US: ConAgra cuts profit forecast again

By Hannah Abdulla | 11 February 2014

ConAgra has lowered its outlook for 2014

ConAgra has lowered its outlook for 2014

Shares in ConAgra Foods plunged more than 7% today (11 February) as the US food giant company announced it was lowering its forecast for annual earnings for the second time.

The Chef Boyardee and Healthy Choice owner cut its earnings target in September after weaker-than-expected sales in its fiscal first quarter. Today (11 February), it reduced its guidance again. It now forecasts approximately $2.22-$2.25 per share, against its September estimate of $2.34-$2.38.

ConAgra attributed the new forecast to it taking "longer than expected" to restore its private-label division to planned levels of operating profit It also cited "weaker than expected volumes in the consumer foods segment" due to poor potato crop quality that was "negatively impacting operating efficiencies and margins". The company also pointed to the loss of a major foodservice distribution customer last year.

CEO Gary Rodkin said: "These challenges have made forecasting fiscal 2014 very difficult. While the challenges this year have been unfavourable surprises for our investors and our team, I want to be clear that nothing has changed with regard to our conviction about our long-term potential and EPS growth prospects. We have a rich pipeline of synergies resulting from last year's acquisition of Ralcorp. The synergy capture is on track, and we expect it to play a key role in driving strong long-term EPS growth."

US private-label group Ralcorp Holdings was purchased last year in a US$6.8bn deal.

Rodkin added that ConAgra plans to stabilise the performance of a few key brands in fiscal 2015 through promotional activities.

Meanwhile, ConAgra said its planned milling venture with Cargill and CHS, which had been set to close in the first calendar quarter of 2014, was now expected to be finalised later in the year.

ConAgra Foods plans to join Horizon Milling, an existing joint venture between Cargill and CHS. The agreement would see the creation of a flour business - to be called Ardent Mills - that would control around one-third of the nation's flour production.

ConAgra cited "various reasons, including the ongoing regulatory review process".

Last summer, there were reports a group of states jointed a federal anti-trust investigation into the joint venture. According to Reuters, which cited two unnamed sources, a number of wheat-growing states were concerned Ardent would have the power to push down prices paid to farmers. The states, purportedly lead by the Oklahoma Attorney General, were apparently working to assist the Department of Justice investigation into the proposal.

A spokesperson for ConAgra told just-food today that the company "remains actively engaged in discussions with the US Department of Justice," to get the transaction completed. However, she said she was "unable to provide specifics of that discussion".

The spokesperson added: "Ardent Mills will provide expanded opportunities for wheat growers to add value to the wheat they raise and handle."

Show the press release

OMAHA, Neb.--(BUSINESS WIRE)--Feb. 11, 2014-- Today ConAgra Foods, Inc.(NYSE:CAG) is providing a revised financial outlook for fiscal 2014. Previously the company had expected diluted EPS of $2.34-$2.38, adjusted for items impacting comparability; the company now expects diluted EPS of approximately$2.22- $2.25, adjusted for items impacting comparability. The revision largely reflects a longer-than-expected timeframe to restore the Private Brands segment to planned levels of operating profit. The revision also reflects weaker-than-expected volumes in the Consumer Foods segment, primarily for a few key brands, as well as margin pressures in the Commercial Foods segment driven by customer mix challenges and poorer-than-expected potato crop quality.

Gary Rodkin, CEO of ConAgra Foods, commented, “We are intensely focused on improving our business. It is taking longer than expected to stabilize the performance of the Private Brands segment, which has been below plan because of pricing, sales force coverage, and customer service issues largely resulting from restructuring actions taken before we bought that business last year. We view these as near-term issues only, and remain fully confident in our private brands strategy and the growth opportunities resulting from the recent acquisition of Ralcorp."

Rodkin noted that in the Consumer Foods segment, the company plans to stabilize the performance of a few key brands in fiscal 2015 by continuing to optimize promotional and merchandising activities through a focus on core heavy users. He also noted that the Lamb Weston potato operations (in the Commercial Foods segment) have experienced continued margin pressures in connection with an ongoing customer mix shift resulting from the loss of a major foodservice distribution customer last summer. The recent potato crop quality is also lower-than-planned, which is also negatively impacting operating efficiencies and margins. Performance in that segment is expected to improve in fiscal 2015.

He continued, “These challenges have made forecasting fiscal 2014 very difficult. While the challenges this year have been unfavorable surprises for our investors and our team, I want to be clear that nothing has changed with regard to our conviction about our long-term potential and EPS growth prospects. We have a rich pipeline of synergies resulting from last year’s acquisition of Ralcorp. The synergy capture is on track, and we expect it to play a key role in driving strong long-term EPS growth.”

