Pillsbury Recruits General Foods’ Smith for Top Job
Ailing foods and restaurant giant Pillsbury Co. on Monday snared the top executive of rival General Foods Corp. for its new chairman, but the selection was met with a lukewarm response from industry analysts.
Philip L. Smith, 54, chairman and a 22-year veteran of General Foods, will become chairman, president and chief executive of Pillsbury as the foods company struggles to turn around its packaged-foods business as well as its poorly performing Burger King fast-food chain.
Analysts said they were concerned that Smith, who lacks experience in the restaurant business, may have a tough time reviving Minneapolis-based Pillsbury, which has been the subject of takeover rumors for months.
“Smith’s first challenge is to keep the company independent,” said industry analyst John M. McMillin at Prudential-Bache. “You do that by restoring profitability. He has to get profits up quickly. He’s got a tough road ahead of him.”
Stock Falls
Smith, who on Monday resigned as chairman of General Foods and as vice chairman of corporate parent Philip Morris Cos., replaces William H. Spoor, 65, who has acted as interim chairman at Pillsbury since February. Spoor, who was Pillsbury’s top executive from 1973 through 1985, returned to replace his protege John Stafford, who had been forced out as chairman following a steep decline in the company’s earnings.
In a statement, Smith said: “Pillsbury is a terrific company with fine businesses and excellent people. I’m looking forward to leading this company aggressively with its exciting and challenging opportunities.” Smith becomes Pillsbury chairman Aug. 1.
“Attracting a top-flight chief executive has been a major priority for this company,” Spoor said. “He (Smith) is a gifted and capable leader and has the unanimous support of our board of directors and the senior management of the company.”
But industry analysts and investors were far less enthusiastic about the announcement. On the New York Stock Exchange, Pillsbury stock fell $1.75 a share to $35.125.
Industry analysts were skeptical that Smith was the right man for the daunting task of turning Minneapolis-based Pillsbury around. Pillsbury--which produces Green Giant vegetables, Haagen-Dazs premium ice creams and Van de Kamp’s frozen fish--saw after-tax profit fall 62% in fiscal 1988 to $69.3 million.
Most of the drop was associated with the restructuring of its troubled restaurant division, which includes the 5,500-restaurant Burger King chain, Steak & Ale and Bennigan’s. Burger King has made some recent gains in profitability, analysts say, but it has lost market share to other chains, including McDonald’s.
Analyst Nomi Ghez at Goldman Sachs & Co. said Smith “is clearly an experienced person who ran a multibillion (dollar) food company before.” But, she added. “He’s not known as an aggressive manager. He does not have much experience in managing restaurants. He does not have any knowledge in turning around companies.”
Products Lost Ground
In fact, General Foods under Smith’s tenure has seen two of its leading products--Maxwell House coffee and Post cereals--lose ground to competitors. Some analysts speculated that Philip Morris was about to fire Smith.
“It’s hard to get excited about this,” said McMillin at Prudential-Bache. “I think to put it in a baseball analogy,” he said, “Pillsbury’s board of directors wanted to hire a major league manager even if he was running a losing team.”
Noting that Pillsbury on Monday had also announced the acquisition of San Diego-based Bumble Bee Tuna, McMillin said: “I think both announcements smelled.”
