The sales performance of ConAgra Foods’ Lamb Weston frozen potato products business was a bright spot in the Omaha, Nebraska, USA-headquartered company’s first quarter results posted for fiscal 2016 on September 22. The unit, which is primarily a supplier of french fries and other potato specialties and appetizers to the global foodservice sector, saw revenues rise 3.5% to $1.1 billion as operating profit advanced 17% to $139 million.
“Lamb Weston delivered strong volume growth in North America, driven by organic growth with key customers across all channels. While domestic growth outpaced international growth in the quarter, we expect international sales to return to normal levels in the back half of the fiscal year as we continue to recover from the impact of last year’s West Coast port labor dispute,” said CEO Sean Connolly during an earnings conference call. “We remain focused on accelerating the growth of Lamb Weston internationally. The global quick service restaurant industry is aggressively expanding in emerging markets, with potatoes remaining a critical part of the menu.
The big picture for ConAgra, however, showed a loss of $1.24 billion. This was largely due to a $1.9 billion impairment charge taken by its soon to be jettisoned private label division, which has been up for sale for the past three months. Since getting into the store brands business in earnest by acquiring Ralcorp in 2013 for approximately $5 billion, the unit’s value has been written down by $2.2 billion.
The divestiture process for the private label operations is proceeding as planned, and the company expects to have an announcement on the outcome of this process later this fall.
On the positive side of the ledger, diluted earnings per share (EPS) from continuing operations was $0.38, compared to $0.22 during the first quarter of 2015. In addition to the Commercial Foods division’s solid performance powered by Lamb Weston, approximately $1.7 billion in receipts was generated by the Consumer Foods unit (which includes major retail frozen food brands such as Healthy Choice, Marie Callender’s and Banquet). This accounted for strong operating profit growth and more than 250 basis points of comparable margin improvement through a combination of favorable price/mix and increased productivity.
Stating that ConAgra was “off to a strong start in fiscal 2016,” Connolly, who replaced Gary Rodkin as chief executive officer in April, anticipates that profit growth in the Consumer Foods segment will be realized for the full year. Among frozen brands, he was specifically bullish about progress demonstrated by the Marie Callender’s line of pot pies and prepared meals, as well as a successful restaging of PF Chang’s Asian cuisine range, which yielded double-digit growth.
“We continue to make progress in transforming the Healthy Choice franchise as well,” added Connolly. “Healthy Choice Café Steamers continue to perform well in a challenging segment. And Simply Steamers, our newest Café Steamers product offering, contain nothing artificial while offering 100% natural protein. These new items are performing well and, importantly, they command a higher price.”
Tom McGough, president of ConAgra’s Consumer Foods unit, said that following up on major investments made to boost PF Chang’s, a similar initiative would be launched to bolster Banquet and other frozen brands going forward.
“Marie Callender’s is a business in our largest category of frozen single-serve meals that is consistently growing, and we are going to increase our investment to drive that business,” he stated.
[Editor’s note: FrozenFoodsBiz.com thanks Seeking Alpha for providing a transcript of ConAgra Foods’ September 22 earnings conference call. Readers who want to review the full text may do so by visiting www.SeekingAlpha.com.]
