Pillsbury Has $107.8-Million Loss in 3rd Quarter
Pillsbury Co. posted a bigger-than-expected $107.8-million third-quarter loss on Thursday and announced that it is negotiating to sell its Godfather’s Pizza chain.
The third-quarter loss was $50 million more than the company had projected in January and contrasted with a profit of $48.5 million in the third quarter of last year.
Sales during the quarter fell to $1.5 billion from $1.53 billion a year earlier.
The disclosures came amid renewed speculation that the troubled food and restaurant company could soon become a takeover target.
Pillsbury stock jumped $3.50 to $45.50 a share Thursday in heavy New York Stock Exchange trading sparked by takeover speculation.
However, William Spoor, Pillsbury chairman and chief executive, said in a letter to shareholders that he remained committed to keeping Pillsbury independent.
“Given our many recent disappointments, it is not surprising that we have raised investor skepticism and questions about our future,” Spoor wrote to shareholders. “Now we must demonstrate, through action and not words, that we can perform at levels commensurate with our potential.
Analysts have speculated that potential buyers for Pillsbury could include Swiss-based Nestle SA, Beatrice Cos. of Chicago and New York investor Saul P. Steinberg.
“Anything could be true here,” said Robert Cummins, food industry analyst at Wertheim Schroder & Co. in New York. “The main story is that Nestle wants to acquire them for $55 per share.”
Piper Jaffray & Hopwood analyst Stephen Carnes said he suspects the rumors have Pillsbury’s executives “scrambling for an acquisition” to increase their company’s debt and make it a less desirable takeover target.
The management at Beatrice, which went private in 1986, has nearly finished retiring the debt incurred in its leveraged buyout of the company. Under Chairman Donald P. Kelly, Beatrice has profited from divesting itself of some units and is said to be looking to acquire a whole food company.
Carnes said Wednesday that he doubts Kelly is interested in Pillsbury for its breakup value. Carnes, a former Pillsbury executive, said rumblings of a $55-a-share offer by Nestle “make more sense.”
Pillsbury’s third-quarter loss stemmed from restructuring charges of $140.9 million taken to sell or close businesses, restaurant properties and plants, the company said. Two-thirds of the charges occurred in the company’s restaurant division.
Spoor said the quarterly loss would contribute to an earnings decline in fiscal 1988, which ends May 31.
For the first nine months of the year, Pillsbury posted net earnings of $21.5 million compared to earnings of $150.3 million for the same period in fiscal 1987. Nine-month sales rose to $2.65 billion from $2.53 billion a year earlier.
Pillsbury decided to sell its 580-unit Godfather’s chain, which it acquired in 1985, because it did not have near-term potential to be “a major strategic component of Pillsbury’s portfolio,” Spoor stated.
Company spokesman Johnny Thompson said negotiations were under way with the management team of Omaha, Neb.-based Godfather’s, but he declined to comment on whether Pillsbury had received any offers.
Pillsbury earlier announced plans to sell its Bay Street, Key West Grill and Quik Wok restaurant chains. Spoor said the company had received a letter of intent from an unidentified party to buy Bay Street. However, Spoor reiterated that Burger King, the company’s biggest restaurant operation, is not for sale.
Analysts had been expecting Pillsbury to announce a restructuring--including the sale of its Steak & Ale, Bennigan’s and Godfather’s restaurant operations--ever since Chairman John M. Stafford resigned last month and Spoor took over as interim chairman.
