This Soupmaker Is Looking To Stir Things Up
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Consumers look for varieties in all their daily requirements these days. They need variety in everything they use, be it clothes, accessories, electronics or food. Hence, innovation has become the key word for being successful in the current economic conditions. A company which offers new innovative products becomes a customer favorite.
This strategy was aptly followed by the packaged food and soup purveyor Campbell Soup Company (NYSE: CPB), the results of which were great. The soup company experienced the importance of new product launches and increased marketing efforts in its fourth quarter results which beat Mr. Market’s expectations.
Campbell’s revenue stood at $1.61 billion, a surge of 4% over last year which was slightly above estimates. Even adjusted earnings beat the estimates standing at 41 cents a share. The results were a relief to investors since the company had been posting revenue declines for the last two years. Till the previous quarter, it had been going through difficult times due to lack of new products.
Going By the Segments…
Campbell’s Simple Meals segment, which contributes 30% in its revenue, had been experiencing revenue declines for a long time and was desperately in need of a turnaround. A decrease in volumes due to price increases and customers’ falling interests in the age old offerings inspired the soup maker to adopt innovation.
Its introduction of new flavors in the soups stirred demand as customers, especially youngsters, showed great enthusiasm for trying out the new varieties. Moreover, increased promotion for soups during the summer months attracted customers’ attention. All these factors pushed the segment’s revenue north by 9%.
The segment is expected to continue to do well in the coming months since Campbell is well prepared for a blockbuster winter with a new range of soup products accompanied with increased marketing initiatives and new packaging. However, Campbell faces stiff competition in its soup business from General Mills (NYSE: GIS), which offers soup to its health conscious customers. Its continuous innovation of new flavors in its soup category, which are low on calories, attract consumers. Moreover, its efforts are not limited to adding new flavors. It also keeps enhancing its offerings which enable customers to repeat the same flavor with some changes. General Mills has been very active in its efforts and had made a number of buyouts in order to strengthen its product portfolio. The consumer food retailer has been expanding its offerings so as to strengthen its foothold as against its competitors.
Turnaround of the Beverage Business…
A similar strategy has been followed by Campbell in order to strengthen its market presence. It recently acquired Bolthouse Farms in order to strengthen its beverage and snacks business. Bolthouse’s fresh juices will help the company cater to the health conscious customers. Campbell is also looking for opportunities in the baked snack business segment since consumers are shifting to healthier variety of food and drinks. Hence, this move seems to be a potential one which can help the company rake in great benefits.
However, the soup maker is not alone in its strategy of offering healthier product options to customers. Recently, Yum! Brands (NYSE: YUM) had also announced the introduction of Mountain Dew A.M. in its breakfast menu in its "Taco Bell" chain of restaurants. The morning drink will be a mix of orange juice and Mountain Dew soda.
Even PepsiCo (NYSE: PEP) intends to launch Mountain Dew Kickstart, which is a drink made with juice since there has been a decline in the sales of sodas and related drinks. Consumers are looking out for healthier drinks such as energy drinks and fruit juices instead of products such as sodas and cold drinks which are making the industry players to adapt to the changed preferences.
It will be quite interesting to watch the intense competition between them with new product launches over the next few months. The growing popularity of energy drinks has been a cause of concern for other beverage providers instigating them to flood the market with other healthier options.
Coming back to Campbell, its beverage segment grew 3% especially because of increased demand for its V8 V-Fusion beverages. This particular beverage line had a number of new items, such as Smoothies and other Kids’ drinks, which boosted the sales.
Campbell’s Global Baking and Snacking segment, the second largest segment by revenue share, witnessed increase in its revenue. Sales growth of 2% was driven by both volume and price increases. Also, increased marketing efforts paid off with the bakery business performing exceptionally well.
Road Ahead…
The company has performed well owing to its growth initiatives. However, it has greater plans for the future through which it expects to attract consumers in favor of Campbell. The sweet fourth quarter results have enabled the company to give a bright outlook which became even better with the inclusion of Bolthouse Farms. Revenue growth of 10% to 12% is ahead of analysts’ estimates giving reasons to be optimistic about the stock.
The Takeaway
The Camden-based food retailer has been making the right efforts, the results of which are appreciable. It has managed the rise in input prices by passing it on to the customers. On the other side, new launches kept customers hooked on to its products in spite of the price hikes. However, huge spending on promotions hurt the soup maker’s margins slightly, but it can be managed if the company continues to drive its results as it did this time.
With a mixture of organic and inorganic strategies, one can expect Campbell to perform better in the future. However, we should not jump in to the stock without being cautious since this quarter can be an exception. I believe investors should wait for some more time which will give a clearer picture of its future. Till then it will be interesting to watch how things will turn for this retailer.
justhimanshu has no positions in the stocks mentioned above. The Motley Fool owns shares of PepsiCo. Motley Fool newsletter services recommend PepsiCo and Yum! Brands. 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.If you have questions about this post or the Fool’s blog network, click here for information.
