Why Campbell Soup's Problems Could Be Good News For Valspar
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Campbell Soup (NYSE: CPB) hasn't been selling as much soup as usual recently, but the coatings manufacturer Valspar (NYSE: VAL) may have a solution for Campbell and other soup makers on the way. Bisphenol A (BPA) in metal can linings could be scaring off grocery shoppers and causing weak soup sales. If so, soup companies will need another FDA-approved way to protect metal cans from acidic liquids. Conveniently enough for both itself and Campbell, Valspar has developed new BPA-free lining materials that could soon lead to higher sales.
Associated Press reporter Candice Choi explained that while Campbell had to shut down two of its factories, it introduced some new soup containers this year that could sell better. If BPA worries played a big part in Campbell's weaker sales, then new packaging materials could help Campbell regain its former sales levels. Campbell has also been testing out new soup flavors, since supermarket shoppers might just want more spicy and exotic soups. Meredith Moss, at the Dayton Daily News, reports that Campbell will soon sell packets of chorizo soup and Morocco chicken soup. Campbell's still set up to use lots of metal cans, though, so a complete switchover to new packaging materials would involve huge operational costs.
Even more bad news about Bisphenol A came out a few days ago. Media relations writer Sarah Yang at UC Berkeley reported that a study showed that Bisphenol A altered thyroid hormone levels in pregnant women and baby boys. The Bisphenol A controversy could affect sales for every food manufacturer that uses metal cans, as well as every grocery store. Even many health food companies could be in trouble here.
In 2006, Whole Foods (NASDAQ: WFM) voluntarily stopped buying baby bottles and children's cups that contained BPA, and other grocery stores followed. The FDA eventually banned BPA in both products in 2012, but metal food cans with liners that contain BPA are still legal. Whole Foods explains that grocery stores have some options here, such as buying from suppliers that use glass and cardboard soup containers, and Campbell has been moving in this direction. Nevertheless, Whole Foods states that replacing BPA entirely will require additional research.
Soup companies can ask metal can makers to use alternative liners. However, using alternative liners can raise metal can costs, so this solution works best with premium brands. Packaging Digest Editor Lisa McTeague Pierce and Plastics Today Senior Editor Heather Caliendo report that Ball (NYSE: BLL) sells metal cans containing oleoresin liners to health food companies such as Eden Foods. But the oleoresin liners increase Eden Foods' metal can costs by around 20%. Eden Foods might be able to pass its oleoresin costs on to Whole Foods shoppers, but 20% more expensive metal cans could be a dealbreaker for Ball's other customers.
Ball could benefit from a cheap and effective BPA alternative, especially if it wants to keep selling metal cans in Europe. Mark Astley, at Food Production Daily, reported that French legislators passed a BPA food contact ban nearly unanimously. This French law could influence future European Commission decisions. Valspar sells food can linings that satisfy European Commission and US FDA rules, so both Valspar and Ball have to keep track of regulatory developments in the United States and Europe.
In a Seeking Alpha transcript, Valspar CEO Gary Hendrickson explains that Valspar improved its market share in the packaging industry in 3Q 2012, and the company also had some big successes with BPA-free lining products. Coatings World reports that Valspar has a patent on these new linings, giving it an edge over competitors. As Whole Foods explains, simply replacing BPA isn't enough, since a BPA substitute could also affect hormone levels. Valspar's patent title mentions both alternatives to BPA itself, and alternatives to chemicals that are similar to BPA.
Valspar's 3Q 2012 results show that Valspar's packaging products are already showing strong growth, and Valspar's also in a great position to benefit from housing-market improvements. An investment in Valspar is an investment in the housing sector, so investors should treat food can coating sales as an extra incentive, rather than the main reason to buy Valspar.
Valspar's stock has risen from around $35 a year ago to nearly $60 today, a record high for the company. Furthermore, Valspar has a four-star CAPS rating, indicating that Fools are confident about this coating maker. Nevertheless, Valspar's BPA-free lining patent suggests that new products could soon send the company's stock price soaring even higher.
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