Connolly pointed to "solid operating profit growth" from both divisions

Connolly pointed to "solid operating profit growth" from both divisions

ConAgra Foods today (7 April) reported third-quarter earnings that beat analyst estimates and, according to the US group's CEO, its own expectations after a focus on price and mix, as well as driving efficiency, improved the Banquet maker's profitability.

The company booked adjusted earnings per share of US$0.68 for the period to 28 February, up from $0.59 a year earlier, and ten cents higher than analyst forecasts. The figures were adjusted for items including restructuring charges within ConAgra's consumer foods division.

On a reported basis, ConAgra's third-quarter earnings per share were US$0.46, compared to a loss per share of US$2.21 last year. Net income stood at US$204.6m, versus a net loss of US$954.1m in the third quarter of 2014/2015. Last year's third quarter included impairment charges on ConAgra's then private-label business, the bulk of which it has now sold to TreeHouse Foods.

Segment operating profit rose 13.6% to US$466.3m, with ConAgra's consumer foods and commercial foods divisions both seeing an improvement in operating profitability.

ConAgra's net sales were up 0.6% at US$2.92bn. The company's consumer foods business, which includes brands like Banquet ready meals and Orville Redenbacher's popcorn, saw sales fall 2.4%. Sales from its commercial foods unit were up 6.1%.

CEO Sean Connolly said: "Our results for the quarter exceeded our expectations as our actions to drive improved profitability continued to take hold. Our focus on improving price/mix and driving efficiencies is enabling us to enhance our overall fundamentals in both of our segments resulting in solid comparable operating profit growth and expanding operating margins."

ConAgra Foods Q3 results by division

Consumer foods

  • Sales down 2.4% at US$1.85bn. Volumes 4% lower but ConAgra "emphasised margins over volume" during fiscal year
  • Operating profit up 9.5% at US$291.3m. Price/mix, "good productivity" and lower commodity costs help.

Commercial foods

  • Sales 6.1% higher at US$1.07bn. Lamb Weston potato sales rise at home and abroad. Boost from lapping for West Coast port dispute
  • Operating profit rises 21.1% to US$175m. Lamb Weston boosts profitability.
Show the press release

CONAGRA FOODS FISCAL 2016 Q3 EPS ABOVE EXPECTATIONS; STRONG PROFIT GROWTH AND MARGINS FOR BOTH SEGMENTS; COMPLETION OF PRIVATE LABEL SALE ENABLES $2.15B DEBT REDUCTION; ON TRACK WITH PLANNED SEPARATION INTO CONAGRA BRANDS AND LAMB WESTON

OMAHA, Neb.--(BUSINESS WIRE)--Apr. 7, 2016-- Today ConAgra Foods, Inc. (NYSE: CAG) reported results for the fiscal 2016 third quarter endedFebruary 28, 2016.

Highlights (% cited indicates change vs. year-ago amounts, where applicable. SG&A refers to selling, general, and administrative expense, and COGS refers to cost of goods sold)

Diluted EPS from continuing operations as reported was $0.41, compared with $0.49 in the year-ago period.

After adjusting for items impacting comparability, diluted comparable EPS of $0.68 this quarter was ahead of $0.59 in the year-ago period. As previously communicated, guidance for this quarter, as well as the basis for comparison in the year-ago period, included contribution from discontinued operations.

Current quarter diluted EPS from discontinued operations (amounting to $0.05 as reported, and $0.11 adjusted for items impacting comparability) reflects about two months of results from the divested private label operations and includes approximately$36 million of pretax benefit, or $0.05 per diluted share of after-tax benefit, from the absence of private label-related depreciation and amortization expense. As previously discussed, this is due to the classification of the private label assets as held for sale during the quarter. The private label operations were divested during the quarter.

Consumer Foods improved comparable operating margins by over 300 basis points and drove strong double-digit comparable operating profit growth with a deliberate focus on price/mix, good productivity, and favorable input costs.

Commercial Foods posted comparable operating profit growth in excess of 20% and expanded margins, reflecting volume increases across the segment as well as lower costs.  Lamb Weston posted good volume performance, reflecting the lapping of the impact of the West Coast port labor dispute. 

The company completed the divestiture of the private label business during the quarter, receiving in excess of $2.6 billion in proceeds. The company has utilized a significant portion of the proceeds to reduce debt by approximately $2.15 billion so far, and as part of a balanced capital allocation program plans to utilize more of the remaining proceeds for further debt reduction. The company is committed to an investment grade credit rating.

CEO Perspective:

Sean Connolly, CEO of ConAgra Foods commented, "Our results for the quarter exceeded our expectations as our actions to drive improved profitability continued to take hold. Our focus on improving price/mix and driving efficiencies is enabling us to enhance our overall fundamentals in both of our segments resulting in solid comparable operating profit growth and expanding operating margins."

