After an active year for M&A, Campbell Soup Co. has said it remains on the lookout for further opportunities to strengthen its portfolio through “smart external development”.
Over the past year, the company has completed three acquisitions – Bolthouse Farms, Plum Organics and Kelsen Group – and is currently in the final stages of negotiations to sell off its European simple meals business.
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Speaking to analysts during a conference call yesterday (29 August), CEO Denise Morrison descried fiscal 2013 as a “banner year” for acquisitions.
“We [gained] a trio of growth engines through our acquisition of Bolthouse Farms, Plum Organics and the Kelsen Group. These acquisitions have combined sales of approximately US$1bn, and they give us exciting new brand platforms to create value and attract new consumers,” Morrisons said. “We believe [these deals] will accelerate our future growth and change our direction in new and exciting ways.”
Morrison suggested that, through the acquisitions, Campbell has “broadened” its scope within its three core categories. The company is working to gain greater access to faster-growing segments within these categories and is “building connections” with “new demographic groups and new generations of consumers”, the chief executive suggested.
While Campbell has signalled its intention to drive international expansion and lessen its dependency on the slow-growth US market, the group is also looking to offload its European simple meals business. The company is in final and exclusive negotiations over a sale of the unit, which includes brands such as Liebig in France, Erasco in Germany, Blå Band in Sweden and DevosLemmens and Royco in Belgium.
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By GlobalDataA write-down of US$263m associated with this sale pushed Campbell into a fourth-quarter loss, the company had revealed earlier in the day. Fourth-quarter losses totalled $158m, compared to a profit of $127m in the comparable period of last year.
“In the short term, the impairment charge for the European simple meals business was the reason our company posted a fourth quarter net earnings loss on a reported basis, but we are committed to making strategic choices that are right for Campbell in the long run, and this is the right choice,” Morrison insisted.
“Across our company, we are focusing our brand building investments, resources and talent on iconic brands that we believe we can grow around the world. Our strategy is to build brand equity, which will create value for our shareholders.”
According to Janney analyst Jonathan Feeney, Campbell’s stock price has responded positively to the group’s repositioning. However, he notes that the divestiture of operations in Europe was more dilutive to earnings than anticipated and emphases the risks associated with moving diversifying from the high-margin soup business.
“We believe visibility is limited by the steady drumbeat of diversification away from the highly profitable soup business, noting that the divested cash-flow positive European business appears to be substantially more dilutive (-$0.16) than we were expecting,” he wrote in a note to investors.
Finance chief Craig Owens declined to comment on how much cash Campbell expects to generate from the sale of the European business, or what the proceeds might be used for.
“Since the deal has not been completed, we are not disclosing at this point the sale price. And as we look forward, we expect, assuming everything goes well with the consultation with works councils and government approvals that we would probably close the deal in the first quarter, and then we’d have all the detail out on the sale proceeds and the tax impact there,” he commented.
However, Morrison said the company had not ruled out further M&A activity that would add value for shareholders.
“I think it’s fair to say that we are continuing to look for smart external development if it makes sense in our categories. The year we’ve had this year has been unusually busy…. Over the last two years, we’ve identified targets and a lot of them hit this year.
“We will have years that are active and years that are a little bit drier. But we’re going to be very, very disciplined about external development and make sure that we really believe that anything we bring into Campbell’s will add extra value for our shareholders,” she revealed.
