Friday, 22 May 2015

Campbell Soup - still remaining short

What are the key points from Campbell Soup's numbers today?  Well since the last time that I wrote about the company (link here) Campbell Soup numbers remain very dull from a sales perspective…but the ebit/EPS guidance was at the ‘favorable’ end of the range.  More on this latter point in a second.

So why were sales so poor?  Essentially core (eponymous) soup sales were generally negative…

…but at the operating profit level numbers were ahead for all other sub-divisions.  The key going forward – given its relative size and importance - is probably the Snacking division which exhibited good sales and profit growth.

The opportunities/change in the company’s product range will undoubtedly be the focus for the 22 July Strategic Update. 

 The reason for the aforementioned ebit/EPS improvement is the underlying pricing/promotion/productivity improvements which collectively more than offset underlying inflation and a little bit of negative mix.  This is quite impressive…

…and is backed up by solid cash flow which is still running at an annualised rate of around US$1bn.  Around about two-thirds of this is being returned to shareholders via either the dividend or the buyback. 
The shares, as shown below, are trading at a multi-year high.  Trading at just over a mid x14s EV/ebit multiple with a free cash flow yield of 5.5% (and a net debt to ebitda ratio of around x2) I still don’t believe the shares are super cheap given the still patchy underlying results.  That sort of price is still something in the US$30s.  Whilst I am appreciative of certain bid rumours around staples companies in the light of the approach for Kraft from Heinz/3G and also acknowledge the turnaround clarification hopes from the upcoming Strategic update in July I still struggle to make the numbers work here and so remain short. 

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