US packaged food giant ConAgra Foods has reported diluted EPS of US$0.36 for its Q4 ended 26 May 2002, representing 57% growth over the comparable period last fiscal year. Sales remained equal year on year at US$6.4bn, and operating profit grew 27% to US$513m.

Diluted EPS for FY 2002 was US$1.47, up 19% on FY 2001. FY sales reached US$27.6bn, up 2% compared with last year, and operating profit grew 11% to US$2.1bn.

Bruce Rohde, chairman and CEO, commented: "Our momentum continues to build and is evident by the growth in our reported profits. We grew sales and profits for our most profitable food products this year through our continued focus on an ongoing programme of profit-enhancing initiatives."

Rohde continued: "We expect this momentum to continue and to favourably impact results for FY 2003. We expect a high single-digit earnings growth rate for ongoing operations in FY 2003, which results in diluted EPS in the range of US$1.60, along with strong operating cash flow."

Food business summary

The company's food business refers to the Packaged Foods, Food Ingredients, and Meat Processing reporting segments. Sales for the company's food business were US$6bn in the Q4 2002, up 1%, and up 3% for the FY to US$24.1bn. Food business operating profit was US$535m for the Q4 and US$2bn for the FY, up 27% and 17%, respectively.

Packaged Foods
(78% of FY 2002 total company operating profit)

Segment sales were US$3.1bn, up 6% for the Q4 with six of the company's brands - Armour, Banquet, Butterball, Chef Boyardee, Healthy Choice, and Hunt's - posting sales gains. Sales for several of the other large brands, including Act II, Blue Bonnet, Bumble Bee, Egg Beaters, Kid Cuisine, Peter Pan and Wesson also grew.

Overall sales for the foodservice-oriented product lines including french fries, specialty meats, seafood, and tortillas fell in the Q4. Operating profit increased to US$443m for the Q4, up 42% over last year. For the FY, sales grew 9% to US$12.4bn and operating profit increased 15% to US$1.6bn.

Recent investments in brand and productivity initiatives favourably impacted the segment's sales and profit growth for the Q4 and the FY. All of the major product types within the packaged foods segment - shelf-stable, refrigerated, frozen, and snacks - posted increases in operating profit for the Q4. Sales and operating profit growth for the FY was favourably impacted by a full year's results for the brands added late in the Q1 2001.

Food ingredients
(8% of FY 2002 total company operating profit)

During the Q4, sales for the Food ingredients segment were US$396m, down 5% from last year. Sales declines reflect a reduction in grain processing volume due to the closing of one of the company's flour mills earlier in the fiscal year, as well as lower volumes for some of the company's seasonings, blends, and flavorings products. Operating profit fell 46% to US$27m, reflecting margin and profit gains for the grain processing operations, which were more than offset by product cost- and volume-related profit declines for the seasonings, blends, and flavorings business.

For the FY, sales for the segment reached US$1.7bn, flat with last year, and operating profit fell 8% to US$160m.

Meat processing
(13% of FY 2002 total company operating profit)

For the quarter, sales for the Meat processing segment were US$2.5bn, down 4% from 2001. Operating profit grew to US$65m from US$60m. Marketplace dynamics negatively impacted beef profits but favourably impacted pork and poultry profits, as did operating improvements.

For the FY, sales reached US$10bn, down 4% from 2001 due to planned changes in customer mix, as well as lower production as a result of a fire at a beef plant in the Q3 2001. Operating profits reached US$269m, up 49% from last fiscal year.

During May of FY 2002, the company announced that a majority of its interest in the fresh beef and pork business would be sold to a joint venture with outside investors. This interest accounted for US$7.7bn, or 77% of the sales, and US$192m, or 71% of operating profits in FY 2002. The transaction is expected to close in August 2002.

Agricultural products
(1% of FY 2002 total company operating profit)

During the Q4, sales for this segment were US$424m, down 12% on last year, reflecting difficult market conditions and planned changes in customer mix. The segment posted an operating loss of US$21m, compared to a loss of US$17m in the Q4 2001. United Agri Products, which posted an operating loss for the Q4, is ConAgra's agricultural products distribution business; several profit improvement initiatives are underway for this business. The agricultural merchandising operations were profitable for the Q4, but less than in the comparable quarter last year due to market conditions.

For FY 2002, sales were US$3.6bn, down 2% compared with last fiscal year. Operating profits for the year were US$19m, down from US$109m last FY.

FY 2003 earnings expectations

The company expects diluted EPS in the range of US$1.60 for FY 2003, which includes:

* A high single-digit rate of profit growth for ongoing operations as a whole, reflecting margin - enhancing brand and productivity initiatives, increased marketing investment, and difficult conditions in the agricultural economy,
* The adoption of SFAS 142 (adds approximately $0.15 per share), and
* The reduction in the company's earnings base due to the pending fresh beef and pork transaction (reduces about US$0.15 per share including transaction costs).

ConAgra anticipates transaction costs of about US$0.02-US$0.03 per diluted share in the Q1 2003 related to the pending fresh beef and pork transaction, which is expected to close in August 2002. These transaction costs are included in the company's FY 2003 diluted EPS estimates. Because of these transaction costs, Q1 earnings should reflect a modest rate of growth, most likely a low single-digit rate, which should have the effect of concentrating more of the year's reported earnings growth in the H2 of the year.

Rohde stated, "We're on a journey. Our ongoing agenda to develop a richer business model, meaning better margins and better returns on capital through an increasing focus on branded and value-added food items, is our No. 1 priority."

He noted that the agenda to develop a richer business model has four main components:

* Strategic divestitures and acquisitions
* More effective management of sales, marketing, and product mix
* Improved marketplace capabilities
* Resource deployment.