Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SATURDAY, June 30, 1990 TAG: 9006300095
SECTION: BUSINESS PAGE: A5 EDITION: METRO
SOURCE: From staff and wire reports
DATELINE: LENGTH: Medium
Campbell will sell Mrs. Giles Country Kitchen along with the rest of its Fresh Foods Group in a further move to cut excess capacity and lift profits. Campbell said it planned to sell small North American operations with total annual sales of more than $300 million.
The Fresh Foods Group is the main asset being put on the market. In addition to Mrs. Giles, it includes Marie's Salad Dressing, Campbell's Fresh Mushroom farms in eight states and Canada and Win Schuler Cheese Products. Also scheduled for sale is a frozen poultry operation and a processor of salmon.
The move signals Campbell's withdrawal from the refrigerated, "fresh" foods market, one of the three major sectors of the modern supermarket. Fast distribution of these items is sometimes difficult and their profit margins are volatile because of changing commodity prices.
Campbell continues relatively strong businesses in the other two major supermarket sectors - frozen foods like Mrs. Paul's fish sticks, and shelf-stable, non-refrigerated foods, like Campbell's soup and Pepperidge Farm cookies. These highly processed foods have higher profit margins.
Randy Earle, president of Mrs. Giles, said Friday that he expects there will be considerable interest in Mrs. Giles from prospective buyers because of the importance of fresh products in the grocery stores.
Earle said the announcement will have no effect on day-to-day operations at the Lynchburg company, which employs about 300 people. The company two months ago moved into a new plant.
"We're operating under `business as usual,' " said Earle.
Mrs. Giles Country Kitchen was established in 1933 by a Lynchburg investment group.
Earle came to Mrs. Giles when it was bought by Campbell in March 1986. In 1987, Campbell bought Mrs. Kinsers, an Atlanta company, and added that label to the Mrs. Giles plant production.
Campbell is one of the world's largest food companies. Its decision to sell the companies is expected to result in after-tax charges of $302 million against earnings for the fiscal year 1990.
Analysts have been projecting those earnings at as much as $325 million, or $2.50 a share, so the divestitures should lead to a slightly profitable or break-even year.
The North American action follows a similar move in May to sell off poorly performing European operations with annual revenue totaling more than $200 million.
The drive into fresh foods was a prime goal of Campbell's previous president and chief executive, R. Gordon McGovern, who retired early last year.
In January, David W. Johnson, former chief executive of the Gerber Products Co., was named to replace him.
In an interview Friday, Johnson said, "I'm very focused on producing cash so I can build the sinews of war." He said he was referring to competition with other food giants like Philip Morris's Kraft General Foods, the country's largest food company; Conagra, the second largest; and H.J. Heinz, one of the most profitable.
The most recent restructuring charges include writing off about $113 million in goodwill on Campbell's struggling Freshbake Foods operations in Britain. Goodwill is the accounting term for the premium over book value paid to purchase an asset.
The proposed sales equal about 5 percent of Campbell's annual revenue of $5.67 billion in the year ended July 31, 1989. Net income last year totaled $13.1 million, or 90 cents a share, after $261 million in restructuring charges.
Analysts reacted favorably, if without surprise, to Friday's announcement, which was in keeping with Johnson's stated goals.
William Leach, an analyst with Donaldson Lufkin & Jenrette, raised his earnings estimate for the fiscal year 1991 to $3.05 a share from $3.
Said John M. McMillin, an analyst with Prudential-Bache Securities who maintained his $3.20 a share estimate, "David Johnson has been doing everything humanly possible in the last six months to turn this company around."
Investors responded favorably. On the New York Stock Exchange Friday, Campbell Soup shares rose 75 cents, to $57.25.
Business writer Sandra Brown Kelly contributed to this report
by CNB