US: Ralcorp hits ConAgra bottom line but core profits up

By Katy Askew | 3 April 2013

  •  Q3 net profit down 56%
  •  Q3 adjusted operating profit up 3%
  •  Higher 9M operating profit, net income 
ConAgra upbeat despite Q3 profit hit

ConAgra upbeat despite Q3 profit hit

Costs related to ConAgra Foods' acquisition of US peer Ralcorp Holdings hit its bottom line in the third quarter of its financial year - although the company insisted underlying profits were up.

ConAgra's third quarter net profit was down 56%, dropping to US$123.4m, the company revealed today (3 April). The bottom line was hit by expenses associated with the group's acquisition of Ralcorp, which the company maintained would be accretive to earnings during this financial year.

During the quarter, which ran until 24 February, operating profit fell to US$284m, down from $331m in the comparable period of last year. This included a $5m contribution from Ralcorp. However, stripping out a benefit last year from the Agro Tech Foods transaction, ConAgra emphasised adjusted operating profit was up 3%.

In the first nine months of the year, ConAgra booked a 7.9% increase in operating profit to $1.28bn. Net income was up 6.1% at $592.1m.

Sales increased to $10.98bn from $9.93bn in the year-to-date. The near 10% gain was aided by improved volumes, as the company lapped year-ago price hikes, and the contribution from acquisitions. ConAgra has also ramped up significantly its investment in marketing behind its consumer brands.

Looking to the full year, ConAgra said it expected adjusted EPS to rise 17%. 

Show the press release

 

ConAgra Foods Reports Third Quarter Comparable EPS Growth Including Significant Increase in Marketing; Reaffirms Full-Year EPS; Announces Quarterly Dividend

OMAHA, Neb.--(BUSINESS WIRE)--Apr. 3, 2013-- ConAgra Foods, Inc., (NYSE: CAG):

Fiscal 2013 Third-quarter Highlights (% cited vs. year-ago period amounts, where applicable):

  • Diluted EPS from continuing operations of $0.29 as reported and $0.55adjusted for items impacting comparability, down as reported and up on a comparable basis.
  • Consumer Foods’ operating profit increased on a comparable basis, including an approximate 33% increase in base business marketing investment. The increase in investment reduced the quarter’s EPS by approximately $0.04 per diluted share. Segment sales increased 7%, driven by acquisitions.
  • Commercial Foods’ sales and comparable operating profit increased.
  • The company completed the acquisition of Ralcorp on January 29, 2013. ConAgra Foods’ fiscal 2013 third-quarter results include 27 days of EPS contribution from Ralcorp. The company continues to expect EPS benefit of approximately $0.05 per diluted share in fiscal 2013 from this transaction.
  • As previously stated, the company expects EPS for the full fiscal year, adjusted for items impacting comparability, to be approximately $2.15, resulting in 17% comparable year-over-year EPS growth. The $2.15 includes approximately $0.05 per diluted share benefit from the acquisition of Ralcorp.
  • The board of directors approved a dividend of $0.25 per common share to be paid on May 31, 2013, to stockholders of record at the close of business onApril 30, 2013.

ConAgra Foods, Inc., (NYSE: CAG) one of North America’s leading packaged food companies, today reported results for the fiscal 2013 third quarter endedFebruary 24, 2013. Diluted EPS from continuing operations was $0.29 in the fiscal third quarter, down from $0.67 earned in the year-ago period. Excluding$0.26 per diluted share of net expense in the current quarter, and $0.14 of net benefit in the year-ago period, from items impacting comparability, current quarter EPS of $0.55 was 4% above the comparable $0.53 earned in the year-ago period. Items impacting comparability in the third quarter of fiscal 2013 and the same period a year ago are summarized toward the end of this release and reconciled for Regulation G purposes starting on page 10.

Gary Rodkin, ConAgra Foods’ chief executive officer, said, “We are pleased with the earlier-than-planned closing of the Ralcorp transaction, sequential improvement in our Consumer Foods volumes, comparable profit growth in both of our core business segments, and the announcement of Ardent Mills, a new proposed joint venture for our milling operations. Challenges remain for key areas of our business, but a combination of successful margin improvement initiatives and a more favorable input cost environment is enabling us to significantly increase our brand investment and deliver EPS growth.”

He continued, “Our organization is very focused on the ongoing integration of Ralcorp, which will play a key role in creating shareholder value. We reaffirm our expected comparable EPS benefit of $0.05 in fiscal 2013 results and $0.25 in fiscal 2014 results, and are very excited about our earnings potential over the next few years. This is a great time to be a part of ConAgra Foods.”

Consumer Foods Segment

Branded and non-branded food sold in retail and foodservice channels.

The Consumer Foods segment posted sales of $2,303 million and operating profit of $284 million for the third quarter, as reported. Sales increased 7%, reflecting 7% contribution from acquisitions, 3% favorable price/mix, and a 3% organic volume decline. Sequentially, organic volume improved.

  • Brands posting sales growth for the quarter include Hebrew National, Hunt’s, Lightlife, Marie Callender’s, PAM, Peter Pan, Rosarita, Ro*TelSlim Jim, Swiss Miss, Wesson, and others.
  • More brand details can be found in the Q&A document accompanying this release.
  • The company has lapped most of the significant pricing taken last fiscal year in response to severe inflation; primarily for this reason, the company expects continued sequential improvement for organic volumes in the fourth fiscal quarter.

