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Private Brands Hold ConAgra Back

24 December 2014

US - North American food processing giant, ConAgra Foods has reported EPS from continuing operations at $0.05 for the fiscal second quarter of the year compared to $0.48 a year ago.

After adjusting for items impacting comparability, comparable diluted EPS was $0.61 in the quarter compared to $0.62 last year.

Gary Rodkin, ConAgra Foods’ chief executive officer, (pictured) said: “We are pleased that the fundamentals in our Consumer Foods and Commercial Foods segments are improving. Key retail brands are strengthening, Lamb Weston is gaining domestic share and benefitting from a better quality potato crop, and we are generating COGS and SG&A efficiencies across our operations.

“EPS came in as planned this quarter; despite challenges in one of our segments, we have reaffirmed our full-year EPS guidance because we expect two of our segments to continue to deliver good performance, and for our whole organisation to continue generating strong productivity and efficiencies.

“Based on current executional challenges, we expect the recovery in the Private Brands segment to take longer than previously expected.

“Our team is highly focused on opportunities to drive improved execution in this segment over the next several quarters, and we expect these efforts to enable the segment to grow profits in fiscal 2016.

“We remain confident in the long-term potential for our Private Brands segment given the important role of these products to consumers and trade customers and our ability to utilise our infrastructure to add value for customers.”

Consumer Foods Segment

The Consumer Foods segment posted sales of approximately $2 billion and operating profit of $302 million, as reported.

Sales declined by two per cent, with volume down one per cent and price/mix down one per cent; this was in line with expectations. Foreign exchange did not significantly impact the year-over-year sales comparison.

  • Brands posting sales growth for the quarter include ACT II, Chef Boyardee, Hebrew National, Marie Callender’s, PAM, Reddi-wip, Slim Jim, Swiss Miss and others.
  • The packaging, assortment, product, and merchandising initiatives designed to improve the performance of Chef Boyardee, Healthy Choice, and Orville Redenbacher’s, are making a positive difference; those brands are expected to continue to improve sequentially over the next several quarters.

Operating profit of $302 million was six per cent above year-ago amounts as reported.

After adjusting for $8 million of net expense in the current quarter and $4 million of net expense in the year-ago period from items impacting comparability, current quarter operating profit of $310 million increased seven per cent over comparable year-ago amounts.

The comparable profit growth reflects lower advertising expense in light of stronger promotional support, as well as manageable inflation and good productivity and efficiencies.

Commercial Foods Segment

Sales for the Commercial Foods segment were $1.1 billion, up two per cent over last year, and segment operating profit was $148 million, 16 per cent above last year.

After adjusting for $9 million of expense in the previous year from items impacting comparability, current quarter operating profit increased by eight per cent on a comparable basis.

Sales and operating profits for Lamb Weston potato products increased, due to strong performance domestically, a better quality raw potato crop, and good operating efficiencies.

Strong domestic performance this year more than offset weaker international sales and profits related to near-term challenges facing quick-serve restaurant customers in key Asian markets.

Given the strength of its domestic business, Lamb Weston expects overall profit growth this fiscal year, despite short-term challenges in some international markets and the negative impact of the ongoing longshoremen labour dispute.

Profits for the rest of the Commercial Foods segment were in line with year-ago period amounts.

Private Brands

Sales for the Private Brands segment were $1.1 billion in the quarter, down five per cent from a year ago, driven by six per cent lower volume.

Overall volume declines for major product lines including snacks, cereal, pasta, condiments, and bakery more than offset some progress winning new business and gaining distribution in new accounts, notably in crackers.
The segment posted an operating loss of $202 million, as reported, due to impairing goodwill and other intangible assets.

After adjusting for $251 million of net expense from items impacting comparability (approximately $247 million of which were impairment charges) in the current quarter, and $2 million of items impacting comparability with last year, comparable operating profit declined by 46 per cent.

Pricing concessions made last fiscal year but not yet lapped drove a meaningful portion of the comparable profit decline, while lower volumes resulting from an intense bidding environment as well as higher commodity costs also weighed on profitability.

Pricing initiatives underway should help pass on the higher commodity costs over time.

Given recent performance and the current outlook, the company expects year-on-year profit improvement for this segment to occur in fiscal 2016 instead of fiscal 2015, and now expects fiscal 2015 comparable operating profits for the Private Brands segment to be below those of fiscal 2014.

The outlook reflects expectations for a continuation of an intense bidding environment, heavy discounting by branded manufacturers, and the corresponding negative impacts on volume, price/mix, and profits in the near term.

Pricing initiatives are expected to lag input cost increases this fiscal year, which are expected to weigh on fiscal 2015 profitability but benefit fiscal 2016 profitability.

The company believes that improved execution will bolster customer relationships, make for a more stable base of business, and strengthen results over time.

Initiatives to improve execution and the speed of overall decision-making through simpler and more customer-focused processes, as well as better connectivity throughout the organisation, are underway, but are not expected to begin to favourably impact business results until fiscal 2016.


The company continues to expect fiscal 2015 diluted EPS, adjusted for items impacting comparability, to show a mid-single digit rate of growth over the comparable diluted EPS of $2.17 earned in fiscal 2014.

For the full financial year, a continuation of good performance from Consumer Foods and Commercial Foods, as well as the benefit of productivity and efficiency initiatives, are expected to offset a profit decline in the Private Brands segment.

The company continues to expect operating cash flow to be in the range of $1.6 billion-$1.7 billion, and to reduce debt by a total of $1 billion in fiscal 2015 ($500 millionof which was repaid in the fiscal first quarter), thereby reaching its broader debt reduction goals for the fiscal 2013-2015 period.


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