Premier Foods Plc (PFD), owner of the Hovis bread and Bisto gravy brands, fell the most in almost a year after Chief Executive Officer Michael Clarke resigned, prompting analysts to question the company’s stability.
Clarke’s departure from the St Albans, England-based company is a “major blow” after the former Kraft Foods and Coca-Cola executive spent less than 18 months in the post, Charles Mills, an analyst at Credit Suisse Group AG, wrote in a note. The company hired Gavin Darby to start on Feb. 4 as his replacement.
The shares fell 12 percent, the biggest drop since Feb. 6, to 106 pence, the lowest price since Dec. 17. The stock fell 17 percent between Clarke becoming CEO in August 2011 and today’s announcement. It was the worst performer in the FTSE All-Share Index (ASX) today and the volume of shares traded was more than six times the three-month daily average.
“We see the surprise change of leadership as unhelpful to Premier’s stability and organic growth prospects,” Martin Deboo, an analyst at Investec Plc (INVP), said in a note as he put his buy recommendation under review. “With its financial restructuring complete, we think that consistency and longevity of leadership was going to be critical to its prosperity.”
Premier Foods made 275 million pounds ($433 million) of disposals last year without reducing its debt ratios, which stood at about 5.5 times net debt to earnings before interest, taxes, depreciation and amortization, Deboo said in October. Premier Foods had net debt of 1.27 billion pounds at June 30, according to data compiled by Bloomberg.
The company said in August that the disposal of the spreads division would bring the total from divestitures to 275 million pounds from a target of 330 million pounds by June 2014.
Fourth-quarter trading was in line with management expectations and the company has a “solid platform” for 2013, Clarke said in a statement on Jan. 17. Premier Foods said that Clarke chose to leave after leading the company’s initial turnaround and will be available until mid-2013 to help with the transition.
“Given his relatively short tenure and the still significant challenges facing the business we regard his decision to resign with immediate effect as a surprise and is likely to raise concerns over the longer term outlook of the company,” Graham Jones, an analyst at Panmure Gordon & Co. with a hold rating on the stock, said in a note to clients.
Even so, “Darby certainly looks a strong replacement with a good consumer pedigree,” Credit Suisse’s Mills said. Clarke’s departure “doesn’t reflect any boardroom disagreements,” he said.
Darby was most recently chief executive officer of Cable & Wireless Worldwide Plc before it was sold to Vodafone Group Plc (VOD) last year. Before that he worked at Vodafone, and was an executive at Coca-Cola Co. for more than 16 years.
“Michael Clarke and the team have done a first-class job in stabilizing the business, strengthening its balance sheet, divesting non-core businesses and generating momentum,” Chairman David Beever said today in the statement. “The board very much looks forward to working with Gavin to continue driving sustainable profitable growth.”
Premier is scheduled to report full-year earnings on Feb. 21.
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