Strong Prices, Volumes Keep ConAgra Foods Healthy Amid Rising Inflation in Fiscal Third-Quarter 2012

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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 solid gains in sales and profits in the third quarter of its fiscal year 2012, despite high industry inflation and soft volumes in the retail market. Price increases, which were deemed necessary to battle inflation, substantially benefited both of the company's operating segments. Net income for the quarter was reported to be $271.6 million, a 26.44% increase from fiscal third-quarter 2011.

Total sales stood at $3.37 billion, a 7.38% increase from the same period last year. The Commercial Foods segment saw a boost in volumes from its Lamb Weston potato products, despite a profit decline in milling operations, and benefited from commodity-driven price increases. The Consumer Foods segment also reported favorable pricing, but saw a slight decline in volumes produced. Among the popular Consumer Foods brands that performed well during the quarter were Chef Boyardee, Marie Callender's, Orville Redenbacher's, PAM, Reddi-wip, Slim Jim and Wesson.

Capital expenditures totaled $79 million in the quarter, compared with $136 million in fiscal third-quarter 2011. During the quarter, ConAgra completed its purchase of the National Pretzel Company (Lancaster, Pennsylvania) and reported $59 million in gains from its investment in Agro Tech Foods Limited (Gurgaon, India). ConAgra also increased this investment to become the majority owner of Agro Tech. Following the end of the quarter, ConAgra used $185 million in cash on hand to acquire Del Monte Canada (Toronto, Ontario).

Industrial Info is tracking $149 million in active ConAgra projects in the U.S., including two significant expansions at a flour mill in Oakland, California, and a frozen French fries plant in Connell, Washington. The $15 million Oakland project involves replacing and modifying existing equipment to increase the total mill output from 500 tons to 700 tons per day. The $5.5 million Connell project involves adding about 4,000 square feet of building space and installing processing equipment to increase production capacity.

"Macroeconomic conditions continue to be difficult, and that weighed on our third-quarter results," said Gary Rodkin, the chief executive officer of ConAgra, in a conference call. "Across the industry, retail volumes are soft, and inflation for consumer foods during the quarter was the highest we've seen all year, at 11%. While inflation for some commodities has eased, other areas--like protein, packaging and fuel--have continued to rise dramatically. And as we've shared previously, shoppers continue to be very value-oriented and price-sensitive."

Both of ConAgra's operating segments reported substantial gains in both sales and operating profits:

• The Consumer Foods segment reported sales of $2.16 billion for the quarter, a 4.1% increase from third-quarter 2011, and operating profits of $331.3 million, a 20.04% increase from the same period last year.
• The Commercial Foods segment reported sales of $1.22 billion for the quarter, a 13.73% increase from third-quarter 2011, and operating profits of $150 million, a 6.69% increase from the same period last year.

ConAgra executives are expecting "modest" growth for the company in fiscal fourth-quarter 2012. The Consumer Foods segments is anticipating steady growth from a slowdown in the rate of inflation, while the Commercial Foods segment is projected to see strong profit growth from the ongoing momentum of potato product sales. Pricing actions already taken in both segments also are expected to be beneficial.

"We continue to face a very challenging marketplace, particularly for our core consumer, who is spending more cautiously, given food and fuel inflation, unemployment, and housing pressures," Rodkin said in the conference call. "We'll navigate this environment with balanced pricing, smart marketing, and cost-saving initiatives that will allow us to continue to deliver tremendous value to consumers in these economic times. At the same time, we hope recent signs of a modest job recovery continue and gasoline prices recede."

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.