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

Stocks in this article: CAG

The company’s long-term EPS growth rates, and multi-year synergy goals related to the Ralcorp acquisition, are unchanged from prior estimates. The company expects at least 10% annual comparable EPS growth in the fiscal 2015-2017 period, and expects the Ralcorp transaction to generate $300 million of annual pretax cost-related synergies by the end of fiscal 2017.

Segment Changes Implemented During the Fiscal Second Quarter, 2014

The Consumer Foods segment, which reported approximately $9.0 billion in sales for fiscal 2013 under the prior reporting structure, has been changed as follows:

  • It no longer includes results for store brands (reflecting approximately $700 million of revenue in fiscal 2013; store brands are now part of the recently created Private Brands segment),
  • It no longer includes results for foodservice sales of retail branded products (reflecting approximately $800 million of revenue in fiscal 2013; foodservice is now part of the Commercial Foods segment), and
  • It now includes international sales previously part of the Ralcorp business segment(s) results (owned less than a year, with the international sales from Ralcorp expected to generate approximately $60 million in FY14 sales).

The Commercial Foods segment, which reported sales of approximately $5.2 billion in fiscal 2013 under the prior reporting structure, has been changed as follows:

  • It now includes the foodservice results that were previously part of the Consumer Foods segment (see above for sales quantification).
  • It now includes the frozen bakery foodservice results that were previously part of the Ralcorp business segment(s) (owned less than a year, with the foodservice sales from Ralcorp expected to generate approximately $300 million in FY14 sales).

The Private Brands segment has been recently created, and includes:

  • A significant portion of the results of the former Ralcorp businesses (owned less than a year, and this portion of the former Ralcorp segment is expected to generate $3.7 billion of sales in fiscal 2014);
  • The store brands results that were previously part of the Consumer Foods segment (see above for sales quantification).

Major Items Impacting Second-quarter Fiscal 2014 EPS Comparability

Included in the $0.54 diluted EPS from continuing operations for the second quarter of fiscal 2014 (EPS amounts rounded and after tax):

  • Approximately $0.05 per diluted share of net expense, or $35 million pretax, resulting from restructuring, integration, and transaction costs (including acquisition-related restructuring). $29 million of this is classified as unallocated Corporate expense (SG&A), $4 million is classified within the Consumer Foods segment (essentially all SG&A), and $2 million is classified within the Private Brands segment (essentially all SG&A).
  • Approximately $0.01 per diluted share of net expense, or $9 million pretax, related to the mark-to-market impact of derivatives used to hedge input costs, temporarily classified in unallocated Corporate expense. 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.
  • Approximately $0.01 of net expense, or $9 million pretax, related to impairment of assets in the Commercial Foods segment, all SG&A.
  • Approximately $0.01 of net expense, or $3 million pretax, related to the re-measurement of pensions at an international potato venture, classified within equity method investment earnings.

Included in the $0.52 diluted EPS from continuing operations for the second quarter of fiscal 2013 (EPS amounts rounded and after tax):

  • Approximately $0.03 per diluted share of net expense, or $16 million pretax, resulting from acquisition and acquisition-related restructuring costs. $6 million (rounded) of these are in the Consumer Foods segment ($3 million in cost of goods sold (COGS) and $3 million in SG&A expense, and $10 million are in unallocated Corporate SG&A.
  • Approximately $0.02 per diluted share of net expense, or $16 million pretax, related to the mark-to-market impact of derivatives used to hedge input costs, temporarily classified in unallocated Corporate expense. 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.

Discussion of Results

ConAgra Foods will host a conference call at 9:30 a.m. EST today to discuss the results. Following the company’s remarks, the call will include a question-and-answer session with the investment community. Domestic and international participants may access the conference call toll-free by dialing 1-877-675-4753 and 1-719-325-4857, respectively. No confirmation or pass code is needed. This conference call also can be accessed live on the Internet at http://investor.conagrafoods.com.

A rebroadcast of the conference call will be available after 1 p.m. EST today. To access the digital replay, a pass code number will be required. Domestic participants should dial 1-888-203-1112, and international participants should dial 1-719-457-0820 and enter pass code 7883761. A rebroadcast also will be available on the company’s website.

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