He continued, "With the sale of our private label business completed, we are focused on successfully executing our plans to reduce costs and deliver improved price/mix, while continuing to segment our portfolio to enable more impactful marketing and support investments to drive future innovation and deliver improved margins and shareholder value. We are on track to establish two independent segments with excellent operating foundations as we separate into two pure-play companies in the fall."

Overall Quarterly Results

For the fiscal 2016 third quarter ended February 28, 2016, diluted earnings per share from continuing operations were $0.41 as reported, vs.$0.49 for the third quarter of fiscal 2015. After adjusting for items impacting comparability, comparable diluted EPS was $0.68 this quarter and $0.59 in the year-ago period. Items impacting comparability are summarized and reconciled for Regulation G purposes starting on page 10.

Consumer Foods Segment

Branded food items sold worldwide in retail channels.

The Consumer Foods segment posted sales of approximately $1.9 billionand operating profit of $291 million in the fiscal third quarter, as reported. Sales declined 2%, with a 4% volume decrease, 3% favorable price/mix, and a negative 1% impact of foreign exchange (all rounded) compared to year-ago period amounts.

The company has emphasized margins over volume this fiscal year as part of building a healthy foundation. In connection with this, the company has implemented changes to improve the efficiency of trade spending, increased list prices on Banquet products and other brands in connection with product improvements and selected commodity pass-through, and focused on improving mix. These factors played a significant role in the quarter's 4% volume decline and significant margin expansion.

Brands posting sales growth for the quarter include Marie Callender's, Hunt's, Slim Jim, Reddi-wip, Ro*Tel, PAM, and others.

Other brand details are in the written Q&A document accompanying this release.

Segment operating profit was $291 million versus $266 million in the year-ago period, as reported. After adjusting for $48 million of net expense in the current quarter, and $23 million of net expense in the year-ago period from items impacting comparability, current quarter comparable operating profit of $339 million increased 17% over comparable year-ago amounts. Comparable operating margin expanded by over 300 basis points. In addition to the benefits of price/mix, good productivity and overall lower commodity input costs also contributed to the strong quarterly profit performance. Advertising investment increased$10 million, or 12% compared to year-ago period amounts, as part of our strategy to increase support behind high-potential brand equities. Foreign exchange negatively impacted profitability by approximately $12 millionthis quarter. Year-ago profit included a significant hedge loss, which favorably impacted the comparison this quarter.

Commercial Foods Segment

Specialty potato, seasonings, blends, flavors, and bakery products, as well as consumer branded and private label packaged food items, sold to restaurants, foodservice and commercial channels worldwide.

Sales for the Commercial Foods segment were $1.1 billion, up 6% over year-ago amounts (rounded). Sales for Lamb Weston's potato operations grew across North America as well as in international markets. International sales performance for Lamb Weston was notably strong, reflecting the lapping of the impact of the West Coast port labor dispute in the year-ago period, as well as improving demand across several international markets.

Segment operating profit of $175 million increased 21% from year-ago period amounts. Lamb Weston made the most significant contribution to the segment's profit increase, reflecting increased global volumes, due in part to the benefit of lapping the West Coast port labor dispute. Profits for the remainder of the segment grew modestly.

Hedging Activities

Hedge gains and losses are generally 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 $3 million of net benefit in the current quarter and$4 million of net benefit in the year-ago period. The company identifies these amounts as items impacting comparability within the discussion of unallocated Corporate results.

Other Items

Unallocated Corporate amounts were $155 million of expense in the current quarter and $51 million of expense in the year-ago period. Current-quarter amounts include $3 million of hedge-related benefit, as well as $85 million of expense related to other items impacting comparability. Year-ago period amounts include $4 million of hedge-related benefit, and $3 million of other expense related to other items impacting comparability. Excluding these amounts, unallocated Corporate expense was $73 million for the current quarter and $52 million in the year-ago period; this increase principally reflects higher incentive compensation expenses.

Equity method investment earnings were $45 million for the current quarter and $33 million in the year-ago period, as reported. Excluding$18 million of benefit in the current quarter from the termination of a pension by a foreign equity method investment, current quarter equity method investment earnings of $27 million decreased from $33 million a year ago. The comparable decline is due to unfavorable grain market conditions impacting Ardent Mills performance.

Net interest expense was $77 million in the current quarter and $80 million in the year-ago period.

Capital Items

Dividends for the quarter totaled $109 million versus $107 million in the year-ago period.

The company did not repurchase any shares during the quarter.

The company reduced debt by approximately $2.15 billion during the quarter, as it utilized a significant portion of the proceeds from the divestiture of the private label operations. As part of balanced capital allocation, the company plans for further debt reduction, and reiterates its commitment to an investment grade credit rating.

For the current quarter, capital expenditures for property, plant and equipment from continuing operations were $100 million, compared with $83 million in the year-ago period. Depreciation and amortization expense was approximately $93 million for the fiscal third quarter; this compares with a total of $92 million in the year-ago period.

