ConAgra Beats, Hit by Commodity Costs

OMAHA ( TheStreet) -- ConAgra Foods ( CAG) said higher commodity costs led it to post a lower quarterly profit, though results topped expectations.

ConAgra, the maker of processed foods under the Chef Boyardee, Healthy Choice, Hebrew National and Orville Redenbacher's brands, among others, booked a fiscal third-quarter profit of $214.8 million, or 50 cents per share, down 6.4% from $229.6 million, or 51 cents per share, earned in the year-earlier period.

ConAgra shares were 0.1% higher ahead of the opening bell Thursday after closing 0.3% lower to $22.93 on Wednesday.

ConAgra said rising commodity costs pressured its bottom line.

Revenue rose 4.1% to $3.15 billion. The top-line figure also came in better than analysts' call which had been for revenue of $3.12 billion.

ConAgra said its Banquet and Peter Pan brands were among the strongest performers in the recent quarter.

The Omaha company also reaffirmed its full-year guidance for earnings per share to grow at a low single-digit percentage rate over fiscal 2010's $1.67 per share.

Like ConAgra, food maker General Mills ( GIS), which met quarterly profit expectations on Wednesday when it reported adjusted earnings of 56 cents per share, also warned of rising commodity cost inflation.

General Mills, the maker of Cheerios cereals, Nature Valley snack bars, Progresso soups and Totino's pizzas, said costs will rise between 4% and 5% this year as prices increase for fuel, dairy, resin-based packaging, cocoa and wheat -- and those prices are expected to rise again in fiscal 2012.

General Mills has had success in the past dealing with higher costs through expense reductions and the introduction of new higher-priced products.

"They have a lot weapons in their arsenal to try to offset that beyond raising prices, but they're not immune," Morningstar analyst Erin Lash told Reuters.

Despite the anticipated rise in costs, General Mills reiterated its previously announced fiscal 2011 forecast, calling for earnings per share between $2.46 to $2.48 and net revenue growth in a low single-digit percentage rate.

General Mills' shares were flat in premarket trading Thursday after losing 1.8% to $36.24 on Wednesday.

General Mills' earnings release comes days after Barron's released a bullish report on consumer staple stocks, including GIS, Kellogg ( K), Procter & Gamble ( PG), and Campbell Soup ( CPB). The basic thesis of the article was that consumer staple businesses are not leveraged to the overall growth of the economy but rather providers of essential household products. That argument is certainly a plausible thesis for the long term, according to RealMoney contributor Shad Gad .

-- Written by Miriam Marcus Reimer in New York.

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