Omaha / NE. (caf) ConAgra Foods Inc., one of North America´s leading packaged food companies, reported results for the fiscal 2010 second quarter ended November 29, 2009. Diluted EPS from continuing operations was 0,55 USD compared with 0,38 USD a year ago. Current quarter results include 0,03 USD per diluted share of net benefit, and prior year amounts included 0,05 USD of net expense, from items impacting comparability. Diluted EPS from continuing operations was up 45 percent as reported and 21 percent on a comparable basis. Second quarter highlights:
- Diluted EPS from continuing operations of 0,55 USD as reported, and 0,52 USD excluding items impacting comparability; up 45 percent as reported and up 21 percent on a comparable basis.
- Consumer Foods´ operating profits increased 31 percent.
- Consumer Foods´ sales increased three percent and unit volumes increased two percent.
- Commercial Foods´ operating profits increased one percent.
- Fiscal 2010 diluted EPS from continuing operations, excluding items impacting comparability, now expected to approach 1,73 USD.
Gary Rodkin, ConAgra Foods´ chief executive officer: «Our strong performance this quarter reflects continued momentum in the Consumer Foods segment and gives us heightened confidence in our fiscal 2010 EPS outlook. Success with innovation and marketing drove significantly improved market shares and top-line progress in the Consumer Foods segment for the quarter, while a more favorable input cost environment and strong cost savings substantially contributed to profit growth. We are very pleased with our success this year and with the increased EPS outlook, and expect to continue demonstrating the earnings power of our company with consistent and sustainable growth».
Consumer Foods Segment (64 percent of year-to-date sales)
Branded and non-branded food sold in retail and foodservice channels.
The Consumer Foods segment posted sales of 2’078 million USD and operating profit of 330 million USD for the quarter. Top-line progress was broad-based. Sales increased three percent as reported, which includes an approximate one percent negative impact from lower sales of Slim Jim products given that brand´s ongoing recovery. SKU rationalization negatively impacted sales growth by approximately one percent.
Unit volumes increased two percent as reported, which includes an approximate one percent negative impact from lower sales of Slim Jim products and one percent negative impact from SKU rationalization efforts.
Operating profit of 330 million USD was 31 percent ahead of last year´s 251 million USD; this significant growth occurred even with 24 million USD of increased marketing investment. The year-over-year profit improvement was due to a more favorable input cost environment, strong productivity savings, and good sales results. The company expects continued year-over-year operating profit growth for this segment for the rest of the fiscal year. The company estimates that Consumer Foods profitability was negatively impacted by approximately seven million USD due to lower Slim Jim volumes and higher Slim Jim production costs in the fiscal second quarter.
Commercial Foods Segment (36 percent of year-to-date sales)
Specialty potato, dehydrated vegetable, seasonings, blends, flavors, and milled grain products sold to foodservice and commercial channels worldwide.
Sales for the Commercial Foods segment were 1’095 million USD, eleven percent below last year´s 1’235 million USD; approximately 110 million USD of the sales decline was due to lower flour milling sales, which reflect the pass-through impact of lower underlying wheat costs. Segment operating profit was 160 million USD, one percent above last year´s 158 million USD. Lamb Weston profits improved, reflecting the positive impacts of higher prices necessitated by increased input costs, as well as plant efficiencies and a refinement to its product cost allocation process; these were partially offset by the negative impact on sales and volume of difficult food service industry conditions. Flour milling profitability increased due to mill efficiencies and favorable wheat market conditions. Profits for the rest of the segment were below year-ago amounts, reflecting continued difficult market conditions for key vegetable items.
Although the segment posted profit growth for the first half of the fiscal year largely due to higher-than-planned flour milling profits, on a full-year basis the company continues to expect the Commercial Foods segment to deliver operating profits in line with year-ago amounts due, in part, to expectations for continued softness in the food service industry.
Hedging Activities
This language primarily relates to operations other than the company´s milling operations.
The company recorded six million USD of net hedging benefit as unallocated Corporate expense in the current quarter, versus 48 million USD of net hedging loss as unallocated Corporate expense in the year-ago period. The company identifies both of these amounts as items impacting comparability. Those amounts are reclassified from unallocated Corporate expense to the operating segments when the underlying commodity being hedged is recognized in segment cost of goods sold.
Other Items
- Corporate expense was 94 million USD for the quarter and 111 million USD in the year-ago period. Current quarter amounts include six million USD of benefit due to hedging activities, and prior year amounts include 48 million USD of hedge loss. Excluding these amounts, Corporate expense was 101 million USD for the quarter and 64 million USD in the year-ago period, with the year-over-year increase largely reflecting higher incentive accruals.
- Equity method investment earnings were six million USD for the second quarter, up from two million USD in the year-ago period.
- Net interest expense was 41 million USD in the current quarter compared with 43 million USD in the year-ago period; interest income from the notes receivable held in connection with the divestiture of the Trading + Merchandising operations benefited the current quarter and the year-ago period by approximately 20 million USD and 18 million USD, respectively.
- The effective tax rate for continuing operations for the quarter rounded to 33 percent, lower than planned due to the benefit of certain income tax credits and deductions that relate to previous periods. The benefit from this lower rate is cited as an item impacting comparability. Going forward, the company expects an effective tax rate of approximately 35 percent for continuing operations, excluding items impacting comparability.
Capital Items
- Dividends for the quarter totaled 84 million USD versus 86 million USD last year, reflecting fewer shares outstanding.
- For the quarter, capital expenditures from continuing operations for property, plant, and equipment were 123 million USD, compared with 115 million USD in the year-ago period. Depreciation and amortization expense from continuing operations was approximately 83 million USD for the quarter; this compares with a total of 79 million USD in the year-ago period.
Raised EPS Outlook
The company now expects fiscal 2010 full-year diluted EPS from continuing operations, excluding items impacting comparability, to approach 1,73 USD, reflecting the strong performance in the first half of the fiscal year. In a change from prior guidance, the company now expects the Slim Jim business interruption insurance recovery, estimated in the range of 0,05 USD per diluted share, to be recognized in fiscal 2011 instead of fiscal 2010.
