CPB - Sovos Brands soars after Campbell Soup announces acquisition

2023-08-07 09:08:30 ET

Sovos Brands ( NASDAQ: SOVO ) soared 24% before the open after Campbell Soup Company ( NYSE: CPB ) said it would acquire the tomato sauce group for $23 per share in cash in a deal valued at $2.7B.

CPB dropped 1.4% on Monday morning before the open.

The all-cash offer for the Rao's Brands company represents an adjusted EBITDA multiple of 14.6x including run rate synergies and 19.8x excluding synergies.

The acquisition is expected to support Campbell's long-term financial growth plan with annualized cost synergies reaching about $50M over the next two years.

The deal, which is expected to close in December and to be accretive to adjusted diluted earnings per share by the second year, will be financed through the issuance of new debt.

For the third fiscal quarter, Campbell Soup ( CPB ) reported in June sales that were hurt by a decline in volume/mix, which was driven by lapping the prior year retailer inventory rebuild as well as lower volume consumption due to elasticities.

Marketing and selling expenses increased 3% to $194M, while adjusted gross profit margin decreased 60 basis points to 30.9%. For the full year, the food giant gave EPS guidance of $2.95 to $3.00 versus the $3.02 consensus.

For the second quarter, SOVO reported today net sales of $217.6M, up 10% year-over-year. Net income was $5.4M or $0.05 per diluted share, while adjusted net income was $17.4M or $0.17 per diluted share.

Last month, Seeking Alpha analyst LD Investments said that “considering likely near term weakness as well as longer term competitive pressures from arguably better positioned rivals in the snacks market - Campbell’s current growth engine - the stock is not particularly compelling at this point and could be viewed as a hold.”

In May, CPB announced the sale of the Emerald nuts business to Flagstone Foods.

Sovos ( SOVO ) is up 31% this year, while CPB shares are down 20% so far in 2023.

More on food stocks:

• Campbell Soup to buy Sovos Brands in $2.7B all-cash deal
• Food inflation is moderating - watch these stocks
• Consumer stocks are in the spotlight with student loan repayments and food disinflation in the mix

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