Driven by strong demand for Lamb Weston frozen potato products, the Commercial Foods segment of ConAgra Foods saw sales rise by 6% to almost $1.1 billion during the fiscal third quarter of fiscal 2016. Operating profit for the three-month period that ended on February 28 was $175 million, up 21%.
The company’s Consumer Foods business unit generated receipts of approximately $1.9 billion and operating profit of $291 million during the third quarter, down 2% and 4%, respectively.
Noting that the figures exceeded expectations, CEO Sean Connolly elaborated: “Our actions to drive improved profitability continued to take hold. The focus on improving price/mix and driving efficiencies is enabling us to enhance our overall fundamentals in both of our segments, resulting in solid comparable operating profit growth and expanding operating margins.”
Earnings per share of stock amounted to $0.68, up from $0.59 in the corresponding year-ago period. Meanwhile, the sale of private label assets to TreeHouse Foods raised more than $2.6 billion, of which a significant portion was applied to reduce debt by approximately $2.15 billion.
“With the sale of our private label business completed, we are focused on successfully executing plans to reduce costs and deliver improved price/mix, while continuing to segment our portfolio to enable more impactful marketing and support investments to drive future innovation and deliver improved margins and shareholder value,” said Connolly. “We are on track to establish two independent segments with excellent operating foundations as we separate into two pure-play companies in the fall.”
Eagle, Idaho-headquartered Lamb Weston, which produces a wide range of value-added potato products as well as frozen appetizers and vegetables to restaurants and retailers around the world, continues to be ConAgra’s star performer both in the USA and abroad. It is the entity that’s scheduled to be spun off later this year, as the company divides into two stand-alone units separately conducting business as ConAgra Brands and Lamb Weston.
“Lamb Weston remains well-positioned to capitalize on the significant international growth opportunities created by the aggressive emerging market expansion of major quick service restaurant chains,” stated Connolly during an earnings call with financial analysts. “In North America we continue to see positive growth momentum across many of our key customers in the QSR and operator distributor channels. We have industry-leading innovations and customer service, and our breadth of diversified products continues to position this business as a clear market leader.”
Consumer Foods Commentary
Noting that Marie Callender’s frozen pies built up market share and sold especially well during the last holiday season, the chief executive officer said that innovation and renovation focused on “premiumization, wellness and authenticity” will fuel sales growth in the future.
“A great example of our investment in innovation comes from our Healthy Choice Simply Steamers line,” he stated. “This is a clean label version of Café Steamers, and we’re continuing to drive wellness based innovation with this line. In the fourth quarter, we’re adding four new premium varieties including three-cheese tortellini, a sweet and spicy Asian-style noodle bowl, creamy spinach and tomato linguine, and an unwrapped burrito bowl. Consistent with the consumer focus on authenticity, these new recipes will spotlight organic, non-GMO ingredients.”
Elsewhere in the frozen product portfolio, the Banquet brand sustained the vast majority of the Consumer Foods segment’s volume decline in the third quarter, as across the board price increases were imposed on its extensive line of previously deep-discounted ready meals, side dishes and pot pies.
“While we recognize it will take time to rebuild the buying rate among households that are long accustomed to $1 Banquet offerings, we’re confident that the higher price points enable us to invest in product enhancements and higher quality advertising and promotion that reeducates consumers about the brand,” said Connolly. “Not all consumers will transition with the brand, and we’re okay with that. But given the higher quality, we expect to attract new consumers to the franchise in time. We continue to believe our plan for Banquet is the right one for long-term brand health and financial strength. And this highly disciplined approach to margin expansion is one we plan to methodically apply to other brands with similar opportunities.”
Bertolli Italian-style Meals
“With Bertolli, we are stepping up our work to renovate our frozen skillet business and make the brand even more relevant to today’s shoppers,” said the chief executive officer. “We’re expanding occasions through the addition of Family Size Skillets within our lineup. Looking ahead, we’re embarking on major renovation investments in the Bertolli brand to upgrade proteins, such as all natural chicken, and dramatically simplify the ingredients label. As we continue to renovate around the brand, we will support the product upgrades with increased marketing spend to drive profitable growth.”
He continued: “Unlocking the full value potential of our branded portfolio will be a process, not a flip of the switch. But it is a battle-tested process, and it will succeed. It all starts with the unwavering belief that strong margins are the key to maximizing value.” – Reported by John Saulnier
[Editor’s note: FrozenFoodsBiz.com thanks Seeking Alpha for providing a transcript of ConAgra Foods’ April 7 earnings conference call. Readers who want to review the full text may do so by visiting www.SeekingAlpha.com.]
