ConAgra Sees 'Slow Start' to Fiscal 2014, but Expects Improvement with Ardent Mills Joint Venture

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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 an overall decline in profits for the first quarter of fiscal year 2014, as volumes softened and the company upped its investments in new products. Net income was reported to be $144.3 million, a 42.3% decrease from the first quarter of fiscal-year 2013.

Net sales stood at $4.2 billion, a 27.24% increase from the same period last year. Among the recognizable ConAgra brand names that reported growth for the quarter were Egg Beaters, Hunt's, Reddi-wip, Swiss Miss and Wesson. But the Consumer Foods segment reported a relatively weak sales performance, particularly for frozen foods, as well as higher marketing costs from promoting new products. The segment also reported declines in organic volumes and price mix. The Commercial Foods segment saw a significant setback when a top foodservice customer declined to renew most of its business for the company's Lamb Weston potato products; however, the remainder of the Lamb Weston business reported growth, as did the segment's flour-milling operations.

ConAgra reported $37 million in pretax expenses related to restructuring, integration and transaction costs, and $21 million in pretax expenses related to the mark-to-market impact of derivatives used to hedge input costs. In the same period last year, the mark-to-market impact was a $130 million pretax benefit.

Capital expenditures on property, plants and equipment were reported to be $181 million in the first quarter of fiscal 2014, compared with $98 million in the same period last year. ConAgra executives attributed $34 million of the increase to Ralcorp, a store-brand food manufacturer that it recently acquired for about $6.8 billion, and cited plant expansions and improvements as the drivers behind the overall increase.

Industrial Info is tracking $439 million in active projects involving ConAgra, including the $100 million expansion of a frozen dinner production plant in Russellville, Arkansas. The project involves constructing a 30,000-square-foot building addition at the existing plant, as well as relocating and installing frozen food equipment and machinery from another plant and installing a plate freezer. It is expected to be completed in June 2014.

"We got off to a slow start in fiscal 2014," said Gary Rodkin, the chief executive officer of ConAgra, in a conference call. "While that certainly isn't the way we wanted to begin our fiscal year, I can assure you that we've been taking action, and we're very focused on the actions required to drive improvement throughout the year."

Among the improvements that ConAgra executives expect to see later in the year is the performance of Lamb Weston, which is expanding its business with new customers. Rodkin said that the company also plans to make its milling operations part of Ardent Mills, a joint venture between Cargill (Wayzata, Minnesota) and CHS Incorporated (NASDAQ:CHSCP) in which ConAgra will have 44% ownership.

"As we go forward in the fiscal year, we have plans to improve volume, and we anticipate cost favorability driven by lower-than-planned inflation, as well as better-than-planned [sales, general and administrative] cost savings--all of which suggest better quarterly trends," Rodkin said in the conference call. He expected the strongest growth to come in the second half of the fiscal year.

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, three offices in North America and nine international offices, 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.