ConAgra CEO: Pieces in Place for Food Industry Consolidation

   By Paul Ziobro 
 

ConAgra Foods Inc. (CAG) Chief Executive Gary Rodkin says the key ingredients, including strong balance sheets and low borrowing costs, are in place for consolidation in the packaged food industry, but time will tell if it come into fruition.

"The signals are clearly there," Mr. Rodkin said during an interview with Dow Jones Newswires. But, he added, "we'll see," whether anything comes of it.

Mr. Rodkin made the comments after being asked about last week's $23 billion buyout of H.J. Heinz Co. (HNZ) by Warren Buffett's Berkshire Hathaway Inc. (BRKA, BRKB) and Brazilian private-equity firm 3G Capital. "I was as surprised as anybody," Mr. Rodkin said.

The deal sparked speculation about whether it would mark the start of a wave of consolidation in the packaged-food industry, where companies are grappling with how to increase sales in developed markets like the U.S.

ConAgra, for its part, is currently taking a breather from acquisitions after recently completing the $4.95 billion acquisition of private-label food maker Ralcorp. ConAgra is currently working to pay down debt incurred during the deal.

The maker of Peter Pan peanut butter, Slim Jim meat snacks and other food products on Tuesday raised its outlook for fiscal 2013, in part to reflect the benefit of the Ralcorp deal that closed last month. It also said that Ralcorp should add about 25 cents to fiscal 2014 earnings per share, but didn't disclose an outlook yet.

In recent trading, ConAgra shares were down slightly at $33.47.

ConAgra bought Ralcorp because of its dominating presence in the private-label food space, which ConAgra expects to continue to gain a larger share of consumer wallets over the years. Private-label food sales currently make up 18% of U.S. food sales, the company says.

Mr. Rodkin said as a combined company, ConAgra would be able to help Ralcorp lower costs to buy ingredients and packaging material. It will also be able to work with some customers. For instance, Mr. Rodkin said that one unnamed fast-food chain buys ConAgra's Lamb Weston french fries and Ralcorp breakfast products, so they can now approach that chain as one supplier.

Write to Paul Ziobro at [e-mail]

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