December 21, 2010 / 1:14 PM / 7 years ago

UPDATE 4-ConAgra profit falls, looks ahead to price hikes

3 Min Read

* Q2 EPS $0.45 meets Wall Street's lowered estimate

* Sales up 2 pct to $3.16 bln, ahead of Street view

* Affirms '11 target for low-single-digit EPS growth (Adds comment from analyst, CEO; share activity)

By Martinne Geller

NEW YORK, Dec 21 (Reuters) - ConAgra Foods Inc (CAG.N) is looking to price increases to help boost results in coming months after reporting quarterly profit that fell due to rising commodity costs and weak response to promotions.

The maker of Healthy Choice meals and Slim Jim beef sticks warned earlier this month that its second-quarter profit was weaker than it had expected and cut its 2011 forecast for the second time. [ID:nN09222445]

Volume and market share increased in the consumer foods division, which made up two-thirds of quarterly sales. But profit declined due to pricing pressure, commodity inflation that outpaced savings, and a weaker-than-expected consumer response to promotions. Looking ahead, the company said price increases, productivity improvements, lower costs and new products should help that business moving forward.

Some price increases have recently been implemented, the company said, and more are under way.

"We are confident that the net effect of these pricing increases will be positive, despite some potential modest volume decline," said ConAgra Chief Executive Gary Rodkin.

Stifel Nicolaus analyst Christopher Growe expressed caution about whether ConAgra will see a strong rebound in the second half of the year due to price increases.

He affirmed his "Hold" rating on the shares, and said the difficult second quarter was already priced into the stock, which trades at a 20 percent discount to its large-cap peers.

ConAgra shares slipped 2 cents, or 0.1 percent, to $22.42 on the New York Stock Exchange in early morning trade.

ConAgra said on Tuesday that net income was $200.9 million, or 45 cents per share, in its fiscal second quarter, down from $239.7 million, or 54 cents per share, a year earlier.

Analysts on average had been expecting profit of 45 cents per share, according to Thomson Reuters I/B/E/S, based on the company's preliminary report. Before that, they expected 50 cents per share.

Profit in the company's commercial foods division, which supplies french fries and other foods to restaurants and other food service outlets, was also lower than expected, due to a high-cost, unusually low-quality potato crop last year.

"In aggregate, it was a challenging quarter," Rodkin said.

Net sales rose 2 percent to $3.16 billion, ahead of analysts' estimate of $3.13 billion.

The company affirmed its target for fiscal 2011, saying it expects earnings to grow at a low-single-digit rate from the 2010 earnings of $1.74 per share, excluding items. (Reporting by Martinne Geller, editing by Gerald E. McCormick, Dave Zimmerman)

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