Campbell Soup Company (NYSE:CPB) celebrated its 150-year anniversary in 2019. Shares of this food and beverage company showed impressive results in 2019, as Campbell's share price increased 49%, some 20 percentage points above the S&P 500's rise.

By selling unsuccessful or lagging brands, acquiring new brands, and tightening geographic focus, Campbell Soup is quickly changing its breadth in the market -- potentially keeping the company on track to exceed earnings expectations in the current fiscal year.

Woman eating soup.

Image source: Getty Images.

Cutting away the fat

In addition to its namesake brand, Campbell Soup's well-known brands include Pepperidge Farm, Prego, and Swanson. Adding to that portfolio in 2018, Campbell acquired Snyder's-Lance, which includes Snyder's of Hanover snacks.

Campbell CEO Mark Clouse is strategically divesting underperforming brands and exiting the fresh foods business while increasing the concentration on packaged meals, soups, and snacks. Campbell's endeavors in its fresh foods business lowered earnings and caused an abrupt departure in 2018 of then-CEO Denise Morrison. Selling off Campbell's fresh division and its international businesses will help pay down debt, maintain a high focus on the North America region, and streamline segments like snacks and meals and beverages.  

Cutting away inefficiency, Campbell recently sold Australian snack business Arnott's as well as other businesses in Malaysia, Hong Kong, Japan, and Australia, to New York investment firm KKR & Co for $2.2 billion in cash. This wrapped up the sale of the company's international division. Campbell had sold its European chips business to the privately held Valeo Foods in October 2019 for $80 million.  

Setting the bar for 2020

Campbell's snacks segment and its meals and beverages segment made up 45% and 55%, respectively, of Campbell's total net sales in the recent first quarter of fiscal 2020. Sales in the meals and beverage segment decreased by roughly 2.8% year over year while the snacks segment grew sales roughly 1.6%. Campbell had total revenue of $2.18 billion during the quarter, which is $19 million less than the same quarter one year earlier. Campbell's attributed the drop to a loss during the sale of the European chip business. 

Gross margins improved, rising 30 basis points to 33.8% as the company increased productivity and worked on cost-savings initiatives and raising prices. Capital expenditures are expected to be $350 million in 2020 -- up from $111 million in 2019 -- which will be used to expand Milano cookie, Goldfish cracker, and chip capacity, which will help the company meet growing demand. The Goldfish crackers brand is the largest brand within Pepperidge Farm and reportedly sold $574.7 million in the 52 weeks ending May 2019, making up an estimated 64.5% of Pepperidge Farm's total sales. Increasing production capacity of Pepperidge brands Milano cookie and Goldfish crackers should create a tailwind for a growing segment of the company.    

Campbell projects fiscal 2020 net sales will grow between 1% and 3% while adjusted earnings per share are expected to rise 9% to 11%.

An optimistic outlook

A forward price-to-earnings ratio of 19.11 doesn't put Campbell Soup at a deep discount. However, comparing Campbell Soup against packaged-food and snack powerhouses Kellogg Company and PepsiCo, Campbell Soup is in the middle, with Kellogg at 17.54 and Pepsi at 25.56, which indicates Campbell isn't overly expensive. A forward dividend yield of 2.89% is below Kellogg's 3.35% but higher than Pepsi's 2.82%.

Overall, Campbell looks to be headed in the right direction by narrowing the strategic focus to North America and concentrating on the growing segments of the business. The acquisition of Snyder's-Lance may be the first of many snack acquisitions in Clouse's strategy of chasing growing segments while lowering costs -- making shares of Campbell Soup stock a buy.