Some of the sequential volume improvement in the fiscal second quarter reflects business that was expected to occur early in the fiscal third quarter, thus a shift in timing versus earlier plans. Given current business conditions, the company is cautious about near-term volume performance. The company currently expects overall comparable volumes for this segment for the full fiscal year to be down slightly compared with year-ago amounts. The company expects operating profit growth for this segment in the back half of the fiscal year, largely due to a combination of continued manageable inflation, supply chain productivity initiatives, SG&A efficiencies which include a reduction in marketing expense, and, to a lesser extent, the benefit of merchandising programs.
Commercial Foods Segment Specialty potato, seasonings, blends, flavors, milled grain, as well as consumer branded and private branded packaged food items and bakery products, sold to foodservice and commercial channels worldwide.
Sales for the Commercial Foods segment were $1.6 billion, up 3% over year-ago amounts as reported. The sales growth reflects $79 million of benefit from acquisitions, specifically Ralcorp foodservice results that are now part of this segment (but not in year-ago amounts because of the date of the acquisition). Segment operating profit was $169 million, 13% below year-ago amounts as reported.
After adjusting for $9 million of net expense in the current quarter for items impacting comparability, current quarter operating profit of $178 million declined 9% on a comparable basis.Lamb Weston potato products’ profits were below year-ago amounts, as expected, given that a major foodservice customer did not renew a sizeable amount of potato business toward the end of last fiscal year. Lamb Weston continues to expand business with other customers to recover the lost volume. During the quarter, the company fully transitioned to processing the current-year potato crop; the quality is below the level expected, and this will negatively affect manufacturing costs and margins for Lamb Weston over the next few quarters. Lamb Weston expects good but slower-than-planned growth internationally largely because some customers are facing short-term challenges in certain Asian markets.
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