03 December 2019 by jbchevrel
Campbell Soup Company (CPB) manufactures and markets soups, sauces, biscuits, among others. Beyond being the #1 soup maker in the world, it has become an American icon after its use in Warhol’s art. This Tuesday, CPB celebrates its 150th anniversary. The name is a member of the CDX IG, if not for 150 years, since series s04. The 5y CDS pays 66bp, as of today’s London close. That CDS has tightened almost 100bp over the past 12 months and in 2019, its share price has appreciated by more than 40%. It had peaked at about 160bp last autumn. Now, for a 60-spread, CPB is quite levered, its current leverage being reported 3.5x. Credit investors, along with rating agencies, have been confident that through asset sales, CPB’s leverage targets would be eventually met. While CPB leverage had been printing in mid-3s, its target is 3x. and this is for fiscal year 2021. It is worth noting that the transaction multiples of its asset sales have been quite healthy, reflecting their solid brand value in particular. Indeed, CPB sold its International assets for 12.4x EV/EBITDA. CPB’s ratings have been affirmed with the announced asset sales, in particular. CPB is rated Baa2/BBB/BBB- (S&P). CPB will release its quarterly results before tomorrow’s US market open. Net sales from continuing operations are expected close to $2.2b. this is to be compared with $2.7b the same quarter last year. The consensus expects a gross margin in low 30%s. This is meant to be helped by a slightly more supportive COGS environment than in previous quarter. Thanks to yoy% deflationary effects from some commodities including poultry, beef, flour, wheat & eggs. More inflationary ingredients include vegs, corn, cheese & soybeans. Thanks Giving timing may not be great for this quarterly release. Indeed, Wells Fargo (mentioned by Seeking Alpha) wrote that net sales may trail consensus given the impact of a later Thanksgiving on soup shipments. Wells Fargo also expect a downward effect on profit from October's UK snacks divestiture and Partner Brands distribution declines in the snacks segment.