ConAgra Foods CEO Gary Rodkin said today (22 February) that the US food group’s lower target for long-term earnings growth was “realistic” given the trading conditions facing the business.
Speaking at the CAGNY investment conference in Florida, Rodkin said ConAgra’s decision to cut its guidance for long-term annual earnings per share “reflected the realities of the current marketplace”.
ConAgra, owner of brands including Hunt’s tomato ketchup and Banquet ready meals, has set a target for earnings per share, adjusted for “items impacting comparability” to rise by 6-8% a year, down from annual improvement of 8-10%.
“While I certainly don’t like the revision, we believe it represents growth that is realistic and I am confident in our ability to deliver,” Rodkin said. “We have taken into account the macro environment that we see today and continue to see for the next year or two. We wanted to move the algorithm to a place where we were highly confident.”
CFO John Gehring, meanwhile, reiterated ConAgra’s targets for the current financial year. The company expects earnings per share rise in the “low single digits” in its fiscal 2010/11 year, which ends in May. The target was issued in December, when ConAgra reduced its full-year earnings forecast on the back of weaker-than-expected first-half results. Before that cut to its full-year target, ConAgra had also already issued a profit warning in September.
In the second quarter of its fiscal year, ConAgra posted a 16% fall in profits, which led to a 14% drop in half-year earnings. ConAgra had said the lower profits was due, in part, to its promotions not paying off as the business had hoped.
Reporting its first-half results back in December, Rodkin said ConAgra’s profits would improve on the back of moves to increase prices and generate cost savings.
At CAGNY today, Rodkin insisted that inflation was “very real” and that “rationality” would return to most categories after the recent discounting in sectors such as frozen food. ConAgra, he said, had raised some prices, a move he insisted was “imperative” due to the pressure on commodity costs.
“Our price increases are beginning to appear in the marketplace on some products with more to come. We’re confident that these moves are the right thing to do given the inflation of our input costs. While not easy, pricing is not a choice. It’s an imperative. We cannot ignore the impact of dramatically increasing input costs on margins. Even with some price increases, our products continue to be of tremendous value,” he said.
Rodkin said ConAgra’s “strong” innovation programme was “key” – he described the company as the “innovation leader” in the frozen category. He also argued that “improving productivity” was a way to “expand” margins. ConAgra is looking, for instance, to generate some US$275m in annual cost savings from its consumer foods business between fiscal 2012 and fiscal 2014.
Shares in ConAgra were down 1.3% at $22.47 at 14:22 ET this afternoon.