ConAgra Foods said Thursday that it will shift course after a first-quarter profit plunge and still aims to post annual growth by cutting advertising and administrative costs and lowering the prices on some of its products.
The Omaha food manufacturer on Thursday said a 2 percent drop in sales of consumer food, including declines in frozen meals and Chef Boyardee pasta, contributed to a 46 percent decline in first-quarter profits. The firm said it's still on track for annual growth of 8 percent to 10 percent.
Chief executive Gary Rodkin said the company will need to be more competitive on prices to increase food sales volume but said he is unwilling to “burn the furniture” for a short-term gain.
“We're in it for the long haul and we believe very deeply in our strategy,” he said. “But as responsible stewards of the business, we need to course-correct when the marketplace and the business tell us to.”
Quarterly profit was $144.3 million, or $0.33 per share, compared with $250.1 million, or $0.61 per share, in the first quarter a year ago.
Rodkin and other executives saw several challenges in retail food sales.
Gains in sales of frozen food have been absent for ConAgra and other manufacturers as consumers seek foods they perceive as more fresh.
“We need to take some of the stigma away from the 'processed' side of this, and that's work that is ongoing,” Rodkin said.
Consumer foods president Tom McGough added that a weak labor market has caused fewer people to carry frozen single-serve meals to work.
Another challenge is competing for market share with other manufacturers that are pushing promotions and offering discounts at a time when many shoppers are looking for value and are “squeezing very hard on the basics,” Rodkin said. For example, ConAgra said its competition in one part of the frozen foods segment lowered prices to $2 per item from $2.50 this summer.
Company leaders said they would rather improve market share by investing in advertising and developing premium products, rather than slashing prices on the shelf.
Some new premium products performed well for ConAgra this quarter, including new lines of frozen Bertolli meals and desserts.
Others didn't, such as Marie Callender's breakfast sandwiches and Orville Redenbacher's Pop Crunch popcorn snack. “Quite frankly, we got the price-value equation wrong,” Rodkin said.
Sales of Healthy Choice fell as ConAgra retools the line, eliminating some less profitable products and adding those it expects to have higher profit margins and faster sales turnover.
Also in the first quarter, ConAgra moved to decentralize the management structure at Ralcorp, the large store-brand food business it acquired in January, reversing changes that were made before the firm changed hands. The changes will allow the company to better serve different types of customers, said Paul Maass, president of the private brands and food service businesses.
Ralcorp sales and profits were below expectations in part because of a slow overall retail market, but ConAgra said it still expects the Ralcorp business to contribute 25 cents per share to its profits this year. Total earnings per share are projected at between $2.34 and $2.38, and ConAgra expects to maintain its current annual $1 per share dividend.