Logitech (LOGI 0.69%) sells a wide range of mouse controllers, webcams, and other consumer electronics peripherals. The one accessory it didn't market -- until this week -- was a rug puller. Shares of the Switzerland-based icon plummeted 11% on Tuesday after the company announced that longtime CEO Bracken Darrell was stepping down.
Corner offices go vacant from time to time, and it's not always a deal breaker. It is different this time. There are three red flags to watch out for when a CEO resigns:
- The resignation is unexpected.
- The departing CEO is moving on to greener pastures.
- The executive won't be easy to replace.
Unfortunately for Logitech and its shareholders, this exit checks off all three of the boxes. Let's see if this wired rug puller also comes in a cordless version to make it easier to maneuver around.
It's a Swiss miss
Bracken Darrell wasn't a founding CEO. Logitech's been around since the 1980s, and he didn't arrive at the company's top post until early 2013. However, the Harvard MBA was transformational at Logitech. He helped reinvent the company, making it a leader in new and emerging peripherals. He also dramatically boosted its operating efficiency.
Revenue more than doubled under his watch, a commendable but modest achievement over a 10-year run. The bottom line has been a different story. At its peak profit performance in fiscal 2021, the $947 million in earnings that Logitech delivered more than quadrupled its net income of any year in the first 30 years of the company's history before his arrival. In short, he was a difference maker.
The resignation was also abrupt. He'll stick around for another month, but the departure itself was unexpected. The timing also isn't ideal. Logitech's CFO stepped down in February. A new COO was also named earlier this year. Investors sometimes applaud a leadership shake-up, but the stock dropping 11% tells you how much the market valued Darrell's role. Wall Street craved stability after seeing executives on the move earlier this year. It got a revolving door instead.
Image source: Getty Images.
Adding insult to injury, Darrell isn't retiring or paring back his workload. This week's press release explains that Darrell is leaving to pursue another opportunity. Put another way, he finds another leadership option more attractive than sticking with Logitech. Shareholders have to wonder if they should also follow him out to greener pastures, but that could be a mistake.
It's true that Logitech has had its recent struggles. Revenue has declined for six consecutive quarters, culminating in a 17% slide in sales for the fiscal 2023 year that ended in March. However, this is also largely the afterglow of its spectacular fiscal 2021, when business took off during the early days of the pandemic. The moment that folks knew they would be working from home in 2020, they started to load up on the essentials, and that included Logitech videoconferencing cameras, headsets, and even Bluetooth keyboards that make tablets more functional.
Revenue soared 76% for the 12 months ending in March of 2021. Loaded up with shiny new accessories, it was easy to see why consumer appetite cooled and sales took a hit. The important takeaway here is that revenue has still risen at an annualized clip of 15% over the past three years. Revenue in fiscal 2023 is 53% higher than it was in fiscal 2020. The stock's drop on Tuesday pushes the dividend yield up to a decent 1.7% for a picks-and-shovels play as a tech stock. There's no sugarcoating Darrell's abrupt resignation, but Logitech has survived through the three-quarters of its history without him at the helm. A forward earnings multiple in the teens is reasonable despite the leadership uncertainties.
