ConAgra Cuts Long-Term View As Inflation Takes A Toll
February 22 2011 - 11:43AM
Dow Jones News
ConAgra Food Inc. (CAG) expects higher inflation and other
headwinds to take a toll on bottom-line growth over the long term,
though net price increases and cost-cutting measures should ease
some of the new pressures over time.
The company, which was presenting at the Consumer Analyst Group
of New York conference, cut its long-term per-share earnings growth
forecast to the range of 6% to 8% a year from its prior 8% to 10%
range. It expects sales to grow by about 3% annually.
ConAgra, whose products including Healthy Choice and Banquet
frozen meals, Hunt's ketchup and Slim Jim meat snacks, has been
trying to adjust its merchandising tactics as consumers make more,
smaller shopping trips. The company is also facing sharply higher
input costs, saying it expects inflation of 7% in fiscal 2012.
ConAgra had been running generous promotions on many of its
products during the recession but more recently has changed course
and said it is raising some net prices to offset commodity
inflation.
"You will see pretty significant changes in some of our price
points," Chief Executive Gary Rodkin said. In an interview, Rodkin
said the company will increase prices and change its promotional
strategy, for example offering two frozen meals for $5, instead of
its earlier two for $4.
The company shouldn't have trouble introducing the new prices,
Rodkin said, because there's not much private-label competition in
that segment. In areas where store brands do have a large presence,
Rodkin said ConAgra will focus on trying to keep a steady price
gap.
Overall, ConAgra is increasing prices on more than half of its
U.S. portfolio, with some changes already visible in supermarket
aisles and others expected to be rolled out throughout the early
spring.
Combined with the pricing actions, Chief Financial Officer John
Gehring said internal cost-savings measures should cover "a
significant amount" of inflation in coming years.
Gehring said the company will leverage its product procurement
capabilities and continue to improve supplier relationships to keep
costs down for products whose prices it cannot hedge.
As a result, he said, ConAgra should be able to improve margins
"over time."
The company backed its full fiscal year forecast of low
single-digit growth on a percentage basis. Pricing actions, new
products, cost savings and a better potato product will help
improve results in the second half of the fiscal year.
Meanwhile, Rodkin said ConAgra is "more open than we have been
in my five years [as chief]" toward acquisitions. The company will
focus mainly on domestic opportunities, as companies with an
emerging-market focus have hefty price tags. ConAgra would also be
able to leverage its current infrastructure with more local
add-ons.
-By Melissa Korn, Dow Jones Newswires; 212-416-2271;
melissa.korn@dowjones.com
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