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WIKI ANALYSIS
Campbell's Soup Company (NYSE: CPB) is the largest producer of soup in the world. It has a 60% market share in the 4 billion dollar soup market. Campbell's has market shares in a number of food industry categories with products such as soups, sauces, snack foods, baking goods and beverages. Campbell's products are sold in over 120 countries around the world.
Campbell's soup relies heavily on its soup sales. Campbell's ability to adapt to new consumer trends, such as healthier eating will be important to Campbell's in order to keep its majority of the soup market share. Campbell's has developed a new low-sodium soup line in order to target health conscious consumers and baby boomers concerned with high blood pressure. Since baby boomers are Campbell's main consumer base, educating the baby boomers about the benefits of their low-sodium soups will be pivotal to Campbell's future success.
Campbell's biggest challenge lies in its continued growth. Campbell is dependent on mature (e.g. slower growing) US market for the majority of its sales. However, it is investing heavily in the emerging markets of Russia and China, which account for over 50% of worldwide soup consumption. The company expects to be profitable in these two countries by 2014, after having invested $50 billion annually in these two markets since the mid-2000's.[1]
Business Overview
Founded in 1869 as the "Joseph A. Campbell Preserve Company," Campbell Soup Company is one of the largest food producers in the world, with product sales in over 120 countries.[2] Led by its flagship brands Campbell's, Pace, Prego, Swanson, StockPot, V8,and Pepperidge Farm, the company holds the #1 or #2 position in each of the food product categories or segments in which it operates.[3] In 2008, the company posted revenues of $8 billion, an 8% increase from 2007; net income rose 36.4% to $1.165 billion.[4] Much of the increase in net income is due to Campbell's sale of its Godiva Chocolate Business, which was recorded as an after tax gain of $462 million. Excluding all special items, net income would have fallen to $797 million.[5]
In order to maintain sales growth, Campbell Soup Company is focusing on product expansion in three areas: simple meals, baked snacks and healthy beverages.[2] The company plans to improve its product lines in these areas through the introduction of new healthier and more convenient products, as well as expand these lines into existing and emerging markets.[6] Additionally, Campbell Soup Company plans to continue to make strategic acquisitions to increase its market presence throughout its product lines.
Quarterly Earnings
3Q2009 In the third quarter of 2009, Campbell Soup Company posted revenues of $2.1 billion, a 4% decrease from 3Q2008 figures; net income fell 15% to $233 million.[7] The decrease in revenue is predominantly due to a negative impact of foreign currency exchange fluctuations and to a lesser extent, a decrease in sales volume. These two factors were mitigated by net pricing increases across all product lines.[8] Net income fell as a result of higher input prices and promotional spending, which were not fully offset by the higher pricing.[9]
4Q2009 In the fourth quarter of 2009, Campbell Soup Company posted revenues of $1.5 billion, an 11% decrease from 4Q2008 figures; net income fell 22.5% to $69 million.[10] These numbers are not truly reflective of the company's performance, however, as 4Q2008 included 14 weeks as opposed to 2009's 13 weeks. Adjusting for this difference, as well as a 4% adverse shift in currency translation, revenues would have remained constant. The decrease in net income was primarily a result of a $47 million depreciation charge to the company's north European trademarks and goodwill. Again, on an adjusted basis, net income rose 15%.[10]
Business Segments
U.S. Soup, Sauces and Beverages (46% sales, 72% income)
Campbell's U.S. Soup, Sauces and Beverages segment generates the bulk of the company's revenues and operating income. U.S. Soup, Sauces and Beverages include products such as Campbell’s condensed and ready-to-serve soups; Swanson broth and canned poultry; Prego pasta sauce; Pace Mexican sauce; Campbell’s Chunky chili; Campbell’s canned pasta, gravies, and beans; Campbell’s Supper Bakes meal kits; V8 juice and juice drinks as well as Campbell’s tomato juice[11]. This division has fared especially well in during the recession of 2008. In 1Q09, soup sales increased 12% as consumers traded down to less expensive foods to cut their spending.[12]
Baking & Snacking (26% sales, 10% income)
Campbell's Baking and Snacking segment includes, Pepperidge Farm cookies, crackers (such as goldfish), bakery and frozen products in U.S. retail. The segment also includes Campbell's Arnott’s of Australia which is the largest biscuit and second largest snack producer in the country. Arnott's also has a significant presences in the Asia Pacific region.[13]
Int'l Soup, Sauces and Beverages (20% sales, 15% income)
The International Soup, Sauces and Beverages segment includes the soup, sauce and beverage businesses outside of the United States, including Europe, Mexico, Latin America, the Asia Pacific region and the retail business in Canada. Campbell's sells the Erasco and Heisse Tasse soups in Germany, Liebig and Royco soups in France, Devos Lemmens mayonnaise and cold sauces and Campbell’s and Royco soups in Belgium, and Bla° Band soups and sauces in Sweden. In Asia Pacific, the company markets it's Campbell’s soup and stock, Swanson broths and V8 beverages. In Canada, operations include Habitant and Campbell’s soups, Prego pasta sauce, V8 beverages and certain Pepperidge Farm products[14].