Discontinued Operations:

Diluted EPS from discontinued operations (the private label operations) in the fiscal third quarter of 2016 was $0.05 as reported, and $0.11 after adjusting for items impacting comparability; this reflects approximately 2 months of contribution from the private label operations prior to the divestiture on February 1, 2016. The company's previous EPS guidance included expected contribution from the private label operations. As previously noted, because the private label operations were classified as assets held for sale in the quarter, there was no depreciation or amortization expense for these assets. This benefitted EPS from discontinued operations in the third quarter by approximately $0.05 per diluted share, or $36 million pretax this quarter, as expected.

Loss per diluted share from discontinued operations in the third quarter of fiscal 2015 was $(2.70), reflecting sizeable impairment charges, and diluted per share income from discontinued operations for that period was approximately $0.06 after adjusting for items impacting comparability. See page 10 for details of items impacting comparability in the current and prior year.

Outlook

Given the recent divestiture of the private label business, which is classified within discontinued operations in current and prior periods, the company's diluted EPS guidance for fiscal 2016 is now based on expectations for comparable results for continuing operations.

Fiscal 2016 year-to-date diluted EPS from continuing operations totals $1.16 as reported, and $1.56 adjusted for items impacting comparability, detailed as part of the Regulation G reconciliation on page 11.

The company expects full year fiscal 2016 diluted EPS from continuing operations, adjusted for items impacting comparability, to be in the range of $2.05 - $2.07.

Please see the Regulation G reconciliation on page 11 of this document, as well as the Q&A document accompanying this release, for details on EPS from continuing operations.

Major Items Impacting Third-quarter Fiscal 2016 EPS Comparability

Included in the $0.41 diluted EPS from continuing operations for the third quarter of fiscal 2016 (EPS amounts rounded and after tax):

Approximately $0.16 per diluted share of net expense, or $109 million pretax, related to restructuring charges. $61 million of this is classified within unallocated Corporate expense (all SG&A) and $48 million is classified within the Consumer Foods segment ($36 millionCOGS / $12 million SG&A).

Approximately $0.04 per diluted share of net expense, or $24 millionpretax, related to the early extinguishment of debt (all Corporate SG&A).

Approximately $0.03 per diluted share, or $18 million pretax, of net benefit related to pension termination at affiliate Lamb-WestonMeijer, classified within the results of equity method investment earnings.

Note: Comparable EPS contribution from the private label operations, now classified as discontinued operations, was approximately $0.11per diluted share. Contribution from the private label operations was included in original guidance. The $0.11 per diluted share excludes$0.06 of net expense from items impacting comparability, detailed as part of the Regulation G reconciliation on page 10.

Included in the $0.49 diluted EPS from continuing operations for the third quarter of fiscal 2015 (EPS amounts rounded and after tax).

Approximately $0.03 per diluted share of net expense, or $15 millionpretax, resulting from goodwill impairment charges related to the private label snacks business and now part of Consumer Foods (all SG&A).

Approximately $0.02 per diluted share of net expense, or $11 millionpretax, resulting from restructuring and integration costs. $8 million is classified within the Consumer Foods segment ($2 million in COGS,$6 million in SG&A), and $3 million of this is classified as unallocated Corporate expense (all SG&A).

Approximately $0.01 per diluted share of net benefit, or $4 millionpretax, related to the mark-to-market impact of derivatives used to hedge input costs, temporarily classified in unallocated Corporate expense. Hedge gains and losses are generally 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.

Note: Prior year comparable EPS included approximately $0.06 from operations subsequently reclassified to discontinued operations. The$0.06 per diluted share excludes items impacting comparability, the largest of which is $2.75 of expense related to impairment charges. These amounts are detailed as part of the Regulation G table on page 10.

Discussion of Results

ConAgra Foods will host a conference call at 9:30 a.m. EDT 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 1-877-852-6581 and 1-719-325-4751, respectively. No confirmation or pass code is needed. This conference call also can be accessed live on the Internet at http://investor.conagrafoods.com.

A rebroadcast of the conference call will be available after 1 p.m. EDTtoday. 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 1631271. A rebroadcast also will be available on the company's website. In addition, the company has posted a question-and-answer supplement relating to this release at http://investor.conagrafoods.com. To view recent company news, please visit http://media.conagrafoods.com.

About ConAgra Foods

ConAgra Foods, Inc., (NYSE: CAG), is one of North America's leading packaged food companies with recognized brands such as Marie Callender's®, Healthy Choice®, Slim Jim®, Hebrew National®, Orville Redenbacher's®, Peter Pan®, Reddi-wip®, PAM®, Snack Pack®, Banquet®, Chef Boyardee®, Egg Beaters®, Hunt's® and many other ConAgra Foods brands found in grocery, convenience, mass merchandise and club stores. ConAgra Foods also has a strong business-to-business presence, supplying frozen potato and sweet potato products as well as other vegetable, spice and grain products to a variety of well-known restaurants, foodservice operators and commercial customers. For more information, please visit us at www.conagrafoods.com.

Original source: conagrafoods.com