ConAgra has been forced to revise its earnings figures due to improper accounting procedures. The US’ second biggest food processor has been lucky. The changes to the figures from 1998-2000 will actually boost revenue and earnings for 2001, and the problems are unlikely to have the repercussions that followed for Ibp and Aurora when they ran into similar difficulties.
Nonetheless, shareholder and analyst trust in the firm will be eroded. Following an informal SEC enquiry, food processing firm ConAgra has found that its United Agri Products (UAP) unit created non-existent sales records, recorded incomplete sales contracts as complete and upshot write-offs in an effort to boost profits and bad-debt reserve provisions.
UAP, which distributes seed, fertilizer, and agricultural chemicals, is one of three businesses that make up ConAgra’s agricultural product segment. It had contributed roughly 9% of the parent company’s operating profit over the past three fiscal years. On a positive note, in light of the new findings, revenues and EPS for 2001 are expected to increase by $350 million and $0.15 respectively.
Accounting irregularities are by no means unheard of within the food industry. Early last year, Aurora Foods, whose brands include Aunt Jemima frozen breakfasts and Celeste frozen pizza, announced that $73.6 million would be wiped out of its 1998 and 1999 earnings after auditors unearthed improper accounting activities. In the aftermath, the company was also embroiled in a bitter shareholder class-action lawsuit.
IBP also lost out following an SEC investigation into its accounting practices. The probe was the major factor in Tyson Food’s withdrawal from a proposed merger with IBP – one that IBP badly needed. Both companies are now entangled in costly lawsuits over the role of deceptive practices during merger talks.
Although ConAgra is unlikely to suffer as much as Aurora and IBP, the company is not out of the woods yet. The investigation is ongoing and disgruntled shareholders might feel compelled to file a lawsuit. Improper accounting practices also erode the market’s trust, which might result in more serious damage in the long term.
ConAgra must release all relevant information quickly and honestly to re-establish trust. It will also need to redouble its restructuring efforts, to ensure positive growth and encourage investors to hold on to their shares. Other companies should learn from the mistakes that ConAgra, Aurora and IBP have made, as analysts and investors will not always be so forgiving.
(c) 2001 Datamonitor. All rights reserved. Republication or redistribution, including by framing or similar means, is expressly prohibited without prior written consent. Datamonitor shall not be liable for errors or delays in the content, or for any actions taken in reliance thereon.