ConAgra Foods Reports Weaker Than Expected Earnings on Ralcorp Acquisition, Shares Drop

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Consumer foods giant ConAgra Foods (NYSE: CAG ) reported weaker than expected earnings on Wednesday mainly due to restructuring charges related to the closing of its acquisition of Ralcorp. Shares in the company fell 2.03 percent pre-market.

For the fiscal third quarter of 2013, ConAgra reported adjusted EPS of $0.55, lower than estimates of $0.57 for the quarter. Revenue was also slightly weak at $3.85 billion compared to estimates of $3.87 billion. Compared to the same period a year ago, adjusted EPS fell 57.2 percent from $0.68 reported a year ago.

The company noted that the key Consumer Foods division saw operating profit increase from the same period last year but reduced EPS due to increased investments in marketing and other overhead costs. The company reported that sales in the segment grew 7 percent from the same period a year ago, driven by acquisitions.

Also, the company completed the acquisition of Ralcorp in the quarter and the results reflect 27 days of EPS benefit from Ralcorp. ConAgra expects Ralcorp to contribute approximately $0.05 per diluted share of EPS in in fiscal 2013.

In addition, the board of directors declared a dividend of $0.25 per share to be paid to shareholders as of April 30. The dividend is the same amount that was paid in the previous two quarters, which was a raise of $0.01 per share from the quarter prior to that.

ConAgra reaffirmed its fiscal 2013 guidance in the report, stating that it expects to earn $2.15 per share in fiscal 2013. The expected EPS would represent a 17 percent comparable increase from the prior year and would include the $0.05 per share benefit from the Ralcorp acquisition.

Gary Rodkin, ConAgra Foods' chief executive officer, said, "We are pleased with the earlier-than-planned closing of the Ralcorp transaction, sequential improvement in our Consumer Foods volumes, comparable profit growth in both of our core business segments, and the announcement of Ardent Mills, a new proposed joint venture for our milling operations. Challenges remain for key areas of our business, but a combination of successful margin improvement initiatives and a more favorable input cost environment is enabling us to significantly increase our brand investment and deliver EPS growth."

He continued, "Our organization is very focused on the ongoing integration of Ralcorp, which will play a key role in creating shareholder value. We reaffirm our expected comparable EPS benefit of $0.05 in fiscal 2013 results and $0.25 in fiscal 2014 results, and are very excited about our earnings potential over the next few years. This is a great time to be a part of ConAgra Foods."

The company also made note of the impact of the Ralcorp acquisition to results. "Approximately $0.16 per diluted share of net expense, or $103 million pretax, resulted from the acquisition, acquisition-related restructuring, and integration costs [related to Ralcorp]. $81 million is within unallocated Corporate expense, $17 million is within the Ralcorp results, and $5 million is within Consumer Foods."

The company will host a conference call at 9:30 am eastern Wednesday, April 3 to discuss results with the investment community. Information can be found on the company's investor relations website.

ConAgra shares declined 2.03 percent in the pre-market following the weaker than expected earnings release. Following the earnings release, analysts at Deutsche Bank reiterated a hold rating on the stock with a price target of $40.00, representing about 12.55 percent upside from the current price over the next twelve months.

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