ConAgra Foods Swings to Loss

Plans to separate into two independent companies in the fall of FY2016

Source: Company's Website
Source: Company’s Website

ConAgra Foods Inc. (NYSE: CAG) announced its Q4 FY16 and full-year FY16 financial results on June 30th, 2016. Headquartered in Omaha, Nebraska, the packaged food company operates primarily through three segments: Consumer Foods, Commercial Foods, and Private Brands. The Consumer Foods segment provides branded food products in various categories, such as meals, entrees, condiments, sides, snacks, and desserts. This segment’s principal brands include ACT II, Banquet, Blue Bonnet, Chef Boyardee, DAVID, Egg Beaters and Healthy Choice. The Commercial Foods segment offers frozen and sweet potato items, vegetable products, and bakery goods under the Alexia, Lamb Weston, and Spicetec Flavors & Seasonings brands. The Private Brands segment, which has now been divested, offered private brand and customized food products including bars, cereal, snacks, condiments, and pasta. Read more about the ConAgra’s financial results below.

Q4 FY16 financial highlights

Source: Company's Website
Source: Company’s Website

ConAgra’s Q4 FY16 net sales fell 9.5% to $2.83 billion from $3.12 billion in the previous year quarter. During Q4 FY16, the Consumer Foods’ segment posted a 12% decline in sales to approximately $1.7 billion. Operating profit nosedived to $230 million compared with $309 million in the year-ago period. However, the Consumer Foods’ segment continued to post good margins during Q4 FY16 as it generated productivity savings, experienced favorable commodity input costs, and continued to improve promotional strategies.

The Commercial Foods’ segment reported a 6% decline in sales to $1.1 billion, while operating profit remained flat at $156 million during Q4 FY16. This segment’s performance was driven by Lamb Weston’s global results, particularly in key Asian markets. ConAgra recently announced separate agreements to sell its Spicetec Flavors & Seasonings business and its JM Swank business, which are part of the Commercial Foods’ segment. The transactions, which are expected to close in Q1 FY17, are expected to generate combined net proceeds of approximately $479 million.

C3During Q4 FY16, ConAgra reported a 42.8% drop in net income to $120.9 million, down from $211.5 million in the prior year quarter. As a result, its earnings dropped to $0.27 a share from $0.48 a share in the year-ago quarter. When considering a charge for the year-end re-measurement of pension amounts, ConAgra swung to loss with diluted EPS from continuing operations of $(0.07) compared with earnings of $0.54 in the year-ago period. Adjusted for items impacting comparability, diluted EPS from continuing operations was $0.52, compared with $0.55 in the year-ago period.

Full year FY16 financial highlights

For the full year FY16, diluted EPS from continuing operations declined to $1.09 compared with $1.73 for FY15. After adjusting for items impacting comparability, FY16 comparable diluted EPS from continuing operations were $2.08, compared with $1.93 in FY15.

During FY16, ConAgra divested its Private Brands’ segment, repaid approximately $2.5 billion of debt, and announced its plans to spin-off Lamb Weston and sell other parts of the Commercial Foods’ segment. The Company plans to complete the relocation of its corporate headquarters to Chicago in Q1 FY17.

Other highlights

Moving ahead, ConAgra plans to separate into two independent pure play companies, ConAgra Brands and Lamb Weston. The transaction is expected to be structured as a spin-off of the Lamb Weston business, tax free to the Company and its shareholders, during September-December 2016.

Guidance for FY17

ConAgra would report its Q1 FY17 results as a consolidated enterprise. The Company expects double-digit comparable Y-o-Y EPS growth due better productivity, price/mix, and cost discipline initiatives underway, as well as lower interest expense.

Stock Performance

C4ConAgra’s stock stood at $47.73, falling 1.36%, at the close on Tuesday, July 5th, 2016, having vacillated between an intraday high of $48.38 and a low of $47.72 during the session. The stock’s trading volume was at 4,138,456 for the day. The Company’s market cap was at $20.90 billion as of Tuesday’s close.

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