Campbell's Next CEO Needs to Focus on M&A to Stop Company's Slide

(Bloomberg) -- There are many ways to gauge the challenges facing the packaged-food business as it undergoes a dramatic shift in consumer dining preferences. One is to look at the churn of CEOs in this sector in the last year.

The latest shakeup came Friday, as Campbell Soup Co. announced that its chief executive, Denise Morrison, is departing after seven years in the job.

Several Campbell competitors had also sought a fresh leadership recipe. Steve Cahillane stepped into the top job at Kellogg Co., Dirk Van De Put started as CEO of Mondelez International Inc. and  General Mills Inc. also got a new CEO, Jeff Harmening, last summer.

My colleague Tara Lachapelle had presciently written earlier this year that Morrison's time may be running out at Campbell, because the company wasn't exactly cooking with gas during her tenure.  

It’s true that Morrison did commendable cost-cutting work. And some of her acquisitions showed that she clearly understood the company’s challenges as consumers embraced fresh food.

Campbell's Next CEO Needs to Focus on M&A to Stop Company's Slide

But those efforts simply didn't do enough to nurse Campbell to health. The company's revenue slipped in each of the last three fiscal years. And its  stock has not held up well as its path to sustainable growth has looked less clear.

Campbell's Next CEO Needs to Focus on M&A to Stop Company's Slide

The company clearly acknowledged it still isn’t on the right path, announcing Friday that it will conduct a monthslong strategic review aimed at improving its performance.

Morrison's permanent replacement has not been named. Keith McLoughlin, a board member, will serve as interim CEO. Whoever comes next should be ready to spend much time playing an M&A chess game. That’s because, given the major headwinds to increasing the addressable U.S. market for packaged food, deal-making appears to be an easier avenue than product innovation when it comes to fortifying Campbell or similar businesses. 

Michael Halen, a Bloomberg Intelligence analyst covering the packaged-food industry, said Morrison's successor could consider selling off some businesses, such as the fresh division, which includes Bolthouse Farms carrots as well as beverages.

Although that might sound counterintuitive given the emerging consumer preference for fresh food, there's sound logic to it. Campbell has struggled to run this business well. This was perhaps most clearly illustrated in 2016 when it harvested carrots too early and then had a hard time selling them because they were too tiny.

Unloading the fresh division would allow the company to focus on reviving its core offering, soup, as well as its snacking business, which just got a good deal bigger thanks to the $4.9 billion acquisition of Snyder's-Lance Inc., the maker of Cape Cod potato chips and other salty snacks.

Morrison used an image in an investor presentation in 2016 that has stuck with me as a great description of what it feels like to run a packaged-food business in the current shopping environment. "It's felt like changing the tires on a moving car," she said.

That car isn’t poised to slow down any time soon. The new CEO should be prepared for similarly difficult work. 

To contact the author of this story: Sarah Halzack at shalzack@bloomberg.net.

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