Omaha / NE. (caf) ConAgra Foods Inc., one of North America´s leading packaged food companies, reported results for the fiscal 2012 fourth quarter ended May 27, 2012. Due to an accounting change, the fourth quarter fiscal 2012 loss per share from continuing operations was (0,21) USD as reported, down versus fiscal 2011 fourth-quarter reported EPS of 0,61 USD. After adjusting for 0,72 USD of net expense in the current quarter, and 0,14 USD net benefit in the year-ago period, from items impacting comparability, diluted EPS of 0,51 USD from continuing operations in the fiscal 2012 fourth quarter increased nine percent versus the comparable 0,47 USD in the year-ago period. Highlights versus year-ago amounts:
- Due to adopting accounting changes for pensions, fiscal 2012 fourth-quarter diluted loss per share from continuing operations was (0,21) USD as reported; adjusted for items impacting comparability, diluted EPS from continuing operations grew nine percent to 0,51 USD.
- Consumer Foods posted a year-over-year comparable operating profit increase for the quarter, a significant turning point. Segment sales grew six percent, reflecting six percent favourable price/mix, six percent contribution from acquisitions, and a five percent organic volume decline. Foreign exchange weighed on sales growth by approximately one percent.
- Commercial Foods´ sales grew seven percent, and operating profit grew seven percent for the quarter, primarily on the strength of the Lamb Weston potato operations.
- The company completed the acquisitions of Del Monte Canada, Odom´s Tennessee Pride, and Kangaroo Brands´ pita chip operations during the quarter.
- Accounting Changes Related to Pensions:
- The company voluntarily adopted a new method for pension accounting during the quarter. This resulted in a year-end mark-to-market charge of 0,60 USD per diluted share, which is treated as an item impacting comparability.
- Other aspects of these accounting changes, including the removal of pension-related amortization expense, added to EPS results in current and prior periods, as reported and on a comparable basis (thus changing the earnings base). These changes added 0,02 USD per diluted share to fiscal 2012 fourth quarter results. These changes did not materially impact fiscal 2011 fourth quarter EPS results.
- In fiscal 2013, the company expects year-over-year EPS growth of six to eight percent, adjusted for items impacting comparability, and operating cash flow in excess of 1,2 billion USD.
CEO Gary Rodkin: «Although the business environment remains challenging, we posted comparable year-over-year EPS growth for the fiscal fourth quarter, as planned. The Consumer Foods segment posted comparable year-over-year profit growth for the fiscal fourth quarter due to contribution from acquired businesses, moderating inflation, and progress with pricing and other margin management initiatives. This represents a significant turning point in the year-over-year profit comparisons for this segment given the industry conditions that have weighed on this segment´s results over the past several quarters. In the Commercial Foods segment, the Lamb Weston potato operations continued to post strong growth in sales and profits, demonstrating momentum that we expect to continue into fiscal 2013».
He continued: «As we look to fiscal 2013, we expect good earnings growth. We will lap the pricing increases taken in fiscal 2012, which should benefit the year-over-year organic volume performance for our Consumer Foods segment in the second half of the fiscal year. Contribution from acquisitions completed in fiscal 2012, momentum in our potato operations, moderating inflation, and strong margin management initiatives should allow us to overcome the impact of marketplace challenges».
Consumer Foods Segment (63 percent of Fiscal 2012 sales)
Branded and non-branded food sold in retail and foodservice channels.
The Consumer Foods segment posted sales of 2’150 million USD for the fiscal fourth quarter, up six percent year-over-year; the sales increase reflects a six percent contribution from favourable price/mix, six percent contribution from acquisitions, and a five percent organic volume decline. The impact of foreign exchange weighed on sales growth by approximately one percent. The five percent organic volume decline reflects the difficult economic conditions that are impacting consumer purchasing behaviour, as well as price increases taken earlier in the year. The Banquet brand drove a meaningful portion of the segment´s overall volume decline given the sizeable price increases taken earlier in the fiscal year for that brand.
- Brands posting sales growth for the quarter include Act II, Chef Boyardee, DAVID, Healthy Choice, Lightlife, Manwich, Marie Callender´s, Peter Pan, Slim Jim, Wesson, and others.
