ConAgra Profit Falls 12% in Q1
Commercial Foods' operating profits decreased as expected due to higher costs associated with the prior year's potato crop; benefits from the new potato crop are expected to improve results in the back half of the fiscal year.
Sep 22 2010 --- ConAgra Foods, Inc., one of North America's leading packaged food companies, reported results for the fiscal 2011 first quarter ended Aug. 29, 2010. Diluted EPS from continuing operations was $0.32, including $0.02 per diluted share of net expense from items impacting comparability. Adjusting for those items, diluted EPS from continuing operations was $0.34, which is below comparable year-ago amounts. For the same period a year ago, diluted EPS from continuing operations as reported was $0.37, which included $0.01 of expense from items impacting comparability.
Gary Rodkin, ConAgra Foods' chief executive officer, said, "Our fiscal first-quarter margins and EPS were lower than planned because of an intense promotional environment and inflation that outpaced cost savings. There were, however, several signs of strength in terms of market share and brand sales, demonstrating progress and growth potential for important parts of our portfolio."
He continued, "Our plans are to improve the EPS performance in the back half of the year through increased contribution from recently introduced new products and recent acquisitions, productivity initiatives, and more effective promotional strategies. Our initiatives, as well as lower SG&A expense, are expected to provide meaningful financial offset to the challenges we face. Furthermore, the positive impacts from a higher-quality potato crop are expected to provide increased year-over-year profitability for the Commercial Foods segment, particularly in the back half of the year."
"Based on the first-quarter performance and overall business conditions, we have revised our yearly outlook to 5-7% comparable EPS growth for the full year. We are confident that the strong foundation we have built over the last few years through innovation, cost savings, marketing, and sales execution initiatives will allow us to deliver our revised full-year EPS results."
Consumer Foods Segment (65% of first-quarter sales)
Branded and non-branded food sold in retail and foodservice channels.
Lapping a strong quarter in the year-ago period, the Consumer Foods segment posted sales of $1,824 million and operating profit of $214 million for the first quarter. Sales decreased 2% as reported, reflecting a 3% organic volume decline, a 1% decline in overall price/mix, and a 2% benefit from acquisitions (net of divestitures).
Due to an intensely competitive environment, sales results reflect higher-than-planned promotional spending for some categories, particularly frozen foods, table spreads, and popcorn. In general, promotional programs did not drive increased consumer purchase to the extent expected, reflecting the prolonged economic challenges consumers have faced and the difficult retail environment. Despite the overall challenges, a number of brands posted sales gains and the company's overall unit market share improved. The company also notes good progress in sales to non-measured channels. Increased contributions from recently introduced and planned new products, as well as revised promotional strategies, are expected to improve year-over-year sales performance in the back half of the year.
Operating profit of $214 million was 14% below last year's $250 million, as reported. Excluding $8 million of restructuring costs in the current year, comparable current-quarter operating profit of $222 million was 11% below the comparable year-ago amount of $250 million. The lower profitability reflects the sales challenges discussed above, new product introduction costs, inflation that outpaced cost savings, and a difficult comparison given last year's strong performance. The company generated strong cost savings during the quarter; consistent with original expectations, cost savings are expected to accelerate and result in $275 million of benefit for the full fiscal year.
The company expects the year-over-year profit performance for this segment to be much stronger in the back half of the year given the timing of cost savings as well as increased contribution from recent innovation and recently acquired businesses.
Commercial Foods Segment (35% of first-quarter sales)
Specialty potato, seasonings, blends, flavors, and milled grain products sold to foodservice and commercial channels worldwide.
Sales for the Commercial Foodssegment were $993 million, 3% below last year's $1,026 million. Segment operating profit was $112 million, 17% below last year's $134 million. Lamb Weston specialty potato operations posted increased sales and unit volume despite continued weak restaurant industry conditions; but as expected, the impact of last year's poor-quality potato crop resulted in a decline in operating profit for those operations. The company begins processing a new potato crop during the second fiscal quarter of fiscal 2011, which is expected to significantly improve results in the back half of the fiscal year. Flour milling sales declined due to the pass-through impact of lower wheat prices; operating profits for those operations were slightly below last year's very strong levels.
For the full fiscal year, profits for this segment are expected to increase year-over-year, with the progress occurring in the back half of the year. The company notes that its new sweet potato plant, which will support high growth in the sweet potato category, will be operational in the second fiscal quarter of the year as planned.
The company recorded $6 million of net hedging loss as unallocated Corporate expense in the current quarter, and $7 million of net hedging loss as unallocated Corporate expense in the year-ago period. The company identifies both of these amounts as items impacting comparability. Those amounts are reclassified from unallocated Corporate expense to the operating segments when the underlying commodity or foreign currency being hedged is expensed in segment cost of goods sold.
