ConAgra Foods Swings to a Loss on Charges from Private-Label Business -- 2nd Update
September 22 2015 - 8:00PM
Dow Jones News
By Annie Gasparro And Lisa Beilfuss
ConAgra Foods Inc. on Tuesday reported a quarterly loss, as the
food maker seeks a buyer for its struggling private-label business
and invests more in reviving older brands such as Hunt's tomato
sauce and Reddi-wip dessert topping.
The Omaha, Neb.-based company announced a $1.95 billion charge
for the private-label unit, which makes foods that supermarkets
sell under their own brands. ConAgra acquired that business in 2012
for $5 billion but said in June it planned to sell the unit, after
having written down its value by some $2.2 billion.
In its branded business, which also includes Pam cooking spray
and Chef Boyardee canned pastas, ConAgra has been battling weak
demand for many traditional U.S. packaged foods, which also has
sapped sales at rivals including General Mills Inc. and Campbell
Soup Co.
Chief Executive Sean Connolly, who took the helm at ConAgra in
April, said he is putting more money behind some of
well-known-but-outdated brands such as Marie Callender's pot-pies
and Healthy Choice frozen dinners, which had been relatively
neglected by the company in recent years.
"One thing that happens when companies reduce investments in
brands and in consumer insights is the brands start to atrophy,"
Mr. Connolly said in an interview. "But brands are incredibly
resilient...you can make them relevant to a whole new
generation."
He said Reddi-wip, for instance, has benefited from new
marketing and packaging highlighting its main ingredient is "real
cream," as opposed to water and hydrogenated vegetable oil that
appear as the two main ingredients in a rival whipped topping.
Not all of ConAgra's stable of brands will get that kind of
attention, though. ConAgra will keep around others, such as Wesson
cooking oil, for the cash but not as a growth engine. "The key that
I want to emphasize is that you don't treat all brands as if they
are created equal," Mr. Connolly said. "Not all have equal growth
opportunities."
In the latest quarter, sales in ConAgra's consumer business were
flat, though operating profit rose 25% to $242 million, as he cuts
costs to keep up with rival Kraft Heinz Co., which is setting a
higher bar for profitability among U.S. food companies.
Mr. Connolly said ConAgra has seen a lot of interest from
potential buyers for the private-label unit. Still, investors
appear worried that the business might not be worth as much as they
hoped, given the size of the write-off announced on Tuesday.
Bernstein analyst Alexia Howard said that the accounting approach
for valuing discontinued items is different from negotiating deals,
"yet investors understandably see some links between the two,"
pushing the stock down 7.1% on Tuesday.
While it looks for a buyer of that unit, ConAgra faces
additional pressure from activist investor Jana Partners LLC, which
owned 2.7% of ConAgra's stock as of early July, with options that
take its stake to about 7%. In July, ConAgra struck a deal with
Jana to add two members to its board.
The $1.95 billion charge is related to ConAgra's decision to
reclassify the private-label unit as discontinued operations,
because of its plans to exit the business.
In the latest quarter, ended Aug. 30, the overall quarterly loss
for ConAgra was $1.24 billion, or $2.85 a share, compared with a
year-earlier profit of $482.3 million, or $1.12 a share. Stripping
out the loss from discontinued operations and other items, earnings
rose to 45 cents a share from 39 cents. Revenue edged up 1.1% to
$2.79 billion.
In the commercial unit, which includes sales of Lamb Weston
frozen potatoes to restaurants, revenue rose 3.5% to $1.1 billion
as operating profit grew 17% to $139 million.
Write to Annie Gasparro at annie.gasparro@wsj.com and Lisa
Beilfuss at lisa.beilfuss@wsj.com
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(END) Dow Jones Newswires
September 22, 2015 19:45 ET (23:45 GMT)
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