CORRECT: UPDATE: ConAgra 2Q Net Falls 16% Amid Weaker Margins

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 frozen potato products, flour and seasonings -- revenue improved 3% but profit fell 16% on higher costs of processing and selling last year's more expensive potato crop.

-By Paul Ziobro, Dow Jones Newswires; 212-416-2194; paul.ziobro@dowjones.com

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