Since a replacement hasn't been named, it is logical to assume that the resignation was arrived at without much planning. Whether Dale Morrison resigned of his own free will is not worth speculation. However, Campbell's stock performed very well when David Johnson was the CEO, so perhaps the idea of appointing Johnson as CEO again -- until a permanent replacement is found -- was initiated by the family who owns a majority of the company's tightly held stock.
Whatever the reasons, Dale Morrison probably isn't to blame. Although he was a relative newcomer to the company compared to former CEO David Johnson, he was far from timid in working to improve Campbell's business. He did inherit inventory problems that he saw worked through, and that was a tough decision to make because it impacted near-term results, and he also "inherited" a difficult selling environment for soup the past three years.
Meanwhile, Campbell's management was busy divesting the company of many underperforming divisions and acquiring international soup leaders, rather than being altogether focused on growing sales. Only recently has Campbell been in a position to focus on earnings and soup volume growth without the distraction of buying and selling business divisions in a company-wide reconfiguration.
Campbell's new business is much more focused than it was just three years ago, and it has much better profitability ratios, too. Despite what CBS MarketWatch wrote (repeating twice that "profit margins" are a problem at Campbell Soup), margins have improved significantly over the past three years, and they improved in the last quarter and in the past six months, too, as we recently showed.
When a company tries many initiatives to improve its stock's performance, though, and it just doesn't work, eventually shareholders will demand significant change. At this time, typically, all eyes go to the CEO -- the CEO being the most visible scapegoat. Whether or not Dale Morrison is responsible for Campbell's woes (I personally don't see how one man could be responsible for a slow soup market), shareholders wanted change and changing the CEO was the largest change possible. (The CEO of Coca-Cola resigned last year, too, perhaps in a similar situation. Was it his fault that worldwide soda sales were poor?)
Perhaps this change will work at Campbell. Perhaps new energy at the helm of the company can light a fire that will cause a chain reaction of change that eventually will find its way to the bottom line in earnings and then in the share price. Perhaps. Or perhaps not. Whatever the outcome, it will take time to see it come to fruition.
Campbell Soup's stock will likely drift as listlessly in the near future as it has during the past year. Until a permanent CEO is in place, it is not likely that Campbell will institute major, aggressive initiatives. Management and the majority shareholders will probably want to have a permanent CEO in place before cranking up all of the company's engines again and trying to move forward with verve. This makes sense.
Overall, in the long run perhaps the change will prove beneficial on many levels. Nobody knows the company's culture better than those at the company, and for some reason apparently Dale Morrison as CEO wasn't working out. At least, that's what we'll assume. Sometimes shareholders merely demand change for its own sake if recent years have been difficult. Sometimes when a company is "majority-controlled" by a single family, change comes through a directive. Whether or not this happened at Campbell Soup, the company serves as a reminder that public companies that are majority-controlled by one family sometimes present investors with more risks and unforeseen factors than do companies that are controlled in a more democratic fashion.
At $29 per share, Campbell trades at 15 to 16 times year 2000 (ending in July) earnings estimates. To discuss the company, visit us on the Drip Companies board. And Fool on!
--Jeff Fischer, TMF Jeff on the boards.
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