ConAgra turnaround shows results

by Keith Nunes
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Banquet frozen meals, ConAgra Foods
Ninety percent of ConAgra's volume decline may be attributed to changes the company is making to its Banquet line of products.

OMAHA – The reinvention of ConAgra Foods Inc. continues as the company focuses on reviving brands in its Consumer Foods business and extending the reach of its Commercial Foods unit.

For the third quarter ended Feb. 28, ConAgra Foods recorded net income of $204.6 million, equal to 46 cents per share on the common stock, and an improvement compared to the third quarter of fiscal 2015 when the company recorded a loss of $954.1 million.

Sales for the quarter were $2.92 billion, flat compared with the previous year when sales totaled $2.91 billion.

The Consumer Foods business recorded sales of $1.9 billion, down 2 percent compared with the same period the previous year, and an operating profit of $291 million. Commercial Foods sales rose 6 percent to $1.1 billion and generated an operating profit of $175 million, a 21 percent increase compared with the previous year.

In the Consumer Foods business, volumes were down 4 percent and Sean Connolly, CEO, said 90 percent of the volume decline may be attributed to changes the company is making to its Banquet line of products.

Sean Connolly, ConAgra
Sean Connolly, CEO of ConAgra Foods

“… In the second half of last fiscal year, we funded several major deep discount promotions, particularly in our frozen business,” Connolly said on April 7 during a conference call with financial analysts. “These kinds of deals can drive big spikes in low-margin promoted volume. And given our deliberate plan to reduce our reliance on deep discount promotions, and given the promoted volume spikes embedded in our year-ago comps, we expected lower promoted volume.”

The effort is part of the company’s plan to reinvent the Banquet brand as a line of products not reliant on deep discounting to drive sales.

“… Our work to restage the Banquet franchise continues,” Connolly said. “As I noted earlier, Banquet represented the vast majority of our volume decline in the third quarter as we reduced our reliance on deep discount promotion and raised our everyday shelf price above $1.

“While we recognize it will take time to rebuild the buying rate among households that are long accustomed to $1 Banquet, we are confident that the higher price points enable us to invest in product enhancements and higher quality A&P (advertising and promotion) that reeducates consumers about the brand. Not all consumers will transition with the brand and we are okay with that. But given the higher quality, we expect to attract new consumers to the franchise in time.”

Bertolli family size skillet meals and pasta sauces, ConAgra Foods
Bertolli is adding family-size skillet meals to its line and focusing on reformulating products with “simplified ingredient” panels.

Bertolli is another brand the company is focused on reviving. To make the Bertolli product line more relevant to consumers, ConAgra Foods is adding family-size skillet meals to the line and focused on reformulating products with proteins perceived as natural and “simplified ingredient” panels.

“As I’ve said many times, unlocking the full value potential of our branded portfolio will be a process, not a flip of a switch,” Connolly said. “But it is a battle-tested process and it will succeed. It all starts with the unwavering belief that strong margins are the key to maximizing value, and that strong margins are the byproduct of executional excellence across disciplines, spanning everything from supply chain productivity to pricing, and trade analytics to mix management, and targeted high R.O.I. marketing to exciting innovation.”

Within the Commercial Foods business, the Lamb Weston unit was the star. Sales for the Lamb Weston potato operations grew across North America during the quarter as well as in international markets, said Connolly.

Lamb Weston potato products, ConAgra Foods
Sales for the Lamb Weston potato operations grew across all markets.

“International sales performance for Lamb Weston was noticeably strong, reflecting the lapping of the impact of the West coast port labor dispute in the year-ago period, as well as improving demand in key Asian markets,” he said. “As we’ve indicated before, Lamb Weston remains well-positioned to capitalize on the significant international growth opportunities created by the aggressive, emerging market expansion of major quick-service restaurant chains.

“In our Lamb Weston North America business, we continue to see positive growth momentum across many of our key customers in the quick-serve restaurant and operator distributor channels. We have industry-leading innovation and customer service, and our breadth of diversified products continues to position this business as a clear market leader in North America.”

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