ConAgra notches strong growth in Q4

ConAgra notches strong growth in Q4

ConAgra Foods reports fourth-quarter with diluted EPS from continuing operations was $0.62, 130% above the $0.27 earned in the year-ago period. Full fiscal year 2011 diluted EPS from continuing operations was $1.90 as reported and diluted EPS adjusted for items impacting comparability was $1.75.


Highlights (vs. year-ago period amounts where applicable):

  • Fiscal 2011 fourth-quarter diluted EPS from continuing operations was $0.62 as reported and $0.47 adjusted for items impacting comparability, up 130% as reported and up 24% on a comparable basis.
  • The Consumer Foods segment continued to be challenged by difficult conditions in the quarter, but made progress with pricing actions, as price/mix contributed 2 points to the segment’s sales. Despite price increases and strong cost savings, the Consumer Foods segment’s profitability declined for the quarter on a comparable basis, reflecting the impact of 9% inflation in the segment’s cost of goods sold.
  • Commercial Foods’ operating profits increased 14% for the quarter due to Lamb Weston’s ongoing recovery and continued strong flour milling results.
  • Lower incentive compensation expense and recent share repurchases contributed to the quarter’s EPS results.
  • Full fiscal year 2011 diluted EPS from continuing operations was $1.90 as reported and diluted EPS adjusted for items impacting comparability was $1.75.
  • Full fiscal year 2011 operating cash flow exceeded $1.3 billion, in line with targets.
  • The company currently expects fiscal 2012 diluted EPS, adjusted for items impacting comparability, to grow at a low- to mid-single-digit rate over the comparable base of $1.75 earned in fiscal 2011.

ConAgra Foods, Inc., (NYSE: CAG) one of North America’s leading packaged food companies, reported results for the fiscal 2011 fourth quarter, which ended May 29, 2011. As reported, diluted EPS from continuing operations was $0.62, 130% above the $0.27 earned in the year-ago period. Results include $0.15 of net benefit in the current quarter and $0.11 of net expense in the year-ago period from items impacting comparability; adjusting for those items, comparable diluted EPS from continuing operations of $0.47 in the current quarter was 24% above the $0.38 earned a year ago.

Gary Rodkin, ConAgra Foods’ chief executive officer, said, “Overall marketplace and economic conditions remain challenging, as our Consumer Foods segment incurred 9% cost inflation this quarter. We are, however, demonstrating progress in some key areas of our business. Net pricing has begun to improve in Consumer Foods sales, cost savings are on track, and Lamb Weston and flour milling operations are delivering stronger results for our Commercial Foods segment. High input costs and difficult economic conditions are expected to continue to create challenges in fiscal 2012; additional pricing actions are under way, and productivity initiatives should continue to be strong. Despite the challenging circumstances, we expect our overall fiscal 2012 to show low- to mid-single digit EPS growth, adjusted for items impacting comparability; we remain committed to our long-term EPS growth goal of 6-8% annually.”

Consumer Foods Segment (63% of fourth-quarter sales)
Branded and non-branded food sold in retail and foodservice channels.

The Consumer Foods segment posted sales of $2,027 million and operating profit of $367 million for the fourth quarter. Sales increased slightly as reported, reflecting favorable price/mix of 2%, approximately 2% benefit from acquisitions (net of divestitures), and an organic volume decline of 3%. The volume decline reflects difficult market conditions, including soft demand and the impact of price increases necessitated by high input costs. Net prices have increased for key areas of the portfolio, including cooking oil-related products, frozen foods and snacks. Additional net pricing increases have been implemented early in fiscal 2012, and the company will continue taking responsible pricing actions as market conditions require.

  • Brands posting sales growth for the quarter includedHebrew National, Marie Callender’s, Peter Pan, Reddi-wip, Ro*Tel, Slim Jim, Wesson, and others.
  • More brand details can be found in the Q&A document accompanying this release.

