Summary
- The company management has identified a period in the mid-2000s when its underperforming soup business did very well indeed.
- Replicating what worked then across a rediscovered core business through divestment, deleveraging and cost cuts is expected to return the company back to growth.
- The plan is very broad, however, and our concern is that management has bitten off more than it can chew.
- While it will be worth watching to see if the ambitious plans gain any traction, we don't think the stock is a buy at these levels.
The recent Campbell Soup (CPB) Investor Day saw management unveil its latest round of ambitious long-term targets. CPB will instead be focusing on deleveraging and its core business in the US. Cost savings are on the menu, and a more cost-efficient and reactive marketing and development model will be implemented company-wide.
This all sounds like a recipe for success, but the presentation reinforced our concern that the scope for company-wide improvement is too broad and, coupled with the planned divestments, may be hard to implement within a three-year time frame. With the stock trading ~16x forward earnings and execution risk around the three-year plan, we're not seeing much upside from these levels.
Change is on the menu
CPB held its first Investor Day under its new CEO this month. Management laid out just where they thought the business was today, following the strategic review performed in the summer of 2018, and laid down a path for sustainable growth for the company. Three key areas of focus were defined: 1) Focus on the core portfolio by simplification through divestitures, and stabilizing areas that have been neglected; 2) Reducing debt (supported by divestitures); and 3) Aligning the organization behind the key performance indicators that matter the most.
