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ConAgra Foods Reports Strong Fiscal 2014 Second-Quarter EPS; Fiscal 2014 EPS Reaffirmed

Hedging Activities – This language primarily relates to operations other than the company’s milling operations.

Hedge gains and losses are aggregated, and net amounts are reclassified from unallocated Corporate expense to the operating segments when the underlying commodity or foreign currency being hedged is expensed in segment cost of goods sold. The net of these activities resulted in $9 million of unfavorable impact in the current quarter and $16 million of unfavorable impact in the year-ago period. The company identifies these amounts as items impacting comparability.

Other Items

  • Unallocated Corporate amounts were $106 million of expense in the current quarter and $91 million of expense in the year-ago period. Current-quarter amounts include $9 million of unfavorable hedge-related impact and $29 million of net expense from other items impacting comparability (details starting on page 8 of this release). Year-ago period amounts include $16 million of unfavorable hedge-related impact and $10 million of expense related to other items impacting comparability. Excluding these amounts, unallocated Corporate expense was $68 million for the current quarter and $65 million in the year-ago period.
  • Equity method investment earnings were $5 million for the current quarter and $13 million in the year-ago period; the year-over-year decline reflects a $3 million pension adjustment (identified as an item impacting comparability), as well as difficult market conditions for a European potato joint venture.
  • Net interest expense was $95 million in the current quarter and $53 million in the year-ago period; the increase reflects the incremental interest related to the debt incurred to fund acquisitions, principally Ralcorp.

Capital Items

  • Dividends for the current quarter totaled $106 million versus $97 million in the year-ago period, reflecting an increase in shares outstanding.
  • The company repurchased approximately 2 million shares of common stock during the quarter for approximately $69 million.
  • For the current quarter, capital expenditures for property, plant and equipment were $151 million, compared with $81 million in the year-ago period; approximately $28 million of the increase relates to Ralcorp. The comparable increase reflects several significant planned plant expansions and improvements. Depreciation and amortization expense was approximately $146 million for the fiscal second quarter; this compares with a total of $94 million in the year-ago period. Approximately $48 million of the increase in depreciation and amortization relates to Ralcorp.
  • The company is currently preparing for the formation of Ardent Mills, a joint venture into which the company expects to contribute its milling operations. The details of that transaction, which is now expected to close in the first quarter of calendar 2014, were announced on March 5, 2013. While the company expects approximately $0.03 of EPS dilution this fiscal year, as previously discussed, due to the formation of the venture, over the long term, the venture’s profit growth is expected to be accretive to ConAgra Foods’ EPS.

Outlook

The company continues to expect fiscal 2014 diluted EPS, adjusted for items impacting comparability, to be in the range of $2.34-$2.38. This takes into account the stronger-than-planned fiscal second quarter EPS contribution, as well as caution about the overall business environment, the impact of the quality issues in this year’s potato crop at Lamb Weston, and the gradual nature of the executional improvements underway in the Private Brands segment.

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