ConAgra Foods Reports Third Quarter Comparable EPS Growth Including Significant Increase in Marketing; Reaffirms Full-Year EPS; Announces Quarterly Dividend

OMAHA, Neb.--(BUSINESS WIRE)--Apr. 3, 2013-- ConAgra Foods, Inc., (NYSE: CAG):

Fiscal 2013 Third-quarter Highlights (% cited vs. year-ago period amounts, where applicable):

• Diluted EPS from continuing operations of $0.29 as reported and $0.55 adjusted for items impacting comparability, down as reported and up on a comparable basis.
• Consumer Foods’ operating profit increased on a comparable basis, including an approximate 33% increase in base business marketing investment. The increase in investment reduced the quarter’s EPS by approximately $0.04 per diluted share. Segment sales increased 7%, driven by acquisitions.
• Commercial Foods’ sales and comparable operating profit increased.
• The company completed the acquisition of Ralcorp on January 29, 2013. ConAgra Foods’ fiscal 2013 third-quarter results include 27 days of EPS contribution from Ralcorp. The company continues to expect EPS benefit of approximately $0.05 per diluted share in fiscal 2013 from this transaction.
• As previously stated, the company expects EPS for the full fiscal year, adjusted for items impacting comparability, to be approximately $2.15, resulting in 17% comparable year-over-year EPS growth. The $2.15 includes approximately $0.05 per diluted share benefit from the acquisition of Ralcorp.
• The board of directors approved a dividend of $0.25 per common share to be paid on May 31, 2013, to stockholders of record at the close of business on April 30, 2013.

ConAgra Foods, Inc., (NYSE: CAG) one of North America’s leading packaged food companies, today reported results for the fiscal 2013 third quarter ended February 24, 2013. Diluted EPS from continuing operations was $0.29 in the fiscal third quarter, down from $0.67 earned in the year-ago period. Excluding $0.26 per diluted share of net expense in the current quarter, and $0.14 of net benefit in the year-ago period, from items impacting comparability, current quarter EPS of $0.55 was 4% above the comparable $0.53 earned in the year-ago period. Items impacting comparability in the third quarter of fiscal 2013 and the same period a year ago are summarized toward the end of this release and reconciled for Regulation G purposes starting on page 10.

Gary Rodkin, ConAgra Foods’ chief executive officer, said, “We are pleased with the earlier-than-planned closing of the Ralcorp transaction, sequential improvement in our Consumer Foods volumes, comparable profit growth in both of our core business segments, and the announcement of Ardent Mills, a new proposed joint venture for our milling operations. Challenges remain for key areas of our business, but a combination of successful margin improvement initiatives and a more favorable input cost environment is enabling us to significantly increase our brand investment and deliver EPS growth.”

He continued, “Our organization is very focused on the ongoing integration of Ralcorp, which will play a key role in creating shareholder value. We reaffirm our expected comparable EPS benefit of $0.05 in fiscal 2013 results and $0.25 in fiscal 2014 results, and are very excited about our earnings potential over the next few years. This is a great time to be a part of ConAgra Foods.”

Consumer Foods Segment

Branded and non-branded food sold in retail and foodservice channels.

The Consumer Foods segment posted sales of $2,303 million and operating profit of $284 million for the third quarter, as reported. Sales increased 7%, reflecting 7% contribution from acquisitions, 3% favorable price/mix, and a 3% organic volume decline. Sequentially, organic volume improved.

• Brands posting sales growth for the quarter include Hebrew National, Hunt’s, Lightlife, Marie Callender’s, PAM, Peter Pan, Rosarita, Ro*Tel, Slim Jim, Swiss Miss, Wesson, and others.
• More brand details can be found in the Q&A document accompanying this release.
• The company has lapped most of the significant pricing taken last fiscal year in response to severe inflation; primarily for this reason, the company expects continued sequential improvement for organic volumes in the fourth fiscal quarter.

Operating profit of $284 million declined from $331 million in the year-ago period, as reported. After adjusting for $5 million of net expense in the current period, and $51 million of net benefit in the year-ago period, from items impacting comparability, current-quarter operating profit of $289 million increased 3% over $280 million in the year-ago period. Marketing investment for the base business (excluding recently completed acquisitions) increased approximately 33%, reflecting the company’s planned commitment to building long-term brand strength and the flexibility afforded by improved margins. Operating profit growth reflects a combination of favorable price/mix and other margin management initiatives, a more favorable input cost environment, and contribution from acquisitions.

