Conagra Foods reported results for the fiscal 2016 fourth quarter

Today ConAgra Foods, Inc. (NYSE: CAG) reported results for the fiscal 2016 fourth quarter ended May 29, 2016.

Highlights
(% cited indicates change vs. year-ago amounts, where applicable. SG&A refers to selling, general, and administrative expense, and COGS refers to cost of goods sold)
 

• As reported, diluted EPS from continuing operations for the fourth quarter of fiscal 2016 was $(0.07), reflecting a charge for the year-end re-measurement of pension amounts, compared with $0.54 in the year-ago period. Adjusted for items impacting comparability, diluted EPS from continuing operations was $0.52, largely as planned, compared with $0.55 in the year-ago period.
  
  
  • The comparable EPS decline reflects the fact that the year-ago period included an additional week, and that the current period included higher incentives expense, higher marketing expense, and a negative impact from foreign exchange. The impact of these items was expected, and included in the previously communicated 2016 fourth quarter guidance.
  
  
  • The company estimates that the additional week in the year-ago period contributed an estimated 7% to sales and volume performance in results for the fiscal 2015 fourth quarter.


• Consumer Foods continued to post good margins in the quarter as it generated productivity savings, experienced favorable commodity input costs, and continued to improve discipline around promotional strategies.


• Commercial Foods demonstrated good performance in the quarter, driven by Lamb Weston’s results globally, with particular strength in key Asian markets.


• The company recently announced separate agreements to sell its Spicetec Flavors & Seasonings business and its JM Swank business, which are parts of the Commercial Foods segment. The transactions, which are expected to close in the first quarter of fiscal 2017, are expected to generate combined net proceeds of approximately $479 million.


• As previously discussed, the company plans to complete the relocation of its corporate headquarters from Omaha, NE to Chicago, IL in the first quarter of fiscal 2017.

CEO Perspective:

Sean Connolly, CEO of ConAgra Foods:

“Fiscal 2016 was a year of tremendous accomplishment and progress, as we reshaped the portfolio, strengthened the balance sheet, and transformed our culture.”

“Specifically, we divested the Private Brands operations, repaid approximately $2.5 billion of debt, announced plans to spin-off Lamb Weston and sell other parts of the Commercial Foods segment, and prepared to move our headquarters to Chicago as part of becoming more lean and agile.”

“Amidst all of this change, both of our operating segments posted very good results, largely reflecting increased focus on expanding margins through continued supply chain productivity, better price/mix, and lower SG&A. In the near term, we will remain focused on these areas while pursuing targeted and impactful marketing and innovation to deliver consistent margin and profit improvement.”

“Each segment is in an excellent position as we prepare to operate Conagra Brands and Lamb Weston as more focused pure plays later this year, and I want to congratulate our team on their successes getting us to this point.”

Overall Results

For the fiscal 2016 fourth quarter ended May 29, 2016, diluted earnings per share from continuing operations were $(0.07) as reported, compared with $0.54 for the fourth quarter of fiscal 2015. The reported loss in the fourth quarter was largely the result of a charge for the re-measurement of pension amounts. After adjusting for items impacting comparability, comparable diluted EPS from continuing operations was $0.52 this quarter and $0.55 in the year-ago period. Items impacting comparability are summarized and reconciled for Regulation G purposes starting on page 11.

For the full year fiscal 2016, diluted earnings per share from continuing operations were $1.09 compared with $1.73 for fiscal 2015. After adjusting for items impacting comparability, fiscal 2016 comparable diluted earnings per share from continuing operations were $2.08, compared with $1.93 in fiscal 2015.

Consumer Foods Segment
Branded food items sold worldwide in retail channels

The focus of the Consumer Foods team in the fiscal fourth quarter, and throughout the fiscal year, was on strengthening the business by building a higher quality volume base; this involved taking actions that emphasize profit margins over volume. In particular, the company’s price increases on certain Banquet branded products, associated with product quality improvements, as well as improved trade promotion discipline across several areas of the portfolio, negatively impacted volume but favorably impacted margin. Supply chain productivity and favorable commodity input costs played a significant role in the segment’s comparable operating margin expansion. The strong margin performance has enabled increased marketing investment in product-line renovations.

The Consumer Foods segment posted sales of approximately $1.7 billion and operating profit of $230 million in the fiscal fourth quarter, as reported. Sales declined 12%, approximately 7 points of which is attributable to the benefit of the extra week in the year-ago period. Adjusting for the benefit of the extra week in the year-ago period, sales declined 5%, reflecting a 4% volume decrease, flat price/mix, and a negative 1% impact from foreign exchange (all rounded).

Adjusting for the benefit of the extra week in the year-ago period, brands posting sales growth for the fiscal fourth quarter include Slim Jim, Hebrew National, Reddi-wip, Peter Pan, Egg Beater’s, Rosarita, and others. Other brand details are in the written Q&A document accompanying this release.

Segment operating profit was $230 million compared with $309 million in the year-ago period, as reported for the quarter. After adjusting for items impacting comparability, current quarter comparable operating profit of $290 million declined from the $324 million earned in the year-ago period. The comparable operating profit decline reflects lower volume, including the impact of the extra week in the year-ago period, as well as the impact of foreign exchange, partially offset by lower SG&A expense. Although comparable operating profit declined for the aforementioned reasons, comparable operating margin continued to expand as a result of good productivity and overall lower commodity input costs, as well as strong SG&A discipline. Advertising increased by $5 million, or 8%, as the company continued its previously discussed strategy to make targeted investments in high-potential brands.

Commercial Foods Segment
Specialty potato, seasonings, blends, flavors, and bakery products, as well as consumer branded and private label packaged food items, sold to restaurants, foodservice and commercial channels worldwide

Sales for the Commercial Foods segment were $1.1 billion, 6% below year ago amounts due to the extra week in the year-ago-period, and operating profit was $156 million, in line with year-ago amounts, as reported in the fourth quarter of fiscal 2016.

Adjusting for the impact of the extra week in the year-ago period, Lamb Weston continued to perform well globally, with particular strength in key Asian markets. On this same basis of comparison, other parts of the Commercial Foods segment performed in line with year ago results.

During the quarter, the company announced a definitive agreement to sell its Spicetec Flavors & Seasonings business. Shortly after the quarter, the company announced a definitive agreement to sell its JM Swank business. Each of these divestitures is expected to be completed during the first quarter of fiscal 2017. On an annualized basis, these divestitures are expected to remove an estimate of approximately $470 million of segment sales and a comparatively modest amount of segment profit. Each divestiture remains subject to customary closing conditions.

Outlook

The company 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, in the fall of calendar 2016. Prior to the spin-off, each company will host investor events to outline financial goals and priorities.

The company plans to report its fiscal 2017 first quarter results in the ordinary course, as a consolidated enterprise, in September 2016. We expect that first quarter fiscal 2017 will show double-digit comparable year-over-year EPS growth due to a continuation of the productivity, price/mix, and cost discipline initiatives underway, as well as lower interest expense.

This is a shortened and modified version of the CAG financial release - focused on assumed interest of PotatoPro readers. Follow the Source link below to read the complete and unmodified release.