By Martinne Geller

NEW YORK (Reuters) - ConAgra Foods Inc
reported lower-than-expected quarterly earnings and cut its
full-year forecast, hurt by a price war and rising commodity
costs, sending its shares down more than 5 percent.

ConAgra, which makes well-known U.S. brands like Hebrew
National hot dogs, Healthy Choice frozen dinners and Chef
Boyardee canned pasta, has been competing fiercely with other
food manufacturers to attract consumers who are preparing more
of their own meals in a weak economy.

ConAgra cited material costs that rose faster than the
company's efforts to curb expenses and promotions that were
more aggressive than anticipated.

In particular, the company spent more on promotions for
such products as frozen foods and popcorn in the quarter, but
did not see the boost to sales it had expected as a result.

Morningstar analyst Erin Swanson said ConAgra's inability
to fuel sales with increased promotions was "troubling" and
showed the company's brands occupy a weak competitive position
versus peers such as Kellogg Co, HJ Heinz Co and
General Mills Inc, which reports results Wednesday.

Shares of those rivals also fell Tuesday, with Kellogg
down 1.3 percent at $50.18 on the New York Stock Exchange and
Heinz down 1.7 percent.

"We expect that intense competitive pressures will persist
and that promotional spending will remain a key theme across
the category over the next several quarters," Swanson said.
"However, whether this spending generates the necessary volume
leverage is something that we will be paying attention to."

ConAgra forecast a rise in full-year profit, excluding
items, of 5 to 7 percent from the $1.74 per share it earned in
fiscal 2010, which ended May 30. Its prior outlook called for
growth of 8 to 10 percent.

With expectations for a modest decline in earnings in the
current second quarter, ConAgra said all of the year's earnings
growth would occur in the back half. But ConAgra raised its
dividend by 15 percent and affirmed its long-term target for
annual earnings growth of 8 to 10 percent -- both signs of
management's confidence in its performance beyond 2011.

ConAgra shares were down $1.20 or 5.4 percent at $21.17 in
midday trading, a level Swanson called "fairly priced," given
the company's near-term hurdles.


Quarterly sales fell 2 percent in ConAgra's consumer foods
business, which supplies retailers and other food service
outlets and made up 65 percent of total sales.

The segment's sales volume fell 3 percent, and pricing
declined 1 percent, hurt by promotions and greater demand for
lower-priced goods. Operating profit fell 14 percent.

In the commercial foods segment, sales fell 3 percent and
profit declined 17 percent, as the Lamb Weston potato
operations suffered because of last year's poor-quality crop.

Chief Executive Officer Gary Rodkin said this was "a tough
quarter, but not reflective of our current expectations for the
full fiscal year or beyond."

Net income fell to $146.4 million, or 33 cents per share,
in the first quarter ended on Aug. 29 from $165.9 million, or
37 cents per share, a year earlier.

Excluding items, earnings were 34 cents per share, missing
the analysts' average estimate of 39 cents, according to
Thomson Reuters I/B/E/S.

Net sales fell 2.4 percent to $2.82 billion, below the
$2.96 billion that Wall Street had expected.

Rodkin said ConAgra was confident its financial performance
would improve later this fiscal year, due to benefits from new
products and recent acquisitions, a new potato crop, plans to
boost productivity and more-effective promotions.

He said the company has already seen positive developments
recently, including shipment trends in the consumer foods
business that have "broadly and gradually improved over the
past six to eight weeks" and "signs that the restaurant
industry has started to pick up again".
(Reporting by Martinne Geller; Editing by Michele Gershberg,
Lisa Von Ahn and Matthew Lewis)