Campbell Soup Company (CBP) announced today that it has completed its $2.7 billion acquisition of Sovos Brands, Inc., which touts popular brands like Rao's. The deal was originally slated for December of 2023, but the FTC intervened seeking compliance information. The deal represents Campbell's largest purchase in over 6 years.
Campbell CEO Mark Clouse joins Yahoo Finance Executive Editor Brian Sozzi to discuss the company's integration plan for Sovos, which he calls a "real growth engine" fitting "perfectly" within Campbell's portfolio.
Clouse highlights that it appreciates the Sovos playbook and expects to continue executing it with few changes. He indicates that 50% of Campbell's business comes from snacks alone, a sector that Clause states has a "tremendous" runway for growth.
He expects the Sovos brand to follow a similar trajectory: "The reality is the two-year growth rate is 67%. So this is a business that is just really been on fire when we think about where Rao's has gone. It's just a terrific testament to the Sovos team and I think that the good news is when I look at that more recent trends and growth, here's a couple things I see that are really encouraging: first, the growth is being fueled by both distribution and velocity, while also seeing continued expansion of household penetration. I love all three of those variables, and I'm glad that it's not singularly dependent on any one, but that the opportunity to demonstrate all three is a potential for growth."
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BRIAN SOZZI: A historic moment for really one of the most historic names down the food Aisles that is Campbell's Soup closing on its deal for Sovos Brands which will have it selling large amounts of pasta sauce, notably, Rao's pasta sauce. Let's bring in the man who led the charge here for this acquisition-- $2.7 billion acquisition for Sovos Brands. That is Mark Clouse, the CEO of Campbell's Soup.
Mark, big moment for your team. Congrats to all of you. I know there's a lot of work to get this deal done. But now that it's done. Over the next 60 days, what's the attack plan for a brand like this? How do you integrate it?
MARK CLOUSE: Well, hey Brian, great to see you. Yeah, it's an exciting moment. I think in many ways there were-- there's not a lot of times where you've got a billion dollar business that is the real growth engine in an industry that strategically fits perfectly within our portfolio. So it really is a bit of a match made in heaven. And look, the first 60 days, obviously, in any acquisition you're spending a lot of your time and energy on the people.
You want to make sure that those great team members from Sovos are finding their way into the Campbell's family. And we've got a great plan. You would have seen today, we announced that we're bringing over one of the key leaders in resa from the Sovos team. And she's going to be leading the distinctive brand segment within the meals and beverage business. She has a tremendous history led the business through a lot of its growth.
Actually used to work for me on the pinnacle side, leading the Birdseye brand. So good to have her back in the family but a lot of that time spent on the people. But the second thing I would just say is one of the beauties of this acquisition is really we're just trying to extend and continue to execute the Sovos playbook. The team has done a masterful job. And so we're not expecting any changes or shifts.
It's just really about stepping on the accelerator and continuing to drive a strategy that really looks like it's working well.
BRIAN SOZZI: I've been covering your leadership for a while Mark and of course, I remember when you guys made this deal. So this comment on the press release. It really wasn't lost on me. I think it was that said, you want to be viewed as the most dependable growth oriented large cap value names in food. Do you think the Street is sleeping on the financial impact of this deal?
I looked at the earnings estimates. Yahoo Finance aggregates, its stuff. I don't see the street lifting up their estimates. But shouldn't they? Because you're coming out with new products and you're also bolting on a business that was on fire last year.
MARK CLOUSE: Yeah. So look, I'll let you speculate on where the investment community is. But look, my hope is that what we've done and over these last five years, this is a fairly profound transformation of an iconic company.
Where we have been able to really, I think breathe life back into these iconi, fabric of the nation brands and brands like Campbell's and Pepperidge Farm goldfish. While maybe making some swaps with parts of the portfolio that I think better position us for the future. And this gives us a portfolio and a brand in particular with Rios that is very complementary to our portfolio. But gives us significant scale and growth into the future?
