OMAHA – Struggles in its Consumer Foods business coupled with significant impairment charges incurred during the fourth quarter primarily related to the company’s Private Brands segment bogged down full-year and quarterly results at ConAgra Foods Inc.
“We are disappointed with fiscal 2014 overall, and we have a very focused sense of urgency directed toward improving our results,” said Gary Rodkin, CEO.
In a June 26 conference call with analysts to discuss ConAgra results, Rodkin attributed the shortfall to two key factors: weaker-than-planned consumer foods volumes and significantly lower profitability in the company’s private-brands operations.
“To state the obvious we’re disappointed with these results,” he said. “We didn’t live up to our expectations, and the year and the [fourth] quarter were unacceptable. In my book there are no excuses for that.”
Rodkin added he wanted to use the conference call to explain “the root causes of the mess,” as well as update analysts on the improvement initiatives under way.
“There’s nothing more important for me than ensuring we drive improvement in FY15,” he said. “We have tremendous amount of companywide engagement resources and energy devoted to improving results in FY15 and beyond. While FY14 was not what we wanted in terms of profits, our operating cash flow exceeded $1.5 billion and we repaid $600 million of debt — both of these items exceeded expectations and are important factors in the ability for us to succeed going forward. We did this while continuing to pay strong dividend, and I’ll emphasize that we remain committed to the current $1 per share annual payout and a strong dividend policy, as well.”
Rodkin attributed the company’s struggles to the continuing poor performance of several large brands, including Healthy Choice, Orville Redenbacher’s and Chef Boyardee. He said ConAgra has begun making changes within the brands and is confident it is doing the right things to make an impact.
“We believe we will see better overall performance on the top and bottom line from this trio in FY15,” he said. “One of the softest categories is healthy meals, which obviously impacts Healthy Choice. The frozen healthy meal segment is a big, important area within frozen single-serve meals at $2.5 billion in annual retail sales comparable to the hotdog category. This particular part of frozen single-serve meals has seen the biggest drop in sales. There’s plenty of room for better performance in a category this big by gaining share — be a differentiated product.”
In terms of specific initiatives, Rodkin said ConAgra is improving product mix, including discontinuing a number of slow-moving Healthy Choice stock-keeping units.
Moving on to Chef Boyardee, he said the company is returning the easy open lid to cans, something it removed at the beginning of fiscal 2014. He acknowledged that the move to remove the easy open lids “was a mistake.”
“We strongly believe Chef Boyardee can do a better job with core category users by leveraging its protein content about 16 grams in a can that cost on average about $1,” Rodkin said. “In addition we’ve retooled our merchandising programs customer by customer to get more lift with a renewed focus on the core user.”
Finally, ConAgra is shifting its focus on Orville Redenbacher’s to be more competitive at retail.
“This is a work in process, but we believe the strategy shift will improve our performance,” he said.