Campbell Soup's Acquisitions Are M'm M'm Good
Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Campbell Soup (NYSE: CPB) is steadily ramping up its acquisition strategy. Last month the company purchased premium organic baby food maker Plum Organics, and on Monday Campbell Soup announced that it would buy Danish snack food company Kelsen Group. These acquisitions come after last year's deal to buy Bolthouse Farms for $1.5 billion. Bolthouse Farms makes juices, salad dressings and baby carrots. At the rate the company is going, it's going to have to drop soup from its name because it's no longer just a soup company.
There's more than just soup?
Besides making the company's famous soup, Campbell Soup also owns several well-known consumer brands. The company owns Pace Foods, which makes a very popular line of salsas. There's also Pepperidge Farm, famous for its Goldfish crackers and Pepperidge Farm cookies. Campbell Soup also owns Prego pasta sauces and V8 vegetable juice. It also owns several smaller brands in Europe and Arnott's Biscuits, which is Australia's largest biscuit company and second-largest snack foods company in Australia. Its products are sold in more than 120 countries worldwide.
How has the company performed?
Over the past year the stock has been a great performer, rising over 39%. In the first quarter of this year, net sales were up 15%, or 4% excluding the Bolthouse Farms acquisition, which was completed in the first quarter. Adjusted earnings per share increased 11%. Considering that soup is the company's oldest business, it's amazing that the soup business grew 14% in the first quarter. The soup business is a phenomenal business for the company and continues to grow.
What is the outlook for growth?
Bolthouse Farms was bought for its appeal with younger and more affluent consumers. Its customers tend to be more health-conscious and like the company's baby carrots, salad dressings, and super-premium beverages. On the company's most recent earnings call, CEO Denise Morrison said of Bolthouse Farms
Beverage innovations launched by Bolthouse this spring are exceeding expectations. We believe this has been a great acquisition for Campbell, and we continue to be extremely excited about the platform it provides us to expand in the fast-growing package fresh category.
The acquisition of Plum Organics gets Campbell into the fast-growing premium and organic baby food market. Plum Organics will be included in Campbell's portfolio of kid-focused foods and drinks and will have $1 billion in sales. Plum Organics is the number-four baby food brand in the U.S. with sales in 2012 of $93 million. There's plenty of room for growth with Plum Organics considering that it's only sold in the U.S. and the United Kingdom. Campbell Soup can use its marketing and distribution to roll out the brand into other countries and propel growth.
The acquisition of Kelsen Group looks to expand Campbell's international push and increase the company's exposure in China. Kelsen Group has been selling in China for more than two decades and business growth has compounded at a rate of 28% over the past three years. Its products include six cookie brands that last year had $187 million in sales. Kelsen Group's relationships in China are very beneficial to Campbell Soup and I see that helping to drive the company's further expansion into the fast-growing Chinese market.
What about competition?
The consumer-goods business is very competitive, with no shortage of players. In the organic segment, Campbell Soup has a formidable competitor in Hain Celestial (NASDAQ: HAIN)). With Campbell buying Plum Organics, the company is going head-to-head with Hain Celestial and its Earth's Best organic baby food.
To complement its Earth's Best business, Hain Celestial just bought Ella's Kitchen, another premium baby and toddler food company with over 80 products. Hain Celestial sees this acquisition adding $0.05 to $0.08 in earnings per share in 2014 and $0.08 to $0.12 in 2015.
Hain Celestial looks to achieve these results by expanding Ella's Kitchen's footprint in Europe and other markets. Currently, Ella's Kitchen is only sold in the U.S. and the United Kingdom. Hain Celestial is looking to dominate the organic baby food market and will certainly be a tough competitor for Campbell Soup going forward.
Another formidable competitor for Campbell Soup is General Mills (NYSE: GIS). General Mills has more than 100 leading brands in its portfolio. The company competes directly with Campbell Soup in the soup business with its Progresso line.
Where General Mills sees the most growth is in its snack food business. As people snack more, they're looking for the healthiest options. The company is focused on healthy innovations at its Nature Valley and Chex-Mix brands. General Mills' snack division had sales of $1.6 billion last year and has been growing 8.4% annually. General Mills is also targeting the natural and organic-food market with its snacks Larabar and Food Should Taste Good.
Looking forward, General Mills just upped its guidance for fiscal 2013 with earnings per share projections of $2.68 to $2.69. This compares to prior earnings- per-share guidance of $2.66 to $2.68. For 2014, the company expects single-digit growth and plans to return more cash to shareholders.
I really like the consumer-products business and what gets stocked on store shelves. There's only so much store shelf space, and these companies have the marketing and distribution to get their products onto the grocery store shelves and into consumers' shopping carts. I like the moves Campbell Soup is making with its acquisitions and see continued growth for the company and its brands.
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Mark Yagalla has no position in any stocks mentioned. The Motley Fool recommends Hain Celestial. The Motley Fool owns shares of Hain Celestial. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!