Dec. 20 (Bloomberg) -- ConAgra Inc., the maker of Slim Jim meat snacks and Orville Redenbacher popcorn, said second-quarter profit rose on gains from commodities trading and potatoes and appetizers sold to restaurants.

ConAgra shares fell on concerns that the company won't be able to increase profit margins at its consumer-foods unit in the face of climbing commodity costs.

Chief Executive Officer Gary Rodkin raised prices of frozen dinners as well as wheat, potatoes and appetizers sold to commercial customers. Separate recalls of Peter Pan peanut butter and meat pot pies this year hurt relations with customers, prompting ConAgra to boost supermarket promotions that blunted price increases.

Rodkin ``says he's going to bring things back to normal order,'' John Kornitzer, who oversees $6 billion including ConAgra shares at Kornitzer Capital Management in Shawnee Mission, Kansas, said today in an interview. ``The next quarter will tell.''

Net income climbed 15 percent to $244.8 million, or 50 cents a share, from $213.3 million, or 42 cents, a year earlier, the Omaha, Nebraska-based company said today in a statement. The results, which include costs of 3 cents a share related to the pot-pie recall, beat analysts' estimates.

Sales for the three months that ended Nov. 25 advanced 14 percent to $3.51 billion, led by a gain of 83 percent in trading revenue. The food and ingredients division boosted sales by 14 percent, while the consumer-foods unit increased 1.6 percent.

Shares Decline

ConAgra dropped 71 cents, or 2.9 percent, to $24.08 at 4:01 p.m. in New York Stock Exchange composite trading. The stock, which fell 11 percent this year, is headed for its second annual decline in three years.

ConAgra ``tried to do too much too quickly,'' Rodkin told analysts today on a conference call. The recalls ``became a major distraction for us.''

Rodkin, a former PepsiCo Inc. executive who took charge at ConAgra in 2005, sold Butterball turkey, Armour meat and other brands. As many as 12 factories may be closed as part of a restructuring plan that began in 2006.

``Perhaps the pace and magnitude of this consolidation has been overly aggressive,'' Eric Katzman, a Deutsche Bank Securities Inc. analyst in New York, wrote in a Dec. 4 note. He recommends holding ConAgra shares.

Additional price increases will counter ingredient costs that climbed more than 8 percent in the quarter, exceeding the company's expectations, ConAgra said.

Rodkin, 55, told analysts in September ConAgra was late in charging more for frozen foods and canned tomatoes.

`Disappointed' Investors

``Investors are disappointed by the lack of pricing'' in consumer foods, David Driscoll, a Citigroup Inc. analyst in New York, wrote today in a note to clients. He recommends buying the stock. ``Pricing gains are forthcoming.''

The company remains committed to increasing operating profit margins at its consumer-foods unit to 18 percent to 20 percent by 2010, Rodkin said. ``Inflation just roared past us,'' he said. Margins were 16 percent last year.

Eight analysts estimated average profit of 42 cents a share. Six projected sales of $3.23 billion.

ConAgra said it expects full-year earnings to be slightly more than $1.55 a share, excluding recall costs, because of trading gains, rising costs and price increases in supermarket foods. It earlier forecast profit ``in the range'' of $1.48. Analysts surveyed by Bloomberg estimated $1.50.

Banquet and store-branded pot-pie production started again in November, a month after concerns about salmonella contamination led to a recall. Those products are now returning to stores, ConAgra spokeswoman Teresa Paulsen said today.

ConAgra resumed sales of Peter Pan peanut butter four months ago after salmonella poisoning led to the February recall.

To contact the reporter on this story: Chris Burritt in Greensboro, North Carolina at 1348 or cburritt@bloomberg.net.

Last Updated: December 20, 2007 16:30 EST