Avon and Campbell: Century-Old Consumer Values

10/05/2018 5:00 am EST

Focus: CONSUMER

George Putnam

Editor, The Turnaround Letter

George Putnam, editor of The Turnaround Letter recently looked for turnaround opportunities among companies that were formed over 100 years ago; here, he reviews at a pair of consumer products firms that were first established in the 1860s.

Avon Products (AVP)

Avon was started in 1886 in New York City by David H. McConnell, a traveling salesman who noticed that his customers preferred his free perfume samples over his books. While its women-led direct-selling approach was remarkably successful for over a century, in recent years it has struggled immensely due to internet-based shopping, among other pressures.

After the previous turnaround attempt failed, Avon split into two separate businesses in 2016, with the non-U.S. operations keeping the name and ticker symbol. Impressive new CEO Jan Zijderfeld (February 2018) is working aggressively to turn around the company’s fate.

Debt is elevated and profits remain elusive, but this company is addressing the issues head on. Adding some degree of confidence in the story: a number of savvy value managers own large positions in Avon.

Campbell Soup (CPB)

Founded in 1869 by Joseph Campbell and lifted to prominence through John Dorrance’s invention of condensed soup in 1897, the company is almost the very definition of “iconic,” with its highly visible tomato soup cans that legendary artist Andy Warhol felt compelled to memorialize.

Today, however, Campbell Soup is struggling to maintain its relevance due to changing consumer preferences. Revenue growth excluding acquisitions is flat at best, its soups are losing market share, profit margins are shrinking and its balance sheet is increasingly laden with debt from expensive, growth-seeking acquisitions. Longtime CEO Denise Morrison departed this past May.

CPB shares have fallen 40% from their recent high and remain well below their 1998 price. With its sagging prospects and financial condition, along with its below-peer valuation, Campbell is under pressure from activist Third Point (5.6% stake) and other shareholders to make meaningful improvements that go beyond the recent announcement to sell its international and fresh food units.

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