Both segments of Conagra's business grew operating profits in Q1.
In the Consumer Foods segment, Conagra has chosen price increases over volume in some cases, such as Banquet, which has increased the net profit for the brand. Conagra had strong results from its Marie Callendar brand and intends to further promote that brand through its Time to Savor marketing campaign. Slim Jim also had a strong performance and Conagra was able to successfully promote it through non-traditional campaigns, such as the Male Spice Loss campaign on social media. More recently, Conagra partnered with EA Sports to market the Slim Jim brand. Two regional brands, Ro*Tel Tomatoes and Wolf Chili, are gaining strength into national brands.
In the Commercial Foods segment, consumers are still eating away from home. Lamb Weston is expanding into higher margin products, such as Sweet Potato Fries. Conagra is now in 20 fast serve restaurants with Sweet Potato Fries on the menu. The Alexia brand, the high end brand of Lamb Weston, is growing. Conagra is also providing private label frozen potato products to the retail customer.
In Q1, Conagra completed the purchase of Bertolli and P.F. Chang's Home Menu multi-serve frozen meals from Unilever. The two brands represent $300 million in annual sales and are targeted to higher income groups with higher price points. Conagra expects to continue with other acquisitions if they meet the company's requirements. Around half of the Consumer Foods growth, however, will come through acquisitions.
This year, Conagra was named to the Dow Jones Sustainability World Index, which is a very difficult index to make.
Evaluation of markets/economy
There is still inflation, but it is much lower than the last year, which is helping margins. Going forward, Conagra expects inflation to be lower than it had initially planned.
Financials.
Net sales increased by 7 percent. Conagra expects sales in fiscal year 2013 to increased by 7 to 8 percent, with sales in Consumer Foods increasing in high single digits and sales in Commercial Foods increasing by 3 percent.
Sales in the Consumer Foods segment increased by 8 percent, all of which was the result of acquisitions. Organically, sales in Consumer Food segment was flat, which favorable price/mix as a result of actions to combat inflation was offset by organic volume declines and currency exchange. Conagra expects organic volume to improve through the rest of the fiscal year for several reasons: (1) it will be lapping that higher pricing actions taken last year, which reduced volumes, (2) its latest new products, including Healthy Choice and Marie Callender's Bakes, Healthy Choice Greek Frozen Yogurt and the Marie Callender's single-serve cream pies, are ramping up, (3) it expects to benefit from its additional marketing.
Sales in Commercial Foods increased by 5 percent. All product lines had volume growth. Lamb Weston grew at double digit rates and was particularly successful internationally. Flour milling also had volume gains.
Profit in the Consumer Foods segment increased by 14 percent, which includes a 20 percent increase in marketing. Profit is Commercial Foods grew by 43 percent and comparable segment profits increased by 37 percent.
Fully diluted EPS for Q1 was $.44/share, an increase of 42 percent. Conagra is raising its EPS for fiscal year 2013 to $2.03 to $2.06, which would be an increase of 10 to 12 percent over fiscal year 2012. Net hedging gains added $.20 to EPS for the quarter.
Conagra is raising its dividend to $.25/share for the December payment and $1/share annually.
The transcript of the earnings conference call can be found on Seeking Alpha at the following link:
http://seekingalpha.com/article/878991-conagra-foods-management-discusses-q1-2013-results-earnings-call-transcript?part=single
Copyright 2012 Jaygo's Earnings Conference Call Summaries
This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.
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