ConAgra Foods, Inc. reported results for the fiscal 2011 second quarter ended Nov. 28, 2010. Diluted EPS from continuing operations was $0.45 as reported and on a comparable basis. For the same period a year ago, diluted EPS from continuing operations as reported was $0.53, which included $0.02 of net benefit from items impacting comparability. Items impacting comparability in the current year and prior year are summarized toward the end of this release.
Gary Rodkin, ConAgra Foods' chief executive officer, said in a prepared statement, "Several challenges impacted our results. Difficult market conditions, weaker-than-planned consumer response to promotions, and higher-than-planned inflation weighed on Consumer Foods' profits despite progress in overall unit market shares and volume. Profitability of our Commercial Foods segment was below expectations primarily due to selling and processing last year's high-cost, unusually low-quality potato crop. In aggregate, it was a challenging quarter."
He continued, "Several factors are expected to improve year-over-year operating results in the second half of the fiscal year, despite the challenging environment. Very importantly, we are increasing net pricing on a number of our products given the ongoing acceleration of cost inflation. Some price increases have recently been implemented, and more are under way. We are confident that the net effect of these pricing increases will be positive, despite some potential modest volume decline. Our products will continue to deliver outstanding value to consumers even after these pricing actions. Price increases, along with strong cost savings, lower SG&A, accelerating contribution from innovation and recently acquired businesses, and a good-quality potato crop currently being processed are expected to drive improved year-over-year earnings for the rest of the fiscal year. Although the challenging environment is expected to cause this fiscal year's anticipated EPS growth to be comparatively modest, the operating foundation of the company continues to be strong, and we are confident in our long-term EPS growth potential."
Branded and non-branded food sold in retail and foodservice channels.
The consumer foods segment posted sales of $2,104 million and operating profit of $284 million for the second quarter. Sales increased 1 percent as reported, reflecting a 1 percent organic volume increase, 3 percent decline in overall price/mix, and 3 percent benefit from acquisitions (net of divestitures). The company's all-outlet unit market share increased for the quarter, while dollar share was largely unchanged in aggregate.
Sales results reflect difficult market conditions and a very competitive environment, which necessitated increased promotional spending. Consumer response to promotions was weaker-than-planned given the challenging economic conditions. The company noted strong sales results for the segment's frozen business and international markets. Sales for recently acquired and recently introduced products performed well.
Brands posting sales growth for the quarter included DAVID, Marie Callender's, PAM, Reddi-wip, Slim Jim, Wesson, Wolf, and others.
More brand details can be found in the Q&A document accompanying this release.
Based on accelerating input cost inflation, the company is in the process of implementing pricing increases; despite some potential negative effect on volumes, the company expects the net impact of the pricing increases to improve fiscal 2011 second-half profitability.
Operating profit of $284 million was 14 percent below $330 million in the year-ago period, as reported. Adjusting for approximately $5 million of restructuring charges in current-quarter results, the comparable year-over-year decline was 13 percent. The lower profitability reflects the impact of unfavorable price/mix, largely due to promotional spending, as well as inflation that outpaced cost savings. Cost savings during the quarter were in line with expectations, at approximately $80 million, and the company expects to deliver in excess of $275 million of cost savings this fiscal year, with strong savings in the second half.
The company expects the segment's year-over-year profit performance to improve in the second half of the fiscal year given the price increases under way, strong cost savings, lower SG&A, and accelerating contribution from innovation and recently acquired businesses.
Sales for the commercial foods segment were $1,057 million, 3 percent above $1,022 million in the year-ago period. The sales increase reflects improved volumes for Lamb Weston specialty potato products, as well as higher selling prices for the flour milling operations necessitated by higher wheat input costs.
Segment operating profit was $126 million, 16 percent below $151 million in the year-ago period. The operating profit decline reflects weaker margins at Lamb Weston, primarily due to selling and processing last year's high-cost, unusually poor-quality potato crop. The company also incurred start up costs at the new Delhi, La., sweet potato plant, which began operations during the quarter. The company finished its inventory of the old potato crop, and began processing this year's new, good-quality potato crop this quarter; fiscal second-half profits for the Lamb Weston specialty potato operations are on track for year-over-year improvement. Although still strong, flour milling profits were down from last year's high levels, as expected. Profits for the seasonings, blends, and flavors operations were in line with year-ago amounts, as planned.