Campbell (CPB) Fuels Meals & Beverages With Sovos Brands Buyout
Campbell Soup Company CPB has been strengthening its portfolio through meaningful acquisitions of high-growth brands. The company has concluded the buyout of Sovos Brands Inc. for nearly $2.7 billion. This acquisition is a significant step for Campbell as it enhances its Meals & Beverages portfolio with high-growth brands like Rao’s sauce, Michael Angelo’s and noosa.
Sovos Brands, a Prudent Addition
Sovos Brands brings a range of premium products to Campbell, including pasta sauces, dry pasta, soups, frozen entrées, frozen pizza and yogurts under the brands Rao’s, Michael Angelo’s and noosa. To drive further growth of these premium brands, Campbell has established a new business unit within the Meals & Beverages division called Distinctive Brands.
This unit combines the abovementioned acquired brands with Pacific Foods (purchased in December 2017) to accelerate growth. Apart from this, the Meals & Beverages segment comprises three other business units, including U.S. Retail, Canada and Foodservice.
With sales of $1 billion and organic sales growth of 25% recorded for the year ended Dec 30, 2023, Sovos Brands’ inclusion is expected to boost CPB’s adjusted earnings per share (EPS) by the second year of the acquisition. Campbell Soup’s robust supply-chain capabilities and extensive scale are anticipated to generate operational synergies, leading to improved efficiency across its main operations. The company forecasts annualized cost synergies of around $50 million over the next two years.
This move aligns with Campbell's strategy and positions the company well for sustained profitable growth. With a bolstered Meals & Beverages division alongside the Snacks division, the company aims to solidify its position as a dependable and growth-oriented player in the food industry.
A Look Ahead
On its second-quarter earnings call, Campbell Soup projected fiscal 2024 net sales growth between a 0.5% decline and an increase of 1.5%. Organic sales growth is likely to range between flat and an increase of 2%. Management then stated that while the full-year top-line growth rate is presently trending toward the lower end of the net sales guidance range, there is potential for upside if the consumer recovery pace improves in the second half of the year.
This Zacks Rank #3 (Hold) company anticipates sequential earnings and margin improvement for the back half of fiscal 2024, reflecting a moderate inflationary environment and enhanced productivity. Adjusted EBIT for fiscal 2024 is forecasted to be up 3-5%. Adjusted earnings per share are envisioned to increase 3-5% to the $3.09-$3.15 band.
Campbell plans to discuss the impact of the Sovos Brands acquisition on its fiscal 2024 outlook when it reports third-quarter results in June. Shares of CPB have decreased 1.1% in the past six months against the industry’s growth of 1.8%.
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