Campbell Soup gone cold
30 August 2018 London
Image: Shutterstock
Campbell Soup (CPB), best known for its line of canned soups, has stumbled in recent years, according to IHS Markit’s Samuel Pierson in a recent blog.
Bearish bets have increased this year, currently, $1.3 billion in the equity and $380 million in the credit, said Pierson.
The firm's struggles culminated in the unexpected departure of CEO Denise Morrison, in late May, following the report of weaker than expected Q3 earnings and lowered FY 2018 guidance on 18 May.
“Unsurprisingly, equity holders were not thrilled with these developments and the share price has declined 12 percent on the earnings report, reaching a year-to-date (YTD) low the first week of June, down 30 percent from the start of the year,” stated Pierson.
He added: “Since then, a remarkable rally has lifted shares back above the price level which preceded the Q3 earnings report.”
Pierson noted that the reversal in the declining share price was partly due to activist investor Dan Loeb's Third Point purchase of a 16 million share stake in the firm, which was initially reported in early July and confirmed on 7 August when the hedge fund filed a Schedule 13-D.
Schedule 13D is a Securities and Exchange Commission (SEC) filing that must be submitted to the US within 10 days by anyone who acquires beneficial ownership of more than 5 percent of any class of publicly traded securities in a public company.
In that filing, the investor expressed the opinion that, "the only justifiable outcome of the strategic review is for the Issuer to be sold to a strategic buyer".
Equity shorts began building a position in it in June 2017, following a 16 percent downtrend in price from the post-crisis peak in July 2016.
Over the last 12 months, the short position has increased from 8 million shares to 31 million shares at present, Pierson found.
Pierson wrote that credit shorts have also taken an increased position in the firm's debt, building a short position from less than $20 million at the start of 2018 to a YTD peak of $380 million at present.
Nearly a third of that increase, $117 million, coincided with the issuance of $5 billion in debt which the firm took on to acquire pretzel maker, Snyder's-Lance in March.
Pierson added that credit shorts have been most active in the 4.15 percent 2028 note, which has $156 million short, the highest demand post-issuance, on an increase of $44 million in the last month.
The CPB five-year credit default swap (CDS) spreads widened from 48 basis points (bps) at the start of 2018 to a peak of 125 bps on 8 June.
The net notional outstanding Campbell Soup CDS has been between the range of $300 million to $400 million YTD, so part of the increase in short positioning in the underlying notes may be related to CDS market makers increasing hedges on previously written swap contracts, Pierson conjectured.
He added that Moody's has placed the ratings for the firm's $10 billion-plus of debt under review after the Q3 earnings in May.
Bearish bets have increased this year, currently, $1.3 billion in the equity and $380 million in the credit, said Pierson.
The firm's struggles culminated in the unexpected departure of CEO Denise Morrison, in late May, following the report of weaker than expected Q3 earnings and lowered FY 2018 guidance on 18 May.
“Unsurprisingly, equity holders were not thrilled with these developments and the share price has declined 12 percent on the earnings report, reaching a year-to-date (YTD) low the first week of June, down 30 percent from the start of the year,” stated Pierson.
He added: “Since then, a remarkable rally has lifted shares back above the price level which preceded the Q3 earnings report.”
Pierson noted that the reversal in the declining share price was partly due to activist investor Dan Loeb's Third Point purchase of a 16 million share stake in the firm, which was initially reported in early July and confirmed on 7 August when the hedge fund filed a Schedule 13-D.
Schedule 13D is a Securities and Exchange Commission (SEC) filing that must be submitted to the US within 10 days by anyone who acquires beneficial ownership of more than 5 percent of any class of publicly traded securities in a public company.
In that filing, the investor expressed the opinion that, "the only justifiable outcome of the strategic review is for the Issuer to be sold to a strategic buyer".
Equity shorts began building a position in it in June 2017, following a 16 percent downtrend in price from the post-crisis peak in July 2016.
Over the last 12 months, the short position has increased from 8 million shares to 31 million shares at present, Pierson found.
Pierson wrote that credit shorts have also taken an increased position in the firm's debt, building a short position from less than $20 million at the start of 2018 to a YTD peak of $380 million at present.
Nearly a third of that increase, $117 million, coincided with the issuance of $5 billion in debt which the firm took on to acquire pretzel maker, Snyder's-Lance in March.
Pierson added that credit shorts have been most active in the 4.15 percent 2028 note, which has $156 million short, the highest demand post-issuance, on an increase of $44 million in the last month.
The CPB five-year credit default swap (CDS) spreads widened from 48 basis points (bps) at the start of 2018 to a peak of 125 bps on 8 June.
The net notional outstanding Campbell Soup CDS has been between the range of $300 million to $400 million YTD, so part of the increase in short positioning in the underlying notes may be related to CDS market makers increasing hedges on previously written swap contracts, Pierson conjectured.
He added that Moody's has placed the ratings for the firm's $10 billion-plus of debt under review after the Q3 earnings in May.
NO FEE, NO RISK
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
