Dear Campbell Soup (NYSE:CPB) shareholder, Warren Buffett of Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) is not walking through that door.
Neither is Jorge Lemann.
The guy who is walking through that door is Dan Loeb of Third Point LLC, whose record is spottier. Loeb is the “super genius” who brought Marissa Mayer to Yahoo and who sold Sony (NYSE:SNE) in the low 20s — it’s now at $55-per-share.
Still, word that Loeb had bought 2.5% of Campbell’s and wanted action did give the stock a $1-per-share pop because, when your investment is down 20% for the year and management is floundering, anyone’s interest is better than no interest.
But what can Loeb do that’s interesting?
The Big Problem for CPB Stock
Like Kraft Heinz (NYSE:KHC), Campbell’s makes shelf-stable products for the “middle of the grocery store.” Canned soup, or pork and beans, that keeps for months was a miracle a century ago. It hasn’t been one for decades.
After hearing their commercials for years, my kids once demanded I get them Franco American SpaghettiOs, a Campbell’s product. Their disgust, when compared with homemade, has become a family legend. Even Walmart (NYSE:WMT) shoppers aren’t hungry for soup anymore.
So, Campbell’s has bought other things. V8 juices. Swanson’s broths. Pace picante sauce. Pepperidge Farm, known for cookies, crackers and that stuffing mix you buy once a year for your turkey. Most recently, Lance crackers, the ones sold in vending machines. Lance, purchased for $4.87 billion early this year after reporting quarterly sales of $551 million, was seen as the heart of a comeback, on the hope that Campbell’s could vend other products, like Goldfish and even soup.
Shelf-stable products are supposed to be less prone to recall than, say, Chipotle (NYSE:CMG) burritos, but the risk is still there. Bad whey recently resulted in a recall of some Pepperidge Farm Goldfish crackers. Labeling problems forced the recall of some chicken soup in April.
The bigger problem is that consumers want fresher food. Operating profits at Campbell’s have been falling for the last year and turned into a net loss for the April quarter. Campbell’s is next due to report earnings Aug. 30, with analysts expecting 25-cents-per-share, about $75 million. Meeting the profit estimate would not be enough to cover the dividend, which is 26-cents-per-share, a yield of 3.36%, and a dividend cut would be a disaster for the CPB stock price.
Former CEO Denise Morrison was thrown overboard in May, after a third straight year of declining sales, and it is her diversification efforts, culminating in the Lance deal, that are getting the blame for the company’s problems now.
Can they be unwound?
The Bottom Line on Campbell’s
Since no white knight is swooping in to buy the pride of Camden, New Jersey, the question becomes, are the pieces of Campbell’s worth more than the company as a whole?
Campbell’s has also been working to tailor meals to customers’ biology, which might help in hospitals and nursing facilities.
But for these initiatives to succeed, they would have to be given time, and Campbell’s would need to maintain some scale. Is Coca-Cola (NYSE:KO), worth $198 billion against $12.8 billion for Campbell’s, going to copy PepsiCo (NYSE:PEP), make a grab for snack foods and put soup in its vending machines? Unlikely.
Many well-known units, like Pepperidge Farm, are surprisingly small. The company is basically a soup-and-snacks outfit that could still do well internationally, but hasn’t tried hard to crack those markets.
Loeb, if he wants a profit, must get someone interested in this dog, in whole or in pieces. If you buy CPB stock you’re betting that he can.
Dana Blankenhorn is a financial and technology journalist. His most recent novel is the mystery-thriller, The Reluctant Detective Finds Her Family, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.
