It's gratifying when one's complaining seems to have been heard, or at least when similar complaints from someone more influential are finally taken into account, and that seems to be happening at Campbell Soup
Two months later (and we take no credit), Campbell's board dispatched longtime CEO Douglas Conant, just 60 years old, and installed Denise Morrison, 57 and the No. 2, as chief effective August 1. Morrison, though, didn't even wait for poor Conant to officially cede the top post before she began a series of announcements designed to signal to investors that she gets it -- radical action is needed immediately to halt the company's decline. Morrison and the board tossed in a new, $1 billion stock buyback program to support the stock during what she admits will be a lengthy turnaround process.
The moves to date have not ignited the stock, which remains cheap, and with a nice dividend yield. YCharts Pro calls it attractive still, and it's a lot more attractive with a new CEO.
For fiscal 2012, Morrison is expecting sales growth of just 0% to 2%, and a decline in earnings before interest and taxes of 6% to 8%, as well as a 4% to 6% drop in EPS. "Implementing our new strategic direction will require substantial investment to fund our new innovation process," Morrison said in early July. "Thus, fiscal 2012 will be a year of transition." Her longer-term goal is annual sales growth of 3% to 4% (hardly ambitious) and EPS growth of 5% to 7%. One hopes she is low-balling us and that her internal plans call for exceeding these modest targets.
Happily, two early announcements suggest Morrison knows change is needed. On July 20, buried in a press release promising to continue offering lots of low-salt products, Campbell said it would increase -- yes, increase -- the amount of salt in 31 of its Campbell's Select Harvest soups. This move, "in response to consumer feedback," also includes adding other pinches of seasoning to a product line known for its blandness.
Morrison also announced some operational moves. Automating a biscuit plant's packing operation in Australia, with $40 million of machinery, will allow Campbell to get rid of 190 workers who were presumably packing biscuits by hand. Sounds a few decades overdue, but hallelujah. Morrison announced other job cuts, some outsourcing and closing of a Moscow office that hasn't been very productive.
One hopes Morrison is just getting started, both on operations and in the kitchen. A month before the announcement that she would become CEO, Campbell reported fiscal third-quarter results. For the first three quarters of fiscal 2011, sales in the biggest operation -- U.S. soup, sauces and beverages -- fell 5%. And under the soon-to-depart Conant, Campbell was blaming everything except its own uninteresting recipes:
"Sales of 'Prego' pasta sauce declined due to continued competitive activity, including merchandising and new items," Campbell explained in a release. How about because the stuff tastes crummy?! Similarly, Campbell said, "Sales of 'Pace' Mexican sauce declined significantly, largely due to continued private label distribution gains." And maybe because the private-label stuff, in addition to being cheap, tastes better.
As YCharts noted in April, most of the fancy cooking occurs in Campbell's finance department. Huge buybacks and a shrinking equity base have boosted Campbell's EPS and ROE, but behaving like a leveraged buyout won't lift actual sales, which is what's needed. The new CEO, Morrison, seems to get the urgency. If so, the shares could be a bargain.
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