Omaha / NE. (caf) ConAgra Foods Inc., one of North America´s leading packaged food companies, reported results for the fiscal 2012 third quarter ended February 26, 2012. Diluted EPS from continuing operations was 0,65 USD as reported, up 25 percent over 0,52 USD a year ago. After adjusting for 0,14 USD of net EPS benefit in the current quarter and 0,02 USD of net EPS benefit in the year-ago period, from items impacting comparability, diluted EPS of 0,51 USD from continuing operations in the fiscal third quarter increased two percent over the comparable 0,50 USD in the year-ago period.
Third-quarter Fiscal 2012 Highlights (versus Q3/2011):
- Diluted EPS from continuing operations of 0,65 USD as reported and 0,51 USD adjusted for items impacting comparability, up 25 percent as reported and up two percent on a comparable basis.
- Commercial Foods´ sales grew 14 percent, reflecting pricing actions necessary to address inflation, volume growth for potato products and the pass-through of higher wheat costs.
- Consumer Foods´ net sales increased four percent, driven by recent acquisitions; organic price/mix contributed five percent and organic volumes declined five percent.
- The company completed the acquisition of Del Monte Canada shortly after the end of the quarter.
- The company continues to expect fiscal 2012 EPS to reflect a low- to mid-single-digit rate of growth (year-over-year), adjusted for items impacting comparability.
- The company expects operating cash flow of about 1,3 billion USD for the fiscal year, before the impact of discretionary pension funding.
Gary Rodkin, ConAgra Foods´ chief executive officer: «Conditions have been difficult across the industry due to high inflation and soft volumes for retail consumer food brands. Our Lamb Weston potato business performed well and we benefited from total margin management efforts that include price increases in both operating segments and good overall cost savings. We remain committed to our EPS goals for fiscal 2012 and we will continue our focus on deploying cash in ways that create long-term value».
Consumer Foods Segment (63 percent of YTD sales)
Branded and non-branded food sold in retail and foodservice channels.
The Consumer Foods segment posted sales of 2’157 million USD for the fiscal third quarter, up four percent year over year; the sales increase reflects a five percent contribution from favourable price/mix, a five percent organic volume decline and a four percent contribution from recent acquisitions. The five percent organic volume decline reflects challenging industry conditions and the company´s additional recent price increases.
- Brands posting sales growth for the quarter include ACT II, Chef Boyardee, DAVID, Marie Callender´s, Orville Redenbacher´s, PAM, Peter Pan, Reddi-wip, Slim Jim, Wesson and others.
- Fiscal third-quarter sales for this segment include sales for the recently acquired National Pretzel Company, as well as 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 331 million USD was 20 percent above 276 million USD a year ago, as reported. Current-quarter amounts include 59 million USD of gain resulting from the recent acquisition of a majority interest in Agro Tech Foods Limited, as well as approximately eight million USD of restructuring costs. Prior-year amounts include approximately 22 million USD of restructuring costs. After adjusting for these items, current-quarter segment operating profit declined six percent from comparable amounts last year due to very high input cost inflation. As expected, input cost inflation in the fiscal third quarter was the most severe of any this fiscal year, at eleven percent and more than offset the benefit of strong price and cost-oriented margin management initiatives as well as profit contribution from recent acquisitions. Despite difficult industry conditions that have softened the near-term outlook for this segment, the company expects modest comparable year-over-year profit growth for this segment in the fiscal fourth quarter largely due to an expected slowdown in the rate of inflation.
Commercial Foods Segment (37 percent of YTD sales)
Specialty potato, seasonings, blends, flavors and milled grain products sold to foodservice and commercial channels worldwide.
Fiscal third-quarter sales for the Commercial Foods segment were 1’216 million USD, 14 percent above year-ago amounts. The sales growth reflects the benefit of commodity-driven price increases and increased volumes for the Lamb Weston potato operations, as well as the pass-through of higher wheat costs in the milling operations. Other product lines in the segment posted good top-line results.
The segment´s operating profit increased seven percent to 150 million USD as reported; after adjusting for ten million USD of restructuring charges in prior-year amounts, current-quarter operating profit was essentially in line with comparable year-ago amounts. Lamb Weston improved profit performance through pricing actions, volume growth and productivity gains, which collectively offset a profit decline in the milling operations. The profit decline for the milling operations was driven by a difficult comparison given a very strong performance in the year-ago period, as well as less favourable market conditions. Improved mix, notably through sales growth for sweet potatoes and whole grains, favourably impacted segment results.
The company expects this segment to post strong profit growth in the fourth quarter of the fiscal year given pricing actions already taken, momentum with potato volumes and the nature of the quarterly comparison.
Hedging Activities
This language primarily relates to operations other than the company´s milling operations.
The company recorded 22 million USD of net hedging benefit within unallocated Corporate expense in the current quarter and 24 million USD of net hedging benefit as unallocated Corporate expense in the year-ago period. The company identifies these amounts as items impacting comparability. Those amounts are reclassified from unallocated Corporate expense to the operating segments when the underlying commodity or foreign currency being hedged is expensed in segment cost of goods sold (COGS).
