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Warming Up to Changes at Campbell's

Will the wide-moat firm's new approach to staying on-trend work?

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Erin Lash: During former CEO Denise Morrison’s seven years leading the charge, Campbell Soup placed an outsize emphasis on extracting profits, starving its core soup lineup of investment, while heightening its reliance on acquisitions outside its core focus to bolster its trajectory--efforts which fell flat. However, recently appointed CEO Mark Clouse is cooking up a new recipe anchored in driving profitable growth, even across the mature areas of its business, which strikes us as prudent.

With a narrowed portfolio reach that is set to include just meals, beverages, and snacks on its home turf, we’re encouraged that priority number one for Campbell centers on upping its game as it relates to innovation. Management has been forthright that it has for years failed to bring on-trend, new products to market in a timely fashion (with product development cycles amounting to 18 months or more, far in excess of the mere weeks or months smaller, niche brands boast). But now management intends to move away from large-scale launches to a “test and learn” approach--bringing a product to market in a select location, assessing the consumer response, and adjusting the offering as necessary to more effectively win with consumers. We view this as a prudent means to more nimbly respond to evolving consumer trends, targeting to cut its time to market in half. In this vein, it intends to enhance the product, price-pack architecture, and expand the distribution of its soup and snacking fare, while moving away from the deep discounting that it has resorted to in the past, which we think stands to drive modest sales gains. Shares trade at a modest discount of nearly 10% to our evaluation, but with a dividend that's yielding more than 3%, we'd suggest investors keep this wide-moat name on their radar.

Erin Lash does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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