|ConAgra's private label business is still not on firm footing.|
OMAHA — ConAgra Foods’ 2013 acquisition of Ralcorp Holdings was viewed as a bold and transformational move for the company. The estimated $6.8 billion investment gave ConAgra a firm foundation with which to become a dominant player in the market for private brands. With the announcement of its second-quarter earnings on Dec. 18, it is clear the business is not on firm footing.
While such private brands competitors as TreeHouse Foods have experienced volume growth for three consecutive quarters, ConAgra Foods’ Private Brands business suffered a 6% volume decline during the second quarter alone. As a result, ConAgra announced the business segment experienced an operating loss of $202 million, including charges of $247 million comprising a write down of goodwill and other intangible assets.
“I’d start by just acknowledging that the business is clearly not where we want it to be or expect it to be and it is a point of frustration for our entire organization,” said Gary Rodkin, chief executive officer, in a conference call with financial analysts on Dec. 18.
Private Brands sales during the second quarter of fiscal 2014, ended Nov. 23, totaled $1.05 billion, a decline of approximately 5% compared with the same period during the previous year.
“Regarding the rest of this fiscal year, we had originally expected modest profit growth in F.Y.15, but after further evaluation, we’ve revised our outlook,” Mr. Rodkin said. “This outlook better reflects the continuing competitive pressures, the impact of the commodity cost increases, the extended time needed to achieve the cost benefits from our network optimization, and in general, the overall timeline we needed to make sustainable improvements in how we operate this segment.
“The Private Brands segment profit will be down in F.Y.15. Results should significantly improve in F.Y.16, when we expect the business to recover and start growing. Improvement largely boils down to execution. This is a transformative undertaking to create scale in Private Brands and it’s been more complex and required more time than we originally expected.”
To turn the business around, Mr. Rodkin outlined a four-point plan designed to make the business more competitive.
“We’ve lost business because we are not in front of the customers the right way,” he said. “Simply put, it just takes us too long to do basic things that our customers expect us to do, and that’s why we have a very focused turnaround plan to get this business on track.”
Step one, according to Mr. Rodkin, will address narrowing the business segment’s focus.
“What we have found is where we have (a) narrow focus we have better performance and more confidence from our customers, and more stable overall performance,” he said. “Where we have stressed it too thin and added some complexity, it has hurt. So we know what we need to do and it’s really about making those adjustments so that we are more effective.”
The second area set for improvement is around the speed of commercialization. Mr. Rodkin said it is taking too long to get concepts executed and into the market.
“ … The sooner you do it the sooner the new sales are realized and it improves the performance of the business,” he said.
Improving customer service is the third piece of the company’s plan.
“… The reality is we have to service our customers in a cost-effective way,” Mr. Rodkin said. “We have made progress, but there is still more work to do and it’s got to be customer-by-customer, very granular in nature, to embrace the unique dynamics by category, by customer, and that’s exactly the direction we’re headed.”
Finally, Mr. Rodkin said inflation associated with increased commodity costs has played a role in the Private Brands segment’s poor performance. To address the situation he said the business must be better connected.
“We have to be able to navigate through those dynamics effectively,” he said. “We will with better internal connectivity.”
Addressing the overall performance of the Private Brands business, Mr. Rodkin iterated the issue is related to poor execution and is fixable.“To state the obvious, it’s been more difficult and taken longer than we originally planned, but an important point is, these issues, they are fixable,” he said. “The earnings revision that you see is, from my perspective, it’s a delay in our recovery, but it’s not a long-term problem.”