UPDATE: ConAgra 2Q Profit Falls 16% Amid Weaker Margins
December 21 2010 - 9:21AM
Dow Jones News
ConAgra Foods Inc.'s (CAG) fiscal second-quarter earnings fell
16% as the food company was hurt by rising commodities costs and
weaker-than-expected consumer responses to promotions in its
consumer segment.
The maker of Healthy Choice meals, Egg Beaters and Reddi-wip is
planning for better profits in the rest of its fiscal year, in
large part due to higher prices it has implemented and more that
are coming. While sales volume may fall, ConAgra hopes the higher
prices can more make up for that.
The plan echoes that of food makers like Kellogg Co. (K) and
General Mills Inc. (GIS) that hope pressure from higher commodity
costs will spell an end to aggressive promotions across the
industry and force companies to raise retail prices. The challenge
will be whether consumers, who have grown accustomed to getting
deals at supermarkets, will take to the higher prices.
Chief Executive Gary Rodkin on Tuesday said ConAgra will raise
prices on a number of products as a result of the rising
commodities costs. The company, which earlier this month cuts its
full-year earnings growth outlook, expects the price hikes along
with cost controls to improve its performance the rest of the
fiscal year.
For the quarter ended Nov. 28, ConAgra had a profit of $200.9
million, or 46 cents a share, down from $239.7 million, or 54 cents
a share, a year earlier. Excluding hedging and other impacts,
earnings from continuing operations fell to 45 cents from 51 cents,
matching last week's lowered view.
Net sales increased 2% to $3.16 billion. Analysts polled by
Thomson Reuters recently expected $3.13 billion.
Gross margin fell to 24% from 27.2%.
At ConAgra's consumer-foods unit, its largest, volume rose 1%,
but consumer response to promotions was weaker-than-expected and
earnings declined 14% in the segment.
At its commercial-foods segment--which includes dehydrated
vegetables and seasonings, as well as milled grain
products--revenue improved 3% but profit fell 16% on higher costs
of processing and selling last year's more expensive potato
crop.
Shares of ConAgra closed Monday at $22.44 and were inactive
premarket.
-By Paul Ziobro, Dow Jones Newswires; 212-416-2194;
paul.ziobro@dowjones.com
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