Summary
Commodity prices are rising, which will hurt input costs.
Spending needs to increase in order to compete better.
Although paying out a high dividend yield, growth prospects look rather dim at present.
Members of my private investing community, Elevation Code, receive real-time trade alerts on this idea and many more. Learn more today >>
We wrote about Campbell (CPB) back in June when the company announced that it would be reviewing its entire product line. Well, changes have definitely been afoot at the company this year with first, the departure of the CEO (Denise Morrison) and now, the culling of its fresh food business and international brands (Arnott's and Kelsen).
With relation to the departure of Morrison, despite doing some good things for the company, her earnings record through her tenure just wasn't up to scratch. In fact, earnings went from $2.41 in 2012 to $0.86 in this most present fiscal year. Further, with the S&P powering higher over the past few years, Campbell shares plummeted after recent Q3 numbers, which resulted in a company worth half the market cap than it did in the Summer of 2016. Something eventually had to give.
With respect to sale of the abovementioned brands, this probably is not a bad decision with respect to where the likes of Arnott's and Kelsen are in their growth cycles. Why? Because they both need considerably more investment before they achieve meaningful long-term returns. Therefore, at this stage, Campbell has decided to become smaller and concentrate on core areas to try and get back to solid sales and earnings growth.
