ConAgra Foods Reports Strong First-Quarter Sales Growth

Overall sales grew 17%, including 9% sales growth from the Consumer Foods segment, reflecting the company's recent pricing actions.

19/09/08 ConAgra Foods, Inc., one of North America's leading packaged food companies, reported results for the fiscal 2009 first quarter ended Aug. 24, 2008. Diluted EPS from continuing operations was $0.23, including net $0.04 per diluted share of expense from items impacting comparability. Excluding those items, diluted EPS from continuing operations was $0.27. Overall sales grew 17%, including 9% sales growth from the Consumer Foods segment, reflecting the company's recent pricing actions. Prior-year diluted EPS from continuing operations of $0.27 included net $0.01 of income from items impacting comparability. Items impacting comparability in the current year and prior year are summarized toward the end of this release.

Gary Rodkin, ConAgra Foods' chief executive officer, commented, "We are pleased with the overall sales results in the Consumer Foods segment, the continued profit growth in Commercial Foods, and progress with overall supply chain and SG&A costs. We are disappointed that Consumer Foods posted a decline in comparable operating profit; however, we have already implemented actions that should generate stronger profits for the Consumer Foods business, particularly in the second half of the fiscal year."

Segment Changes: In the first quarter of fiscal 2009, the International Foods segment was merged into the Consumer Foods segment. The company has also changed the name of its Food & Ingredients segment to Commercial Foods. A presentation of quarterly segment sales and operating profits for fiscal year 2008 can be found in the Q&A document accompanying this release.

The Consumer Foods segment posted sales of $1.9 billion and operating profit of $187 million for the quarter. The following segment commentary relates to comparable performance unless otherwise indicated:

Consumer Foods' comparable sales growth was 9%, most of which was due to net price increases. Approximately one point of the sales growth reflects having sales of Peter Pan peanut butter and Alexia Foods for the entire first quarter this fiscal year and only part of the first quarter last fiscal year. The company implemented a 7% weighted average price increase for this segment on March 24, 2008, and implemented an additional 3% weighted average price increase at the end of the first quarter of fiscal 2009. Volumes were essentially flat.

Operating profit of $187 million was essentially equal to year-ago amounts as reported, and declined 6% on a comparable basis as detailed on page 10. Advertising and promotion expense increased at a mid single-digit rate. Although the company continued to successfully implement pricing actions and cost-saving initiatives, these were more than offset by significant input cost inflation, particularly in cooking oils, tablespreads, and Banquet frozen foods. Overall inflation was greater than $190 million. Due to a combination of recent price increases, innovation, an expected moderation of input cost increases, as well as the achievement of supply chain and SG&A cost savings, the company expects the segment to post strong operating profit growth for the full fiscal year despite potential negative volume impact from price increases. The company expects the improvement to be concentrated in the second half of the fiscal year.

Commercial Foods Segment (39% of first-quarter sales)

Specialty potato, dehydrated vegetable, seasonings, blends, flavors, and milled grain products sold to foodservice and commercial channels worldwide.

During the quarter, sales for the Commercial Foods segment were $1.2 billion, 32% ahead of last year, as all major operations posted sales growth. Sales for the milling operations increased due to the pass-through of higher wheat costs as well as improved product mix. Sales for Lamb Weston specialty potato and appetizer operations grew primarily due to increased prices and the acquisition of Watts Brothers Farms; this recent acquisition contributed approximately 2 points of sales growth to the overall segment this quarter. Sales for Gilroy Foods & Flavors showed solid sales growth, driven by volume growth across major product lines and new customer business with foodservice and industrial accounts. Segment operating profit was $133 million for the quarter, 10% ahead of the year-ago amount, with all major operations posting growth due to strong sales results and a focus on efficiencies. Segment operating profit includes an approximate $5 million gain from an asset sale within Gilroy Foods & Flavors. Excluding this gain, segment operating profit was approximately $127 million (rounded) for the quarter, above year-ago amounts.

Hedging Activities - This language primarily relates to operations other than the company's milling operations.

The company uses hedging activities to manage the risk in its plans for the cost of various commodity inputs and to a lesser extent foreign exchange. To improve the transparency of operating results, the company now utilizes a new methodology for presenting derivative gains and losses. This methodology temporarily classifies mark-to-market gains and losses as unallocated Corporate expense. The company later transfers the gains or losses to segment operating profit when the underlying commodity being hedged is expensed in cost of goods sold for the applicable operating segment.

The net hedging loss of $33 million (discussed under Corporate expense on page 5) for the first quarter is principally a result of decreases in commodity costs for certain inputs being hedged (primarily corn, soybean oil and natural gas). The company expects that hedging gains and losses will be largely offset over time by actual input costs being higher or lower than planned, or by increases or decreases in values of derivative hedge positions.

Discontinued Operations

Current quarter EPS of $0.71 per diluted share from discontinued operations largely reflects the gain from divesting the Trading & Merchandising operations. Discontinued operations also include the operating results of divested businesses for part of the fiscal quarter prior to their sale.

Outlook

Based on a combination of volume and inflation expectations as well as increased investments for some brands and categories, the company has slightly lowered its fiscal 2009 outlook; the company now expects fiscal 2009 diluted EPS from continuing operations to be slightly above $1.50, excluding items impacting comparability.

Major Items Affecting First-quarter Fiscal 2009 EPS Comparability

Included in the $0.23 diluted EPS from continuing operations for the first quarter of fiscal 2009 (EPS amounts rounded and after tax):

--  Approximately $0.04 per diluted share of net expense related to the mark-to-market impact of derivatives used to hedge input costs, temporarily  classified in unallocated Corporate expense. This expense will later be reclassified to the operating segments when underlying commodities are expensed in segment cost of goods sold. This methodology was implemented in the first quarter of fiscal 2009; prior-year amounts used a different methodology that expensed such costs in operating segment cost of goods sold, regardless of when the related commodity was utilized or the related derivative liquidated.

--  Gain of $0.02 per diluted share, or $19.4 million pretax ($10.6 million after tax), resulting from the sale of the Pemmican brand, classified as a reduction in SG&A expense within the results of the Consumer Foods segment.

--  Approximately $0.02 per diluted share of net expense related to restructuring efforts to improve operating efficiencies in continuing operations; this  $8.6 million of pretax expense ($7.7 million after tax) is largely reflected in the Consumer Foods segment ($7.8 million of SG&A).

Included in the $0.27 diluted EPS from continuing operations for the first quarter of fiscal 2008 (EPS amounts rounded and after tax; the following will not add to $0.26 due to the impact of rounding):

--  Income of approximately $0.02 per diluted share, or $12.2 million pretax, from changes in estimates for restructuring charges due to changes in plans for consolidating certain production lines. Approximately $1 million is reflected within cost of goods sold for the Consumer Foods segment, and approximately $10 million is reflected within SG&A expense for the Consumer Foods segment.

--  Expense of approximately $0.01 per diluted share, or $11.7 million pretax, for costs related to the peanut butter recall. Approximately $7 million is  reflected within cost of goods sold for the Consumer Foods segment, and approximately $4 million is reflected within SG&A expense for the Consumer  Foods segment.

--  Benefit of approximately $0.01 per diluted share from a lower-than-normal tax rate.