Operating profit of $367 million was 63% above the $226 million in the year-ago period, as reported. Current-quarter operating profit includes $95 million of net benefit from items impacting comparability, the largest component of which is an insurance-related gain; prior-year amounts include $69 million of net expense from items impacting comparability. Adjusting for those amounts, comparable current-quarter operating profit of $273 million was 7% below prior-year comparable operating profit of $295 million. The comparable profit decline reflects very high input cost inflation, which approximated 9% of cost of goods sold; inflation was partially offset by pricing actions, as discussed above, as well as strong supply chain savings, lower advertising and promotion expense, and lower incentive compensation expense.

Commercial Foods Segment (37% of fourth-quarter sales)
Specialty potato, sweet potato, milled grain products and seasonings, blends, and flavors sold to foodservice and commercial channels worldwide.

Sales for the Commercial Foodssegment were $1,183 million, 15% above year-ago amounts. The sales increase reflects higher flour milling prices given higher wheat costs, as well as improved volumes for Lamb Weston specialty potato products and price increases necessitated by high input costs.

Segment operating profit was $127 million, 14% above year-ago amounts. Lamb Weston profitability improved significantly due to higher volumes and ongoing pricing initiatives, as well as operating efficiencies resulting from improved crop quality. Lamb Weston profitability also benefitted from good volume growth for sweet potato products and other favorable product mix. Flour milling profits increased from year-ago amounts due to favorable market conditions and effective commodity management in a very volatile wheat market.

Capital and Other Items

  • Corporate expense was $58 million for the quarter and $124 million in the year-ago period. Current-quarter amounts include $7 million of net hedging benefit, and prior-year amounts include $18 million of expense from other items impacting comparability. Excluding these amounts, Corporate expense was $66 million for the current quarter and $106 million in the year-ago period; the decrease largely reflects lower incentive compensation expense, and, to a lesser extent, other benefits from ongoing cost reduction efforts.
  • Net interest expense was $55 million in the current quarter, compared with $39 million in the year-ago period. The increase is due primarily to a former debtor’s repayment in full of the payment-in-kind notes receivable related to the divestiture of the Trading & Merchandising operations, and thus the company no longer receives interest income from those notes. Prior-year amounts included $22 million of income from those notes.
  • The company repurchased approximately $138 million, or approximately 6 million shares, of its common stock during the quarter. The company has approximately $125 million remaining on its existing share repurchase authorization.
  • Equity method investment earnings were $9 million in the current quarter and $4 million in the year-ago period.
  • The effective tax rate for continuing operations for the quarter was approximately 33%.
  • For the quarter, capital expenditures from continuing operations for property, plant and equipment were $119 million, compared with $123 million in the year-ago period. Depreciation and amortization expense from continuing operations was approximately $97 million for the quarter; this compares with a total of $85 million in the year-ago period.
  • Dividends for the quarter totaled $98 million versus $89 million for the year-ago period, reflecting an increase in the dividend rate earlier this fiscal year, which was partially offset by the impact of fewer shares outstanding.
  • The company settled its property and business interruption claims related to the June 2009 Garner, N.C., event. In connection with this settlement, the company recorded a pretax gain of approximately $105 million in the fourth quarter, which has been classified as an item impacting comparability in the Consumer Foods results.
  • During the quarter, the company sold its frozen handheld operations, which generated approximately $50 million in net sales in fiscal 2011. The results of those operations, which were not material, have been reclassified to discontinued operations for all periods presented.
  • Subsequent to quarter end, the company purchased the Marie Callender’s brand trademarks from Marie Callender Pie Shops, Inc., for approximately $58 million.

Outlook

The company expects fiscal 2012 EPS, adjusted for items impacting comparability, to grow at a low- to mid-single-digit rate over the comparable fiscal 2011 diluted EPS base of $1.75. The outlook reflects pricing actions under way in both segments and the expected benefit of productivity programs, along with estimated 7-8% inflation in the Consumer Foods segment and increased pension expense. Given the timing of inflation and pricing, the company expects the fiscal 2012 EPS growth to be concentrated in the second half of the fiscal year, and for the fiscal 2012 first quarter EPS to be below the comparable $0.34 earned in the first quarter of fiscal 2011.

