brand messaging with customer expectations.
Reasons to invest
Distinctive brands are a key reason to consider investing in The Campbell’s Company, highlighting its strategic focus on premium, high-growth product lines. The company’s newly formed Distinctive Brands business unit within the Meals & Beverages division combines Pacific Foods with fast-growing brands like Rao’s, Michael Angelo’s, and noosa. These brands cater to consumers seeking quality, convenience, and unique flavors, aligning well with evolving preferences in the food market. Rao’s, in particular, exemplifies the success of this strategy. Renowned for its premium quality, Rao’s has redefined Italian sauces, appealing to a broad range of economic demographics, especially millennials. Its products offer restaurant-quality Italian meals at home, serving as an affordable and convenient alternative to dining out. This positioning reflects a broader trend in which premium products resonate strongly with consumers seeking both value and quality. The inclusion of Pacific Foods, known for its focus on organic and natural offerings, alongside other distinctive brands like Michael Angelo’s and noosa, further broadens Campbell’s presence in high-growth categories. Together, these brands enable Campbell to address diverse consumer needs, ranging from health-conscious options to indulgent premium experiences, reinforcing the company’s position in the evolving food market.
The Snacks business is a key reason to consider investing in The Campbell’s Company, driven by its strong portfolio of leadership brands, growth potential, and resilience in challenging economic conditions. Operating in large categories such as salty snacks, cookies, bakery items, and crackers, many of its brands - such as Goldfish, Snyder's of Hanover, and Cape Cod - hold top market positions and account for 83% of snack sales, providing a robust foundation for growth. Campbell’s strategic focus on "power brands" further strengthens its competitive edge. As part of this strategy, the company has significantly reduced its reliance on lower-margin partner and contract brands, cutting the number of partner brands from over 120 in 2019 to around 30 by the end of fiscal 2024. This shift not only streamlines operations but also enhances the mix of its portfolio, driving stronger profit margins and improved overall profitability. Profitability within the Snacks segment is another standout feature. In fiscal 2024, the segment achieved a 15% operating margin, with a clear path to its long-term goal of 17%. The resilience of snacks during economic downturns is also noteworthy, as consumers often turn to smaller indulgences during challenging times. The combination of reducing partner brands and the strength of its leadership portfolio positions Campbell for sustained margin expansion and growth in this critical segment.
Acquisitions and divestitures are central to The Campbell’s Company’s strategy, making them a compelling reason to consider the company as an investment. Campbell has demonstrated a clear ability to leverage acquisitions to strengthen its portfolio and drive growth, while divestitures help sharpen its focus on core, higher-margin categories. The acquisition of Sovos Brands in fiscal 2024, including its standout Rao’s brand, is a prime example of Campbell’s approach to transformative acquisitions. Rao’s, one of the fastest-growing brands in the food industry, has added significant value to Campbell’s Meals & Beverages division. This acquisition not only accelerates Campbell’s growth trajectory but also positions the company for sustained, profitable growth by expanding its presence in premium, high-growth categories. On the divestiture side, Campbell has proactively shed non-strategic or lower-margin businesses to refine its portfolio. Recent examples include the sale of the Pop Secret brand, its European Chips division, and Emerald nuts. While these brands are strong within their niches, they do not align with Campbell’s core focus areas, particularly in Snacks and Meals & Beverages. Divesting these assets allows Campbell to concentrate on its leadership brands and core growth strategies. Campbell’s track record of successfully integrating acquisitions, such as Snyder’s-Lance in 2019, underscores its operational expertise. By leveraging synergies and optimizing manufacturing networks, Campbell consistently improves profit margins and extracts value from its acquisitions. For example, the efficiencies and cost savings anticipated from the Sovos integration are expected to contribute to margin improvements across the business.
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Valuation
Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators.
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 1,89, which is from the fiscal year 2024. I have selected a projected future EPS growth rate of 8%. (managment expects EPS to grow between 7% and 9%) Additionally, I have selected a projected future P/E ratio of 16, which is twice the growth rate. This decision is based on the Campbell’s 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 $16,14. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy the Campbell’s Company at a price of $8,07 (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 1.185, and capital expenditures were 517. 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 362 in our calculations. The tax provision was 190. We have 298,554 outstanding shares. Hence, the calculation will be as follows: (1.185 – 362 + 190) / 298,554 x 10 = $33,93 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 the Campbell’s Company's free cash flow per share at $2,24 and a growth rate of 8%, if you want to recoup your investment in 8 years, the Payback Time price is $25,73.
Conclusion
I find The Campbell’s Company to be an interesting business. I appreciate the management's extensive experience and proven track record, though I would like to see improvements in employee ratings. Historically, The Campbell’s Company has delivered a ROIC above 10% in most years, although free cash flow has been low recently due to higher capital expenditures and acquisitions. These investments should boost free cash flow in the long term. However, the company’s high debt level remains a concern and needs to be closely monitored. Competition poses a significant risk for The Campbell’s Company, as it faces challenges from both large, resource-rich competitors and private-label brands offering lower prices, which put pressure on its market share across all product categories. Customer concentration is another risk, with nearly half of its sales coming from just five customers - Walmart alone contributes 22%. This reliance makes the company vulnerable to sales disruptions, pricing pressures, and shifting dynamics in the retail landscape. Additionally, the company’s success depends heavily on maintaining a favorable perception of its brands. Any erosion in consumer trust, loyalty, or market share could significantly impact its financial performance. On the positive side, Campbell’s distinctive brands are a compelling reason to invest, as they reflect the company’s focus on premium, high-growth product lines. These brands cater to shifting consumer preferences for quality, convenience, and unique flavors, positioning the company to capture demand across diverse demographics and high-growth categories. The Snacks business is another key strength, with leadership brands like Goldfish and Snyder's of Hanover driving growth in large categories such as salty snacks and crackers. Campbell’s strategic focus on reducing lower-margin partner brands and strengthening its core portfolio has further improved profitability. The company’s ability to execute strategic acquisitions and divestitures is also noteworthy. Acquisitions like Rao’s exemplify Campbell’s focus on high-growth brands, while divestitures of non-core assets streamline operations, enhance margins, and position the company for sustained growth. Despite these strengths, I am concerned about the company’s high debt level. I would also prefer to see a higher ROIC and improved free cash flow before considering an investment in The Campbell’s Company. Therefore, I will not be buying shares in The Campbell’s Company at this time.
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