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February 11, 2014

US: ConAgra cuts profit forecast again

Shares in ConAgra Foods plunged more than 7% today (11 February) as the US food giant company announced it was lowering its forecast for annual earnings for the second time.

Shares in ConAgra Foods plunged more than 7% today (11 February) as the US food giant company announced it was lowering its forecast for annual earnings for the second time.

The Chef Boyardee and Healthy Choice owner cut its earnings target in September after weaker-than-expected sales in its fiscal first quarter. Today (11 February), it reduced its guidance again. It now forecasts approximately $2.22-$2.25 per share, against its September estimate of $2.34-$2.38.

ConAgra attributed the new forecast to it taking “longer than expected” to restore its private-label division to planned levels of operating profit It also cited “weaker than expected volumes in the consumer foods segment” due to poor potato crop quality that was “negatively impacting operating efficiencies and margins”. The company also pointed to the loss of a major foodservice distribution customer last year.

CEO Gary Rodkin said: “These challenges have made forecasting fiscal 2014 very difficult. While the challenges this year have been unfavourable surprises for our investors and our team, I want to be clear that nothing has changed with regard to our conviction about our long-term potential and EPS growth prospects. We have a rich pipeline of synergies resulting from last year’s acquisition of Ralcorp. The synergy capture is on track, and we expect it to play a key role in driving strong long-term EPS growth.”

US private-label group Ralcorp Holdings was purchased last year in a US$6.8bn deal.

Rodkin added that ConAgra plans to stabilise the performance of a few key brands in fiscal 2015 through promotional activities.

Meanwhile, ConAgra said its planned milling venture with Cargill and CHS, which had been set to close in the first calendar quarter of 2014, was now expected to be finalised later in the year.

ConAgra Foods plans to join Horizon Milling, an existing joint venture between Cargill and CHS. The agreement would see the creation of a flour business – to be called Ardent Mills – that would control around one-third of the nation’s flour production.

ConAgra cited “various reasons, including the ongoing regulatory review process”.

Last summer, there were reports a group of states jointed a federal anti-trust investigation into the joint venture. According to Reuters, which cited two unnamed sources, a number of wheat-growing states were concerned Ardent would have the power to push down prices paid to farmers. The states, purportedly lead by the Oklahoma Attorney General, were apparently working to assist the Department of Justice investigation into the proposal.

A spokesperson for ConAgra told just-food today that the company “remains actively engaged in discussions with the US Department of Justice,” to get the transaction completed. However, she said she was “unable to provide specifics of that discussion”.

The spokesperson added: “Ardent Mills will provide expanded opportunities for wheat growers to add value to the wheat they raise and handle.”

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