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Campbell On Track With Restructuring, Completes Kelsen Sale

Zacks Equity Research

Exiting weak business units and reducing portfolio complexity has been an important strategy for Campbell Soup Company CPB. In this context, the company completed the divestiture of Kelsen Group to an associated company of Ferrero for nearly $300 million. Such restructuring moves are likely to aid the company to focus on other prospective businesses. Let’s take a closer look.

Efforts to Refine Portfolio

We note that in 2018, the company announced intentions to review prospects for the divestiture of the Campbell International segment. In July 2019, the company entered into a deal with a Ferrero-affiliated firm to sell the Kelsen Group business. Now that the deal stands completed, management intends to utilize the proceeds to lower debt.

Additionally, the company is on track with the divestiture of the remaining portions of the Campbell International unit. Markedly, on Aug 2, it inked a deal to sell some of its international operations as well as the Arnott’s brand to KKR for nearly $2.2 billion. The process is anticipated to close in the first half of fiscal 2020.

In prior developments related to portfolio restructuring, the company exited the underperforming Campbell Fresh (C-Fresh) unit. Well, the company was struggling with the segment for some time due to softness in refrigerated soup, Garden Fresh Gourmet and Bolthouse Farms refrigerated beverages.

Such moves are projected to maintain the company’s focus on two separate businesses in its key North American market — Campbell Snacks as well as Campbell Meals and Beverages. In fact, since the fourth quarter of fiscal 2019, the company started reporting its operations under these two segments.  Notably, initiatives to strengthen snacks brands are an essential part of its core strategies. Evidently, the acquisition of Snyder's-Lance is helping it to enhance the performance of global biscuits and snacks portfolio. Going ahead, the fast-growing snacking category is expected to comprise about half of the company’s proforma sales. Hence, the company continues to focus on this space through enhanced marketing and innovation.

Although cost inflation is a hurdle for this Zacks Rank #4 (Sell) company, we expect it to mitigate such headwinds on the back of prudent saving initiatives. Moreover, the company’s portfolio refinement moves are encouraging and likely to yield profitably.

All said, Campbell’s well-chalked moves to strengthen business are boosting investors’ optimism. The stock has gained 14.7% in the past three months compared with the industry’s rise of 7.4%.

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The Estee Lauder Companies EL, with long-term earnings growth rate of 12.7%, carries a Zacks Rank #2.

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