Tough Market Conditions Weaken ConAgra Foods in Second Quarter of Fiscal Year 2011

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Researched by Industrial Info Resources (Sugar Land, Texas)--Leading North American food company ConAgra Foods Incorporated (NYSE:CAG) (Omaha, Nebraska) saw mixed results in the second quarter of the company's fiscal year 2011 as difficult market conditions and a weaker-than-expected customer response to promotions resulted in a slight dip in profits, despite overall progress in sales. Net income for the quarter was reported to be $200.9 million, a 16.19% decrease from second-quarter 2010.

Total sales stood at $3.16 billion, a 1.97% increase from the same period last fiscal year. Although ConAgra saw strong sales results from consumer frozen foods and benefited from higher selling prices for flour-milling operations, the Commercial Foods segment was negatively affected by last year's costly, low-quality potato crop. Higher-than-expected inflation also ate away at profits.

"Consumers are shopping for less, making more quick trips to the store instead of stocking up as much, and being as value-conscious as we've ever seen," said Gary Rodkin, the chief executive officer of ConAgra, in a conference call. "So we did not get the lift on the promotions that we would normally expect to see, and that negatively impacted price mix and profitability. We've learned from this, and we have insights and strategies that we believe will help us better address the new shopping behavior."

In regards to the Commercial Foods segment, Rodkin said the company "is past the worst of the restaurant trends, as we are seeing slight improvements."

Although both ConAgra segments saw a slight increase in sales when compared to second-quarter 2010, operating profits dipped:

• The Consumer Foods segment reported $2.1 billion in sales, a 1.26% increase from the same period last year, but saw $283.9 million in operating profits, a 13.97% decrease.
• The Commercial Foods segment reported $1.06 billion in sales, a 3.41% increase from second-quarter 2010, but saw $126.3 million in operating profits, a 16.36% decrease.

Rodkin expressed optimism for the second half of fiscal 2011, noting that a much stronger potato crop was expected, as well as improved pricing to better reflect cost inflation and lower selling, general and administrative expenses.

"To be clear, our Consumer Foods cost savings are on track," Rodkin said in the conference call. "We should exceed our $175 million (in savings) goal this year. Our expectations all along have been to generate slightly higher savings in the back half, compared to the first half."

Industrial Info is tracking 13 active ConAgra projects in North America that are worth a total of more than $240 million, including a $60 million expansion at a 215,000-square-foot frozen food plant in Troy, Ohio. The project involves the construction of a 75,000-square-foot building addition and the installation of four production lines for the production of Slim Jim Meat Snacks. For more information, visit Industrial Info's North American Food and Beverage Project Database.

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