Consumer caution weighs on ConAgra Foods
OMAHA — Despite posting positive earnings during the second quarter of fiscal 2014, Gary Rodkin, the chief executive officer of ConAgra Foods Inc., expressed caution regarding the company’s performance during the rest of the year. A difficult consumer environment combined with the integration of Ralcorp has the potential to weigh on earnings.
“We got some results in the second quarter that we originally planned to occur early in the third quarter,” Rodkin said on Dec. 19 in a conference call with financial analysts. “Given this timing shift and several short-term issues, we’re appropriately cautious about our second half of the year and sticking with the prior fiscal 2014 EPS guidance, despite the over delivery in Q2.”
Looking ahead, Rodkin said marketplace conditions indicate ongoing challenges for the company.
“Retailers are adjusting their plans for programs, merchandising and category emphasis on a more frequent basis, and that, of course, impacts us and the rest of the industry, resulting in some choppiness,” he said.
Within the company’s Consumer Foods business unit, sales were flat due to flat volumes and flat price mix during the quarter. Brands that performed well during the quarter included Hunt’s, Ro-Tel, Reddi-Wip and Marie Callender’s desserts.
Larger brands such as Chef Boyardee, Orville Redenbacher’s and Healthy Choice did not meet expectations during the quarter, said Rodkin, and management is “very focused on thinking differently and are more rigorously addressing each of the brands.” But, he added, ConAgra is not forecasting much change over the next few quarters.
Regarding the Chef Boyardee brand, Tom McGough, president of Consumer Foods, said competition in the market for quick, easy-to-prepare meals is taking a toll.
“The reality is, when you look at the broader competitive set, we see much stronger competitive activity across the board,” he said. “From a consumer standpoint, there are fewer of those traditional stock-up trips as consumers are shopping more toward their immediate consumption and, as a result, the sell-through on our promotions have been less than what we have seen historically and I think that’s generally happening in many categories, not just Chef Boyardee.
“Without disclosing too much information from a competitive standpoint, we’re retooling our go-to-market approach, both in terms of our marketing and merchandising,” he added. “We’re making very good progress on that, but it will take time to have market impact on that business.”
A theme management returned to repeatedly during the conference call is that ConAgra Foods has a large portfolio of products and while some of the company’s larger, more well-known brands may be struggling, many others are performing at or ahead of expectations.
“We’ve got a big broad portfolio [and] some [brands] are more challenged than others,” Rodkin said. “But there are many other categories where we will deploy resources in a bigger way. Clearly, there’s a tailwind in a category like snacks where we’re quite big, particularly with Ralcorp, with cookies, crackers, nuts, et cetera. We’ve got somewhat of a mixed bag across our big broad portfolio and that’s how we’re going to allocate our resources.”
Rodkin acknowledged that the company’s go-to-market strategy with Ralcorp has been challenging.
“I would tell you that I wish that I saw more immediate impact on the top-line performance, but I’m trying to be more patient because we’ve only had our new general managers and sales teams in place for a few months,” he said. “They are digging out of a hole. They are building new relationships with customers and I can see them making progress every day.”
Sales and profits within the Private Brands business unit have not been as strong as the company originally planned. Volume recovery has taken longer due to pricing and service issues that occurred prior to and during the integration of Ralcorp into ConAgra.
“We’ve made significant progress on both issues, but we’re still a work in progress for the next six months or so,” Rodkin said.
He added that the value trend is here to stay and will be a long-term growth factor in the industry.