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Morningstar | Campbell reverses course by opting to slim down as its recipe for sustainable sales and profits.

Self-inflicted missteps and competitive headwinds have taken a toll on Campbell Soup's performance. However, management isn't sitting still. For one, it intends to sell its fresh and international operations (including the Kelsen and Arnott’s brands), which in aggregate generated $2.1 billion in fiscal 2018 sales (about one fifth of its total).We see the merits in parting ways with both, as Campbell lacks the scale and reach internationally to profitability win with local consumers. Further, while we initially surmised efforts to bolster its position in natural and organics was a prudent means by which to diversify away from the stagnant center store, the firm has been challenged by the dynamics surrounding carrot farming, which expanded Campbell beyond its wheelhouse. In this vein, we perceive these select asset sales as prudent, particularly as any proceeds are to be directed toward debt reduction, which soared to around $8 billion following the Synder’s-Lance deal (equating to debt/adjusted EBITDA of nearly 6 times).Beyond portfolio changes, Campbell also aims to up the ante on its cost savings, now targeting $650 million by fiscal 2022 (up from $500 million by fiscal 2020 prior), or 9% of cost of goods sold and operating expenses (excluding depreciation and amortization), at the high end of the 6%-9% peers target; we view this as attainable--just on a slightly elongated horizon (2024).And despite its challenged integration of Bolthouse Farms, we don’t believe the recent tie-up with Synder’s-Lance will face the same fate. In our view, snacking is a business Campbell understands well (particularly with its Pepperidge Farms and Goldfish brands), and we expect it will be able to leverage this insight and distribution clout, enabling it to take advantage of the consumer’s penchant for convenient, healthy fare. However, we also posit the combined entity could bolster the spending behind its brand mix as a means to differentiate its fare in this intensely competitive space and support its competitive edge. This underlies our outlook for Campbell to chalk up 2%-3% annual segment sales gains longer term in a space that accounts for about half of its mix.