Campbell Soup (CPB 51.68) might be "mmm mmm good," yet its sales results and stock price haven't suggested as much. In May, the company reported a 1% decline in fiscal third quarter net sales and organic sales and lowered its fiscal 2017 sales guidance, saying it expects sales to change by -1 to 0 percent versus its prior guidance of 0 to 1 percent.
After Thursday's close, Campbell Soup announced an acquisition that should help the company connect more with consumers looking for organic food offerings and help drive stronger sales. Specifically, Campbell Soup said it is going to acquire Oregon-based Pacific Foods for $700 million in cash.
Pacific Foods is a leading producer of organic broth and soup and also produces shelf-stable plant-based beverages and other meals and sides. The company generated approximately $218 million in trailing twelve-month net sales as of May 31, 2017.
Campbell said it will integrate Pacific Foods into its Americas Simple Meals and Beverages division, which is its largest division. Through the first nine months of fiscal 2017, that division has accounted for 56% of total net sales, yet it has been plagued by promotional spending, which has led to a 1% decline in organic net sales.
In the third quarter, Campbell's sales of U.S. soup declined 4% due to declines in condensed soup and broths.
Campbell's strategic vision with the Pacific Foods acquisition is clear. It is an avenue for reaching younger, more health-conscious consumers, and it will help accelerate Campbell's push into faster-growing spaces such as organic and functional food.
The company's press release made note of the fact that organic food is a more than $11 billion category in the U.S., which has grown at a compound annual growth rate of 15.3% over the past four years.
Campbell will be able to hep Pacific Foods scale its production, marketing and distribution capabilities, yet it isn't going to upset the production process as it intends to continue to operate Pacific Foods out of Tualatin, Oregon, and retain the farm-to-table approach by retaining CEO and co-founder Chuck Eggert as a supplier of key ingredients through his family farms.
It is Campbell Soup's belief that the acquisition will be neutral to earnings in the first 12 months following closing, excluding certain purchase accounting adjustments, and transaction and integration costs.
This is the company's fifth acquisition in five years, and hopefully it will prove to be an acquisition that delivers the stronger growth that has been elusive for the company and its stock, which has fallen 22.7% over the last 52 weeks.