ALEXANDRIA, VA (Feb. 18, 1998) -- The Campbell Soup Co. (NYSE: CPB) announced earnings in line with expectations, but of more interest than that, the company announced continued initiatives for cutting costs. As we discussed, a great deal of cost reduction can be strained out of the company's canning business, especially as Campbell has excess capacity.
But beyond that, it might be in Campbell's best interest to divest itself of its canning businesses altogether, thus lowering costs and sticking to the higher margin business of selling liquid. Just as Coca-Cola (NYSE: KO) has shed a majority of its bottling operations in order to focus on selling high margin sugary concentrate, Campbell could contract many of its canning procedures to other companies and focus on selling high margin soup.
For now, Campbell is selling the assets of its can-making operations at four of its manufacturing plants to Silgan Holdings (Nasdaq: SLGN) for $125 million. In the same breath, management shared that it aims to increase its annual cost reduction savings by 50% to $150 million over the next few years, compared to a previous goal of $100 million. The savings will be used to drive sales volume higher, with increased advertising and new products. Meantime, Silgan agreed to enter a long-term supply agreement with Campbell (much like Coca-Cola's bottlers do with that company).
Finally, the coming spin-off of Vlasic Foods International (hoped to be completed by late March) has been granted tax-free status by the I.R.S. This isn't unusual fare, but it's worth noting that the plan is going forward on time. The Evening News wrote about Campbell today as well. We'll cover it in more detail later when we look at the quarter, but for now we're still talking about Intel (Nasdaq: INTC).
So, change your mind-frame from soup to silicon.
Intel's Business. Yesterday we discussed Intel's ability to continually increase efficiency and thereby lower costs, enabling the company to pass lower prices on to consumers. This is the result of a well-run business in tandem with consistent advances in technology. Today we'll take a brief look at why the near-future (something that we're not incredibly concerned about, but nonetheless, worth a look) should be decent for the leading CPU company.
As Personal Computer prices decline, the total PC market should expand, and Intel stands to benefit through several channels. Focusing on CPUs and software upgrades, though, Microsoft (Nasdaq: MSFT) hopes to release Windows 98 by June of this year, and more importantly, the company plans to release Windows NT 5.0 in 1999. Windows NT 5.0 is arguably Microsoft's most important product since Windows 3.1. Targeted at corporations, the new NT product is expected to cause another corporate upgrade cycle, which can frequently include not only software upgrades, but PC and other computer equipment upgrades. As for Windows 98, some PC shoppers are waiting until they can buy a computer with the latest operating system, and this summer is not far away.
Aside from Windows NT 5.0 being launched in 1999, Intel introduces its long-awaited Merced chip that year as well. Merced will be targeted at the high-end server and workstation market, initially. (It will be a number of years before it's targeted at desktops, the company projects.) The much anticipated chip changes the rules of semiconductor technology, and with it Intel should grab a nice chunk of the expected 35% to 40% annual growth in the high-margin server and workstation market.
We need to discuss Intel's stock price and its competition in our coming columns.
For now, the Cash-King Portfolio provided a good and wide overview of Intel's business with its recent buy report on the company. While last night's Fool Port column tried in part to explain why, with a 20-year goal (and with a lifetime goal) we're being careful here ("we" being Randy and me, regarding our first three buys) in deciding what we buy and at what prices, and why we'll continue to do so going forward.