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Investors in Premier Foods (LSE:PFD) displayed dismay and a broad lack of confidence today upon the announcement that CEO Michael Clarke has resigned his post after only 18 months in the driver’s seat.
Premier’s share price had closed at 120.50 on Friday, 25 January, but dropped to 101.00 just seven minutes after the markets opened this morning. Mr. Clarke began working for the company on 14 August 2011. It seems like just yesterday. When your mandate is to turn a company around, 18 months IS just yesterday.
Surely realizing what investor reaction would be, the board’s announcement was framed in the context of the appointment of Gavin Darby as Clarke’s replacement. Chairman David Beever applied just enough PR makeup to present a pretty picture.
He said, ” Michael Clarke and the team have done a first class in stabilising the business, strengthening its balance sheet, divesting non-core businesses, and gaining momentum.”
When Michael Clarke took over the reins of the company, Premier share price was in the the midst of a steep decline that had begun on 12 May 2011 when the price was 350.00. By 10 August the share price was at 130.50 but took a tick upward lasting until 17 August when it hit 152.20.
From the day Mr. Clarke assumed his position as CEO, the stock continued to decline to 33.65 on 4 November 2011. To describe the 30-40 range for this stock as the doldrums would be an understatement. The shares had traded in the 1200.00 pence range in early 2008.
Other than “strengthening the balance sheet,” most of which was done by divesting “non core businesses,” it is difficult to see a stellar performance by Mr. Clarke. This writer has a difficult time understand why the food subsidiaries that were divested were called “non core.” Perhaps the more appropriate term would be “losers.”
IMHO, there are two things one can do with struggling businesses: improve their efficiency and profitability or divest them. One is the hard way; the other is the easier way. Sometime the latter way must be chosen simply because it is expedient and will yield short term results that will keep a company afloat.
2011 marked the fourth year of declining sales for Premier and the first time in five years that revenues fell below £2 billion. The company reported a loss of £259 million, its first in three years. Premier’s financials for the 2012 fiscal year will be released on 21 February. All we know at this point is that the company is reporting that “full year results for 2012 are expected to be in line with current market expectations.
The one thing that is not in line with market expectations is Mr. Clarke’s departure. Investors look for a stable and faithful leadership willing to see the process through to the end. It would not be unfair to say that Mr. Clarke’s mission was not impossible, nor was it completed.
Premium Foods share price was still down by 11% at 107.25 as of the noon hour today, down 23.00 from the day before Mr. Clarke became CEO.
