ConAgra Foods Swings to a Loss on Charges from Private-Label Business -- 2nd Update

By Annie Gasparro And Lisa Beilfuss 

ConAgra Foods Inc. on Tuesday reported a quarterly loss, as the food maker seeks a buyer for its struggling private-label business and invests more in reviving older brands such as Hunt's tomato sauce and Reddi-wip dessert topping.

The Omaha, Neb.-based company announced a $1.95 billion charge for the private-label unit, which makes foods that supermarkets sell under their own brands. ConAgra acquired that business in 2012 for $5 billion but said in June it planned to sell the unit, after having written down its value by some $2.2 billion.

In its branded business, which also includes Pam cooking spray and Chef Boyardee canned pastas, ConAgra has been battling weak demand for many traditional U.S. packaged foods, which also has sapped sales at rivals including General Mills Inc. and Campbell Soup Co.

Chief Executive Sean Connolly, who took the helm at ConAgra in April, said he is putting more money behind some of well-known-but-outdated brands such as Marie Callender's pot-pies and Healthy Choice frozen dinners, which had been relatively neglected by the company in recent years.

"One thing that happens when companies reduce investments in brands and in consumer insights is the brands start to atrophy," Mr. Connolly said in an interview. "But brands are incredibly resilient...you can make them relevant to a whole new generation."

He said Reddi-wip, for instance, has benefited from new marketing and packaging highlighting its main ingredient is "real cream," as opposed to water and hydrogenated vegetable oil that appear as the two main ingredients in a rival whipped topping.

Not all of ConAgra's stable of brands will get that kind of attention, though. ConAgra will keep around others, such as Wesson cooking oil, for the cash but not as a growth engine. "The key that I want to emphasize is that you don't treat all brands as if they are created equal," Mr. Connolly said. "Not all have equal growth opportunities."

In the latest quarter, sales in ConAgra's consumer business were flat, though operating profit rose 25% to $242 million, as he cuts costs to keep up with rival Kraft Heinz Co., which is setting a higher bar for profitability among U.S. food companies.

Mr. Connolly said ConAgra has seen a lot of interest from potential buyers for the private-label unit. Still, investors appear worried that the business might not be worth as much as they hoped, given the size of the write-off announced on Tuesday. Bernstein analyst Alexia Howard said that the accounting approach for valuing discontinued items is different from negotiating deals, "yet investors understandably see some links between the two," pushing the stock down 7.1% on Tuesday.

While it looks for a buyer of that unit, ConAgra faces additional pressure from activist investor Jana Partners LLC, which owned 2.7% of ConAgra's stock as of early July, with options that take its stake to about 7%. In July, ConAgra struck a deal with Jana to add two members to its board.

The $1.95 billion charge is related to ConAgra's decision to reclassify the private-label unit as discontinued operations, because of its plans to exit the business.

In the latest quarter, ended Aug. 30, the overall quarterly loss for ConAgra was $1.24 billion, or $2.85 a share, compared with a year-earlier profit of $482.3 million, or $1.12 a share. Stripping out the loss from discontinued operations and other items, earnings rose to 45 cents a share from 39 cents. Revenue edged up 1.1% to $2.79 billion.

In the commercial unit, which includes sales of Lamb Weston frozen potatoes to restaurants, revenue rose 3.5% to $1.1 billion as operating profit grew 17% to $139 million.

Write to Annie Gasparro at [e-mail] and Lisa Beilfuss at [e-mail]

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September 22, 2015 19:45 ET (23:45 GMT)

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