Other Items
Corporate expense was 65 million USD for the quarter and 23 million USD in the year-ago period. Current-quarter amounts include 22 million USD of net hedge benefit, as well as twelve million USD of net expense related to historical legal and insurance matters. Prior-year amounts include 24 USD million of net hedge benefit and 25 million USD of benefit from a debtor´s prepayment of a note receivable. After adjusting for items impacting comparability, current-quarter expense was 75 million USD compared with 72 million USD a year ago.
Equity method investment earnings were 13 million USD for the fiscal third quarter, up from seven million USD a year ago. The increase reflects continued momentum with turnaround efforts in the Lamb Weston Meijer European potato joint venture, which is an important contributor to the global reach of the company´s potato operations.
Net interest expense was 50 million USD in the current quarter, compared with 52 million USD in the year-ago period.
The effective tax rate for continuing operations for the quarter was approximately 28 percent as reported, lower than planned, largely due to a gain resulting from the acquisition of a majority interest in Agro Tech Foods Limited This gain is not subject to taxes and it is treated as an item impacting comparability. The company expects the effective tax rate for the full fiscal year 2012 to be approximately 34 percent, excluding items impacting comparability.
Capital Items
As previously disclosed, the company completed the acquisition of National Pretzel Company in the fiscal third quarter. Separately, ConAgra Foods increased its investment in Agro Tech Foods Limited of India in the fiscal third quarter and became a majority owner in that company. ConAgra Foods used cash on hand for these transactions.
Shortly after the end of the fiscal third quarter, ConAgra Foods used cash on hand to acquire Del Monte Canada for a purchase price of approximately 185 million USD. Fiscal 2011 sales of Del Monte Canada were approximately 150 million USD. The company expects no significant EPS impact from Del Monte Canada for the remainder of fiscal 2012, adjusted for items impacting comparability.
Dividends for the current quarter totalled 99 million USD versus 100 million USD in the year-ago period; the decrease reflects fewer shares outstanding partially offset by a higher dividend rate.
The company repurchased approximately seven million USD of its shares of common stock during the quarter; the company has approximately 775 million USD remaining on its outstanding share repurchase authorizations.
For the current quarter, capital expenditures from continuing operations for property, plant and equipment were 79 million USD, compared with 136 million USD in the year-ago period. Depreciation and amortization expense from continuing operations was approximately 91 million USD for the quarter; this compares with a total of 90 million USD in the year-ago period.
Fiscal Fourth Quarter EPS Growth
While business conditions remain difficult and have softened the company´s near-term EPS outlook, the company expects modest year-over-year EPS growth in the fiscal fourth quarter, adjusted for items impacting comparability. The growth is expected to be driven by continued momentum with potato products in the Commercial Foods segment, an anticipated slowdown in the rate of inflation in the Consumer Foods segment and the overall nature of the comparison.
Major Items Impacting Third-quarter Fiscal 2012 EPS Comparability
Included in the 0,65 USD diluted EPS from continuing operations for the third quarter of fiscal 2012 (EPS amounts rounded and after tax):
- Approximately 0,14 USD per diluted share of net benefit or 59 million USD, related to a gain on the company´s increased investment in Agro Tech Foods Limited. This gain is not subject to taxes. This gain is classified as a reduction of Selling, General and Administrative expense (SG+A) within the Consumer Foods segment.
- Approximately 0,03 USD per diluted share of net gain or 22 million USD pre-tax, related to the mark-to-market impact of derivatives used to hedge input costs, temporarily classified in unallocated Corporate expense. This will later be reclassified to the operating segments when underlying hedged items are expensed in segment cost of goods sold (COGS).
- Approximately 0,03 USD per diluted share of net expense or twelve million USD pre-tax, related to adjustments to historical legal and insurance matters. The majority of these costs are not tax deductible. This is classified as unallocated Corporate expense.
- Approximately 0,01 USD per diluted share of net expense or eight million USD pre-tax, related to restructuring activities designed to improve efficiencies in the Consumer Foods segment (five million USD classified within COGS, three million USD classified within SG+A).
Included in the 0,52 USD diluted EPS from continuing operations for the third quarter of fiscal 2011 (EPS amounts rounded and after tax):
- Approximately 0,05 USD per diluted share of net expense or 32 million USD pre-tax of restructuring charges classified as 22 million USD within Consumer Foods (six million USD COGS, 16 million USD SG+A) and ten million USD within the Commercial Foods segment (SG+A).
- Approximately 0,04 USD per diluted share of net benefit or 25 million USD pre-tax, resulting from the receipt of 554 million USD in cash as early repayment in full for notes receivable related to the 2008 divestiture of the Trading and Merchandising operations. This is classified within unallocated Corporate expense.
- Approximately 0,03 USD per diluted share of net benefit or 24 million USD pre-tax, related to the mark-to-market impact of derivatives used to hedge input costs, temporarily classified in unallocated Corporate expense. This will later be reclassified to the operating segments when underlying hedged items are expensed in cost of goods sold.
