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UPDATE 2-ConAgra sees recovery in private brands, consumer foods
June 26, 2014 / 1:00 PM / 3 years ago

UPDATE 2-ConAgra sees recovery in private brands, consumer foods

(Adds details from conference call, analyst comment; updates shares)

By Sruthi Ramakrishnan

June 26 (Reuters) - ConAgra Foods Inc forecast a modest recovery in profit and revenue in its underperforming private-brands business and said it expected its focus on healthier options such as low-fat meals to boost its consumer brands business this year.

ConAgra reported better-than-expected fourth-quarter revenue as higher sales in its commercial foods division, which makes ingredients for other manufacturers and restaurants, made up for weakness in the consumer foods and private brands businesses.

As with General Mills Inc, ConAgra’s consumer brands - particularly Healthy Choice, Orville Redenbacher’s popcorn and Chef Boyardee pasta - have suffered as consumers opt for healthier meals and cook more at home.

ConAgra’s private brand business, meanwhile, has been struggling with the hangover from deals struck by Ralcorp Holdings, which it bought for $5 billion in January last year.

ConAgra Chief Executive Gary Rodkin said the company had underestimated the issues it inherited by buying RalCorp, which had just started to restructure.

“We knew there would be work to do but underestimated the degree of difficulty and the amount of time it would take to course-correct,” Rodkin said in a post-earnings call.

With its purchase of Ralcorp, ConAgra became the biggest U.S. private-label food company. But the business has struggled to reach profit targets, in part due to cut-price deals Ralcorp had entered into with customers before it was taken over.

ConAgra, which also makes Slim Jim beef jerky and Hunt’s ketchup, said it expected per share profit to grow at a mid-single digit percentage rate in the year ending May 2015.

The company earned $2.17 per share in fiscal 2014.

Sales and profit in its private label business were likely to grow “modestly” as price concessions come to an end, mostly in the second half, ConAgra said.

ConAgra cut its full-year profit forecast twice in the just-finished fiscal year.

Noting that, Rhino Trading Partners LLC analyst Timothy Chen said the company’s forecast needed to be taken with a pinch of salt. “I think it’s an obtainable target but they certainly need to execute,” he told Reuters.

Chief Financial Officer John Gehring said ConAgra expected cost synergies from the Ralcorp acquisition to reach $300 million of annual pre-tax benefit by the year ending May 2017.

But profit in the private brands business will not be as strong as ConAgra had originally expected for several years, he said on the call.

ConAgra reported a net loss of $324.2 million, or 77 cents per share, compared with a profit of $192.2 million, or 46 cents per share, a year earlier.

Excluding items such as restructuring costs, ConAgra earned 55 cents per share. Revenue fell almost 3 percent to $4.44 billion, but beat the average analyst forecast of $4.40 billion, according to Thomson Reuters I/B/E/S.

The company’s shares were up less than 1 percent at $28.98 in early afternoon trading on the New York Stock Exchange. (Reporting by Sruthi Ramakrishnan in Bangalore; Editing by Don Sebastian, Rodney Joyce and Ted Kerr)

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