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Friday, July 16, 1999

Vlasic Foods International

Phone: 609-969-7100
Website: www.vlasic.com
Price (7/15/99): $7 7/16


Mmmm, mmmm, bad! Campbell Soup (NYSE: CPB) spin-off Vlasic has gotten itself into a pickle this year. Despite being a debt-rich and growth-poor entity, Vlasic managed to maintain shareholder attention for the first nine months of its publicly traded life.

Then the pickled cucumber went sour. With yield problems at the foodmaker's mushroom farms and its Swift-Armour canned meat division in Argentina facing harsher country taxes, optimism flew away like the Vlasic stork in overdrive.

Vlasic had two household brand names -- its namesake pickles and the Swanson line of frozen entrees -- and each product line commanded about a third of its respective market. But when shoppers get antsy, a company's growth prospects can go stagnant -- and that can cause investors to head to the express lane to check out quickly.


Vlasic's line of Swanson TV dinners pioneered the trade in 1954. Stuck with an abundance of turkey -- 520,000 pounds worth -- the company created an aluminum tray packaging with side dishes. It was the right product at the right time as marital roles blurred with the advent of dual income families with little time to spare in the kitchen.

Since the 1970s Swanson has relinquished the couch potato throne. It is now far behind market leader Nestle, which is putting out the hipper Stouffer's and Lean Cuisine lines. Despite having the vision to launch oversized "Hungry Man" portions (forgiving the sexist marketing), it failed to capitalize on the family sized portions. Meanwhile, the pickle market has been relatively flat. However, Vlasic has gained in this segment following the 1994 rollout of its "Stackers" line of pickle slices made from select huge cucumbers and intended for sandwiches.

Vlasic was spun-off by Campbell Soup on March 30, 1998.


Income Statement
12-month sales: $1317.7 million
12-month income: ($147.8 million)
12-month EPS: ($3.25)
Profit Margin: N/A
Market Cap: $338.4 million

Balance Sheet
Cash: $26.9 million
Current Assets: $376.9 million
Current Liabilities: $186.1 million
Long-term Debt: $580.7 million

Price-to-earnings: N/A
Price-to-sales: 0.26


While many spun-off equities go on to have productive lives separated from the parent company, Vlasic was not shaping up to go that route. It was a troubled subsidiary and Campbell made matters worse by saddling the new stock with half a billion dollars in debt.

Campbell simply shed its bulky baggage and drove off as a sleeker, more enticing company. Proof lies in the fact that after Campbell shed its Vlasic ways, the soup conglomerate's cash flow actually rose.


Vlasic is looking ahead by bringing back its glorious past. The aluminum trays will be back with some of the original Swanson frozen dinners. The once popular fried chicken business has been relaunched. All the company needs is Presley and poodle skirts to take it back into the fifties -- though shareholders will no doubt settle for getting the stock back into the fifteens. Vlasic is taking note of its successful Sandwich Stackers line and rolling out Hamburger Stackers.

Swanson will be the first company to roll out complete lines of pot pies with mashed potato tops (shepherd's pie, anyone?). It took the company ten years to drum up a new advertising campaign, but it is now banking that consumers will "Make New Memories with Swanson."

Larger portions are now being sold through warehouse clubs and the company is now finding shelf space at Wal-Mart (NYSE: WMT).

This appears to be the kind of headway and creative freedom that spin-offs enjoy -- but without the equity appreciation. That is because, just as Campbell was saddled with the underperforming Vlasic, Vlasic is now being weighed down by its non-Vlasic and non-Swanson lines. Between probable asset sales and revitalized core subsidiaries, if Vlasic can effectively tackle its growing debt load -- and that's a big "if" -- it might actually be on its way out of a pickle this time.

-Rick Aristotle Munarriz

The Fool is hiring. Answer the call.

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