ConAgra Foods, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2011, the 13 weeks ended August 29, 2010; comparable period ended August 30, 2009. Amounts are in millions, except per-share data. The filing registrant is ConAgra Foods, Inc.
Financial performance
| Metric | Q1 FY2011 | Q1 FY2010 | Change |
|---|---|---|---|
| Net sales | $2,817.6 | $2,886.3 | Down 2% |
| Operating profit | $325.8 | $384.0 | Down 15% |
| Income from continuing operations | $143.7 | $163.0 | Down 12% |
| Net income attributable to ConAgra | $146.4 | $165.9 | Down 12% |
| Diluted EPS | $0.33 | $0.37 | Down $0.04 |
| Net interest expense | $37.3 | $41.4 | Down $4.1 |
| Cash from operations | $108.8 | $262.6 | Down $153.8 |
Consolidated operating margin was approximately 11.6%, compared with 13.3% a year earlier; gross margin was approximately 23.1%, versus 24.4%. Consumer Foods sales were $1,824.2 (down 2%) and operating profit was $214.0 (down 14%). Commercial Foods sales were $993.4 (down 3%) and operating profit was $111.8 (down 17%).
Cash and cash equivalents were $840.9 at quarter-end, down from $953.2 at May 30, 2010. Current assets were $3,985.7 and current liabilities $2,078.4. Long-term debt, including current installments and subordinated debt, totaled approximately $3,472.0; reported total liabilities were $6,735.6. The company reported a $1.5 billion revolving credit facility with no borrowings and compliance with its financial covenants.
Cash used in investing activities was $6.4 net, reflecting $255.3 used by continuing operations—including $129.7 for acquisitions and intangible assets and $129.1 for capital spending—offset largely by $248.9 of proceeds from discontinued operations. Financing used $216.4, including $100.0 in share repurchases and $88.5 in dividends. The company contributed $110.1 to pension plans.
Material changes and business developments
- Sales fell mainly on lower Consumer Foods volume and lower flour-milling prices. Consumer Foods volume declined about 2%, amid intense promotions and weaker purchases in some categories; acquisitions contributed about 2% to segment sales.
- Higher commodity input costs and lower sales weighed on Consumer Foods profit. Commercial Foods profit was pressured by poor raw potato quality and higher input costs; specialty potato volumes improved 3%.
- Gilroy Foods & Flavors operations were sold in July for $248.9 cash, subject to working-capital adjustments, and are presented as discontinued operations. American Pie was acquired in June for approximately $127.8 cash plus assumed liabilities. Elan Nutrition had been acquired in Q4 FY2010.
- The $0.33 diluted EPS included $0.32 from continuing operations and $0.01 from discontinued operations. The prior-year quarter included Garner accident charges and related insurance recoveries, affecting comparability.
Outlook, risks and unusual items
- Management forecast a fiscal 2011 continuing-operations effective tax rate of approximately 34% and capital expenditures of approximately $525. Management said available cash, operating cash flows, credit facilities and capital-market access should be sufficient for needs over at least the next 12 months.
- The 2010 restructuring plan—moving meat-snack production from Garner, North Carolina, to Troy, Ohio, and relocating certain administrative functions—was expected to cost $67.2 pretax in total; $47.1 had been recognized through August 29, including $7.9 in Q1 FY2011. Implementation was expected to be completed in fiscal 2012 for the production move. The plan anticipates about 500 Garner position eliminations and 200 Troy positions.
- Management expected Slim Jim profitability to return to pre-accident levels by fiscal 2012 and anticipated final settlement of the Garner insurance claim in fiscal 2011. It did not expect the accident to materially adversely affect results, financial condition or liquidity.
- After quarter-end, the company repaid $248.0 of 7.875% senior notes on September 15, 2010. On September 17, the board approved an increase in the quarterly dividend from $0.20 to $0.23 per share.
- Key exposures include commodity and energy prices, foreign exchange and interest rates; the company reported $35.7 of losses on derivatives not designated as hedges in Q1. Other disclosed matters include $69.1 of reserves for Beatrice environmental matters, tax uncertainties, guarantees and litigation. Management stated that resolution of the disclosed legal and contingency matters was not expected to materially adversely affect the company.
- Wal-Mart and its affiliates accounted for approximately 19% of Q1 sales and 16% of quarter-end receivables. The $1.5 billion revolving facility was scheduled to mature in December 2011.
Important facts for investors to verify
- Whether weaker segment profit and lower cash from operations persist, and how input costs, pricing, promotions and volumes develop.
- Progress and total cash costs of the restructuring, the Garner insurance settlement, and the expected Slim Jim recovery timetable.
- Execution and returns from American Pie and Elan, and the financial effects of the Gilroy divestiture.
- Debt repayment and refinancing needs, revolving-facility renewal, pension funding requirements, and planned capital spending and shareholder returns.
- Developments in environmental, litigation, tax and guarantee exposures, along with customer concentration and derivative-market risks.