ConAgra Faces High Inflation, Wary Customers in Fourth-Quarter, Full-Year 2012, Sees Easier Road Ahead

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Researched by Industrial Info Resources (Sugar Land, Texas)--Leading North American food company ConAgra Foods Incorporated (NYSE:CAG) (Omaha, Nebraska) reported gains in sales but sharp declines in profits in fourth-quarter and full-year 2012, as 6% inflation and weak consumer sentiment weighed down steady sequential improvement. The quarter saw a net loss of $86.2 million, compared with a gain of $250.1 million in the fiscal fourth quarter of 2011. The full year saw $467.9 million in net income, a 42.77% decrease from full-year 2011.

Net sales stood at $3.41 billion for the quarter, a 6.34% increase from the same period last year, and $13.26 billion for the year, a 7.8% increase from 2011. The Consumer Foods segment benefited from a favorable price mix and contributions from recent acquisitions, including Del Monte Canada and Odom's Tennessee Pride, both of which were acquired during the quarter. However, the segment also recorded a 5% drop in volumes. The Banquet brand accounted for much of this decline, which was attributed to large price increases earlier in the year.

The Commercial Foods segment benefited from double-digit profit growth in the Lamb Weston potato business, as well as increased volumes in Lamb Weston and the flour milling business. However, flour milling reported a profit decline due to unfavorable market conditions.

Capital expenditures were reported to be about $98 million for the quarter, compared with $119 million in fourth-quarter 2011, and $340 million for the fiscal year, compared with an earlier estimate of $400 million. ConAgra executives attributed the decline to the changes in timing of several projects.

Industrial Info is tracking $216 million in ConAgra projects, including $50 million in additions at a nutritional bars plant in Grand Rapids, Michigan, and $44 million in modernizations at a margarine plant in Indianapolis, Indiana. Plans for the Grand Rapids project involve adding a research & development center for product development and innovation, while plans for the Indianapolis project is involve replacing or upgrading antiquated facilities and process equipment, as well as changing the production process to remove hydrogenated oils from the margarine. The projects are set to be completed in September and December of next year, respectively.

"The big challenge continues to be shopper behavior and its impact on industry volumes," said Gary Rodkin, the chief executive officer of ConAgra, in a conference call. "Specifically, shoppers continue to be extremely value-conscious with their choices at the grocery store. Shoppers are sticking to a list, expecting significant value for everything and keeping food inventories at home to a minimum. They're being frugal, and eating more leftovers."

Both of ConAgra's operating segments reported solid gains in sales for the quarter and the year, but Consumer Foods saw declines in operating profits:

• The Consumer Foods segment reported sales of $2.15 billion for the quarter, a 6.06% increase from fourth-quarter 2011, and operating profits of $269.5 million, a 26% decrease. The segment reported sales of $8.38 billion for the year, a 4.68% increase from 2011, and operating profits of $1.05 billion, a 6.49% decrease.
• The Commercial Foods segment reported sales of $1.26 billion for the quarter, a 6.83% increase from fourth-quarter 2011, and operating profits of $138 million, a 7.48% increase from the same period last year. The segment reported sales of $4.89 billion for the year, a 13.59% increase from 2011, and operating profits of $546.3 million, a 7.22% increase.

ConAgra executives expect the Consumer Foods segment to see solid profit growth in fiscal year 2013 as a result of contributions from the businesses acquired during fiscal year 2012. The Commercial Foods segment is expected to see continued benefits from the momentum in the Lamb Weston potato business in the new fiscal year, and executives believe the flour milling business will see gradual improvements. Moderating inflation is expected to help both segments as well.

"While branded retail marketplace conditions will still be challenging, we're planning for good earnings growth for a number of reasons," Rodkin said in the conference call. "First, we'll have the benefit of acquisitions completed in 2012... We also have ongoing momentum from Lamb Weston, and we feel very good about that. Third, we expect to see benefits to Consumer Foods margins as a result of effective margin management and less inflation."

Capital expenditures for fiscal year 2013 are expected to be about $450 million.

For more information, visit Industrial Info's North American Food & Beverage Project Database.

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Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.