ConAgra to Spin Off Lamb Weston, Split into Two Companies

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Lamb Weston will be run an independent, publicly traded company by the autumn of 2016 under a plan announced by ConAgra Foods (CAG) on November 18 to separate the foodservice-oriented frozen potato, appetizer and vegetable products unit from its consumer foods operation. The Lamb Weston/Meijer joint venture in Europe, headquartered in the Netherlands, is expected to remain with the business following the tax-free spin-off.

“The separation of our Lamb Weston specialty potato business from our consumer brands business [which will result in CAG stockholders owning shares in both entities] is the best way to drive shareholder value,” said Sean Connolly, president and ceo of ConAgra Foods. “The separation will enable each company to sharpen its strategic focus and provide flexibility to capitalize on the unique growth opportunities in its respective market.”

lamb-Weston-productAs previously reported by FrozenFoodsBiz.com, sales performances by Lamb Weston have been bright spots in Omaha, Nebraska, USA-headquartered ConAgra’s recent quarterly and annual results. Lamb Weston’s operating profit of $570 million was realized on turnover of $2.9 billion in 2015, which accounted for the majority of sales generated in ConAgra’s Commercial Foods unit.

In the first quarter of fiscal 2016, which ended on September 22, Lamb Weston’s revenues rose 3.5% to $1.1 billion as operating profit advanced 17% to $139 million. The big picture for ConAgra, however, showed a loss of $1.24 billion. This was largely due to a $1.9 billion impairment charge taken by its soon to be jettisoned private label division. Since getting into the store brands business in earnest by acquiring Ralcorp in 2013 for approximately $5 billion, the unit’s value has been written down by $2.2 billion.

“The decision to separate into two pure-play companies reflects our ongoing commitment to implementing bold changes in order to deliver sustainable growth,” said Connolly, who noted that a variety of strategic alternatives [presumably including an outright sale of Lamb Weston] were considered. “Shareholders will gain direct exposure to more focused consumer and commercial foods businesses, each with distinct customer bases and investment profiles. We are confident that this separation will best position each company to compete and win while creating compelling long-term value for shareholders and delivering benefits to employees, customers and other key stakeholders.”

The two businesses operate in distinct markets and “possess unique and compelling growth prospects and investment requirements,” added the chief executive officer. ConAgra Foods’ leaders believe that the separation will result in other material benefits to the standalone companies, including:

  • Greater management focus on the distinct businesses of consumer brands and foodservice frozen potato products;
  • Increased flexibility, agility and resources to capitalize on their respective long-term opportunities and growth strategies;
  • Tailored capital structures and financial policies and targets appropriate for each company’s unique business profile;
  • The ability for investors to value the two companies based on their particular operational and financial characteristics.

kidcuisine hdrConagra Brands
Conagra Brands will be the new name of the company’s consumer foods segment business, which rang up approximately $7.2 billion in fiscal 2015 sales. Its portfolio of frozen food brands includes Healthy Choice, Marie Callender’s, P.F. Chang’s, Alexia, Banquet and Kid Cuisine. The unit will be led by CEO Connolly and headquartered in Chicago.

Conagra Brands is also expected to include several businesses currently reported within the commercial foods segment, including the traditional foodservice business (sales of branded products to foodservice companies), Spicetec Flavors & Seasonings and JM Swank, as well as certain private label operations which were moved to the consumer foods reporting segment in the first quarter of fiscal 2016. These businesses generated approximately $1.8 billion in fiscal 2015 revenues.

Lamb Weston
LW LogoFollowing the separation, Lamb Weston’s portfolio will consist of frozen potato, sweet potato, appetizer and other vegetable products, as well as a continued presence in retail frozen products under licensed brands and private brands.

With distinct competitive advantages in key geographic area spanning the globe from the Americas and Europe to the Mid-East, Africa and Asia, it is expected to further build upon a strong foundation to enhance growth. The company aims to maximize opportunities to expand market share domestically as well as abroad.

Alexia-retail-product“We remain focused on accelerating the growth of Lamb Weston internationally. The global quick service restaurant industry is aggressively expanding in emerging markets, with potatoes remaining a critical part of the menu,” said Connolly.

Capital structure and capital allocation policy for Lamb Weston have not yet been finalized; nor has its management team, which will be announced at a later date.

Meanwhile, the Alexia brand of frozen potato side dishes, baked appetizers, artisan breads and organic vegetable products, which are sold in retail stores as well as through foodservice channels, will be leveraged by both Lamb Weston and Conagra Brands.

Debt Reduction, Cost Cutting on Track
Among other announcements, ConAgra Foods has reiterated plans to utilize net proceeds from the pending sale of its private brands business to TreeHouse Foods Inc. for approximately $2.7 billion, primarily for debt reduction. Additional cost-cutting measures, bundled into a “$300 million efficiency plan,” include the elimination of about 1,500 jobs [roughly 30% of its office-based workforce in Omaha], as headquarters operations are relocated to Chicago. – Reported by John Saulnier

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