Commercial Foods Segment

Specialty potato, seasonings, blends, flavors, and milled grain products sold to foodservice and commercial channels worldwide.

Sales for the Commercial Foods segment were $1,256 million, 1% above year-ago period amounts. Segment operating profit was $167 million, 11% above year-ago period amounts as reported. After adjusting for $10 million of net expense from items impacting comparability, comparable year-over-year profit growth was 18%. The milling operations posted a strong profit increase due to favorable market conditions, good volumes, mix improvement, and excellent productivity. To a lesser extent, Lamb Weston potato operations also contributed to segment profit growth, as the benefit of price/mix more than offset the impact of a volume decline primarily resulting from softness in key Asian markets.

Ralcorp Acquisition – less than 1 month of contribution

Ralcorp businesses contributed a total of $292 million in sales and $5 million of operating profit in the fiscal third quarter as reported. After adjusting for $17 million of net expense from items impacting comparability, operating profit was $22 million. The company currently reports Ralcorp results within two new segments: Ralcorp Food Group and Ralcorp Frozen Bakery Products, listed as such in the segment detail later in this document.

The company continues to expect accretion from the Ralcorp acquisition to be approximately $0.05 per diluted share this fiscal year, excluding items impacting comparability.

Hedging Activities – This language primarily relates to operations other than the company’s milling operations.

Hedge gains and losses are aggregated, and net amounts are reclassified from unallocated Corporate expense to the operating segments when the underlying commodity or foreign currency being hedged is expensed in segment cost of goods sold. The net of these activities resulted in $27 million of unfavorable impact in the current quarter, and $22 million of favorable impact in the year-ago period. The company identifies these amounts as items impacting comparability.

Other Items

• Unallocated Corporate expense was $196 million in the current quarter and $51 million in the year-ago period. Current-quarter amounts include $27 million of unfavorable hedge-related impact and $85 million of other expenses from items impacting comparability, while year-ago period amounts include $22 million of favorable hedge-related benefit and $12 million of net expense from historical legal and insurance matters. Excluding these amounts, unallocated Corporate expense was $84 million for the current quarter and $61 million in the year-ago period. The increase largely reflects higher incentives, but also reflects the addition of Ralcorp corporate expense.
• Equity method investment earnings were $12 million for the current quarter and $13 million in the year-ago period.
• Net interest expense was $71 million in the current quarter and $50 million in the year-ago period; the increase reflects the incremental interest related to the debt incurred to fund acquisitions, notably Ralcorp.
• The company expects the effective tax rate for the full fiscal year 2013 for its existing operations to be approximately 34%, excluding items impacting comparability.

Capital Items

• The company closed the Ralcorp acquisition on January 29, 2013, for $90 per share in cash. Related to the financing of the acquisition and the refinancing of certain Ralcorp debt (some of which was completed after quarter-end), the company utilized approximately: $6.2 billion of debt, $270 million of net proceeds from an equity issuance, and $1 billion from a combination of cash and commercial paper.
• Dividends for the current quarter totaled $101 million versus $99 million in the year-ago period.
• The company repurchased approximately 37,000 shares of common stock during the quarter for approximately $1 million.
• The board of directors of ConAgra Foods, Inc., approved a dividend payment of $0.25 per common share to be paid on May 31, 2013, to stockholders of record at the close of business on April 30, 2013.
• For the current quarter, capital expenditures for property, plant and equipment were $109 million, compared with $79 million in the year-ago period; $13 million of the increase relates to Ralcorp. Depreciation and amortization expense was approximately $113 million for the fiscal third quarter; this compares with a total of $91 million in the year-ago period. $17 million of the increase in depreciation and amortization relates to Ralcorp.
• Subsequent to quarter-end, the company announced that it plans to contribute its flour milling operations (currently reported within the Commercial Foods segment results) into a joint venture with Cargill and CHS. ConAgra Foods and Cargill will each own 44% of the joint venture, and CHS will own 12% of the joint venture. The owners intend to receive cash distributions from the joint venture at closing, which is expected to occur late in calendar 2013. For details on the announcement, please refer to company news and SEC filings dated March 5, 2013.

