In early trading on the New York Stock Exchange after the announcement, ConAgra Foods shares traded as low as $35.07 per share, down 5 percent for the day. The decline represented a setback following fairly steady appreciation of ConAgra Foods stock, which had climbed by a third from its 52-week low of $28.09 set in June.
Net income of ConAgra Foods in the second quarter was $10 million, equal to 5 cents per share on the common stock, down 96 percent from $248.7 million, or 49 cents per share. Sales were $4,150 million, down 1.7 percent from $4,221.1 million in the second quarter of fiscal 2014.
ConAgra said quarterly earnings after adjusting for items affecting comparability equated to 61 cents per share in the fiscal 2015 quarter, down 1 cent from the year before.
Results in the quarter included an operating loss of $202 million for the Private Brands segment, including charges of $247 million comprising a write down of goodwill and other intangible assets. Excluding the special charges, ConAgra said operating profits for the segment were down 46 percent from the second quarter last year. Private Brands segment sales in the quarter were $1,052 million, down 4.8 percent from the second quarter of fiscal 2014.
ConAgra Foods in 2013 achieved a long-term ambition of expanding its private label business with a $6.8 billion acquisition of Ralcorp Holdings, Inc. Success from the acquisition has proven elusive, and the difficulties were still evident in the most recent quarter.
“Pricing concessions made last fiscal year but not yet lapped drove a meaningful portion of the comparable profit decline, while lower volumes resulting from an intense bidding environment as well as higher commodity costs also weighed on profitability,” the company said of the quarterly results. “Pricing initiatives under way should help pass on the higher commodity costs over time.”
In deferring its forecast for a recovery for the business, ConAgra Foods acknowledged the “continuation of an intense bidding environment, heavy discounting by branded manufacturers and the corresponding negative impacts on volume, price/mix, and profits in the near term.”
The company said its pricing initiatives are lagging input cost increases, weighing on fiscal 2015 results but offering hope for fiscal 2016 prospects.
“The company believes that improved execution will bolster customer relationships, make for a more stable base of business, and strengthen results over time,” ConAgra said. “Initiatives to improve execution and the speed of overall decision-making through simpler and more customer-focused processes, as well as better connectivity throughout the organization, are under way, but are not expected to begin to favorably impact business results until fiscal 2016.”
Commenting on the company’s quarterly results, Gary Rodkin, CEO, emphasized successes in other parts of the ConAgra business.
“We are pleased that the fundamentals in our Consumer Foods and Commercial Foods segments are improving,” he said. “Key retail brands are strengthening, Lamb Weston is gaining domestic share and benefitting from a better quality potato crop, and we are generating COGS and SG&A efficiencies across our operations. EPS came in as planned this quarter; despite challenges in one of our segments, we have reaffirmed our full-year EPS guidance because we expect two of our segments to continue to deliver good performance, and for our whole organization to continue generating strong productivity and efficiencies.”
He said the company remains confident in the Private Brands segment longer term “given the important role of these products to consumers and trade customers and our ability to utilize our infrastructure to add value for customers.”
The Consumer Foods segment had operating profit of $302 million in the second quarter, up 6 percent from the second quarter of fiscal 2014. Sales were $1,977 million, down 1.9 percent.
The profit improvement was attributed by the company to lower advertising expense and good productivity and efficiencies.
The Commercial Foods segment had operating profits in the quarter of $148.1 million, up 16 percent. Sales were $1,121 million, up 1.9 percent. The improvements were attributed to a better potato crop and operating efficiencies.
“Strong domestic performance this year more than offset weaker international sales and profits related to near-term challenges facing quick-serve restaurant customers in key Asian markets,” ConAgra said. “Given the strength of its domestic business, Lamb Weston expects overall profit growth this fiscal year, despite short-term challenges in some international markets and the negative impact of the ongoing longshoremen labor dispute. Profits for the rest of the Commercial Foods segment were in line with year-ago period amounts.”
In the first half of fiscal 2015, ConAgra Foods net income was $492.3 million, equal to $1.16 per share, up 25 percent from $399.6 million. Income from continuing operations year to date was down 63 percent. Net sales were $7,851 million, down 1.1 percent.