ConAgra 2Q Profit Jumps, Boosts Forecast

By JOSH FUNK

OMAHA, Neb. – ConAgra Foods Inc. said Thursday that strong performance from its commodities trading group helped the company overcome the cost of a pot pie recall and post a 15 percent jump in second-quarter earnings.

The company behind brands such as Banquet, Chef Boyardee and Egg Beaters raised its profit outlook for the full year.

But its shares fell in afternoon trading amid price worries. Company officials said in a conference call with investors they had scaled back their restructuring plans and faced higher inflation than expected.

"We truly did take on too much at once," ConAgra CEO Gary Rodkin said about the three-year restructuring plan.

And Rodkin said handling two nationwide recalls within nine months – peanut butter in February and pot pies in October – tied up resources and contributed to some service problems during the quarter.

So company officials have changed the timetable for their restructuring goals.

ConAgra shares fell 70 cents, or 2.8 percent, at $24.09 in afternoon trading Thursday.

The company said it earned $244.8 million, or 50 cents per share, in the quarter that ended Nov. 25, up from $213.3 million, or 42 cents per share, a year ago.

The company reported revenue of $3.51 billion, up from $3.09 billion in the same period a year ago.

Analysts polled by Thomson Financial expected earnings of 42 cents per share on revenue of $3.25 billion.

ConAgra also boosted its earnings forecast for the full fiscal year to about $1.55 per share for fiscal 2008, up from its previous prediction of about $1.48 per share.

Through the first half of the fiscal year, ConAgra earned $420.2 million, or 85 cents per share, on revenue of $6.47 billion. That’s up from a profit of $380 million, or 74 cents per share, on revenue of $5.78 billion a year earlier.

ConAgra said its recall of all its Banquet and private label pot pies in October cost about $27 million, or 3 cents per share, in the quarter. The company resumed making the pot pies in November after USDA inspectors approved new safety practices at the plant.

The pot pies made by ConAgra were linked to at least 272 cases of salmonella in 35 states. The federal Centers for Disease Control and Prevention said at least 65 people were hospitalized as part of the outbreak, but no deaths have been linked to the pot pies. The CDC has not updated the number of illnesses linked to pot pies since late October.

Rodkin said he’s disappointed in how the company’s consumer foods segment has performed, but he believes that will change as new products and promotions are used.

He said ConAgra experienced 8 percent inflation during the quarter, and its cost-saving efforts couldn’t keep up.

The company did increase prices for many of its products during the second quarter, but Rodkin said those increases didn’t immediately help ConAgra, because the company also offered discounts to help keep customers happy.

Citigroup analyst David Driscoll said in a research note that ConAgra’s stock price fell because investors were worried about inflation and disappointed with the company’s pricing practices this year.

"However, pricing gains are forthcoming and are already evidenced in the company’s frozen dinner portfolio where prices are up 7 percent over the last three months," Driscoll said.

Rodkin said the trading and food ingredients divisions made up for the disappointment in consumer foods.

ConAgra’s trading group contributed $164.5 million pretax profit to the quarter, which rose significantly from the $38.9 million net income that division generated a year ago.

The company’s trading and merchandising group buys and sells agricultural commodities, fertilizer and energy. Company officials say they don’t plan for the trading group to perform well when they make earnings predictions, because its results are difficult to predict.

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On the Net:

ConAgra Foods Inc.: http://www.conagrafoods.com