Fiscal 2013 EPS Outlook

Based on the strong performance to date and the expected contribution from Ralcorp, the company reaffirms expectations for fiscal 2013 diluted EPS to be approximately $2.15, adjusted for items impacting comparability; this represents approximately 17% year-over-year growth.

Major Items Impacting Third-quarter Fiscal 2013 EPS Comparability

Included in the $0.29 diluted EPS from continuing operations for the third quarter of fiscal 2013 (EPS amounts rounded and after tax):

• Approximately $0.16 per diluted share of net expense, or $103 million pretax, resulting from acquisition, acquisition-related restructuring, and integration costs. $81 million is within unallocated Corporate expense (all of which is in Selling, General, and Administrative expense, “SG&A”), $17 million is within the Ralcorp results ($14 million within the Ralcorp Food Group and $3 million within Ralcorp Frozen Bakery Products, all of which is in Cost of Goods Sold, “COGS”) and $5 million is within Consumer Foods ($2 million in COGS, $3 million in SG&A).
• Approximately $0.04 per diluted share of net expense, or $27 million pretax, related to the mark-to-market impact of derivatives used to hedge input costs, temporarily classified in unallocated Corporate expense. Hedge gains and losses are aggregated, and net amounts are reclassified from unallocated Corporate expense to the operating segments when the underlying commodity or foreign currency being hedged is expensed in segment cost of goods sold.
• Approximately $0.03 per diluted share of net expense related to unusual tax matters resulting from acquisition costs.
• Approximately $0.02 per diluted share of net expense, or $10 million pretax, related to impairment charges for assets within the Commercial Foods segment.
• Approximately $0.01 per diluted share of net expense, or $5 million pretax, related to historical legal and environmental matters, classified within unallocated Corporate expense.

Included in the $0.67 diluted EPS from continuing operations for the third quarter of fiscal 2012 (EPS amounts rounded and after tax):

• Approximately $0.14 per diluted share of net benefit, or $59 million, related to a gain on the company’s increased investment in Agro Tech Foods, Ltd. This gain is not subject to taxes. This gain is classified as a reduction of Selling, General, and Administrative expense (SG&A) within the Consumer Foods segment.
• Approximately $0.03 per diluted share of net gain, or $22 million pretax, related to the mark-to-market impact of derivatives used to hedge input costs, temporarily classified in unallocated Corporate expense. Hedge gains and losses are aggregated, and net amounts are reclassified from unallocated Corporate expense to the operating segments when the underlying commodity or foreign currency being hedged is expensed in segment cost of goods sold.
• Approximately $0.03 per diluted share of net expense, or $12 million pretax, related to adjustments to historical legal and insurance matters. The majority of these costs are not tax deductible. This is classified as unallocated Corporate expense.
• Approximately $0.01 per diluted share of net expense, or $8 million pretax, related to restructuring activities designed to improve efficiencies in the Consumer Foods segment ($5 million classified within COGS, $3 million classified within SG&A).
• $0.01 per diluted share of impact due to rounding.

Discussion of Results

ConAgra Foods will host a conference call at 9:30 a.m. EDT today to discuss the results. Following the company’s remarks, the call will include a question-and-answer session with the investment community. Domestic and international participants may access the conference call toll-free by dialing 1-877-741-4240 and 1-719-325-4781, respectively. No confirmation or pass code is needed. This conference call also can be accessed live on the Internet at http://investor.conagrafoods.com.

A rebroadcast of the conference call will be available after 1 p.m. EDT today. To access the digital replay, a pass code number will be required. Domestic participants should dial 1-888-203-1112, and international participants should dial 1-719-457-0820 and enter pass code 8794677. A rebroadcast also will be available on the company’s website.

In addition, the company has posted a question-and-answer supplement relating to this release at http://investor.conagrafoods.com. To view recent company news, please visit http://media.conagrafoods.com.

