Consumer Products

ConAgra Pleases With Earnings and Guidance, Even After Huge Charge

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ConAgra Foods Inc. (NYSE: CAG) reported third-quarter fiscal 2015 results before markets opened Thursday. The food processor and packager reported quarterly adjusted diluted earnings per share (EPS) of $0.59 on revenues of $3.88 billion. In the same period a year ago, ConAgra reported EPS of $0.62 on revenue of $3.95 billion. Third-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $0.52 and $3.87 billion in revenue.

On a GAAP basis, ConAgra posted a net loss of $2.23 per share due to a non-cash impairment charge of $1.3 billion on a write-down of its goodwill and other intangible assets in the Private Brands division. The company said that profits in the division were down substantially compared with the same quarter “due to a continued competitive bidding environment and execution shortfalls.”

Somewhat mysteriously, ConAgra said due to its third-quarter performance the company was raising its guidance for adjusted, diluted EPS for the fiscal year to $2.15 to $2.19. Analysts had pegged earnings at $2.14 per share.

The company must reckon that it has put most of the bad news from its Private Brands division behind it and that performance will improve in the fiscal fourth quarter. ConAgra notes, though, that commodity costs are rising, particularly for durum wheat and snack nuts. The company has begun raising its prices, and says that it should pass along the higher costs “over time.” But the continued drought in California will affect the price of many commodities, almonds and walnuts among the most obvious. For ConAgra, the issue is whether or not it can raise prices high enough and fast enough to regain profitability in the Private Brands group.

The company’s CEO said:

We are pleased with the performance of our Consumer Foods segment and our domestic Commercial Foods business, as well as the robust efficiencies we are generating across the company. Our Private Brands segment, however, is significantly below expectations; we are in the midst of implementing initiatives to improve execution to drive better performance starting in fiscal 2016.

CEO Gary Rodkin is retiring next month, and new CEO Sean Connolly will assume the role on April 6.

Shares of ConAgra traded up about 1.8% in Thursday’s premarket, at $35.55 in a 52-week range $28.60 to $37.46. Thomson Reuters had a consensus analyst price target of around $34.80 before the results were announced.