Campbell Soup (CPB) can now officially look to pasta sauce to stir up investor interest.
The king of chicken noodle soup officially completed its $2.7 billion deal for Rao's pasta sauce maker Sovos Brands on Tuesday. Announced in August 2023, the deal also includes frozen food label Michael Angelo's and yogurt brand Noosa.
Sovos will be renamed Distinctive Brands, which will sit inside of Campbell Soup.
"This is fundamentally a profound transformation of an iconic company," Campbell Soup CEO Mark Clouse said on Yahoo Finance Live.
The Sovos deal marks Campbell's largest acquisition since former CEO Denise Morrison plunked down $4.87 billion to buy pretzel leader Snyder's-Lance in 2018. It's the first major deal for Clouse as the head of Campbell Soup, a position he has held since early 2019.
Rao's parent company, which went public in 2021, will join a sauce portfolio that includes lower-priced Prego pasta sauce and Swanson broths. Sovos posted $1 billion in sales last year, up 25% year over year.
The Rao's brand hauled in $775 million in sales alone, up 37% from a year ago.
Campbell's share price has been down 19% in the past year compared to the S&P 500's (^GSPC) 34% gain. Clouse sees the stock warming up, in large part due to Sovos's potential, though he declined to speculate on whether the Street is badly misunderstanding the promise of their new acquisition.
First, Campbell sees the potential for $50 million in cost savings over the next two years.
Second, Clouse has floated the idea of selling Noosa as he views it as "non-core."
And lastly, Rao's is expected to enter new product categories (think frozen desserts) soon to tap into the popularity of its pasta sauce. Those product lines and overall growth plan could be unveiled at the company's investor day in June.
"We expect the acquisition to be nicely accretive to Campbell's organic revenue, adding over 1ppt. to the overall company," said Stifel analyst Matthew Smith in a note to clients.
"We expect Campbell to highlight [at its investor day] the enhanced growth profile of the business inclusive of Sovos Brands and provide more details regarding the growth and margin potential of the Snacking division."
Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on Twitter/X @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.
