ConAgra Foods Inc.'s (CAG) on Thursday said its third-quarter profit exceeded analyst projections, but volumes for its packaged foods fell and the company lowered prices in some segments like cooking oil to compete better with private label products.

ConAgra said that it expects its overall volumes to improve sequentially as it benefits from improved marketing for key brands like Healthy Choice ready meals. Shares of the maker of Chef Boyardee pasta, Hunt's ketchup and Peter Pan peanut butter were recently up 4.7%.

ConAgra's results highlight both the benefits and the pressures that the packaged food makers are seeing in the recession. Most packaged food makers have stayed resilient in recent quarters as they steadily hiked prices and as consumers cut back on eating out. ConAgra's overall sales rose 6% in the latest quarter aided in part by recent price increases it has taken in many parts of its business.

But as the slump in consumer spending has deepened and as retailers push manufacturers for more promotions or even possible price cuts, the outlook for the industry has dimmed. In particular, growing sales of cheaper private label - or generic store brands - are taking a toll on the big national brands.

"I think that the environment is getting more challenging despite the benefit from people eating at home. Consumers are much more volume conscious," said Soleil Securities analyst Ed Roesch, noting that prices have already come down in some commoditized food categories like cheese.

Investors are concerned that a widespread rollback of prices would hurt the profit margins of the big brands.

ConAgra benefited overall from pricing in the quarter, with prices in its consumer segment rising 10%. The company said that it has worked to reduce the price gaps with private label in categories like cooking oil, where these cheaper brands have a bigger penetration.

According to Nielsen data from the Private Label Manufacturers Association, private-label sales of food and other grocery products in the U.S. grew 10.3% to $82.9 billion for the twelve months ended in November from $75.1 billion a year ago.

In the latest quarter, ConAgra benefited from new products and efforts to revitalize some of its frozen food brands like Banquet and Healthy Choice. "Maybe they are going on the offense and they should see the benefits," said Roesch.

The company did not make significant comments about pension contributions, an issue that has hurt many large manufacturing companies across the U.S. and one that ConAgra likely faces as well. The packaged food company cut its outlook for fiscal-year capital spending by $25 million to $450 million.

ConAgra's fiscal third-quarter net income fell 37% on year-earlier gains from discontinued operations as this year's results were absent the trading operations sold last year.

The packaged food maker's fiscal third-quarter net income fell 37% on year-earlier gains from discontinued operations as this year's results were absent the profitable commodity trading and merchandising operations it sold last year.

For the period ended Feb. 22, ConAgra posted net income of $193.2 million, or 43 cents a share, down from $309.1 million, or 63 cents a share, a year earlier. The company said earnings from continuing operations, excluding hedging and recall impacts, rose to 40 cents from 34 cents a year ago.

Net sales increased 6.1% to $3.13 billion and the company reaffirmed its fiscal-year earnings outlook.

Analysts polled by Thomson Reuters expected earnings, excluding items, of 37 cents on revenue of $3.11 billion. Roesch said that ConAgra benefited partly from low expectations in the Street going into the quarter.

Consumer-foods sales rose 4.8% despite a 4% volume drop thanks to price increases, while earnings increased 12%. The company said some of those declines were due to volume woes for Peter Pan peanut butter, stemming in part from a prior-year sales boost from promotional activity. Industrywide peanut-butter sales have also been weak amid from the recent recall by Peanut Corp. of America, although ConAgra hasn't been affected by this recent recall.

Sales in the company's commercial foods segment rose 8% compared with a year earlier, primarily reflecting higher sales at its Lamb Weston business, which supplier frozen potatoes and vegetable products.

In recent days some analysts have turned more cautious on the packaged food industry. Earlier this week Credit Suisse Group (CS) lowered its earnings projections for Kraft Foods Inc. (KFT), Kellogg Co. (K), ConAgra and Hershey Co. (HSY) and analyst Robert Moskow also predicted another 5% to 7% decline in packaged food stocks due to weak volume growth.

Kraft Foods has said it expects its sales volumes for the first quarter to be down as much as 5% as retailers and consumers cut back. Kraft, the nation's largest packaged food maker, has been hurt by inventory reductions as retailers across the board, including world's largest retailer Wal-Mart Stores Inc. (WMT), cut stocks. General Mills Inc. (GIS), which had been viewed as one of the strongest performers in the packaged food industry, earlier in March reported third quarter earnings below Wall Street's estimates.

-Anjali Cordeiro; Dow Jones Newswires; 201-938-2408; anjali.cordeiro@dowjones.com