- Fiscal fourth-quarter sales for this segment include contributions from the recently acquired National Pretzel Company, Del Monte Canada, Odom´s Tennessee Pride, and pita chip operations of Kangaroo Brands. Fiscal fourth-quarter sales also include amounts for Agro Tech Foods Limited of India, in which the company recently increased its ownership to a majority interest and which the company now consolidates for financial statement reporting purposes.
Operating profit of 270 million USD decreased 26 percent from 364 million USD in the year-ago period, as reported. After adjusting for 18 million USD of net expense in the current quarter and 95 million USD of net benefit in the year-ago period from items impacting comparability, current-quarter operating profit of 288 million USD grew seven percent over 270 million USD in the year-ago period. As expected, a combination of contributions from acquisitions, pricing actions, and other margin management initiatives more than offset the impact of lower volumes and inflation. While the quarter´s inflation rate of six percent was still challenging, it has moderated from the double-digit rates seen in quarters earlier this fiscal year.
This segment is expected to post profit growth in fiscal 2013 primarily due to contributions from businesses acquired in fiscal 2012, but also due to moderating inflation and effective margin management initiatives. As fiscal 2013 progresses, the company will lap the price increases taken in fiscal 2012, which should benefit the year-over-year volume performance of the Consumer Foods segment in the second half of the fiscal year.
Commercial Foods Segment (37 percent of Fiscal 2012 sales)
Specialty potato, seasonings, blends, flavours, and milled grain products sold to foodservice and commercial channels worldwide.
Fiscal fourth-quarter sales for the Commercial Foods segment were 1’264 million USD, seven percent above year-ago amounts. The sales growth reflects increased volumes for Lamb Weston potato operations and the flour milling operations. Sales growth also reflects price increases across the segment made necessary by input cost inflation.
The segment´s operating profit increased seven percent to 138 million USD. Lamb Weston posted a strong double-digit rate of profit growth, driven by favourable volumes and product mix as well as improved operating conditions; the profit growth for Lamb Weston was partially offset by profit declines in the milling operations resulting from less favourable market conditions.
The company expects this segment to post good profit growth in fiscal 2013 due to continued momentum in Lamb Weston potato operations and improved performance in the flour milling operations.
Changes in Accounting for Pensions
In the fourth quarter of fiscal 2012, ConAgra Foods changed its methods of accounting for pensions for the purpose of providing better transparency to the core business performance. These changes do not affect benefits for pension plan participants. While ConAgra Foods´ previous accounting methodologies were in accordance with generally accepted accounting principles, the new methods are considered preferable. These accounting changes apply to historical periods as well as future periods. ConAgra Foods´ pension accounting changes impact three main areas:
- The treatment of actuarial gains and losses resulting from the changes in pension assets and liabilities (amounts exceeding 10 percent of pension liabilities, or the «corridor») in years where these gains and losses exceed the ten percent corridor. ConAgra Foods will expense these amounts at fiscal year-ends, instead of deferring and amortizing these gains and losses over several years. Gains and losses recognized at year-end are treated as items impacting comparability.
- The removal of pension-related amortization expense, given the change described in the item above.
- The value of pension assets used in determining pension income – ConAgra Foods is now using the fair value of plan assets in the computation, as opposed to a «market-related value» approach used in prior years.
These impact unallocated Corporate expense and change historical EPS amounts. Items 2 and 3 above change the comparable EPS base for current and prior periods (this added 0,02 USD to reported and comparable EPS in the fourth quarter of fiscal 2012, and added 0,08 USD to reported and comparable EPS for the full year fiscal 2012, as discussed below). Historical segment results (Consumer Foods and Commercial Foods segments) are not impacted by these pension accounting changes. This change does not impact cash flow or pension funding requirements.
Fiscal 2013 Outlook
In fiscal 2013, the company expects six to eight percent growth over the comparable EPS base of 1,84 USD* in fiscal 2012, adjusted for items impacting comparability. This outlook reflects a continuation of challenging industry conditions, but overall EPS growth primarily due to the benefit of: 1) contributions from businesses acquired in fiscal 2012 (estimated at roughly half of fiscal 2013´s comparable EPS growth); 2) continued growth in its Lamb Weston potato operations (Commercial Foods); and 3) successful margin management and moderating inflation in the Consumer Foods segment. The company currently expects Consumer Foods COGS to incur a mid-single digit rate of inflation, and for Consumer Foods COGS-related cost savings to approximate 240 million USD in fiscal 2013.
