ConAgra said private-label division would take longer to see profits improve

ConAgra said private-label division would take longer to see profits improve

ConAgra Foods has reported a fall in second-quarter profits on the back of a writedown on its private-label business, with the US food group warning it will take longer than expected to see the unit's profits improve.

The company booked total segment operating profit of US$600.5m for the three months to 23 November, down 31.1% on the year.

ConAgra's consumer and commercial foods divisons both saw operating profit increase but the private-label writedown meant that side of the business booked an operating loss of $160.4m - compared to profit of $155.3m a year earlier.

Even after adjusted for the $247m writedown and other one-off items in the second quarter and in last year's corresponding period, ConAgra said comparable operating profit from private label tumbled 46%.

It pointed to "pricing concessions made last fiscal year but not yet lapped" and said lower volumes resulting amid "an intense bidding environment" hit private-label earnings. The company also said higher commodity costs also weighed on profits.

ConAgra said it now expects year-over-year profits for the division to improve in its next financial year instead of the current period. It forecast comparable operating profits from the unit to fall this year compared to in 2013/14.

As well as an intense bidding environment, ConAgra cited "heavy discounting" by branded manufacturers.

"Based on current executional challenges, we expect the recovery in the private brands segment to take longer than previously expected," CEO Gary Rodkin said. "Our team is highly focused on opportunities to drive improved execution in this segment over the next several quarters, and we expect these efforts to enable the segment to grow profits in fiscal 2016. We remain confident in the long-term potential for our private brands segment given the important role of these products to consumers and trade customers and our ability to utilise our infrastructure to add value for customers."

Second-quarter net income stood at $15.9m, down sharply from the $252.4m it generated a year earlier. Sales dipped 1.7% to $4.15bn.

First-half net profit was up, rising 25.2% to $500.4m. Net sales fell 1.1% to $7.85bn.

Shares in ConAgra were down 2.56% at $36.15 at 10:59 ET.