Small victories add up for ConAgra

by Monica Watrous
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Several of ConAgra's brands generated strong growth during the first quarter, including Slim Jim, Marie Callender's, Act II and Reddi-wip.

OMAHA — Marketplace challenges continue for ConAgra Foods, Inc., but efforts to improve retail performance appear to be working. Highlights during the first quarter included market share gains and increased distribution in club, dollar and convenience stores, which are growing faster than traditional grocers, according to the company.

More significantly, ConAgra captured the No. 1 dollar share position in the frozen single-serve meals category, driven by double-digit growth for the Marie Callender’s brand during the quarter.

“As you know, that’s been a challenging category for retailers, but it’s still very large, important, and profitable for customers and food manufacturers alike,” said Gary Rodkin, chief executive officer, during a Sept. 18 conference call with analysts to discuss first-quarter earnings. “We believe this is still a good business. We think the combination of deep insights, a focus on core users, and leveraging differentiating innovation can help us continue to grow.”

ConAgra also is making progress in plans to improve its three struggling brands. For the Healthy Choice line of single-serve frozen meals, the company has discontinued slow-selling varieties and strengthened its proprietary Cafe Steamers line, which has grown consistently since the 2008 launch.

For the Healthy Choice business, ConAgra is phasing out slower-selling varieties and focusing on its better-performing Café Steamers sub line.

“The Cafe Steamers we have in market are showing strong growth, and we are confident of bigger second-half progress in Healthy Choice as we begin to lap some of the assortment pruning we did last year on slower selling sub lines,” Mr. Rodkin said.

For Chef Boyardee, another troubled business, sales have improved on the return of an easy-open can and new merchandising strategy.

Rescue efforts are under way for ConAgra’s third challenged brand, Orville Redenbacher’s popcorn, with packaging, assortment and merchandising changes set to enter the market late in the calendar year.

“We expect these changes to be meaningful and positive as we look forward,” Mr. Rodkin said. “Within popcorn, we’ve seen a strong quarterly performance from Act II, which benefited significantly from some simple graphics changes in the packaging. We know this category has room for growth and we know the Orville Redenbacher’s brand equity a strong.”

Meanwhile, the company reported double-digit growth in volume and sales for its Slim Jim and Reddi-wip businesses during the quarter. The whipped topping brand benefited from new positioning as an accompaniment to fresh fruit.

“A really intense focus on the fundamentals — we call it Perfect at Retail — is gaining traction and it’s demonstrating its power in Consumer Foods,” Mr. Rodkin said.

Moving on

For the first quarter ended Aug. 24, ConAgra had net income of $484.5 million, equal to $1.14 per share on the common stock, up from $147.2 million, or 34c per share, in the prior-year period. Results reflected stronger performance in the Consumer Foods segment, increased equity method investment earnings, and lower interest and corporate expenses, offset by lower earnings in the Commercial Foods and Private Brands segments. Items affecting comparability include acquisition-related restructuring, integration and transaction costs and unallocated corporate expense.

Net sales for the quarter dipped 0.4% to $3,701 million from $3,715.8 million.

Sales for the Consumer Food segment dropped 1% to $1,632.3 million, reflecting flat volume and price/mix.

“The work to get to that volume performance in Q1 was important and foundation-building,” Mr. Rodkin said. “In fact, there’s a lot of work going on now to grow volume, increase share, and improve margins all across the segment, and particularly in our fixed and grow brands.”

The Reddi-wip brand benefited from new positioning as an accompaniment to fresh fruit.

In the Commercial Foods segment, sales increased 1.8% to $1,088.3 million, supported by a 3% increase in volume that offset unfavorable price/mix. The Lamb Weston potato business posted a strong performance in the food service channel, but profits fell on comparatively weak raw potatoes. The company expects to benefit from processing a new potato crop.

“The year-over-year profit decline reflects less profitable mix, given a loss of a large food service customer last year, which we have not yet lapped and the last quarter of last year’s poor potato crop quality,” Mr. Rodkin said. “We will get both of those issues behind us in the fiscal second quarter as we lap the customer loss and are into the new crop. We’ve diversified and strengthened our customer base since last year, so we feel good about the sales potential and our prospects going forward.”

The Private Brands segment posted a 1.7% decline in sales to $980.4 million and a 3% decline in volume, reflecting pricing concessions made last year due to customer service issues and supply chain costs associated with the transition.

“The good news is that we’ve resolved these issues and we will start lapping those pricing concessions that we had to make last fiscal year, as we get into the second half of this fiscal year,” Mr. Rodkin said.

Within its private label portfolio, ConAgra is targeting fast-growing snacking categories with items that include pretzel flats and pieces, bold flavors of crackers, and snack nuts, as well as unique innovations with several retailers. Protein and fiber bars also are a focus, and in-store bakery products, such as artisan bread and cookies sold on the perimeter of the store, represent another growth driver for the segment.

“You can see our breadth across the store,” Mr. Rodkin said. “With our arms around the operational issues, we can work with retailers to design solutions to meet the shopper needs. In fact, we’ve picked up a good bit of new business over the past six months that we are working to bring to market in the second half of F.Y. 15.”
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