Commodities trading growth spurs profit at ConAgra

by Eric Schroeder
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OMAHA — Boosted by strong growth in its commodities trading division and to a lesser extent its food and ingredients unit, ConAgra Foods Inc. was able to shake off the effects of a recent peanut butter recall to post 43% year-over-year growth in fiscal 2007. Fiscal 2006 results had been weighed down by restructuring charges.

Net income in the year ended May 27 totaled $764.6 million, equal to $1.52 per share on the common stock, up from $533.8 million, or $1.03 per share, in fiscal 2006. Net sales for the year were $12,028.2 million, up 5% from $11,482 million.

Much of the year-over-year improvement was driven by a strong finish to the year. In the fourth quarter ended May 27, net income soared 224% to $192 million, or 39c per share, up from $59.2 million, or 11c per share, in the fourth quarter of fiscal 2006. Sales rose 13% to $3,332.5 million in the quarter.

ConAgra said the total cost of the peanut butter recall was approximately $66 million pre-tax in fiscal 2007, with $48 million incurred in the third quarter and $18 million in the fourth quarter.

"I congratulate our team on a very strong finish to the fiscal year," said Gary Rodkin, chief executive officer. "Record trading and merchandising profits, as well as continued progress with cost-saving initiatives have allowed us to increase marketing investments substantially and offset inflation while delivering strong e.p.s. this quarter. I am also pleased with accelerating sales performance for key brands within the Consumer Foods segment, and am confident that our increased marketing investment and innovation pipeline have set a solid foundation for fiscal 2008."

At $847.9 million, operating profit in the Consumer Foods segment during fiscal 2007 was up 2% from $828.3 million in fiscal 2006. Sales in the segment, meanwhile, were lower for the year, dipping 0.3% to $6,485.3 million.

During the fourth quarter, operating profit for the segment was $166.7 million, down 15% from $197.1 million in the same period a year ago, due primarily to $57 million in increased advertising and promotion investment as well as $17 million related to the peanut butter recall. Sales for the quarter fell less than 1% to $1,604.5 million. ConAgra said sales for its top 30 brands, which represent more than 75% of total segment sales, increased 2% during the fourth quarter.

"Excluding Peter Pan peanut butter sales in current and prior-year results, overall sales for priority investment brands increased 4%," the company said. "In particular, Chef Boyardee, Egg Beaters, Hebrew National, Kid Cuisine, Marie Callender’s, Orville Redenbacher’s, Slim Jim and Snack Pack posted strong sales gains."

ConAgra plans to reintroduce Peter Pan in July, relying on another company to produce the peanut butter initially. ConAgra expects to resume production of the peanut butter at its Sylvester, Ga., plant sometime in August.

Operating profit in the Food and Ingredients segment, which accounts for 29% of annual sales, rose 21% and 10%, respectively, in the full year and

fourth quarter, reflecting strong sales performance that was only partly offset by higher raw material costs. Sales for the segment totaled $3,481.7 million and $912.6 million for the full year and fourth quarter, up 9% and 11%, respectively, from the same periods a year ago. Helping drive the sales growth in the full year and quarter were higher flour selling prices driven by increased wheat costs.

Operating profit in the Trading and Merchandising segment, which encompasses trading and merchandising agricultural commodities, fertilizer and energy worldwide, soared 68% in the year and 377% in the fourth quarter. ConAgra said energy trading and fertilizer operations posted their highest quarterly profit ever by successfully capitalizing on the market environment. The company added that fiscal 2008 profitability in the segment is expected "to be significantly lower than fiscal 2007 levels." Sales in the unit rose 28% in the year and 84% in the quarter.

Full-year operating profit in the International Foods segment totaled $63.4 million, up 2% from $62.1 million in fiscal 2006. During the fourth quarter, though, operating profit fell 24% to $17.2 million. Sales in the segment grew 0.5% in the year and 0.6% in the quarter.

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