EUR 850.00 For Business Accounts Only

Morningstar | Campbell Names Industry Vet to Fill the Top Spot; Shares Undervalued

Wide-moat Campbell Soup has announced industry veteran Mark Clouse (who most recently held the top spot at Pinnacle Foods, prior to its acquisition by Conagra earlier this year) is set to assume the role of CEO--a position that had been held by director Keith McLoughlin in an interim capacity since former CEO Denise Morrison abruptly stepped down in May. We believe Clouse’s vast experience--which includes over 20 years at Mondelez and Kraft--should prove beneficial for the firm and ultimately its shareholders. While its too early to ascertain the strategic agenda that Clouse will embark upon, we think Campbell has already begun to take proactive steps to right the business (including its decision to sell its fresh and international operations--with the firm targeting to announce sales by the end of the fiscal year and extract excess costs to fund further brand investments), which we think are prudent. As such, we don’t expect to alter our $45.50 fair value estimate or our Standard stewardship rating for Campbell on the basis of this news.

Further, we still maintain that Campbell’s integration of Snyder’s-Lance will not face the same difficult fate as its purchase of Bolthouse Farms. In our view, snacking is a business that Campbell knows and understands well (particularly with its Pepperidge Farms and Goldfish brands), and we expect that it will be able to leverage this insight and distribution clout, enabling it to take advantage of consumers’ penchant for convenient, healthy fare. However, we also posit the combined entity could bolster the spending behind its brand mix to support its entrenched retail relationships and withstand intense competitive pressures. This underlies our outlook for Campbell to chalk up 2%-3% annual segment top-line gains longer term in a space that stands to account for about half of its mix, as well as our outlook for marketing to tick up to 5.4% of sales on average over the next 10 years versus 4.8% on average the last three years.