UPDATE: ConAgra 3Q Net Down 6.4% On Higher Costs, Flat Volume
March 24 2011 - 12:51PM
Dow Jones News
ConAgra Foods Inc. (CAG) is hoping it can raise prices and lower
operating costs enough to match growing commodities inflation in
coming quarters.
The maker of Healthy Choice meals and Reddi-wip plans to have
raised prices on 90% to 95% of its portfolio by the end of the
fourth quarter, executives said on a conference call, aware of the
consequences that could have on consumers' actions.
"It's a combination of productivity and price," said Chief
Executive Gary Rodkin on a conference call. "But we have said we
are willing to make some modest volume trade-off. We're serious
about that, because it's the right thing for us to do. I think the
key word is modest, but we're going to have to wait and see how
consumers adjust."
ConAgra's fiscal third-quarter earnings fell 6.4% from the
prior-year, which had benefited from the proceeds of divested
businesses, as the company's consumer- and commercial-foods
segments reported lower profits.
Price hikes in the quarter caused sales in ConAgra's
consumer-foods unit, its biggest by revenue, to edge up 2% on flat
volume. But operating profit in the unit still fell 14%, as the
higher price tags and supply-chain efficiencies couldn't fully
offset the inflation.
"It is a challenging environment. We are taking a lot of
action," including pricing, Rodkin said. "But that's not the only
thing we're doing. We're making our marketing work harder. We've
got lots of innovation, lots of productivity. So we don't intend to
be bleak or negative whatsoever, just realistic."
ConAgra's move to end most of its promotional discounting and
raise price follows other food product companies, such as Kellogg
Co. (K) and General Mills Inc. (GIS), that also aiming to pass on
to consumers the sustained climb in the cost of raw materials.
The efforts have had some impact, considering if ConAgra's
third-quarter operating profit is adjusted to take out
restructuring charges from the recent quarter and divesting gains
from the year-ago period, it would come out to a 3% increase.
ConAgra's overall adjusted results beat analysts' expectations,
causing shares to inch up 1.7% to $23.32 Thursday morning. The
stock was down 12% over the past 12 months as of Wednesday's
close.
The company has struggled with weaker-than-expected customer
responses to promotions and rising commodity costs. With margins
squeezed, ConAgra was forced to cut its earnings outlook twice last
year. For the latest period, gross margin edged down to 25.3% from
25.7%.
But ConAgra's consumer foods group was able to cut costs by
about $70 million in the third quarter, and expects savings for the
full fiscal year to be more than $275 million. "Which, obviously
helps us battle higher inflation," said Chief Financial Officer
John Gehring, on the conference call.
ConAgra is also considering acquisitions as a growth initiative
going forward.
"Given our operating capabilities as well as the balance sheet
strength we have built over the past several years, we are very
confident in our ability to add to the portfolio where there is a
strategic fit and a good financial return," Gehring said.
For the quarter ended Feb. 27, ConAgra reported a profit of
$214.8 million, or 50 cents a share, down from $229.6 million, or
51 cents a share, a year earlier. Revenue rose 4.1% to $3.15
billion.
Analysts polled by Thomson Reuters had most recently forecast
earnings of 46 cents a share on $3.12 billion in revenue.
Foreign exchange had an impact of about $8 million on operating
profit in consumer foods.
The smaller commercial-foods segment's sales jumped 7% on higher
prices for milled flour and increased volumes in potato products,
though profit fell 2.8%.
-By Annie Gasparro and Drew FitzGerald, Dow Jones Newswires;
212-416-2244; annie.gasparro@dowjones.com
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