ConAgra Foods said today (21 September) that the impact of recent acquisitions and NPD will help improve sales and profits after the US food giant had a tough fiscal first quarter.
The company saw sales and profits slide in the three months to 29 August, leading it to cut its revenue and earnings targets for its full financial year.
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An “intense competitive environment” hit ConAgra’s consumer-foods division, while a poor quality potato crop affected profits from the company’s commercial-foods business. Shares in ConAgra dropped after the announcement and, at 11:37 ET, the company’s stock was down 5.1% at US$21.23.
Speaking to analysts, CEO Gary Rodkin admitted ConAgra’s second quarter would be “a bit below” the corresponding period last year but insisted the company was “set up for good, strong EPS growth” in the second half of the year.
Rodkin said ConAgra’s consumer-food business would benefit from the contribution of recent acquisitions snack maker Elan Nutrition and frozen pie firm American Pie.
The ConAgra chief claimed ConAgra would also benefit from the impact of recent NPD and the imminent launch of new products. He added that the company’s Lamb Weston unit within its commercial-foods business would see volume and margins improve as a new crop “comes on board”.
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By GlobalDataHowever, Rodkin said he was “disappointed” with ConAgra’s performance during the first quarter and insisted the company would make “adjustments” to its strategy.
With US consumer confidence still weak, the country’s retailers had been promoting heavily to attract shoppers, who had been running down their stocks at home, Rodkin said.
“The consumer behaviour slid a bit further into more cherry picking and less stock-up behaviour, so it was a really more challenging Q1 from a consumer standpoint than we had anticipated,” Rodkin said.
“Customers are really driving foot traffic with aggressive discounting, sometimes extremely low prices for major brand names. This is not how we want to do business but sometimes your hand is forced just to stay in the game. A good example is our frozen business where there were more and deeper deals this summer than we’ve seen in the last two years,” Rodkin explained.
“When deals are layered on top of more deals, the ultimate effectiveness is going to be reduced, particularly when consumers are not stocking up as much. So, net-net, we spent more than we planned to and didn’t get as much for it. But we do believe this is going to abate in the next few months. Commodity costs like proteins and grains that impact margins will bring more rationality and this consumer pantry de-loading is going to bottom out as consumers work through their own inventory pipelines.”
Nevertheless, Andre Hawaux, president of ConAgra’s consumer-foods division, told analysts that the company would review its strategy around merchandising and price points to reflect the recent changes in consumer behaviour.
“We need to look at what’s working relative to this notion of multiples. We see some movement where people are going to single price-points from multiples. We also have to take a look at certain key price points and what still makes sense in the new environment,” Hawaux said.
