ConAgra Raises Forecasts for 2010, Despite Drop in Sales
Sales for the Commercial Foods segment were $1,101 million, 9% below last year’s $1,207 million; more than $100 million of the sales decline was the result of lower flour prices resulting from lower underlying wheat costs.
23 Sep 2009 --- ConAgra Foods, Inc. has reported results for the fiscal 2010 first quarter ended Aug. 30, 2009. Diluted EPS from continuing operations was $0.37, including $0.01 per diluted share of net expense from items impacting comparability. Excluding those items, diluted EPS from continuing operations was $0.38. For the same period a year ago, diluted EPS from continuing operations of $0.23 included net $0.04 of expense 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 off to a strong start in fiscal 2010. The Consumer Foods segment posted significantly improved operating profits, along with good sales trends across the consumer branded portfolio, and we expect the balance of the year to show strong profits for this segment due to manageable inflation, good cost savings, sales growth, and favorable mix. Our Commercial Foods segment is poised for a solid profit performance in line with our expectations, and we are confident we will deliver our raised EPS guidance for this fiscal year.”
During the quarter, the company transferred the Alexia frozen operations from the Consumer Foods segment to the Commercial Foods segment, resulting in slightly changed historical amounts for segment sales and profits. The Q&A document related to this release gives the current presentation of historical segment amounts, reflecting this change.
The Consumer Foods segment posted sales of $1,860 million and operating profit of $250 million for the quarter. Sales increased 1% as reported, which includes an approximate 2% negative impact from lower sales of Slim Jim products resulting from the June 9, 2009, Garner, North Carolina, plant accident. Additionally, as part of ongoing initiatives, the company intentionally eliminated a number of low-margin SKUs and scaled back on some low-margin customer channels and geographic markets, which negatively impacted sales by approximately 1%, but which improved profit margins. Unfavorable foreign exchange rates negatively impacted sales growth by approximately 1%.
Unit volumes declined 1% as reported, which includes an approximate 2% negative impact from lower sales of Slim Jim products. Additionally, the company’s SKU rationalization actions and customer and market changes referenced above negatively impacted unit volumes by approximately 1%.
• Big brands that posted strong sales growth and market share gains included Healthy Choice, Hunt’s, Marie Callender’s, Orville Redenbacher’s, and Snack Pack. The company continues to benefit from innovation introduced in the second half of fiscal 2009 as well as stronger and more effective marketing.
• More brand details can be found in the Q&A document accompanying this release.
Operating profit of $250 million was 34% ahead of last year’s $186 million, as reported. Excluding $11 million of net benefit in the year-ago period from items impacting comparability, operating profit of $250 million in the current quarter was 43% above the comparable year-ago amount of $175 million. Despite lower profitability from the Slim Jim business, the segment posted year-over-year profit improvement due to strong cost savings, improved mix and pricing, as well as more manageable input cost inflation. The company notes that significantly higher commodity costs in the year-ago period created a favorable profit comparison in the current quarter. Advertising and promotion expense increased slightly versus the year-ago period.
Note: Slim Jim production volume and service levels are in the process of being restored following the Garner, North Carolina, accident. Aside from unusual costs and insurance reimbursement related to such, which are discussed in the section on Major Items Impacting First-quarter Fiscal 2010 EPS Comparability toward the end of this document, the company estimates that Consumer Foods profitability was negatively impacted by approximately $10 million due to lower Slim Jim volumes. A substantial portion of this amount, as well as any additional foregone operating profit in the remaining quarters this fiscal year, is expected to be reimbursed to the company later in the fiscal year as part of its business interruption insurance coverage. The company will comment on the timing of the expected reimbursement when details are finalized, and will consider such payments to be part of ongoing operating profitability for the segment.
Sales for the Commercial Foods segment were $1,101 million, 9% below last year’s $1,207 million; more than $100 million of the sales decline was the result of lower flour prices resulting from lower underlying wheat costs. Segment operating profit was $141 million, 5% above last year’s $134 million. While the difficult restaurant environment negatively impacted volumes for Lamb Weston specialty potato products, those operations posted a slight improvement in sales and profits due to the impact of an acquisition, improved mix, pricing necessitated by higher input costs, and operating efficiencies. Flour milling profitability increased, reflecting modest profits in the year-ago period and thus a favorable comparison; the current-quarter profit improvement also reflects milling efficiencies and favorable market conditions. Profits for the seasonings, blends, flavorings, and dehydrated products operations were below year-ago amounts which included a $5 million gain from a sale of property. The company expects full-year fiscal 2010 operating profit for this segment to be in line with that of fiscal 2009.
The company expects fiscal 2010 full-year diluted EPS from continuing operations, excluding items impacting comparability, to approach $1.70, reflecting the strong performance of the Consumer Foods segment in the first quarter and expectations for continued progress for this segment throughout the balance of the fiscal year.
