ConAgra’s lowered profit outlook sends shares tumbling -
Published Tuesday, February 11, 2014 at 11:43 am / Updated at 4:06 pm
ConAgra’s lowered profit outlook sends shares tumbling

ConAgra Foods shares took a hit Tuesday as the firm cut profit expectations, citing trouble turning around its private-label business and ongoing poor performance in some of its banner brands, Orville Redenbacher’s, Healthy Choice and Chef Boyardee.

The Omaha-based company a year ago completed the $5 billion purchase of private-label manufacturer Ralcorp Holdings, and said Tuesday that restructuring and pricing changes Ralcorp made before the deal closed continue to affect sales. ConAgra has reorganized its private-brands sales force and product categories but said the problems have taken longer to fix than expected.

Still, ConAgra said it hasn’t changed its outlook for the long-term cost efficiencies that will come from integrating Ralcorp into its business, which it estimates at $300 million a year by the end of fiscal 2017.

“We view these as near-term issues only, and remain fully confident in our private-brand strategy and the growth opportunities resulting from the recent acquisition of Ralcorp,” Chief Executive Officer Gary Rodkin said.

But in the short term, results are “disappointing,” Rodkin said. ConAgra said it now estimates the former Ralcorp business will contribute 20 cents to its fiscal 2014 earnings per share, down from its earlier expectation of 25 cents. Overall ConAgra now expects diluted earnings per share of between $2.22 and $2.25, down from previous expectations of between $2.34 and $2.38.

Shares fell 6.34 percent Tuesday, closing at $29.08. ConAgra employs 2,900 people in Nebraska.

ConAgra did not provide details but said additional administrative cost reductions are planned on top of cuts announced earlier in the fiscal year. “Our organization is entirely focused on course-correcting,” Rodkin said.

In branded retail foods, ConAgra said it is launching a new marketing strategy to shore up sales of its weaker-performing brands.

Instead of trying to cast a wide net in order to win over new customers and win back “lapsed” customers, ConAgra instead will focus its promotional and merchandising efforts on core users of those products — getting people who already buy Chef Boyardee to buy more, more often.

“We’ve got to play where the engaged consumer is still there, and we’re very confident that we can do better than we’ve been doing with that shift in strategy,” Rodkin said.

Consumer foods sales volumes are now expected to fall 3 percent to 4 percent in the second half of the fiscal year, more than the 1 percent to 2 percent decline originally projected.

ConAgra’s third segment, commercial foods, also has had trouble this year. The company’s Lamb Weston potato business lost a major food-service distribution customer last summer and has not recovered as quickly as expected. A poor potato crop also has challenged the business.

Contact the writer: Barbara Soderlin    |   402-444-1336

Barbara Soderlin covers food safety, ConAgra, technology and employment/unemployment issues.

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