Commodity price cuts push up ConAgra's profits

By Guy Montague-Jones

- Last updated on GMT

Related tags: Conagra foods

Lower ingredient prices and a more profitable product mix helped ConAgra Foods achieve a big profit increase in its quarterly results, while overall turnover slipped.

In the first quarter of fiscal 2010, operating profits in the consumer foods division leapt up 34 percent to $250m, while the commercial foods segment posted a 5 percent increase in its operating result to $141m.

Commenting on the improved profitability, ConAgr said continuing initiatives to eliminate low margin activities was a contributing factor.

The company also said that significantly higher commodity costs in the same period last year made for a favorable comparison.

Sales drop

Not all the numbers in the quarterly report painted such a rosy picture as those on the operating results line. Overall sales, for example, were down 3.1 percent on last year to $2,961m.

ConAgra is one of the biggest food companies in North America and therefore something of a barometer for consumer and supply trends in the industry.

In its report on the financial results, Reuters therefore said the numbers raised concerns about the company brands in the context of the private label challenge.

ConAgra's explanation

But much of the reduction in sales came from the commercial division, which suffered from the depressed restaurant sector.

ConAgr reported an 8.8 percent drop in turnover on last year to $1,101m, while consumer food sales were more or less stagnant edging up just 0.6 percent on last year to $1,860m.

As already mentioned, cutting out low margin products in the consumer foods division helped improve operating profits. But on the top line the strategy had a negative effect, shaving 1 percent off unit volumes, according to ConAgr.

The company said that consumer food sales were also hit by unfavorable exchange rates and the fallout from an accident in June at its Garner plant North Carolina, which manufacturers Slim Jim products. The accident killed three people dead and stopped production for several weeks resulting in a 2 percent fall in first quarter sales.

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