ConAgra Foods, Inc. — FY2012 Form 10-K
Reporting period: Fiscal year ended May 27, 2012 (52 weeks); comparisons are principally with fiscal 2011. The filing identifies the registrant as ConAgra Foods, Inc. The company operated Consumer Foods and Commercial Foods segments.
Financial performance and position
| Metric | FY2012 | FY2011 |
|---|---|---|
| Net sales | $13.263 billion | $12.303 billion |
| Gross profit | $2.827 billion | $2.914 billion |
| Income from continuing operations | $474.3 million | $830.9 million |
| Net income attributable to ConAgra | $467.9 million | $817.6 million |
| Diluted EPS | $1.12 | $1.88 |
| Operating cash flow | $1.052 billion | $1.352 billion |
| Capital expenditures | $336.7 million | $466.2 million |
| Cash and cash equivalents at year-end | $103.0 million | $972.4 million |
- Sales rose 8%; gross margin declined to approximately 21.3% from 23.7%. Gross profit fell despite higher sales.
- Consumer Foods sales increased 5% to $8.377 billion, while segment operating profit fell 6% to $1.053 billion. Existing-business volume declined 3%; acquisitions and favorable pricing/mix supported sales.
- Commercial Foods sales increased 14% to $4.886 billion and segment operating profit rose 7% to $546.3 million. Lamb Weston potato pricing and volume improved; flour-milling margins weakened.
- Reported results included a $397 million pretax pension actuarial-loss charge following an accounting-method change ($251 million after tax). Excluding this and other comparability items, the filing does not provide a single directly comparable adjusted earnings figure in the supplied text.
- Year-end current assets were $3.219 billion and current liabilities $2.225 billion (current ratio approximately 1.45). Debt was about $2.94 billion including $40 million of commercial paper; the company reported compliance with debt covenants.
- Cash used in investing activities was $1.064 billion, including $635 million for business acquisitions and $337 million of capital expenditures. Cash used in financing was $850 million, including $352 million of share repurchases and $389 million of dividends.
Changes, outlook, and significant items
- Compared with FY2011, continuing-operations income fell 43% and diluted EPS declined from $1.90 to $1.12. The primary unusual factor was the pension charge; higher commodity costs, incentive compensation, restructuring charges, and increased net interest expense also weighed on results. The $59 million ATFL remeasurement gain partially offset charges.
- Consumer Foods volume was pressured by difficult economic conditions and earlier price increases. Wal-Mart and affiliates represented approximately 17% of FY2012 consolidated sales, down from 18% in FY2011.
- FY2012 acquisitions included National Pretzel, Del Monte Canada, Odom’s Tennessee Pride, Kangaroo Brands pita chips, and a controlling interest in Agro Tech Foods in India. The filing reports $635 million of acquisition cash outlay, net of cash acquired, plus $58 million for Marie Callender’s trademarks.
- Management estimated FY2013 capital expenditures of approximately $450 million and an effective tax rate of approximately 34%, excluding unusual transactions or tax events. Expected FY2013 contributions were approximately $20 million to pension plans and $31 million to postretirement plans. Management said available cash, operating cash flows, credit facilities, and capital-market access should cover needs and planned dividends for at least 12 months.
- Restructuring programs were expected to involve approximately $188 million of aggregate charges, including network optimization continuing into FY2014. Management noted additional charges could arise if further footprint changes are identified.
- Key risks include commodity and energy price volatility, competitive pricing and private-label substitution, customer concentration and retailer bargaining power, product safety and recall exposure, pension funding and labor costs, integration of acquisitions, regulatory and environmental matters, climate-related supply disruption, and IT/cybersecurity risks.
- Contingencies include a $70 million reserve for Beatrice-related environmental matters, with expenditures potentially continuing for up to 18 years; ongoing peanut-butter-recall legal matters and a U.S. Attorney investigation; and a post-year-end jury verdict in the Chester, Illinois accident case of approximately $78 million compensatory damages apportioned with a contractor and $100 million punitive damages against the company. ConAgra said it intended to appeal and expected exposure to be limited to its insurance deductible, of which $3 million had been accrued.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. Pension accounting was changed and applied retrospectively to periods presented.
Important facts for investors to verify
- How much of FY2012 earnings deterioration reflects the pension accounting change versus underlying operating performance, and whether pension costs or cash contributions remain elevated.
- Whether pricing can offset input-cost inflation without further volume losses, particularly in Consumer Foods, and whether Commercial Foods potato and milling margins are sustainable.
- Integration progress and returns on the FY2012 acquisitions, including the assumptions supporting acquired goodwill and intangible asset values.
- Liquidity and capital allocation after year-end cash fell to $103 million, including planned repurchases, dividends, debt maturities, and FY2013 capital spending.
- Developments in the Chester verdict and other legal proceedings, the peanut-butter investigation, and environmental remediation obligations.