Speaking to analysts on a conference call about the firm’s fourth quarter results, chief executive Gary Rodkin said raising prices to recover raw materials costs had hit volumes in its consumer foods portfolio, although some brands - notably Marie Callender's and Healthy Choice frozen meals - continued to perform strongly.
He said: ”The big challenge continues to be shopper behavior and its impact on industry volumes. Specifically, shoppers continue to be extremely value-conscious with their choices at the grocery store.
“You've heard from us and others that shoppers are sticking to a list, expecting significant value for everything and keeping food inventories at home to a minimum. They're being frugal and eating more leftovers.
"All in all [it was] a pretty difficult environment in fiscal 2012, and we're being realistic about the environment going forward.”
Price increase was the right thing to do on Banquet
The frozen food brand Banquet was responsible for a large proportion of the 5% volume drop in ConAgra's consumer foods division, revealed Rodkin.
“We took pricing on Banquet earlier this fiscal year to deal with commodity inflation, and as a result, the retail price charged by customers crossed the $1 price point at most retailers.
“With value-oriented consumers being hit the hardest in this economy, there was volume decline as a result of this pricing, but the increase was the right thing to do to address inflation and keep Banquet profits healthy.”
More investment in advertising and promotion
Going forward, commodity costs were coming down, which would take some pressure off, he said. However, more effort would also be put on supporting brands through advertising and innovation (new products).
“Commodity inflation during the first three quarters of the fiscal year was very high at 11%, and it moderated to 6% in the fiscal fourth quarter.”
He added: “Clearly, our portfolio includes many choices that are great value to shoppers, and we need to appropriately leverage that by working hard to generate consumer pull with a combination of innovation and marketing.
“We're also focused on more consistent levels of investment in advertising and promotion, which is an essential component of creating consumer pull for our products. This is very important in an environment where consumers continue to be highly selective with their choices.”
Retailers are very supportive
Asked what retail customers thought of ConAgra’s plans, consumer foods president André J. Hawaux told analysts that some brands were historically “underinvested”.
He added: “What they [retailers] really want us to do is to be investing behind our brands, behind the innovation.
"They are very complimentary of the innovation we are bringing to market in multiple categories. They want to see their traffic counts up. They want to see customers picking up products in the center of the store. So they're very supportive of the actions that we're taking.
“We have a lot of innovation that we're bringing to market in fiscal year '13.”
ConAgra, which made multiple abortive attempts to buy Ralcorp last year, has since snapped up four companies: Kangaroo Brands’ private label pita chips business; breakfast sandwiches and sausages maker Odom's Tennessee Pride; packaged fruit, veg and snacks maker Del Monte Canada; and private label snack maker National Pretzel Company.
Asked if more acquisitions are on the cards, Rodkin said: “We’re looking for smart acquisitions that have organic growth upside, operational and marketplace synergies, and which will add to earnings growth and returns on capital over time.”
Chief financial officer John Gehring added: “It's not about size; it's about the opportunities and the returns we can get. So I'd say we're somewhat agnostic to size.”
Q4 results, 2012
Excluding one-time items, ConAgra's earnings from continuing operations for the quarter ended May 27 were 51 cents per share, just ahead of analysts' estimates.
The company posted a net loss of $86.2m due to a change in the way it accounts for pensions. A year earlier it reported a net profit of $250.1m.
Net sales rose 6.3% to $3.41bn, slightly ahead of analysts’ expectations.