ConAgra Results Affected by High Input Costs

Rodkin: "High input costs and difficult economic conditions are expected to continue to create challenges in fiscal 2012; additional pricing actions are under way, and productivity initiatives should continue to be strong."

6/24/2011 --- ConAgra Foods, Inc., one of North America’s leading packaged food companies, reported results for the fiscal 2011 fourth quarter, which ended May 29, 2011. As reported, diluted EPS from continuing operations was $0.62, 130% above the $0.27 earned in the year-ago period. Results include $0.15 of net benefit in the current quarter and $0.11 of net expense in the year-ago period from items impacting comparability; adjusting for those items, comparable diluted EPS from continuing operations of $0.47 in the current quarter was 24% above the $0.38 earned a year ago.

Gary Rodkin, ConAgra Foods’ chief executive officer, said, “Overall marketplace and economic conditions remain challenging, as our Consumer Foods segment incurred 9% cost inflation this quarter. We are, however, demonstrating progress in some key areas of our business. Net pricing has begun to improve in Consumer Foods sales, cost savings are on track, and Lamb Weston and flour milling operations are delivering stronger results for our Commercial Foods segment. High input costs and difficult economic conditions are expected to continue to create challenges in fiscal 2012; additional pricing actions are under way, and productivity initiatives should continue to be strong. Despite the challenging circumstances, we expect our overall fiscal 2012 to show low- to mid-single digit EPS growth, adjusted for items impacting comparability; we remain committed to our long-term EPS growth goal of 6-8% annually.”

The Consumer Foods segment posted sales of $2,027 million and operating profit of $367 million for the fourth quarter. Sales increased slightly as reported, reflecting favorable price/mix of 2%, approximately 2% benefit from acquisitions (net of divestitures), and an organic volume decline of 3%. The volume decline reflects difficult market conditions, including soft demand and the impact of price increases necessitated by high input costs. Net prices have increased for key areas of the portfolio, including cooking oil-related products, frozen foods, and snacks. Additional net pricing increases have been implemented early in fiscal 2012, and the company will continue taking responsible pricing actions as market conditions require.

Operating profit of $367 million was 63% above the $226 million in the year-ago period, as reported. Current-quarter operating profit includes $95 million of net benefit from items impacting comparability, the largest component of which is an insurance-related gain; prior-year amounts include $69 million of net expense from items impacting comparability. Adjusting for those amounts, comparable current-quarter operating profit of $273 million was 7% below prior-year comparable operating profit of $295 million. The comparable profit decline reflects very high input cost inflation, which approximated 9% of cost of goods sold; inflation was partially offset by pricing actions, as discussed above, as well as strong supply chain savings, lower advertising and promotion expense, and lower incentive compensation expense.

Sales for the Commercial Foods segment were $1,183 million, 15% above year-ago amounts. The sales increase reflects higher flour milling prices given higher wheat costs, as well as improved volumes for Lamb Weston specialty potato products and price increases necessitated by high input costs.

Segment operating profit was $127 million, 14% above year-ago amounts. Lamb Weston profitability improved significantly due to higher volumes and ongoing pricing initiatives, as well as operating efficiencies resulting from improved crop quality. Lamb Weston profitability also benefitted from good volume growth for sweet potato products and other favorable product mix. Flour milling profits increased from year-ago amounts due to favorable market conditions and effective commodity management in a very volatile wheat market.