ConAgra Profit Dips on Rising Flour Costs

Published September 20, 2011

| FOXBusiness

ConAgra Foods Inc. (CAG) reported mixed first-quarter results Tuesday, as earnings fell 42% amidst the rising cost of goods.

Although the packaged-food company saw an increase in consumer and commercial sales, first-quarter net income fell to $85.3 million, or 20 cents a share, from $146.4 million, or 33 cents a share a year ago.

Total first-quarter revenue for both the consumer and commercial divisions jumped 9.5% from $2.8 billion to $3.07 billion, while gross margin fell to 19.5%, a 3.7% decline from a year earlier.

Sales in ConAgras consumer-foods division, its largest operation by revenue, rose 4.4% and commercial-food sales rose 18.9%, but the company could not overcome a 15% increase in the cost of goods. The food maker raised its inflation estimate of between 7% and 8%, saying that inflation could reach 9% or 10%.

ConAgra, the owner of Orville Redenbachers, Hebrew National, Reddi-wip and other food brands, also noted that it raised prices on nearly 95% of its portfolio.

Even with higher inflation and cost projections, ConAgra did not adjust its earnings-per-share estimates for the fiscal year. But the company dampened expectations for better second-quarter earnings, saying that it will continue to increase prices to offset rising inflation. ConAgra also will ramp up marketing initiatives in an effort to further increase sales.

The first-quarter EPS reflects the negative impact of short-term wheat market dynamics in our Commercial Foods segment and severe inflation in our Consumer Foods segment, ConAgra chief executive Gary Rodkin said in a statement. We took pricing actions in the first quarter in both of our operating segments, and more pricing actions will soon be implemented in both segments. Our EPS goal for the full year remains unchanged.

The disappointing earnings report was announced one day after ConAgra pulled its $5.2 billion bid to acquire Ralcorp Holdings Inc. (RAH), a competing food-maker and the owner of Post cereals. ConAgra, which says it has at least one product in 97% of households, completely withdrew its bid and said the company will not try to negotiate a deal with Ralcorp.

Shares in ConAgra were down 46 cents, or 2%, in early morning trading.

URL

http://www.foxbusiness.com/2011/09/20/conagra-profit-falls-as-flour-costs-rise/