ConAgra reports earnings despite peanut butter recall

by Jeff Gelski
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OMAHA — ConAgra Foods, Inc. had net income of $192.6 million, equal to 38c per share on the common stock, in the third quarter ended Feb. 25 despite a peanut butter recall accounting for a loss of 6c per share. ConAgra sustained a loss of $25.2 million in the previous year’s third quarter.

Third-quarter sales of $2,918 million were 2% higher than $2,862 million in the previous year’s third quarter. ConAgra Foods expects its 2007 fiscal year e.p.s. guidance to be in the high end of the previously reported range of $1.28 to $1.33.

"I congratulate our team on a strong e.p.s. performance, particularly in the light of the fact that we were able to offset significant costs associated with the peanut butter recall, and still increase our marketing investment," said Gary Rodkin, chief executive officer, when third-quarter results were announced March 22.

The Consumer Foods segment reported unit volume declines of 1% in the third quarter. Sales for the company’s priority investment brands, which represent more than 75% of the segment sales, decreased 1%. The brands Hebrew National, Manwich, Marie Callender’s, Orville Redenbacher’s, PAM and Snack Pack all posted sales gains greater than 5%. Segment operating profit increased 2% to $224 million in the third quarter.

"Consumer Foods continued its success with strong cost savings and solid mix improvement," Mr. Rodkin said. "Together, those (factors) allowed us to increase advertising and promotion by about $26 million, focused on high-priority brands."

ConAgra recalled 100% of its peanut butter products after receiving reports from the Food and Drug Administration concerning Salmonella contamination. The company estimated the cost of the recall will be about $50 million to $60 million. The figure does not take into account ConAgra anticipating no peanut butter sales or profits in the fourth quarter.

"I want to assure our consumers, customers, investors and employees that we are correcting the operational problems that led to this, and are committed to the highest possible standards of food safety throughout our operations," Mr. Rodkin said. "We also intend to resolve all claims related to peanut butter fairly and expeditiously and do not believe the costs of resolving the claims will materially impact our future operating results."

In the Food and Ingredients segment, third-quarter sales rose 8% to $852 million. The major operations of Lamb Weston, ConAgra Mills, Gilroy Foods and Spicetec posted top-line growth thanks to better volume, mix and pricing.

Sales in the Trading and Merchandising segment increased 5% to $293 million. Sales in the International Foods segment rose 3% to $154 million.

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