When Mark Clouse parachuted into Campbell Soup’s Camden, N.J., headquarters on Jan. 22, 2019, as CEO, he came into an iconic American food company taking heavy fire from all sides.
Public bickering between descendants of Campbell Soup founder John T. Dorrance. An attack by prominent activist investor Dan Loeb of Third Point. Its stock price dropped 9% from Dec. 19, 2017, to Dec. 19, 2018, amid poor execution of two large acquisitions (Bolthouse Farms, Snyder’s-Lance) from a prior CEO and subpar financial results.
The former CEO of Pinnacle Foods wasted no time channeling the leadership skills he learned while serving as a pilot in the United States Army, a decorated career that concluded with him serving as a captain.
“When you go into a chaotic moment or maybe not the perfect situation, one of the things that I think leaders can make the mistake of is absorbing for 30 days or 90 days, then organizing or then maybe bringing in a consultant. They have to set a direction. Be clear about a path forward, set the path and get the organization mobilized. The simpler you can make it, the better,” Clouse told Yahoo Finance in the latest edition of Lead This Way.
“In those first 30 days, it was really about setting clarity and simplicity around direction,” added Clouse.
With that as the battle plan, Clouse — only the 14th CEO in Campbell’s 155-year history — went to work rewriting the story of the company that pioneered canned soup.
In April 2019, Campbell Soup unloaded the financially volatile Bolthouse Farms beverage business for $510 million to private equity firm Butterfly. Come August 2019, Clouse sold its Australian snacks unit, Arnott’s, to another private equity outfit — KKR — for $2.2 billion.
“Our biggest challenge as a company is that we had cast a lot of lines in a lot of different directions. The unintended consequence of that is your core business begins to become a little bit more of an afterthought, a bit neglected,” Clouse explained.
“So we said right away, it’s going be one geography, North America; two divisions, a snacks division and meals and beverage division; and 13 categories. This is where we have the right to win. This is where we have the know-how and the capabilities to be successful.”
And as icing on the cake earlier this year, Campbell made another divesture: the sale of its Emerald nuts business to private label manufacturer Flagstone Foods.
Clouse’s big bets during the portfolio rejiggering?
Innovation in soup — think Ghost Pepper Chicken Noodle. Innovation in snacks — think Frank’s RedHot sauce-flavored Goldfish.
The tighter focus on core competencies — and changes to household food consumption post-pandemic — has seen Campbell add close to $1 billion in sales from fiscal year 2020 to fiscal year 2023.
Operating profits have climbed by about $200 million during that timespan. The company posted $878.4 million in net sales last year and $67.8 million in net income.
Campbell’s stock has risen 14% since Clouse’s official start day in January 2019, outperforming fellow food stock Hormel’s (HRL) 26% drop. However, shares have lagged PepsiCo’s 51% gain during that time frame.
PepsiCo (PEP) is often used as a comparison for Campbell Soup given it sells a very commoditized item (soda vs. soup) and has a fast-growing snacks business (Frito-Lay vs. Snyder’s-Lance).
“On the positive side, the stock is now much less expensive on P/E [price to earnings] and EV/EBITDA [enterprise value to earnings before interest, taxes, depreciation, and amortization] than it used to be, the snacks portfolio continues to perform relatively well, and snacking margin improvements are under way. On the less positive side, soup and broth remain competitive categories, long-term growth may be somewhat limited by the lack of category growth in soup, and we don’t necessarily see 2024 EPS guidance as conservative,” said JP Morgan packaged food analyst Ken Goldman in a recent client note.
Goldman has a Neutral rating on Campbell’s stock.
With the core business on firmer footing, Clouse is beginning to do some shopping of his own.
In August, Campbell said it would plunk down $2.7 billion to buy high-end pasta sauce brand Rao’s. The company — which went public in 2021 — will join a Campbell portfolio of lower-priced sauce Prego and Swanson broths.
The deal is expected to close in 2024.
“I think we were collectively excited about it,” Clouse says of the deal, hinting at a push into frozen pizza and desserts with the brand.
Clouse knows the Rao’s transaction and Campbell’s rejuvenation will be key ingredients to his leadership legacy.
“The definition of legacy is something that happens that otherwise would not have happened had we not been there. And so what I think about really is what will be this test of time for this chapter; I hope it is looked at as the moment where we were able to prove to the world, to everyone, that these brands that are 150 years old can be every bit as relevant today as they were back then,” Clouse said.
Brian Sozzi is Yahoo Finance’s Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.
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