By John Saulnier, FFB Editorial Director
Once again, Lamb Weston’s positive sales performance was music to the ears of ConAgra Foods (CAG) shareholders, as the Chicago-headquartered company reported its latest quarterly results on September 29. Next time around, though, Lamb’s anticipated sweet refrain of ongoing success will be a solo performance as the frozen potato, appetizer and value-added vegetable products powerhouse is slated to be spun off from CAG and become a stand-along, pure-play company later this autumn.
Describing Lamb Weston as a “terrific business” in which “sales were up, margins were up and profit was up,” ConAgra CEO Sean Connolly told stock analysts during a recent earnings conference call that the unit generated approximately 4% of net sales growth. Revenue, however, slipped 2% due to the impact of foreign exchange rates and the divestures of Spicetec Flavors & Seasonings and JM Swank in July.
“Adjusted segment operating profit grew 33% in the quarter behind Lamb Weston's continued growth and favorable input costs. We continue to see significant opportunities to drive growth across the Lamb Weston business, leveraging its strong brand to capture emerging markets and international growth,” said Connolly.
In the last quarter, ConAgra posted a profit of $186.2 million, compared to a loss of $1.15 billion during the same period the year before. However, an overall sales decline of 5% was attributed to “actions to build a higher quality revenue base” by raising prices on products such as long-time bargain Banquet frozen meals, pot pies and side dishes.
The company’s refrigerated and frozen division saw sales decline 8.1% to $604.6 million, while its grocery and snacks operation sustained a 5.4% slide to $757.2 million as volume slipped 6%. Sales setbacks in other segments were as follows: Commercial, -2% to $843 million; Foodservice, -1% to $268 million; International, -5.7% to $194.7 million.
Lamb Management Team
Meanwhile, folks itching to find out who will be named Lamb Weston’s next chief financial officer will have to be patient a while longer.
When Ken Goldman of JP Morgan remarked during the conference call that “it’s a little unusual” not to have a permanent CFO in place prior to a major spin-off, Connolly replied:
“I think the big picture here that I don't want investors to lose is that we are making excellent progress rounding out the Lamb management team. You're going to learn more about these folks in short order, as well as populating the board with seasoned veterans who are really going to help this company get off to a flying start. We are very far along in terms of the CFO search process. I don't want to get into the details of that process or our motives publicly for obvious reasons, but with the Investor Day just a couple of weeks away [October 13 in New York City], we are very fortunate to have John Gehring help us get things launched…John will be the Interim CFO here over the course of the next couple of months, as we stand Lamb up.”
The top two executives were announced some time ago. Timothy R. McLevish will become Lamb Weston’s executive chairman of the board of directors and Thomas P. Werner will be the new chief executive officer following the spin-off.
Refrigerated and Frozen Results
Elaborating on ConAgra Foods’ refrigerated and frozen sector performance, Connolly pointed out that while net sales decreased 8.1%, adjusted operating profit rose by 310 basis points to 16% of net sales.
“The volume decline in this segment was heavily focused on Banquet, an important brand [that is] going through a significant makeover,” he said. “We continue to work to restage the brand, resulting in increased pricing associated with long-overdue product and packaging upgrades. Accordingly, this was the primary driver of the volume and sales decline in the segment for the quarter. Banquet is now benefiting from much stronger margins, and our consumer data is also showing an improving buying rate from our most loyal consumers and key customers. As we move through the next calendar year and begin to wrap these actions, you will see top line sales declines moderate. From there, we will also fold in new product improvements and innovation.”
Connelly also told analysts that one other planned action in the frozen sector during quarter was worth noting. “While Marie Callender's is not one of our historically over-promoted brands, it was over-promoted in the year-ago period. And that was not a good business decision, so we did not repeat it in Q1 this year,” he said. “These two actions contributed to our volume decline, but, again, we saw the margin gains we were counting on.”
- [Editor’s note: FrozenFoodsBiz.com thanks Seeking Alpha for providing a transcript of ConAgra Foods’ September 29 earnings conference call. Readers who want to review the full text may do so by visiting www.SeekingAlpha.com.]