When you look at the business today, 50% of our business is a snacks business that has a tremendous track record and runway for sustained growth with a very solid self-help margin story. Now we're pairing it with a meals and beverage business that's going to bring a very dependable growth, expectation and complementary nature within our categories to really be a leading player within the world of grocery.
You put these two variables or these two-- 1, 2 punches together. I do think it really gives us a very solid claim to being that most dependable, most predictable player in food that's built on the brands and the growth, and the focus of this terrific portfolio. We hope everyone will see that story come to life as well.
BRIAN SOZZI: Do you think the brand last year, I mean, the sales were off the charts, Mark. Up 25% year over year in terms of sales. Do you think it still grows at that rate this year?
MARK CLOUSE: Yeah. I mean, look, the reality is the two year growth rate 67%. So this is a business that has just really been on fire when we think about where Rios has gone and again it's just a terrific testament to the Sovos team. And I think that the good news is when I look at that more recent trends in growth. Here's a couple of things I see that are really encouraging.
First, the growth is being fueled by both distribution and velocity while also seeing continued expansion of household penetration. I love all three of those variables and glad that it's not singularly dependent on any one. But that the opportunity to demonstrate all 3 is a potential for growth. Two, I am really excited about what the team has done on the frozen side.
This is not an easy category and they've been able to come in with a differentiated more premium product and the velocities on those new items are extremely compelling and maybe a little closer to home. They're super premium. Soup offering is also doing very well, adding a point share growth right now within the world of soup to our portfolio and it's going to be a wonderful complement to again our mainstream.
Business very differentiated. But complementary to what we're doing on brands like chunky and our condensed soup business. So I think the good news is that although that growth is sustained, it continues to demonstrate the expandability. And even with that growth rate, I can still see a very long runway of opportunity ahead.
BRIAN SOZZI: Mark, true story. So ahead of this interview, two nights ago, I went and just bought a bunch of your products. I put them on my table at home. The cans look the same. A lot of the products are from what I can tell, they all taste the same as when I remember 10, 15 years ago. Whatever it was. There's a lot of debate in this country right now about shrinkflation.
And I see it down the cereal Aisles. I see it from some of your competitors. What's your philosophy on this happening because I think even the president weighed in. What's Campbell's philosophy on shrinking packages and taking ingredients out of their products?
MARK CLOUSE: Yeah. So look, I think a couple of things that I would just say, the first thing that I would say is, we all need to understand and recognize that as much as within the visibility to macroeconomic trends, there may be a lot of reasons to be encouraged and to feel like there's positive momentum. And there is in different areas and different variables, which is ultimately encouraging.
But we've got to remind ourselves that many of the consumers in this country have spent the last several years in an unprecedented level of inflation. They're dealing with higher credit card balances. And although interest rates may have improved, they're certainly not down to the levels that they were historically. And so this consumer base has really been finding it tough.
I mean, in fact 8 out of 10 consumers if you ask them today or you better off than you were a year ago, would say no. And so I think our job as food companies as much as it is a diligence and a requirement to ensure that we're doing the right things from a profitability and sustainability standpoint. That we're doing also the right things to maintain affordability. And so when we think about that in the context of the world we're in, there's a lot of different tools that can be used.
But what we will not do is lower the quality of our products or lower the expectations of what a consumer might have when they open a bag of milanos, or they're having a bowl of chunky soup. We will protect that at all costs. It's important. And by the way, let me just add for our new entrants into the family. We will not change the source of Rios either.
This is going to be about maintaining and protecting the quality. Now we very rarely change sizes of packages because it's not always the easiest area to execute. But there are certain moments where a particular price point on a large size or something may be part of someone's tool bag. But at the end of the day, what we want to do is ensure that we're one thinking about the needs of the consumers and staying affordable, and relevant.
While also being absolute gatekeepers on protecting the quality. And the expectations that consumers should have when they open a Campbell's product.
BRIAN SOZZI: Well, thank you for leaving the beef in my chunky soup. Mark Clouse, congrats on this deal. Always nice to get some time with you. Campbell's Soup CEO. We'll talk to you soon.
