ConAgra Foods, Inc. (CAG)

CAG 
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ConAgra Foods (CAG)

Q2 2012 Earnings Call

December 20, 2011 9:30 am ET

Executives

Chris Klinefelter - Vice President of Investor Relations

Gary M. Rodkin - Chief Executive Officer, President, Executive Director and Member of Executive Committee

John F. Gehring - Chief Financial Officer and Executive Vice President

Paul T. Maass - President of Commercial-Foods Business

André J. Hawaux - President of Consumer Foods

Analysts

Ann H. Gurkin - Davenport & Company, LLC, Research Division

Jonathan P. Feeney - Janney Montgomery Scott LLC, Research Division

Andrew Lazar - Barclays Capital, Research Division

Christopher Growe - Stifel, Nicolaus & Co., Inc., Research Division

Thilo Wrede - Jefferies & Company, Inc., Research Division

David Driscoll - Citigroup Inc, Research Division

Robert Moskow - Crédit Suisse AG, Research Division

Alexia Howard - Sanford C. Bernstein & Co., LLC., Research Division

Robert Dickerson - Consumer Edge Research, LLC

Bryan D. Spillane - BofA Merrill Lynch, Research Division

Eric R. Katzman - Deutsche Bank AG, Research Division

Presentation

Operator

Good morning, and welcome to today's ConAgra Foods Second Quarter Earnings Conference Call. This program is being recorded. My name is Jessica Morgan, and I'll be your conference facilitator. [Operator Instructions] At this time, I'd like introduce your host for today's program, Gary Rodkin, Chief Executive Officer of ConAgra Foods. Please go ahead, Mr. Rodkin.

Gary M. Rodkin

Good morning. Welcome to the call, and thanks for joining us. I'm Gary Rodkin, and I'm here with John Gehring, our CFO; Chris Klinefelter, VP of Investor Relations.

This morning, we'll share with your our perspectives on the quarter and the balance of the year, and then we'll open up the call for your questions. At that point, André Hawaux, President of Consumer Foods; and Paul Maass, President of Commercial Foods, will join us.

Before we get started, Chris will say a few words about housekeeping matters.

Chris Klinefelter

Good morning. During today's remarks, we will make some forward-looking statements. And while we're making those statements in good faith and are confident about our company's direction, we do not have any guarantee about the results that we will achieve. So if you'd like to learn more about the risks and factors that could influence and affect our business, I'll refer you to the documents we file with the SEC, which include cautionary language.

Also, we'll be discussing some non-GAAP financial measures during the call today, and the reconciliations of those measures to the most directly comparable measures for Regulation G compliance can be found in either the earnings press release, our Q&A or on our website under the Financial Reports and Filings links, and then choosing Non-GAAP Reconciliations.

Now I'll turn it back over to Gary.

Gary M. Rodkin

Thanks, Chris. As you can see from the release, EPS from continuing operations was $0.41 as reported and $0.47 on a comparable basis. It was a little higher than planned, but as a point of reference, last year's comparable amount was $0.45.

We're pleased with the business performance of the quarter. We demonstrated good top line performance, with both our segments reflecting pricing needed to help offset inflation. Our Commercial Foods segment posted a strong double-digit rate of operating profit growth, driving the over-delivery for the quarter. We're on track for our full year commitments, which you'll hear more about later from John.

Right now, I'd like to share a few highlights from the quarter for each segment, starting with Commercial Foods. We saw favorable results in terms of pricing actions, volumes and mix. Our double-digit sales increase was driven by pricing across the segment, necessitated by significantly higher input costs. In our milling operations, we passed through our higher wheat prices. And in our potato operations, we increased prices to deal with higher operating costs. If we stripped out the top line growth from the milling operations given their pass-through nature, we'd still be looking at a sales growth of about 7% for the segment. That's a strong top line performance. This combination of pricing, volume and mix helped drive a very strong profit increase of 26% for the segment, and Lamb Weston, in particular, had a strong profit performance versus a year ago.

To the point on mix, higher-margin sweet potato products are doing well in the food service channel. And Alexia, our premium Frozen line, along with our private label potatoes, are driving results at retail. From our vantage point, the quick-serve restaurant business has stabilized in the U.S., and our customer partnerships across the board are as strong as ever.

I'll touch on a few international highlights for Lamb Weston's business. We're excited that the Lamb Weston/Meijer -- that Lamb Weston/Meijer, a joint venture mostly focused on Europe, is posting improved results, and we're also seeing strong results in other important markets. For example, Southeast Asia's up 30% over year -- year-over-year, and our sales to China are up 23% year-over-year. We expect to keep capitalizing on high-growth global opportunities at Lamb Weston, the cornerstone of our strategy for our potato business.

If you remember back a few quarters, we were struggling in Lamb Weston with some margin and operating cost issues. We've overcome those earlier challenges, and we're executing very well on the key operating initiatives, which are resulting in improved mix, pricing and efficiencies. Our milling operations had good profit results as we managed commodity markets well and continue to focus on a more profitable mix of products, including more sales in the growing whole grains market. As I said, we're very pleased with the Commercial segment's results this quarter, and we attribute the over-delivery of the quarter's EPS primarily to our Lamb Weston team's progress.

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