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ConAgra Reports $1.2 Billion Quarterly Loss as Overhaul Continues
ConAgra Foods, which owns brands like Marie Callender’s, Reddi-wip and Chef Boyardee, reported a steep loss in its first quarter on Tuesday after knocking down the value of its beleaguered private label business.
That business, which makes packaged foods that are then sold by grocery stores under their own names, is for sale, and the company expects to have more news about the move this fall. There are rumors on Wall Street that TreeHouse Foods, which has been actively acquiring companies since it was spun off from Dean Foods a decade ago, is the most likely buyer.
ConAgra reported a loss of $1.2 billion, or $2.88 a share, in the quarter that ended Aug. 30, compared with profits of $482.3 million, or $1.14 a share, in the period last year.
Sales were essentially flat at $2.8 billion, as the company raised prices on its products to help offset declines in sales volumes.
Sean Connolly, a longtime food executive who became ConAgra’s chief executive in April, said in a brief interview that absent the write-down of the private label business, the company had a strong quarter. “We were able to deliver meaningful margin expansion in both our consumer and our commercial segments of business,” he said.
Mr. Connolly has embarked on a wide-ranging overhaul, forcing through painful decisions like the sale of the private label business that only two years ago was heralded as the jewel in ConAgra’s crown.
He adopted zero-based budgeting, a way of setting budgets that has become popular because of 3G Capital, the Brazilian private equity group that has used it to help strip costs from Heinz, Burger King and, more recently, Kraft Foods.
And Mr. Connolly has taken an ax to promotions and deep discounts offered to grocery stores and moved to extend payment terms with suppliers, another tactic 3G has employed.
At the same time, ConAgra is increasing its marketing budgets, determined to support brands that have long been neglected, like Orville Redenbacher’s and Hunt’s, and investing in brand extensions, like its new Healthy Choice Simply Café Steamers line of frozen entrees. They eschew artificial flavors, colors and preservatives in favor of “natural” ingredients that many consumers are seeking.
“Importantly, they command a higher price,” Mr. Connolly told analysts in a conference call after the company announced its earnings. “These products are performing well.”
The company also is reviving some of its brands. It is promoting the use of real cream in Reddi-wip, which recently unseated Cool Whip as the leading whipped topping.
Similarly, Hunt’s is emphasizing its claim that it is the only company that uses a steam process, rather than chemicals, to peel its tomatoes, a system ConAgra calls “eight hours from vine to can.”
Analysts in a conference call after the company announced its earnings expressed some concern about declining volume sales. Mr. Connolly noted that Nielsen did not track many of the distribution channels where ConAgra’s products were sold, like warehouse and convenience stores.
He also said ConAgra was getting out of what he calls “noninvestment grade” volume, or sales driven by promotional programs. “Not all volume in the food industry is created equal,” Mr. Connolly said in the interview. “The industry in general and ConAgra in particular has been overcommitted to things like 10 for 10s” — promotions in which 10 units of a product are sold for $10 — “and deep discounts.”
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