The company’s long-term EPS growth target remains 6-8% annually, adjusted for items impacting comparability.

Major Items Impacting Fourth-quarter Fiscal 2011 EPS Comparability

Included in the $0.62 diluted EPS from continuing operations for the fourth quarter of fiscal 2011 (EPS amounts rounded and after tax):

  • Approximately $0.16 per diluted share of gain, or $105 million pretax, resulting from an insurance settlement related to the Garner, N.C., event that occurred in 2009. This is classified as a reduction of selling, general and administrative (SG&A) expense within the Consumer Foods segment.
  • Restructuring charges of approximately $0.02 per share, or $11 million pretax, classified as $9 million of cost of goods sold and $2 million of SG&A within the Consumer Foods segment. These charges relate to the company’s decision to move manufacturing activities for efficiency purposes, as well as other plans to optimize manufacturing and distribution networks.
  • Approximately $0.01 per diluted share of net benefit, or $7 million pretax, related to the mark-to-market impact of derivatives used to hedge input costs, temporarily classified in unallocated Corporate expense. These amounts will later be reclassified to the operating segments when underlying hedged items are expensed in cost of goods sold.

Included in the $0.27 diluted EPS from continuing operations for the fourth quarter of fiscal 2010 (EPS amounts rounded and after tax):

  • Approximately $0.05 per diluted share of restructuring expense resulting primarily from the company’s decision to move manufacturing activities in Garner, N.C., to Troy, Ohio, as well as the company’s decision to move administrative functions in Edina, Minn., to Naperville, Ill. Pretax costs of $39 million are classified as $3 million of cost of goods sold and $32 million of SG&A expense within the Consumer Foods segment, and $4 million of SG&A expense classified within unallocated Corporate expense.
  • Approximately $0.05 per diluted share of impairment charges in the Consumer Foods segment resulting from an updated assessment of manufacturing strategies and the related impact on an existing facility. The $33 million of pretax impairment charge is classified as SG&A.
  • Approximately $0.02 per diluted share of expense, or $14 million of pretax transaction-related costs associated with securing federal tax benefits related to the Delhi, La., sweet potato project.
  • Approximately $0.01 per diluted share of net income tax benefits resulting in a lower-than-planned effective income tax rate.
  • NOTE: Gilroy Foods & Flavors’ dehydrated vegetable operations generated approximately $0.01 of EPS in the fourth quarter of fiscal 2010. Given the divestiture of those operations, the $0.01 of EPS is classified as discontinued operations. While not included in EPS from continuing operations, the $0.01 is included in the comparable EPS base for fiscal 2010 because those earnings were included in guidance for that year.

Discussion of Results

A rebroadcast of the conference call. To access the digital replay, a pass code number will be required. Domestic participants should dial 1-888-203-1112, and international participants should dial 1-719-457-0820 and enter pass code 1850452. A rebroadcast also will be available on the company’s website.

In addition, the company has posted a question-and-answer supplement relating to this release at http://investor.conagrafoods.com.

ConAgra Foods, Inc., (NYSE: CAG) is one of North America's leading food companies, with brands in 97 percent of America's households. Consumers find Banquet, Chef Boyardee, Egg Beaters, Healthy Choice, Hebrew National, Hunt's, Marie Callender's, Orville Redenbacher's, PAM, Peter Pan, Reddi-wip, Slim Jim, Snack Pack and many other ConAgra Foods brands in grocery, convenience, mass merchandise and club stores. ConAgra Foods also has a strong business-to-business presence, supplying frozen potato and sweet potato products as well as other vegetable, spice and grain products to a variety of well-known restaurants, foodservice operators and commercial customers. For more information, please visit us at www.conagrafoods.com.

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