As Sales Rise for Lamb Weston and Some Frozen Meals, ConAgra Scores Better than Expected Quarterly Results

ConAgra Foods, Inc., a leading diversified food company in North America and major producer and marketer of frozen products, surprised analysts with better than anticipated results for the first quarter of fiscal 2015, which ended on August 24. Earnings per share (EPS) from continuing operations amounted to $0.39, while the consensus expectation of Wall Street watchers was an EPS figure of just $0.35. Stockholders will receive a dividend payment of $0.25 per common share.

Revenue slipped by about 0.5% year-on-year, as expected by analysts, but a bright spot was lower SG&A expenses (-8.6% compared with the first quarter of last year) and decreased interest expense.

Sales generated in the consumer foods sector dipped 1% to $1.6 billion, as operating profit chimed in at $190 million. Frozen food ready meal brands posting growth included Banquet, Bertolli and Marie Callender’s. Furthermore, it was reported that Healthy Choice, which the Omaha, Nebraska-headquartered company has classified as one of three challenged brands (the other two, Chef Boyardee and Orville Redenbacher, are non-frozen), is “responding favorably to merchandising, packaging and product changes.”

“We achieved the number one dollar share position in frozen single serve-meals during the quarter,” ConAgra CEO Gary Rodkin told analysts during a recent earnings conference call. “That’s been a challenging category for retailers, but it's still very large, important and profitable for customers and food manufacturers alike, and we believe this is still a good business.”

He continued: “As you know, one of our major frozen brands, Healthy Choice, has struggled in single-serve frozen meals…We’re confident of our direction focused with that brand…We are moving out of slow selling SKUs and into more of our proprietary Healthy Choice Café Steamers line, which has been consistently strong since its introduction in 2008.”

The first quarter performance for Marie Callender's was particularly strong, with the single-serve dinner business up double-digits in dollar and volume sales. Marie Callender's has a long winning streak and increasing household penetration. Overall, ConAgra is confident about its frozen portfolio and is looking to generate better numbers for Healthy Choice sales later in the year.

Turnover in the company’s private brands segment declined to $980 million.

“Segment sales were down 2% versus last year’s first quarter, and comparable operating profit declined 28%, reflecting the fact that we made pricing concessions in the second half of our last fiscal year because of our customer service and quality execution issues,” said Rodkin.

Sales in the commercial foods sector, on the other hand, advanced 1.8% to just under $1.1 billion. Volume increased 3% while comparable operating profit, as expected, decreased 9% versus a year ago.

“In our biggest business in this segment, Lamb Weston potato product sales were up primarily due to more growth in the foodservice channel,” said the ceo. “Profits were below year-ago amounts, the year-over-year profit decline reflects less profitable mix given the loss of a large foodservice customer last year which we have not yet lapped, and the last quarter of last year’s poor potato quality. We will get both of those issues behind us in the fiscal second quarter…”

On the international front, some of Lamb Weston’s customers are facing the impact of adverse food quality news in China. This makes for short-term headwinds, but the long-term growth potential in developing markets continues to be robust, according to Rodkin.

During the question-answer portion of the conference call, Andrew Lazar of Barclays Capital asked about the impact of smaller frozen entree players that are really more in the health and wellness arena.

“They “are trying to be pretty aggressive about, or expecting to get one or two full doors of placement in the freezer case,” he commented. “Obviously that would add significant pressure to the incumbent brands that are currently there, and we will see how successful these companies ultimately are. But I'm trying to get a sense of whether that’s something you see in your conversations with retailers, or is that a risk that perhaps is something that we should worry a bit less about given what you’re doing around stock keeping unit (SKU) reduction at Healthy Choice and focusing on the steamer line?”

Rodkin replied: “There are always smaller players looking to get in and that is the case in the freezer case. But I can tell you we have got really good feedback from our customers that, given our performance in frozen and what we have been doing to try and grow the business, and obviously gain share, that it will impact us in a very immaterial way...”