Previously the company had expected to complete the formation of Ardent Mills, a joint venture with Cargill, Incorporated and CHS Inc., in the first quarter of calendar 2014; due to various reasons, including the ongoing regulatory review process, the company now expects the transaction to close in the second quarter of calendar 2014. As previously communicated, ConAgra Foods will contribute its flour milling operations and related businesses operated through its ConAgra Mills division into this venture, and will receive a 44% ownership stake.ConAgra Foods also expects to receive approximately $400 million in connection with the closing of the transaction. The company continues to expect to use these proceeds to accelerate debt repayment.

Because of the revised Ardent Mills closing date, the company’s previous estimate of $0.03 of EPS dilution in fiscal 2014 related to the formation of the venture no longer applies; the revised fiscal 2014 diluted EPS guidance of approximately $2.22-$2.25, adjusted for items impacting comparability, reflects that there will not be any Ardent Mills-related dilution in fiscal 2014. The company expects Ardent Mills-related EPS dilution in fiscal 2015, and it will quantify that impact, along with other financial details related to fiscal 2015, at a later date.

Other Financial Details:

  • Original plans called for the former Ralcorp assets to contribute approximately $0.25 to EPS in fiscal 2014, and the company now estimates that number to be approximately$0.20.
  • The company had previously expected volumes for the Consumer Foods segment to decline 1-2% in the second half of fiscal 2014; that decline is now likely to be 3-4% primarily due to challenges for a few key brands.
  • The company currently targets fiscal 2014 third quarter diluted EPS in the range of $0.60and fiscal 2014 fourth quarter diluted EPS in the range of $0.65, each adjusted for items impacting comparability.
  • The company’s continual focus on cost reduction throughout the organization has led to plans for additional administrative cost efficiency initiatives; the company will share details of those plans once they have been finalized and approved.
  • The company now expects operating cash flow to be approximately $1.4 billion in fiscal 2014, down from earlier estimates. The company continues to expect to repay $1.5 billionof debt by the end of fiscal 2015. This amount excludes the approximate $400 million of cash proceeds expected to be received in connection with the Ardent Mills transaction; that amount is also expected to be deployed toward debt reduction. There is no change to the company’s strong dividend policy or any long-term capital allocation plans.
  • Some of the challenges weighing on fiscal 2014 diluted EPS will likely impact fiscal 2015 diluted EPS growth as well, so the company currently expects the fiscal 2015 diluted EPS growth rate to be less than the double-digit target previously communicated. The company will provide more specific comments about the fiscal 2015 outlook with the fiscal 2014 year-end release when final plans have been completed.
  • The company still expects double-digit comparable diluted EPS growth in fiscal 2016 and 2017 based partly on its rich synergy pipeline resulting from integrating Ralcorp. Estimates for synergies related to the Ralcorp acquisition are unchanged at $300 million by the end of fiscal 2017. For the timeframe after fiscal 2017, estimates for annual sales growth of 3-4% and annual EPS growth of 7-9%, adjusted for items impacting comparability, are unchanged.

The inability to predict the amount and timing of future items makes a detailed reconciliation of projections of diluted EPS, adjusted for items impacting comparability, impracticable.

ConAgra Foods will host a conference call at 10:00 a.m. EST today to discuss the results. Following the company’s remarks, the call will include a question-and-answer session with the investment community. Domestic and international participants may access the conference call toll-free by dialing 1-888-599-4883 and 1-913-312-1448, respectively. No confirmation or pass code is needed. This conference call also can be accessed live on the Internet athttp://investor.conagrafoods.com.

A rebroadcast of the conference call will be available after 1 p.m. EST today. To access the digital replay, a pass code number will be required. Domestic participants should dial 1-888-203-1112, and international participants should dial 1-719-457-0820 and enter pass code 1919312. A rebroadcast also will be available on the company’s website.

ConAgra Foods, Inc., (NYSE: CAG) is one of North America's largest packaged food companies with branded and private branded food found in 99 percent of America’s households, as well as a strong commercial foods business serving restaurants and foodservice operations globally. Consumers can find recognized brands such as Banquet®, Chef Boyardee®, Egg Beaters®, Healthy Choice®, Hebrew National®, Hunt's®, Marie Callender's®, Orville Redenbacher's®, PAM®, Peter Pan®, Reddi-wip®, Slim Jim®, Snack Pack® and many other ConAgra Foods brands, along with food sold by ConAgra Foods under private brand labels, in grocery, convenience, mass merchandise, club and drug stores. Additionally, ConAgra Foods supplies frozen potato and sweet potato products as well as other vegetable, spice, bakery and grain products to commercial and foodservice customers. ConAgra Foods operates ReadySetEat.com, an interactive recipe website that provides consumers with easy dinner recipes and more. For more information, please visit us at www.conagrafoods.com.

Note on Forward-looking Statements

Original source: ConAgra

Sectors: Canned food, Condiments, dressings & sauces, Financials, Frozen, Private label, Snacks

Companies: ConAgra Foods, Cargill, Ralcorp Holdings

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