The troubles of the company behind the iconic canned soups are not just temporary. Its operating margin has been declining since 2017, when it stood at 18.9%, versus 14.5% today. The entire food industry is suffering from generalized inflation, higher supply-chain costs and finally, customs tariffs. Over the same period, revenue has risen by only about thirty percentage points, roughly in line with inflation.
It is easy to understand investors' weariness, as the stock is now treated as an income play. Based on last year's dividend, it has a yield of around 5.2%, roughly double its level in 2017.
The Campbell's Company has certainly changed over the past decade, starting with its name. Formerly known as Campbell Soup Company, the group opted for a more modern label, less tied to its flagship product, to underscore its diversification into snacks, meals and beverages.
On that note, and to highlight a few positives, the company is benefiting from the return of home cooking as households have significantly cut non-essential spending to preserve their purchasing power. In this respect, and to target a younger clientele, the company recently acquired 49% of La Regina (for $286m), which makes tomato sauces for pasta. Meanwhile, the group's 16 flagship brands have maintained their market shares. Finally, tariff effects should have eased markedly by 2026.
However, pessimists will note that ready-to-eat now offers limited prospects, as it is a category that is particularly badly hit by price increases. Snacks are hardly faring better, with volumes declining.
The group is rolling out measures such as cost savings and various mitigation actions. The financial structure remains solid ($1.1bn in operating cash flow), and the dividend - now the stock's main support - can be comfortably funded at this stage ($450m). The stock's valuation, which is trading at 12x earnings, is at a 10-year low. The Campbell's Company is therefore becoming affordable at this price level.
