ConAgra sees Q3 net hurt by refrigerated meat - US - ConAgra Foods, one of North America’s largest packaged food companies, has presented a company update to the Consumer Analyst Group of New York (CAGNY) at an industry conference in Scottsdale, Arizona.

During the presentation, the company is reaffirming its commitment to ongoing marketing, operating, and information systems strategies that are key to profitable long-term growth, and also providing comments about a combination of factors negatively impacting the near-term EPS outlook. Commentary Regarding EPS Outlook: The company is commenting on the outlook for its fiscal 2005 third quarter, which ends on February 27, 2005 and will be reported on March 24, 2005. The company has experienced continued success this fiscal year across several key brands and product types due to the growth initiatives underway. At the same time, a combination of factors are negatively impacting the third quarter’s overall EPS outlook. That combination includes:

• Continued weak results for its refrigerated branded meat operations, reflecting a spike in input costs in a difficult pricing environment.
  
  

• Production and order fulfillment issues within the Retail Products and Foodservice Products segments, resulting mostly from stronger-than-planned consumer demand for several items at a time when the company is making changes in the manufacturing network. Those changes include installation of new equipment and consolidating production in new locations to build long-term efficiencies. The production and fulfillment issues are improving as the quarter is progressing, and are not expected to impact the fourth quarter to the extent that they have in the third quarter.
  
  

• Transitional start up inefficiencies during the third quarter related to the implementation of Project Nucleus, an information-based program that strategically consolidates business processes and functions to make a more efficient, customer-linked supply chain. The Nucleus processes are being implemented across the company’s Retail Products and Foodservice Products segments for order processing, order fulfillment, logistics, invoicing, and cash collection. Because the company is gaining experience with the Nucleus systems and the transition is nearing completion, the Project Nucleus program is not expected to negatively impact the fourth quarter results to the extent that it has in the third quarter.

The company currently expects the operating items discussed above to negatively impact third quarter earnings by more than $50 million after-tax, which is in the range of $0.10 per diluted share. Approximately half of the $0.10 per share impact is due to weak performance in the branded processed meat operations, and the other half is due to the production, order fulfillment, and Project Nucleus transitional issues which are improving as the quarter is progressing.

In addition, when the company reports earnings for the third quarter of fiscal 2005, there will be several items which impact comparability with prior year amounts. Those items include a previously-disclosed gain on selling Pilgrims Pride Corporation stock which ConAgra Foods obtained as part of its divestiture strategy for the fresh chicken business. Several pending items, which should be resolved in the second half of the year, are expected to result in expense in excess of the previously-reported gain. Those items include expense related to legal matters, tax matters, strategic operational changes, and other items for which the timing is not known.

The company will provide more details on the matters discussed above, and on the earnings outlook for the fourth quarter and full fiscal year, when it releases its third quarter results on March 24, 2005.

Commentary Regarding Operating Initiatives

In reference to the presentation, Bruce Rohde, chairman and chief executive officer, comments, “We are continuing to reshape the company and strengthen the fundamentals that create value over the long-term for our shareholders. Over the last few years, ConAgra Foods’ portfolio of businesses has significantly improved through the sale of strategically non-core operations and increased focus on those operations that have higher-margin, higher-returning branded and value-added opportunities. Our commitment to long-term strength is why we have made portfolio changes, and why we have been steadily consolidating and improving our capabilities in key areas such as Research and Development, Manufacturing, Logistics, Information Systems, and Customer Service, all of which had been decentralized and unconnected for many years.”

He continues, “Our end goal is to create shareholder value by excelling at the basics: satisfying consumers with highly desirable products, providing trade customers with superior service, improving the efficiency of our operations, and deploying capital appropriately. While we have made substantial progress to date, there is still more to do to complete our profit-enhancing strategy, particularly with regard to our supply chain effectiveness and our product mix.”

Dennis O’Brien, President and Chief Operating Officer of Retail Products, and Frank Sklarsky, Executive Vice President and Chief Financial Officer, are also presenting at the conference. O’Brien is focusing on the sales and marketing initiatives that are expected to drive long-term top-line growth, noting success over the past year by gaining distribution for key products; those distribution gains were the result of a recently unified retail channel sales force with improved visibility on customer potential. He is also emphasizing improved results for marketing programs by utilizing a fact-based, disciplined process for allocating marketing funds to achieve appropriate returns on marketing investments, as well as increased use of bundled merchandising events featuring many brands from the ConAgra Foods portfolio. The Retail Products segment’s most noteworthy new product this season is Banquet Crock-Pot Classics®, a complete frozen meal designed specifically for slow cookers; Banquet Crock-Pot Classics® is doing very well, and should approach $100 million in sales in its first full year of production.

Sklarsky will remark on the initiatives designed to improve the company’s supply chain; those initiatives include the consolidation of purchasing activities, rationalization of manufacturing plants, more efficient logistics operations built around a network of large forward warehouses called Mixing Centers, as well as better utilization of transportation capacity. The company’s SKU rationalization program, which will be implemented aggressively over the next eighteen months, should favorably impact profit margins over time. As part of that program the company will focus its manufacturing capacity and selling efforts around higher-margin, higher-opportunity products and phase out lower-margin items. Sklarsky also commented that the company’s recent implementation of Project Nucleus, which streamlines the processes supporting the company’s order-to-cash activities, will help expand profit margins over the long-term by simplifying many processes and increasing visibility on efficiency opportunities in trade promotion programs, order processing, transportation, warehousing, invoicing, and collection practices.

Source: Conagra Foods Inc - 22nd February 2005