Hershey CEO departs for Del Monte
After leading The Hershey Co. to three years of strong performances, CEO David West is leaving to take the top job at the smaller Del Monte Foods Co., a surprise move that sent the candy maker's shares plummeting on Wednesday.
Del Monte Foods, the San Francisco-based food processor that has an operations center on Pittsburgh's North Shore, said that West will become its CEO on Aug. 15 and will join the company's board in June. Del Monte was bought by private equity firms for $4 billion in a deal that closed in March.
Del Monte hired West to replace Richard G. Wolford, Del Monte's long-time leader, who stepped down after the buyout by a group led by KKR & Co
There are 352 employees in the Pittsburgh operations of Del Monte. The San Francisco headquarters has 328 people on its staff, a spokesman said.
Hershey Chief Operating Officer John P. Bilbrey was named interim president and CEO yesterday. Hershey's share price slipped $1.60, or 2.8 percent, to close at $55.48.
Bilbrey is taking the helm at an uncertain moment for Hershey as higher prices for ingredients like cocoa, sugar and milk have forced it to cut costs to protect profit margins, according to Eric Katzman, an analyst with Deutsche Bank in New York. While West revived sales growth since his 2007 ascension, he collided with the trust after resisting its entreaties to counter Kraft Foods Inc.'s successful bid for Cadbury Plc.
"This is a significant negative development for Hershey," Katzman wrote in a note to clients. "It will be difficult for Hershey to recruit as capable a CEO near to intermediate term."
West's departure increases probability of a sale of the company, David Driscoll, a Citigroup analyst in New York, said in a note to investors. The probability of a sale is still low at about 10 percent, up from about 2 percent, Driscoll wrote. Nestle SA or Kraft may view the current situation as "a good opportunity" to buy, Driscoll said.
Standard & Poor's said it was "surprised" by West's departure and reiterated its "sell" opinion on the stock, although analyst Tom Graves said he was impressed by Hershey's first-quarter performance.
Janney Capital Markets analyst Jonathan Feeney reiterated a "buy" opinion on the stock and said in a note to clients that West's departure was "clearly unexpected, both internally and externally," but added that it likely has more to do with attractive terms offered by Del Monte than Hershey's outlook.
"We are surprised and unsettled to see Mr. West leave, given his enormous success in transforming a shrinking company into one of the best growth stories in food," Feeney wrote. "Nonetheless, with his team still in place and led by Mr. Bilbrey, who was his co-pilot during the turnaround, we are confident that Hershey's current virtual cycle of investment and superior returns can be sustained for shareholders."
Soft-spoken and 47, West was promoted to Hershey's top job in 2007 after two years of skidding sales at the Hershey, Pa.-based company. Under West, Hershey's sales grew from $5.13 billion in 2008 to $5.67 billion in 2010, as he pumped huge sums into advertising and shifted the company's focus back to its core products, such as Hershey's Kisses and Reese's, and away from seasonal spinoffs.
"After 10 years with the company, it's time to take on the next challenge," West said in a statement released by Hershey.
Through the recession, Hershey reported rising profits in 11 of its last 12 quarters. Analysts said consumers traded down from expensive, gourmet chocolate to Hershey's cheaper mainstream treats and credited West with controlling costs -- he even set in motion plans to transform the original, but unwieldy, chocolate factory built by founder Milton Hershey into just administrative offices.
In the meantime, pressure grew on Hershey to compete for market share as two of its competitors, Mars Inc. and Kraft Foods Inc., grew through acquisitions.
Del Monte reported sales of $3.74 billion in 2010. Del Monte's brands include Contadina and College Inn foods, as well as Kibbles 'n Bits, Meow Mix and Milk-Bone pet foods.
Bilbrey, who became COO in November, has been with Hershey since 2003, first as president of Hershey International. Before joining Hershey, he worked at Mission Foods, Group Danone's North American water business and Procter & Gamble.