ConAgra’s third quarter earnings fell by a third. The fall in profits was in line with expectations, revised after a profit warning last month. Increased costs and marketing expenses brought net income down to $98.5 million. While the large promotional spend and wide range of new product launches will help the company, ConAgra needs to cut costs if it wants better results next year.
Last month’s profit warning came as an unpleasant surprise to many shareholders. But at least there were no further surprises on Thursday when ConAgra announced its Q3 earnings. Higher energy prices, marketing expenses and the economic slowdown hurt its bottom line, bringing profits down 31% from last year to $98.5 million, or 19 cents per share, in line with expectations. This disappointment came despite revenue growth of 9% for the quarter, which took sales to $6.4 billion, compared to $5.9 billion this time last year.
Results for the first half of the year had been relatively encouraging but things started to take a downturn a few months ago as costs rose and demand fell. “We are seeing a different environment and performance in the second half of the fiscal year compared to the first half of the fiscal year,” commented Bruce Rohde, chairman and CEO of ConAgra, with limited confidence in how the company will perform for the rest of the year. “Some of the issues that negatively impacted our third quarter will continue to impact the remainder of our fiscal year.”
ConAgra is far from being alone: many food companies are suffering in the current environment. But ConAgra is working hard to make the most of a difficult situation. It has launched 130 new products so far during the fiscal year, 30 of which were released in the last quarter. It has also invested heavily in marketing, spending $50 million more than in the equivalent quarter last year. And sales are growing steadily, although results are buoyed by its recent International Home Foods acquisition.
Still, if ConAgra wants to see the kind of profits it was hoping for only a few months ago, it will have to do more than just promote new products. It will need to focus its attention on ways to cut costs and pay more attention to growing its existing brands.
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