Second Quarter Results
The Omaha, Nebraska-based company's net income for the second quarter increased to $244.8 million, or $0.50 per share, from $213.3 million, or $0.42 per share, in the prior-year quarter.
On average, eight analysts polled by First Call/Thomson Financial expected the company to report earnings of $0.42 per share.
Income from continuing operations for the quarter increased to $243.8 million, or $0.50 per share, from $201.3 million, or $0.39 per share, a year ago. Earnings per share from continuing operations for the recent quarter included $0.03 per share of costs related to the recent pot pie recall, while the year-ago quarter's results included $0.01 per share of expense from items impacting comparability.
Net sales for the quarter climbed 13.7% to $3.51 billion from $3.09 billion in the similar period of last year. Wall Street analysts had a consensus revenue estimate of $3.25 billion for the quarter.
Cost of goods sold for the quarter was recorded at $2.57 billion, up 12.6% from $2.28 billion in the year-ago quarter. Selling, general and administrative expenses increased 17.1% to $527.2 million from $450.4 million in the previous-year quarter.
Income from discontinued operations, net of tax, was $1.0 million for the quarter, compared to income from discontinued operations of $12.0 million in the comparable period of last year.
Commenting on the results, Gary Rodkin, chief executive officer of ConAgra Foods said, "I am very pleased with the momentum in our Food and Ingredients segment and how well our Trading and Merchandising segment is capitalizing on market opportunities."
In October, ConAgra had announced a voluntarily recall of all varieties of Banquet brand and store brand frozen pot pies after state health officials expressed concerns that some of the company's Banquet poultry pot pie products may be linked to an outbreak of salmonella, a common pathogen found in not-ready-to-eat poultry containing products like pot pies.
The company said that it does not expect any additional significant expenses related to the pot pie recall and added that after a thorough review of the pot pie plant with the USDA, it restarted production and shipping product in early December.
Segmental Highlights
Consumer Foods
During the quarter, the consumer foods segment's net sales totaled $1.79 billion compared to $1.77 billion a year ago. Operating profit declined 16% to $234 million from $277 million in the year-ago period. Comparable unit volumes were up 3%, while comparable sales also increased 3%. The company noted the despite price increases, sales growth did not outpace unit growth on account of protecting trade deal commitments to customers on several heavily promoted categories and due to negative sales mix resulting from the higher rate of growth from the enabler brands.
Comparable sales for the priority investment brands, which represent more than 70% of the segment sales, increased 2%, reflecting the benefit of new products introduced during the summer as well as effective marketing. The priority investment brands that posted sales increases include Chef Boyardee, Egg Beaters, Healthy Choice and Hebrew National, among others. Comparable sales for the Enabler brands were up 5%.
Food and Ingredients
The segment posted second-quarter sales of $995.0 million, up 14.4% from $869.6 million in the same quarter of the previous year, reflecting stronger prices and solid volumes for the Lamb Weston specialty potato and appetizer operations and higher flour prices for ConAgra Mills necessitated by higher wheat input costs. Segment operating profit climbed 12.5% to $131.3 million from $116.7 million in the similar period of last year. Excluding a gain of $18 million on the sale of non-core assets and a benefit of $8 million from insurance proceeds, comparable profits in the segment surged more than 40% in the quarter.
Trading and Merchandising
The segment's sales rose 83.5% in the quarter to $545.5 million from $297.3 million in the prior-year quarter. Operating profit rose to $164.5 million from $38.9 million in the year-ago period. The company noted that fertilizer and agricultural merchandising operations recorded a strong quarter, successfully capitalizing on rising prices and continued strong domestic as well as export demand. In addition, agricultural trading results improved from the prior-year period, while energy trading results were slightly below a year ago.
International Foods
The company's sales from International Foods climbed 13.1% to $175.7 million from $155.4 million in the prior-year quarter. The company attributed the increase in sales to strong volume and pricing trends for products in Mexico, Puerto Rico, the Caribbean and Latin America in addition to sales increase from a weaker dollar. Operating profit declined to $14.7 million from $18.6 million in the previous-year period. The year-ago profit includes a gain of $4 million from the divestiture of a non-core asset.
Year-To-Date Results
For the twenty-six weeks ended November 25, 2007, the company's net income increased 10.6% to $420.2 million from $380.0 million in the prior-year period. Earnings per share for the period climbed 14.9% to $0.85 from $0.74 in the year-ago period.
Net sales for the period increased to $6.47 billion from $5.78 billion in the similar period of last year.
Outlook
Looking ahead to fiscal year 2008, the company raised its outlook for earnings from continuing operations and now expects earnings to be slightly above $1.55 per share compared to its prior outlook of $1.48 per share. Analysts expect the company to report earnings of $1.51 per share for the year.
The revised outlook excludes the recent pot pie recall expenses and other items affecting comparability.
Rodkin said, "While we will continue to face a very challenging input cost environment for the near term, we do expect full year fiscal 2008 EPS to be higher than previously communicated due to the strong year-to-date EPS performance."
Peer Performance
Among the company's peers, in November, Del Monte Foods Co. (DLM | charts | news | PowerRating) reported an increase in net income for the second quarter to $25.9 million or $0.13 per share from $23.2 million or $0.11 per share in the prior-year quarter, helped by the sales growth of new and existing products. Income from continuing operations for the quarter improved to $26.7 million or $0.13 per share from $23.7 million or $0.12 per share in the previous-year quarter. Quarterly net sales increased 5% to $938.1 million from $893.5 million in the year-ago quarter, reflecting volume growth from new and existing products.
Another company in the industry, H.J. Heinz Company (HNZ | charts | news | PowerRating) reported a 19% increase in its net income for the second quarter to $227.04 million from $191.58 million in the similar period of last year, on strong sales in Europe and emerging markets. Earnings per share for the quarter climbed to $0.71 from $0.57 a year ago. Second-quarter sales advanced 13% to $2.52 billion from $2.23 billion in the year-ago quarter.
Stock Movements
In Thursday's regular trading, CAG is trading at $23.98, down $0.81 or 3.27% on a volume of 2.30 million shares. In the 52-week period, the stock has been trading in a range of $22.81-$28.35.
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