Operating profit of $284 million declined from $331 million in the year-ago period, as reported. After adjusting for $5 million of net expense in the current period, and $51 million of net benefit in the year-ago period, from items impacting comparability, current-quarter operating profit of $289 millionincreased 3% over $280 million in the year-ago period. Marketing investment for the base business (excluding recently completed acquisitions) increased approximately 33%, reflecting the company’s planned commitment to building long-term brand strength and the flexibility afforded by improved margins. Operating profit growth reflects a combination of favorable price/mix and other margin management initiatives, a more favorable input cost environment, and contribution from acquisitions.

Commercial Foods Segment

Specialty potato, seasonings, blends, flavors, and milled grain products sold to foodservice and commercial channels worldwide.

Sales for the Commercial Foods segment were $1,256 million, 1% above year-ago period amounts. Segment operating profit was $167 million, 11% above year-ago period amounts as reported. After adjusting for $10 million of net expense from items impacting comparability, comparable year-over-year profit growth was 18%. The milling operations posted a strong profit increase due to favorable market conditions, good volumes, mix improvement, and excellent productivity. To a lesser extent, Lamb Weston potato operations also contributed to segment profit growth, as the benefit of price/mix more than offset the impact of a volume decline primarily resulting from softness in key Asian markets.

Ralcorp Acquisition – less than 1 month of contribution

Ralcorp businesses contributed a total of $292 million in sales and $5 million of operating profit in the fiscal third quarter as reported. After adjusting for $17 million of net expense from items impacting comparability, operating profit was$22 million. The company currently reports Ralcorp results within two new segments: Ralcorp Food Group and Ralcorp Frozen Bakery Products, listed as such in the segment detail later in this document.

The company continues to expect accretion from the Ralcorp acquisition to be approximately $0.05 per diluted share this fiscal year, excluding items impacting comparability.

Hedging Activities – This language primarily relates to operations other than the company’s milling operations.

Hedge gains and losses are aggregated, and net amounts are reclassified from unallocated Corporate expense to the operating segments when the underlying commodity or foreign currency being hedged is expensed in segment cost of goods sold. The net of these activities resulted in $27 million of unfavorable impact in the current quarter, and $22 million of favorable impact in the year-ago period. The company identifies these amounts as items impacting comparability.

Other Items

  • Unallocated Corporate expense was $196 million in the current quarter and $51 million in the year-ago period. Current-quarter amounts include $27 million of unfavorable hedge-related impact and $85 million of other expenses from items impacting comparability, while year-ago period amounts include $22 million of favorable hedge-related benefit and $12 million of net expense from historical legal and insurance matters. Excluding these amounts, unallocated Corporate expense was $84 million for the current quarter and $61 million in the year-ago period. The increase largely reflects higher incentives, but also reflects the addition of Ralcorp corporate expense.
  • Equity method investment earnings were $12 million for the current quarter and $13 millionin the year-ago period.
  • Net interest expense was $71 million in the current quarter and $50 million in the year-ago period; the increase reflects the incremental interest related to the debt incurred to fund acquisitions, notably Ralcorp.
  • The company expects the effective tax rate for the full fiscal year 2013 for its existing operations to be approximately 34%, excluding items impacting comparability.

Capital Items

  • The company closed the Ralcorp acquisition on January 29, 2013, for $90 per share in cash. Related to the financing of the acquisition and the refinancing of certain Ralcorp debt (some of which was completed after quarter-end), the company utilized approximately:$6.2 billion of debt, $270 million of net proceeds from an equity issuance, and $1 billionfrom a combination of cash and commercial paper.
  • Dividends for the current quarter totaled $101 million versus $99 million in the year-ago period.
  • The company repurchased approximately 37,000 shares of common stock during the quarter for approximately $1 million.
  • The board of directors of ConAgra Foods, Inc., approved a dividend payment of $0.25 per common share to be paid on May 31, 2013, to stockholders of record at the close of business on April 30, 2013.
  • For the current quarter, capital expenditures for property, plant and equipment were $109 million, compared with $79 million in the year-ago period; $13 million of the increase relates to Ralcorp. Depreciation and amortization expense was approximately $113 millionfor the fiscal third quarter; this compares with a total of $91 million in the year-ago period.$17 million of the increase in depreciation and amortization relates to Ralcorp.
  • Subsequent to quarter-end, the company announced that it plans to contribute its flour milling operations (currently reported within the Commercial Foods segment results) into a joint venture with Cargill and CHS. ConAgra Foods and Cargill will each own 44% of the joint venture, and CHS will own 12% of the joint venture. The owners intend to receive cash distributions from the joint venture at closing, which is expected to occur late in calendar 2013. For details on the announcement, please refer to company news and SECfilings dated March 5, 2013.

Fiscal 2013 EPS Outlook

Based on the strong performance to date and the expected contribution from Ralcorp, the company reaffirms expectations for fiscal 2013 diluted EPS to be approximately $2.15, adjusted for items impacting comparability; this represents approximately 17% year-over-year growth.

 

Original source: ConAgra

Sectors: Bakery, Canned food, Chilled foods, Condiments, dressings & sauces, Financials, Frozen, Meat & poultry, Private label, Snacks

Companies: ConAgra Foods, Ralcorp Holdings

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