ConAgra Foods Q4 Revenue ‘Higher than Expected’

Jun 27 2014 --- ConAgra Foods, one of North America’s leading food companies, has reported results for the 2014 fourth quarter ended May 25, 2014. The company reported a modest recovery in profit and also revenue in its private-label business. It also stated it would be focusing on healthier options in the future as a way to boost its consumer brands arm.

The company recorded a better-than-expected revenue for its fourth quarter. Strong sales in its commercial foods division (making ingredients for other manufacturers) helped bolster the business. Its consumer foods and private brands sectors recorded weaker results.

Gary Rodkin, ConAgra Foods’ chief executive officer, said, “We are disappointed with fiscal 2014 overall, and we have a very focused sense of urgency directed toward improving our results. Despite the difficult year, we were able to generate substantial cash, meet our debt reduction commitments, and pay a strong dividend.”

He continued, “Our focus is on improving branded volumes through more effective trade, marketing, and resource allocation, particularly on several large underperforming brands. We expect private brand profitability to strengthen through organic growth, strong synergies, and gradually improving price/mix.

“Some of the challenges from fiscal 2014 will still be with us in fiscal 2015, although we believe results will gradually improve throughout the fiscal year. Given that, we consider fiscal 2015 to be a year of stabilization and recovery with a mid-single digit rate of EPS growth, which we expect to accelerate in fiscal 2016 and 2017 based on a stronger foundation.

“Throughout this period, we expect to benefit from strong productivity, robust cost synergies related to the Ralcorp acquisition, and SG&A efficiency and effectiveness initiatives. We will remain focused on growing our top line, continually improving our cost structure, and sound capital allocation.”

The Consumer Foods segment posted sales of approximately $1.8 billion for the quarter and operating profit of $177 million as reported. Sales declined 7%, with a 7% volume decrease, 1% favorable price/mix, and a 1% unfavorable impact of foreign exchange.

Operating profit of $177 million was 34% below year ago amounts, as reported. Cost savings in excess of inflation, as well as lower advertising and promotion expenses, offset a meaningful portion of the profit shortfall resulting from weak volumes. Regarding fiscal 2015, the company expects branded volume to improve gradually through a focus on faster-growing customer channels, opportunities in international markets, and more effective trade and marketing support.

Commercial Foods Segment
Sales for the Commercial Foods segment were $1.63 billion, up 1% compared with the year-ago period, as reported. Segment operating profit of $281 million was 49% above year-ago period amounts, as reported.

Lamb Weston potato products posted sales and profit growth largely due to strong international volumes, as well as productivity initiatives that helped offset crop quality challenges. Flour milling sales decreased, reflecting the pass-through of lower wheat costs, and comparable milling profits declined reflecting market conditions.

After the close of the quarter, the Ardent Mills joint venture was formed, and the company contributed its milling operations for a 44% interest in Ardent Mills and cash proceeds. Other Ardent Mills details are discussed under the Capital Items portion of this document.

Private Brands
Sales for the Private Brands segment were approximately $1 billion in the quarter, in line with year-ago period amounts. The segment posted an operating loss of $573 million, as reported, due to impairment charges. After adjusting for $617 million of net expense from impairment charges and other items impacting comparability, current quarter operating profit of $44 million was $60 million below comparable year-ago period amounts.

While operating profits for the Private Brands segment are expected to remain below prior year amounts for the first half of fiscal 2015 given the pricing concessions, year-over-year performance in the second half of fiscal 2015 is expected to improve. This reflects pricing concessions to be lapped, new business to be added with favorable price/mix, and significant synergies and other operating efficiencies to be realized.

Current projections are for modest sales and profit growth in this segment in fiscal 2015, and for growth to accelerate in fiscals 2016 and 2017. Over the long term, the company remains confident in the growth prospects for its private brands business based on the fundamental appeal to consumers, the strategic importance of private brands to trade customers, and value-added capabilities of the ConAgra Foods’ private brand operations.

Other Items
• Unallocated Corporate amounts were $65 million of expense in the current quarter and $181 million of expense in the year-ago period, as reported. After adjusting for $3 million of net expense in the current quarter, and $88 million of net expense in the year-ago period from items impacting comparability, current quarter expense of $62 million declined from $93 million in the year-ago period. The comparable decline largely reflects lower incentives, lower pension expense, and efficiency initiatives.
• Equity method investment earnings were $12 million for the current quarter and $5 million in the year-ago period. The increase reflects improved results for Lamb Weston’s European potato joint venture. In future periods, earnings associated with the company’s interest in Ardent Mills will be reported in equity method investment earnings.
• Net interest expense was $93 million in the current quarter and $102 million in the year-ago period, reflecting debt reduction.

Outlook
The company expects fiscal 2015 EPS to reflect a mid-single digit rate of growth over the comparable fiscal 2014 EPS of $2.17. Fiscal 2016 and 2017 EPS is expected to show a high-single digit rate of annual EPS growth as the company benefits from a stronger underlying business, sizeable synergies, good productivity and efficiencies, and lower interest expense. Other long-term goals are unchanged.

With regard to specific fiscal 2015 assumptions, the company expects:
• Consumer Foods volume to sequentially improve throughout fiscal 2015.
• Commercial Foods to show good sales and profit growth; its results will be restated to reflect the reclassification of milling results to discontinued operations.
• Private Brands profits to grow modestly over fiscal 2014 amounts, although down year-over-year in the first half of the fiscal year due to pricing concessions yet to be lapped. Private Brands sales are expected to increase modestly for the fiscal year.
• Strong productivity as well as synergies related to the Ralcorp acquisition. Together these are expected to be approximately $350 - $375 million for the entire company in fiscal 2015, which should more than offset the expected 2-3% inflation planned for fiscal 2015. Segment expectations described above reflect these amounts.
• More than $50 million of Selling, General & Administrative (“SG&A”) savings generated by efficiency initiatives.
• Higher incentives.
• $30 million of lower interest expense resulting from the fiscal 2014 debt repayment.
• The benefit of an extra week in fiscal 2015 versus fiscal 2014.
• To earn $0.07-$0.09 per share less from Ardent Mills (and related capital allocation) than it earned from the milling operations last fiscal year.
• To generate at least $1.6-$1.7 billion of operating cash flow, and to repay approximately $1 billion of debt from a combination of operating cash flow and net proceeds received from the formation of Ardent Mills.
• With regard to the mid-single digit EPS growth expected in fiscal 2015, the company currently expects the EPS growth to be concentrated in the second half of the fiscal year. The company currently expects comparable EPS in the fiscal 2015 first quarter to be slightly below comparable year-ago amounts.