North American Foodservice (8% sales, 3% income)
The North America Foodservice includes Campbell's Away From Home operations which distributes its products to restaurants, schools, colleges & universities, health care, adult cash, convenience stores, vending, and delis in the United States and Canada[15].
Customers
Campbell Soup Company's products are generally resold to consumers in retail food chains, mass discounters, mass merchandisers, club stores, convenience stores, drug stores and other retail, commercial and non-commercial establishments[16]. Campbell'slargest customer is Wal*Mart which accounted for accounted for approximately 16% of the company’s consolidated net sales during fiscal 2008 and 15% during fiscal 2007[17]. No other customer accounts for more than 10% of Campbell's net sales[18].
Trends and Forces
Healthy Living
The shift to healthy living in recent years has affected Campbell's in two different consumer groups. The younger consumer group has been shifting towards soup because of its lower calorie content which qualifies it has a healthy meal alternative. The younger, "on-the-go", low-calorie conscious consumers have helped Campbell's gain 70% of the microwaveable, ready-to-serve soup category. On the other hand, baby boomers are more concerned with sodium content because of blood pressure. Baby boomers make up the majority of Campbell's consumer base and because of the baby boomers' dieting trends, Campbell's, as well as other food companies, have had to adjust its product line in order to adapt to the health conscious, lower-sodium diets. Campbell's has developed several new products, including Select Harvest and Healthy Request soups in order to try and win over the more mature age group.[10]
The success of Campbell's low-sodium soups will be important to Campbell's in order to hold on to the majority of the soup market. Since soup is known to be have one of the highest amounts of sodium compared to other processed foods, Campbell's has reduced the sodium content in its soups in order to target the older consumer base who are concerned about high blood pressure, as well as other ailments connected to high levels of sodium.
Besides sodium, Campbell's has also focused on other aspects of its soups. By the end of 2009, 30% of Campbell's soups will offer a full serving of vegetables, 36% will have 80 calories or less, while half will contain no MSG.[19] The company hopes that these healthier offerings will help gain market share among younger, more health conscious consumers.
Baby Boomers
Since the majority of Campbell's consumer base are baby boomers, low-sodium products are pivotal to Campbell's long term success. The majority of baby boomers' diets are comprised of low sodium . High cholesterol, attributed to high levels of sodium intake, is the number one diagnosed health condition for the baby boomer generation. 
Diversification
Products
Campbell's Soup Company has relied on the success of its soups for over 125 years. In 2006, soup sales made up 55% of total sales and a total of 65% of profits. The condensed style soup made up 15% of total soup sales alone. In recent years, Campbell's has been pushing their other branches, such as Baking and Snacking and International Soups and Sauces, in order to produce more consistent profits. This has allowed their other segments to slowly mature. From 2004 to 2005, the Baking and Snacking segment experienced a 19% increase in earnings, International Soups and Sauces went through a 12% increase and the Other category went through a 9% increase in earnings.
Geographic
Although Campbell has a steady foothold in the American soup market, its international sector isn't faring as well. Campbell has the lowest international exposure than its competitors, which directly correlates to its slow international growth rate. Campbell's global growth rate is about 1.5% behind that of its peers. However, Campbell has renewed its focus on the emerging markets of Russia and China. These two markets account for 50% of Campbell's total international soup sales.[12] Additionally, total sales in Russia and China did not slowdown in 2008, even during the financial crisis.[20] Though profits remain low in these regions as a result of the high capital expenditures necessary to establish business, the company has made significant inroads and will continue to invest there.[10]
Organic Growth
Campbell's does not have a set long term growth plan, except to try to expand organically. Organic growth is when a company attempts to expand by simply increasing output and enhancing sales, and essentially represents the true growth of the core of the company. Organic growth can be a good indicator of how well Campbell's management uses their resources to expand profits and does not include acquisitions, mergers, or takeovers. Campbell's plan to grow organically won't affect sales in the short run, and may only affect sales in the very long run.
Campbell's organic growth plan has kept Campbell's above the U.S. competition, but with low international exposure and a slowing soup market, organic growth might not be enough to rely on. They will have a difficult time producing the same amount of economic profit without the continued growth of the soup market. Once the U.S. soup segment has been exhausted, Campbell's won't have another means for long term growth.
