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Campbell sees cold 4Q
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June 25, 1999: 4:47 p.m. ET
Soup maker sees net below forecast; top U.S. grocery exec departs
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NEW YORK (CNNfn) - Campbell Soup Co. announced the departure of a key executive Friday and warned its fiscal fourth-quarter earnings will fall as much as 26 percent below analysts' estimates, fueling questions about the company's long-term independence.
The nation's largest soup maker expects fiscal fourth quarter profits to fall 8 cents to 10 cents below the 38 cents per share expected by analysts and the 38 cents a share earned in the year-ago quarter.
The shortfall won't include a special, after-tax fourth-quarter charge of $35 million to $45 million the company expects to take to finance undisclosed aspects of the restructuring - which company officials said will not include layoffs or plant closings.
Grocery chief steps down
The earnings announcement was overshadowed by news that Mark Leckie, president of Campbell's U.S. Grocery division, had suddenly left the company.
A former rising star at Kraft Foods' Post Cereal division, Leckie was hired in September 1997 and was credited with reviving Campbell's trademark soup sales, which are up 3 percent year to date.
"I had a tremendous amount of respect for Mark," said Erika Grittman Long, an analyst with J.P. Morgan Securities. "He had really started to put in place a lot of changes that were taking effect. But 18 to 24 months is not long enough to undo the issues that he inherited."
"That's a little unnerving to me, more so than the charge or earnings warning," agreed Patrick Schumann, an analyst with Edward Jones in Chicago, of Leckie's departure. "He was one of the members of Campbell that was highly regarded."
The resignation of Mark M. Leckie worries analysts
A Campbell spokesman reiterated that Leckie had "resigned from the company" to pursue other opportunities and was not fired.
But one analyst said he met with Leckie just last week to discuss future programs for the soup division and received no indication his departure was imminent.
That fueled speculation Friday that Leckie had actually been forced to resign, sparking concern an even greater corporate shake-up was looming as company officials struggled to revive Campbell's bottom line.
"I certainly expect more changes," Schumannn said. "I don't think this will be the last silver bullet. The company has certainly been aggressive in cutting costs, but there is still more to do."
"Campbell's board is getting real impatient with these restructurings," said Terry Bivens, an analyst with Bear, Stearns in New York. "Really, to me, it's getting increasingly difficult to figure out what's left to cut."
Leckie could not immediately reached for comment, although one Campbell employee said he had already left the company.
However, speculation that Campbell's earnings troubles might ultimately lead to the company's sale kept the soup maker's stock from slipping very far Friday. Campbell (CPB) shares closed at 41-15/16, down 1/2.
"There is a difference between [Campbell's] fundamentals and where the stock will trade because the company is widely viewed as a takeover target," Long said. "That is particularly true now because a lot of people have been looking for some sort of consolidation with in the retail food market anyway."
Campbell stock over the last year
Analysts were closely watching a reported meeting Friday between Campbell's management and descendants of company founder John T. Dorrance to discuss the earnings shortfall.
Collectively, Dorrance's descendants still control slightly more than 50 percent of Campbell's stock and hold four board seats. For several years in the late 80s and early 90s, there was a deep division among heirs as to whether to sell the company, although such speculation has subsided in recent years.
Friday's internal shake-up resurfaced rumors of a possible sale, although few believe a deal is imminent.
"Anyone who bought the company on that speculation in the past has been burned," said Nomi Ghez, an analyst with Goldman Sachs in New York. "In the past, the company has endured quite a bit of pain without the family selling."
Soup consolidation on tap
In conjunction with Leckie's resignation, Campbell officials announced they would consolidate the company's Canadian soup and sauce division into its U.S. business operations, creating a singular North American division to help combat the downward earnings trend.
Campbell spokesman Jerry Buckley said there were currently no plans to announce layoffs or plant closings in conjunction with the consolidation.
"This is an announcement improving the organization," Buckley said. "This is not an announcement about future plant closings or layoffs."
As part of the reorganization, F. Martin Thrasher, the current president of Campbell Europe/Canada, has been named president of the new Campbell North America Soup and Sauce division president.
Company officials blamed the fourth quarter earnings reduction on a decline in its U.S. soup shipments as retailers continued to reduce inventories. The firm also cited increased spending by its Pepperidge Farm brand to counter heightened competition within the cracker and cookie business.
Once implemented, Campbell said it expects the consolidation, in addition to future restructuring announcements, to result in annual savings of $18 million to $25 million.
But analysts complained Campbell management frequently overestimates the bottom line growth driven by its soup business, which accounts for 75 percent of all soup sales in the United States.
"The thing that upsets people is the inaccurate level of expectations they are guiding us down," said William Leach, an analyst with Donaldson, Lufkin & Jenrette in New York, who is maintaining his "hold" rating on the stock.
"I think the main issue here is the company's ability to finally be realistic about the growth rate for the soup business," agreed Ghez, who lowered her fiscal 2000 earnings estimate to $1.90 a share from $2.00. "If you expect too much growth and you manage your company that way, you're going to disappoint people and that raises questions."
Company officials insisted Friday its fiscal 2000 results would be unaffected by the changes, but most analysts said they would downgrade their earnings estimates for next year by anywhere from 5 cents to 10 cents a share.
"If you look at how the next year is going to roll out, they've already told us the first quarter [of fiscal 2000] is going to be difficult," Bivens said. "Now you are looking at them having to reconfigure everything Mark Leckie was going to roll out. It's tough to figure out how the company is going to be brought back quickly on these announcements."
Friday's announcement marked the second time in the last three quarters that Campbell has warned of an earnings shortfall. The company also alerted analysts in January that its second-quarter earnings would fall 20 cents short of expectations because of a cost-saving initiative in its supply chain operations.
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Campbell Soup Co.
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