Private-brand sales of $1.1 billion — largely thanks to its acquisition of Ralcorp Holdings — contributed to a 17.5 percent increase in second-quarter earnings for ConAgra Foods.
The Omaha-based food manufacturer on Thursday reported a quarterly profit of $248.7 million, or 58 cents per share, up from $211.6 million, or 51 cents a share, a year ago, on revenue of $4.7 billion, up 26.5 percent.
Shares of ConAgra closed Thursday at $33.47, up 5.28 percent.
ConAgra CEO Gary Rodkin said earnings were stronger than anticipated, in part because retail stores beefed up inventory and ordered holiday inventory sooner than expected. Rodkin reaffirmed earlier annual earnings expectations of $2.34 to $2.38 per share, adjusted for items affecting comparability.
The quarter was a turn-around for ConAgra, which saw first-quarter profits drop 46 percent. Rodkin said the firm is still taking “corrective action,” including shifting some of its budget from advertising to in-store merchandising strategies and promotions. Despite the profit growth, Rodkin said some of the firm’s biggest brands are performing below expectations, including Chef Boyardee, Orville Redenbacher’s and Healthy Choice, weighing down growth in consumer foods volumes.
Rodkin said the firm is “more rigorously” addressing those brands but does not forecast much improvement in coming months. Instead, ConAgra is shifting resources to products that are growing. Those include Hunt’s and Ro-Tel tomatoes, Reddi-wip, Slim Jim and pot pies sold under the Marie Callender and Banquet brands.
“We have to fish where the fish are,” Rodkin said.
Some brands are more affected when consumers do not make “stock-up” trips to the grocery store, instead buying just what they need for the short term.
“The economy is still very tough for the vast majority of Americans,” Rodkin said, mentioning a “Wall Street-Main Street gap.”
Rodkin did not offer details, but said ConAgra has been working with retailers to help them adjust to shopping patterns that have changed because of cuts in SNAP food stamp benefits that took effect Nov. 1 when a temporary benefit increase, enacted during the recession, expired.
Total consumer foods sales were flat at $2 billion.
ConAgra this quarter retooled the way it classifies its business, now reporting three segments: consumer, commercial and private brand.
“The new segments represent how we think about and manage our business,” Rodkin said.
Private brand sales were up more than $900 million in the second quarter. Most of the former Ralcorp business is included in this segment. ConAgra bought Ralcorp in January for almost $5 billion.
ConAgra in the second quarter launched a new sales team structure within private brands, hoping to become a “strategic partner” for supermarkets and other retailers. The private brands group has had “positive” meetings with customers and is at work on developing new products for them, Rodkin said. It’s taking longer than expected to recover sales volumes that declined as a result of changes Ralcorp made before the acquisition, Rodkin said, but he called private brands a “catalyst for growth” in the long term.
In the commercial foods category, sales increased 3.1 percent to $1.6 billion while operating profits fell. The Lamb Weston potato business is still working to recover from the loss of a sizable food service customer, and problems with the potato crop are hurting manufacturing costs and margins.