Campbell is giving up on its fresh foods lineup, largely built through acquisitions, and going back to prioritizing its more profitable, shelf-stable soup and snack products.
The Camden, N.J.-based company announced on Thursday that it plans to sell its Bolthouse Farms and Garden Fresh Gourmet brands, as well as its refrigerated soup products. Bolthouse Farms was acquired in 2012 and includes juices, carrots, and salad dressings. Garden Fresh Gourmet makes hummus and salsa and was acquired in 2015.
Standard & Poor’s said that the asset sales should fetch at least $2.6 billion through 2020.
Campbell’s interim CEO Keith McLoughin said the decision was made to sell the units after the board of directors considered a “full slate of strategic options, including optimizing the portfolio, divesting businesses, splitting the company, and pursuing a sale.” Activist investor ThirdPoint LLC, which has taken a $300 million stake in the company, has been pushing for a sale of the entire company to a strategic buyer.
McLoughlin said the board concluded that the “best path forward” was to refocus Campbell on its two core North American markets.
Campbell’s remaining brands include its famous canned soup as well as well as Goldfish crackers, Pepperidge Farm cookies, Snyder’s of Hanover pretzels, and V8 drinks.
Campbell’s fresh foods unit, a strategic focus for the company’s previous CEO, was performing poorly and losing money. McLoughlin said part of the problem was that Campbell relied too heavily on mergers and acquisitions to shape the unit’s business strategy and failed to differentiate itself in the new markets.
In the announcement’s wake, S&P downgraded Campbell’s issuer credit rating to “BBB-” and its short-term commercial paper rating to “A-3.” “We believe the company’s business risk profile will be weaker as it will be less diversified and more dependent on its poorly performing but higher-margin soup business to fund growth in its large snack segment,” S&P stated.
Sales in Campbell’s U.S. soup business dropped 14% in the company’s fiscal fourth quarter ended July 29.
S&P said the company will need to improve profitability and significantly reduce costs in the core soup business to “meaningfully improve” its EBITDA and reduce financial leverage. It also expects the company to use some of the proceeds of its asset sales to reduce its debt load. Campbell had nearly $8 billion of long-term debt as of July 29.
For its fiscal fourth quarter, Campbell reported profit of $94 million, or $0.31 per share, compared with $318 million, or $1.04 per share, a year ago.
McLoughlin stressed that the company continues to evaluate all strategic options.
Campbell’s shares had fallen 2% on the news by early Thursday afternoon.
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