ConAgra Foods, Inc. on February 11 issued a revised financial outlook for fiscal 2014, based in part on realization that it will take longer than anticipated to achieve profitability in the private label sector. Also cited was weaker than expected volume sales among its key brands in the consumer foods segment, including the high-profile Healthy Choice range of frozen products, and the impact of disappointing potato crop quality on its Lamb Weston operations. Taking all of these factors into account, the company now expected diluted earnings per share (EPS) of approximately $2.22- $2.25, rather than the previously publicized range of $2.34-$2.38.
Gary Rodkin, chief executive officer of the Omaha, Nebraska, USA-headquartered company, commented: “We are intensely focused on improving our business. It is taking longer than expected to stabilize the performance of the Private Brands segment, which has been below plan because of pricing, sales force coverage, and customer service issues largely resulting from restructuring actions taken before we bought that business last year. We view these as near-term issues only, and remain fully confident in our private brands strategy and the growth opportunities resulting from the recent acquisition of Ralcorp.”
ConAgra, which purchased private label manufacturing specialist Ralcorp Holdings for $5 billion, estimates that the unit will contribute $300 million or more in annual sales once fully integrated into its operational structure.
Rodkin noted that in the Consumer Foods segment, the company plans to stabilize the performance of several key brands in fiscal 2015 by continuing to optimize promotional and merchandising activities through a focus on core heavy users.
He also noted that the Lamb Weston potato processing and marketing business (in the Commercial Foods segment) has experienced continued margin pressures in connection with an ongoing customer mix shift resulting from the loss of a major foodservice distribution customer last summer. Furthermore, the recent potato crop quality was lower than forecast, which is also negatively impacting operating efficiencies and margins. Performance in this segment is expected to improve in fiscal 2015.
The ceo continued: “These challenges have made forecasting fiscal 2014 very difficult. While the challenges this year have been unfavorable surprises for our investors and our team, I want to be clear that nothing has changed with regard to our conviction about our long-term potential and EPS growth prospects. We have a rich pipeline of synergies resulting from last year’s acquisition of Ralcorp. The synergy capture is on track, and we expect it to play a key role in driving strong long-term EPS growth.”
Meanwhile, ConAgra had previously planned to complete the formation of Ardent Mills, a joint venture with Cargill, Incorporated and CHS Inc., in the first quarter of calendar 2014. However, due to various reasons, including an ongoing regulatory review process, it is now expected that the transaction will not close until the second quarter of calendar 2014. The company will contribute its flour milling operations and related businesses operated through its ConAgra Mills division into this venture, and will receive a 44% ownership stake. ConAgra Foods also expects to receive approximately $400 million in connection with the closing of the transaction. The company continues to expect to use these proceeds to accelerate debt repayment.