Commodities
Campbell's uses a number of different products in order to produce, package and deliver its soups. In the past, Campbell's has been able to keep production costs low, but rising prices of those commodities will negatively affect pricing. Campbell's does not directly compete with generic soups because of their ability to keep soup production costs, and prices low. Increased soup prices would be detrimental to soup sales because of increased competition with lower priced generic soups.
In order to produce their soups, Campbell's needs products such as vegetables, tomato paste, beef and poultry. Price increases for these food products would be affected by bad weather, rising gas prices or changes to government-sponsored agricultural programs. Bad weather will attribute to a bad growing season and make these raw materials more expensive due to scarcity. Rising gas prices will increase transportation costs and ultimately increase the price of the soup itself. If the government decides to stop, or decrease, subsidizing farmers, the price of materials will increase. Also, changes to import or export taxes would also increase transport costs, which would directly lead to increases in soup prices.
In addition to products to make soup, Campbell's uses a variety of metal, glass and paper to package its products. Price increases to these raw materials will directly lead to a price increase in soups. Prices would be affected by volatile oil prices and scarcity.
Campbell's predicts a 9-10% rise in input costs for fiscal 2009.[12] Although the company hedged the costs of 25% of its raw inputs at the end of fiscal 2008, commodities prices have fallen from their July 2008 highs and Campbells will not see those decreases translated into lower prices until their futures contracts expire.[12]
Campbell Soup Company and the Competition
Campbell's main competitor is General Mills (GIS) Progresso. Progresso has low-sodium, Ready-to-Serve and Rich and Hearty soups, which directly mirror Campbell's Healthy Request, microwaveable/Soup at Hand and Chunky soups. Progresso's low-sodium soups were released shortly before Campbell's and have been successful, which poses a challenge for Campbell's marketing team. Campbell Soup Company can stay ahead of competitors if it can correctly adjust with new consumer trends, such as healthy eating.
Campbell's faces an extremely competitive market because of the similarities between each soup producer. Campbell's will have to maintain its gourmet soup reputation, as well as continue to develop new soups to distinguish itself from Progresso and other smaller soupmakers.
Generic soup brands are not a pressing threat to Campbell's because of their ability to keep production costs very low. This allows Campbell's to price their soup products only 20 to 25% higher than generic brands while maintaining a level high quality. Campbell's production costs would be affected by a rise in produce costs, as well as volatile gas prices. If those prices dramatically rise, then generic soup brands would add another fierce competitor to the already extremely competitive soup market.
| Company | Total Sales (2006) (mil) | % of U.S. Soup Sales | Sales Growth (2005 vs 2006) | No. of Soup Lines | Market Share |
|---|---|---|---|---|---|
| Campbell’s | $7,587 | 47% | ~4% | 7 | 60% |
| General Mill's | $12,172 | 6% | 3.4% | 4 |
Chart 4. Source: Company Data
Campbell's has recently incorporated a new gravity fed shelving system that allows Campbell's to stock 15% more inventory on shelves. They hope that this new tool will boost sales because it will help defeat "out of stock" problems. Progresso will most likely also take advantage of this new shelving device in order to help overcome Campbell's new advantage. If Progresso uses the gravity fed shelving system, it will cut down on the sales that Campbell's hopes to generate.
In terms of the global market, Campbell's is at a disadvantage. Campbell's has the lowest international exposure, which has led to slow growth and a loss in international market share. Campbell's is relying on organic growth to build its business in Russian and Eastern European markets. In 2004, General Mills (GIS) had 10% more sales abroad than Campbell's meager 1%. Organic growth will not have much of an effect in the short run, and only may have an effect in the very long run.
References
- ↑ Campbell sees Russia/China in profit in 5 years.
- ↑ 2.0 2.1 cpb 2008 10-K
- ↑ Our Company.
- ↑ cpb 2008 10-K
- ↑ cpb 2008 10-K
- ↑ cpb 2008 10-K
- ↑ cpb 2009 10-Q
- ↑ cpb 2009 10-Q
- ↑ cpb 2009 10-Q
- ↑ 10.0 10.1 10.2 10.3 Campbell Reports Fourth Quarter and Fiscal 2009 Results.
- ↑ CPB 2008 10-K Item 1. Business
- ↑ 12.0 12.1 12.2 12.3 Campbell Soup Company F1Q09 (Qtr End 11/02/08) Earnings Call Transcript.
- ↑ CPB 2008 10-K Item 1. Business
- ↑ CPB 2008 10-K Item 1. Business
- ↑ CPB 2008 10-K Item 1. Business
- ↑ CPB 2008 10-K Item 1. Customers
- ↑ CPB 2008 10-K Item 1. Customers
- ↑ CPB 2008 10-K Item 1. Customers
- ↑ Campbell Soup Emphasizes Soup's Strength In Recession.
- ↑ Campbell sees no slowdown in emerging markets.
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