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ConAgra Misses Forecast as Private-Label Foods Slump

ConAgra Foods Inc. (CAG), the packaged-food company that owns Chef Boyardee and Healthy Choice, said earnings missed its forecast amid slow sales of consumer foods and shrinking profit at its private-label business.

Fourth-quarter earnings were about 55 cents a share, excluding some items, the company said today in a preliminary statement. ConAgra had predicted 60 cents for the period, which ended on May 25. The sluggish results, which also prompted a fourth-quarter writedown of $681 million, sent the shares on their biggest intraday decline in more than four months.

ConAgra is struggling to digest last year’s acquisition of Ralcorp Holdings Inc., which sells private-label foods to supermarkets, drugstores and other retailers. The challenge is combining its stable of well-known trademarks with the store brands foods offered by Ralcorp, said Timothy Chen, an analyst at Rhino Trading Partners in New York. If ConAgra fails, activist investors may step in and push for a breakup, he said.

“We remain optimistic on the stock in the long term,” Chen, who has a buy rating on the shares, said in an interview. The company either has to “achieve the holy grail of combining a branded company with private label or admit failure and unwind this Holy Communion.”

Photographer: Jonathan Fickies/Bloomberg

ConAgra Foods Inc. Chief Executive Officer Gary Rodkin said, “We are disappointed with the consumer foods volume performance.” Close

ConAgra Foods Inc. Chief Executive Officer Gary Rodkin said, “We are disappointed with... Read More

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Photographer: Jonathan Fickies/Bloomberg

ConAgra Foods Inc. Chief Executive Officer Gary Rodkin said, “We are disappointed with the consumer foods volume performance.”

ConAgra shares fell as much as 7.4 percent to $30.41 in New York, the biggest intraday decline since Feb. 11. The stock had dropped 2.5 percent this year through yesterday.

Weak Profit

ConAgra said its consumer-foods business saw sales volume decline 7 percent, while profit was “weak” in the private-brands division. The Omaha, Nebraska-based company is facing pricing pressure in supermarket brands -- an industry that’s been growing but offers slim margins. Quarterly operating profit for that unit fell about $60 million from a year earlier, ConAgra said.

The private-label struggles, as well as profit challenges at certain retail brands such as Chef Boyardee, contributed to the writedown last quarter, the company said. ConAgra’s other brands include Hunt’s ketchup, Orville Redenbacher’s popcorn and Reddi-wip.

“We are disappointed with the consumer foods volume performance,” Chief Executive Officer Gary Rodkin said in the statement. “We are in the process of improving product mix and promotion strategies.”

Cost Cutting

To get back on track, the company also is cutting administrative costs and boosting productivity, Rodkin said. Growth of earnings per share should accelerate to a high single-digit rate by fiscal 2016 and 2017, he said. ConAgra plans to deliver its full results on June 26 for the fiscal fourth quarter, which ended May 25.

“We expect to have the flexibility to invest in our business for good long-term growth,” Rodkin said.

On the branded side, ConAgra will have to become more promotional with its products to revive volume, Chen said. In the private-label market, it’s been working to forge partnerships with other companies, which takes time, he said.

“If they’re successful with combining branded and private label, that’s huge,” Chen said. “If they’re not, then they open the door to activist investors breaking up the company.”

To contact the reporter on this story: Selina Wang in New York at swang533@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net Kevin Orland

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