ConAgra lost $31.7 million in third quarter due to restructuring
OMAHA, Neb. – Packaged food company ConAgra Foods Inc. on Thursday reported a loss of $31.7 million for the third quarter because of one-time charges related to the restructuring plan it announced last week.The Omaha-based company lost 6 cents per share in the quarter after reporting income of $165.3 million, or 32 cents, last year. Excluding 43 cents per share of restructuring, impairment and legal charges, earnings were 37 cents per share.Net sales totaled $2.88 billion, a 4 percent gain from $2.76 billion a year earlier. ConAgra’s retail sales rose 3 percent to $1.66 billion, while food service sales added 4 percent and ingredient sales were up 8 percent.”Although the underlying operating performance in the third quarter met our overall expectations, our fundamentals still need to be much stronger,” said Gary Rodkin, ConAgra’s president and chief executive. “As we discussed last week with the investment community, we expect to make meaningful progress going forward by simplifying our portfolio, aggressively attacking costs and increasing investments behind key brands.”On average, analysts surveyed by Thomson Financial were looking for the company to report a profit of 34 cents per share and $3.53 billion in sales for the quarter, which ended Feb. 26.Last week the company detailed its plans to sell its seafood and cheese lines along with its refrigerated meats businesses, so it can streamline and focus on its brands with the most potential.Rodkin, who joined ConAgra in October, has previously said Healthy Choice, Chef Boyardee and Egg Beaters were some of the company’s top brands.During the quarter, the company reduced the book value of the assets it plans to sell along with its cheese and meat businesses by about $171 million on a pretax basis. The company plans to sell 22 manufacturing plants along with those businesses, which would include its three Nebraska plants, in Omaha, Lincoln and Hastings.The seafood, cheese and refrigerated meats up for sale generated about $2.8 billion of the company’s $14.57 billion of total annual revenue last year.ConAgra’s third-quarter results reflect $50 million of the expected $183 million in charges related to the restructuring plan. Chief Financial Officer Frank Sklarsky said the rest of the charges will be accounted for over the next five quarters.In addition to the manufacturing plants to be sold, ConAgra plans to close 20 to 12 plants by fiscal year 2009. All the manufacturing changes will result in an annual savings of about $100 million by fiscal 2009.The company has not determined which of its plants will be closed, spokesman Chris Kircher said Thursday.ConAgra also expects to save between $250 million and $300 million annually by moving to a seven-day-a-week production schedule, streamlining its supply chain and consolidating some functions.Fitch Ratings commended ConAgra’s restructuring plan but did not change its BBB+ rating on the company’s debt this week because the plan won’t immediately improve ConAgra’s bottom line. That credit rating is near the low end of Fitch’s investment-grade bonds.”While Fitch views ConAgra’s efforts as a potential positive, the majority of benefits will take time to materialize,” the credit-rating firm said in a release.JP Morgan analyst Pablo Zuanic acknowledged in a research note that ConAgra beat expectations by three cents a share when all the one-time charges were excluded. But Zuanic questioned the quality of the performance because it is difficult to determine exactly what should be considered ongoing expenses and what are true restructuring charges.ConAgra said sales of its retail products grew 3 percent to $1.7 billion in the quarter. Hunt’s, Marie Callender’s, Orville Redenbacher and several of the company’s other top brands all posted sales growth.But the company said sales of its ACT II, Pam, Manwich and Swiss Miss brands all declined during the quarter.The company reported retail products profit of $248 million, which includes a $23 million charge related to cost-cutting efforts. A year ago the segment saw $272 million operating profit. Retail products represent about 57 percent of the company’s sales.”While overall brand results are mixed, I am encouraged by the durability and potential of some of our major brands, given our inconsistent and relatively low marketing investments,” Rodkin said.Sales of ConAgra’s food service products increased 4 percent to $561 million in the quarter. But its profit of $41 million fell 28 percent largely because of an $18 million restructuring charge.The company’s food ingredients segment was the only division to report higher quarterly profit this year at $71 million. But last year’s $60 million profit for the division was weighed down by a $15 million charge related to closing some manufacturing plants.Sales by the company’s food ingredients segment gained 8 percent, to $657 million from last year.ConAgra also announced plans last week to cut its dividend, saying that it was freeing up cash to help pay for a $75 million annual increase in spending on marketing.The quarterly dividend had been 27.25 cents per share since December 2004; it will drop to 18 cents a share. The new dividend is payable on June 1 to shareholders of record as of May 1.ConAgra maintained its forecast for earnings in the second half of fiscal 2006 to exceed year-ago results, excluding unusual items. In the year-ago period, the company earned $1.35 per share, but its earnings then were hurt by high costs in its packaged meats operations and streamlining of its manufacturing.Analysts predict full-year income of $1.32 per share and $14.46 billion in sales.Shares of ConAgra rose 23 cents, or about 1.2 percent, to $20.49 in midafternoon trading on the New York Stock Exchange.—On the Net:ConAgra Foods Inc.: http://www.conagrafoods.comVail, Colorado
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