S&P cuts Campbell's Soup rating
Management tries to please shareholders, boosts prices for consumers, leaves lenders unhappy
S&P cuts Campbell's Soup rating
Joseph N. DiStefano
Campbell's Soup is trying hard to please shareholders, at the expense of its consumers and its lenders.
Maybe too hard. S&P downgraded soup maker Campbell to A- from A, citing Campbell’s weakened operating performance and expected lower cash flows, writes Jody Lurie, corporate credit analyst at Janney Capital Markets, in a report to clients. "High raw material costs are putting pressure on margins, and management expects a 7-9% decline in operating profit for FY2012 from FY2011," Lurie adds. Campbell's plans higher prices and foreign expansion, while keeping shareholders happy by buying back stock and boosting dividends. Result: "We expect cash levels to be depressed near-term due to management’s spending spree." As a bond analyst Lurie is more concerned about cash flows than excited about the possibility higher prices and foreign expansion will boost profits soon.
Stockholders ruining a company's core business for the sake of profit? There are obvious typos in this article.- awesome, read it again. Campbell's is spending more, a) to try to boost SALES, b) to prop up the STOCK (via buybacks and dividend payouts). The BOND analyst and the CREDIT RATING agency are concerned this will damage the company's ability to pay its DEBT. If they believed these strategies would show PROFITS they wouldn't squawk and no downgrade.— Joe D
Why are analysts still afraid of debt service issues when they know all prudent CFO's backstop their bonds with rock solid credit default swaps which completely remove the risk of default. Doesn't anyone go to biz school anymore?
