ConAgra Foods Inc., (NYSE: CAG) one of North America’s leading food companies, reported results for the fiscal 2015 first quarter ended Aug. 24, 2014. Diluted EPS from continuing operations was $0.25 as reported for the fiscal first quarter, versus $0.30 in the year-ago period. After adjusting for items impacting comparability, current-quarter diluted EPS of $0.39 increased over the comparable $0.37 earned in the year-ago period.
Gary Rodkin, ConAgra Foods’ chief executive officer, said, “We are pleased with the good start to fiscal 2015, which demonstrates improving fundamentals and better execution. Volume for Consumer Foods is recovering, Lamb Weston’s foodservice channel sales are robust, and cost savings programs across the company are coming in as planned. We remain confident that fiscal 2015 will be a year of stabilization and recovery, and I look forward to updating you on our progress throughout the fiscal year.”
Consumer Foods Segment
Branded food items sold worldwide in retail channels.
The Consumer Foods segment posted sales of approximately $1.6 billion and operating profit of $190 million, as reported. Sales declined 1 percent as reported, which includes flat volume, flat price/mix, and no significant impact from foreign exchange (all factors rounded).
- Brands posting sales growth for the quarter include Act II, Banquet, Bertolli, Hunt’s, Marie Callender’s, PAM, Slim Jim, Reddi-wip and others. More brand details are in the Q&A document accompanying this release.
- As previously communicated, the segment’s primary focus is on stabilizing the performance of three challenged brands: Chef Boyardee, Orville Redenbacher’s, and Healthy Choice. Chef Boyardee and Healthy Choice are already responding favorably to merchandising, packaging, and product changes. Merchandising, product assortment, and packaging changes for Orville Redenbacher’s are being implemented and expected to benefit results as the year progresses.
- The company continues to post good sales growth in faster growing channels, specifically club, dollar, and convenience channels.
Operating profit of $190 million increased 15 percent as reported. After adjusting for items impacting comparability, current quarter operating profit of $199 million increased 19 percent over $167 million in the year-ago period. Productivity and other efficiency initiatives offset inflation. Marketing investment declined approximately $30 million, reflecting the significant investment in the year-ago period related to new products; marketing investment for the remainder of the fiscal year is expected to be roughly in line with corresponding year-ago amounts.
Commercial Foods Segment
Specialty potato, bakery products, seasonings, blends, flavors, as well as consumer branded and private branded packaged food items, sold to foodservice and commercial channels worldwide.
Sales for the Commercial Foods segment were $1.1 billion, up 2 percent over year-ago amounts. Volume increased 3 percent and price/mix was unfavorable by 1 percent. Segment operating profit was $121 million as reported, down 12 percent. After adjusting for items impacting comparability, current-quarter operating profit of $125 million decreased 9 percent versus year-ago period amounts.
Lamb Weston potato products sales grew with a strong performance in the foodservice channel, but profits were below year-ago amounts due to a less profitable sales mix and comparatively weak quality raw potatoes. The company is now processing a new potato crop and expects better quality raw product to benefit efficiencies. Sales and profits for the rest of the segment did not change significantly.
The company completed the Ardent Mills transaction and no longer has any flour milling operations in this segment. Historical flour milling amounts for the period prior to the formation of the joint venture have been reclassified to discontinued operations, and current quarter results from discontinued operations include a large gain on the Ardent Mills transaction. The company’s share of the Ardent Mills earnings are reported within equity method investment earnings, and the company expects the Ardent Mills transaction to be accretive to comparable EPS over time.
Private brand food items sold in domestic markets.
Sales for the Private Brands segment were approximately $980 million in the quarter, down 2 percent versus year-ago amounts. Volume declined 3 percent. Operating profit of $42 million as reported decreased 36 percent versus year-ago amounts. After adjusting for items impacting comparability, current quarter operating profit of $48 million decreased 28 percent versus year-ago amounts; the decline largely reflects pricing concessions made last fiscal year due to customer service execution issues, and to a lesser extent temporarily higher supply chain costs associated with business transition. Customer service has improved significantly, and the pricing concessions will be lapped in the second half of fiscal 2015.
For its largest product lines (bars, snacks, cereal, & pasta), which represent more than half of segment sales, sales growth for bars and snacks was more than offset by declines for cereal and pasta. The company achieved overall share gains; declining category trends and aggressive price competition has weighed on top line results. Going forward, the company is focused on winning new business by expanding distribution, launching emulation opportunities, reducing less profitable SKUs and realizing substantial productivity savings; these initiatives are expected to improve segment profit margins as the fiscal year progresses. Current projections are for modest sales and operating profit growth in this segment in fiscal 2015.
Private Brands’ operating profit growth is expected to accelerate in fiscal 2016 and 2017, largely reflecting strong synergies from the Ralcorp acquisition. Over the long term, the company remains confident in the growth prospects for its private brands business based on the fundamental appeal to consumers, the strategic importance of private brands to trade customers, and value-added capabilities of the ConAgra Foods’ private brand operations.
The company continues to expect comparable fiscal 2015 EPS to show a mid-single digit rate of growth over comparable fiscal 2014 EPS of $2.17; the remaining EPS growth in fiscal 2015 is expected to occur in the second half of the fiscal year for reasons previously discussed. Comparable EPS for the second quarter of fiscal 2015 is expected to be in line with year-ago amounts given the strong comparable EPS performance in the second quarter of fiscal 2014.
The company reaffirms its operating cash flow, debt reduction, and dividend guidance.