Hovis bread maker Premier Foods (PDF) has dropped 9% to 109.5p after surprising the market with news that chief executive officer (CEO) Michael Clarke is leaving the group. He has been in the role for less than 19 months and helped to revive the business after struggling with debt and high input costs. The market's knee-jerk reaction to his departure suggests that investors are worried about the longer-term outlook for the company.
Clarke has resigned with immediate effect. Stockbroker Investec says it has been told by Premier Foods that the boss is leaving for 'personal reasons'. He joined as CEO in August 2011, stabilised the business and has taken steps to strengthen the balance sheet. The shares have doubled since September 2012.
Investec reckons there will now be a period of uncertainty for the share price. It says: 'With its financial restructuring complete, we think that consistency and longevity of leadership was going to be critical to its prosperity.' It has placed a 'buy' rating and 125p price target under review.
The reluctance by supermarkets to pass on higher food costs to consumers has made life hard for food producers including Premier Foods. It refinanced £1.4 billion of debt last year under the condition that significant disposals were made. Premier Foods announced the £92.5 million sale of its pickles business on 30 October 2012 to Japanese food maker Mizkan. This represented the second deal between the two companies with Mizkan buying Premier Foods' vinegar and sour pickles business for £41 million in July 2012.
Gavin Darby will succeed Clarke from 4 February. He used to be CEO of telecoms group Cable & Wireless and also brings experience at Coca Cola.
Premier Foods has reiterated that trading is in line with expectations. Market consensus is looking for £93.6 million pre-tax profit for the 2012 financial year, to be reported on 21 February, against £50.9 million pre-tax profit in 2011.