Difficult market conditions, weaker-than-planned consumer response to promotions and higher-than-planned inflation weighed heavily into its performance this quarter in its Consumer Foods segment. Consumer Foods segment (branded and non-branded food sold in retail and foodservice channels) posted sales of $2,104 million and operating profit of $284 million. Sales increased 1%, reflecting a 1% organic volume increase, 3% decline in overall price/mix and a 3% benefit from acquisitions (net of divestitures).
Sales results reflect difficult market conditions and a very competitive environment, which necessitated increased promotional spending. Consumer response to promotions was weaker-than-planned given the challenging economic conditions, the company said. The company noted strong sales results for the segment’s frozen business and international markets. Sales for recently acquired and recently introduced products performed well.
Brands posting sales growth for the quarter included Marie Callender’s, Slim Jim, Wolf and others.
Based on accelerating input cost inflation, the company is in the process of implementing pricing increases; despite some potential negative effect on volumes, the company expects the net impact of the pricing increases to improve fiscal 2011 second-half profitability.
Operating profit of $284 million was 14% below $330 million in the year-ago period, as reported. The company expects the segment’s year-over-year profit performance to improve in the second half of the fiscal year given the price increases under way, strong cost savings, lower SG&A, and accelerating contribution from innovation and recently acquired businesses.
Several challenges impacted results, said Gary Rodkin, CEO. “Difficult market conditions, weaker-than-planned consumer response to promotions and higher-than-planned inflation weighed on Consumer Foods’ profits despite progress in overall unit market shares and volume,” he said. “Profitability of our Commercial Foods segment was below expectations primarily due to selling and processing last year’s high-cost, unusually low-quality potato crop,” he added. In aggregate, it was a challenging quarter.
Several factors are expected to improve year-over-year operating results in the second half of the fiscal year, despite the challenging environment, he added. “We are increasing net pricing on a number of our products given the ongoing acceleration of cost inflation,” Rodkin added. “Some price increases have recently been implemented, and more are under way. We are confident that the net effect of these pricing increases will be positive, despite some potential modest volume decline.
“Our products will continue to deliver outstanding value to consumers even after these pricing actions,” he continued. “Price increases, along with strong cost savings, lower SG&A, accelerating contribution from innovation and recently acquired businesses, and a good-quality potato crop currently being processed are expected to drive improved year-over-year earnings for the rest of the fiscal year.”