ConAgra Foods, Inc., (NYSE: CAG) is one of North America's largest packaged food companies. Its balanced portfolio includes consumer brands found in 97 percent of America’s households, the largest private brand packaged food business in North America, and a strong commercial and foodservice business. Consumers can find recognized brands such as Banquet®, Chef Boyardee®, Egg Beaters®, Healthy Choice®, Hebrew National®, Hunt's®, Marie Callender's®, Orville Redenbacher's®, PAM®, Peter Pan®, Reddi-wip®, Slim Jim®, Snack Pack® and many other ConAgra Foods brands, along with food sold by ConAgra Foods under private brand labels, in grocery, convenience, mass merchandise, club stores and drugstores. ConAgra Foods also has a strong commercial foods presence, supplying frozen potato and sweet potato products as well as other vegetable, spice, bakery and grain products to a variety of well-known restaurants, foodservice operators and commercial customers. ConAgra Foods operates ReadySetEat.com, an interactive recipe website that provides consumers with Easy Dinner Recipes and more. For more information, please visit us at www.conagrafoods.com.

Note on Forward-looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management’s current expectations and are subject to uncertainty and changes in circumstances. These risks and uncertainties include, among other things: ConAgra Foods’ ability to realize the synergies and benefits contemplated by the acquisition of Ralcorp and its ability to promptly and effectively integrate the business of Ralcorp; ConAgra Foods’ ability to consummate, and the timing to consummate, a potential joint venture combining the flour milling businesses of ConAgra Foods, Cargill and CHS; ConAgra Foods’ ability to realize the synergies and benefits contemplated by the potential joint venture among ConAgra Foods, Cargill and CHS; the ability and timing to obtain required regulatory approvals and satisfy other closing conditions related to the potential joint venture; expectations about future business plans, prospective performance and opportunities, regulatory approvals and the expected timing of the completion of the joint venture; availability and prices of raw materials, including any negative effects caused by inflation or adverse weather conditions; the effectiveness of ConAgra Foods’ product pricing, including any pricing actions and promotional changes; future economic circumstances; industry conditions; ConAgra Foods’ ability to execute its operating and restructuring plans; the success of ConAgra Foods’ innovation, marketing, including increased marketing investments, and cost-saving initiatives; the competitive environment and related market conditions; operating efficiencies; the ultimate impact of any ConAgra Foods’ product recalls; access to capital; ConAgra Foods’ success in efficiently and effectively integrating its acquisitions; actions of governments and regulatory factors affecting ConAgra Foods’ businesses, including the Patient Protection and Affordable Care Act; the amount and timing of repurchases of ConAgra Foods’ common stock, if any; and other risks described in ConAgra Foods’ reports filed with the Securities and Exchange Commission, including its most recent annual report on Form 10-K and subsequent reports on Forms 10-Q and 8-K. Investors and security holders are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. ConAgra Foods disclaims any obligation to update or revise statements contained in this press release to reflect future events or circumstances or otherwise.

Regulation G Disclosure

Below is a reconciliation of Q3 FY13 and Q3 FY12 diluted earnings per share from continuing operations, Consumer Foods segment operating profit, and Commercial Foods segment operating profit, adjusted for items impacting comparability. Amounts may be impacted by rounding.

Regulation G Disclosure (cont.)

Below is a reconciliation of Q3 FY13 Ralcorp Food Group segment operating profit, Ralcorp Frozen Bakery Products segment operating profit, Ralcorp (Ralcorp Food Group and Ralcorp Frozen Bakery Products segments combined) segment operating profit, and FY13 (forecasted) and FY12 diluted EPS from continuing operations, adjusted for items impacting comparability. Amounts may be impacted by rounding.

*EPS guidance is based on diluted EPS, adjusted for items impacting comparability. The inability to predict the timing and amount of future items impacting comparability makes a detailed reconciliation of projections for Regulation G purposes impracticable.

Segment operating profit excludes general corporate expense, equity method investment earnings, and net interest expense. Management believes such amounts are not directly associated with segment performance results for the period. Management believes the presentation of total operating profit for segments facilitates period-to-period comparison of results of segment operations.

Segment operating profit excludes general corporate expense, equity method investment earnings, and net interest expense. Management believes such amounts are not directly associated with segment performance results for the period. Management believes the presentation of total operating profit for segments facilitates period-to-period comparison of results of segment operations.

Source: ConAgra Foods, Inc.

ConAgra Foods, Inc.
Media:
Teresa Paulsen, 402-240-5210
Vice President, Communication & External Relations
or
Analysts:
Chris Klinefelter, 402-240-4154
Vice President, Investor Relations
www.conagrafoods.com