PORTLAND, Ore. — ConAgra Foods Inc. reported a disappointing first quarter on yesterday, saying intense discounting and higher costs pushed the food maker’s net income down 12 percent.
The maker of Banquet, Chef Boyardee, Peter Pan and other packaged foods reported that it earned $146.4 million, or 33 cents per share, for the quarter. That’s down from $165.9 million, or 37 cents per share, in the same quarter last year.
ConAgra’s revenue fell 2 percent to $2.82 billion.
The results missed analysts’ average expectation for earnings of 39 cents per share on revenue of $2.96 billion, and ConAgra’s shares fell sharply.
“Make no mistake about it, I am disappointed in our performance,” Gary Rodkin, ConAgra’s CEO, said during a conference call with investors. “We have already and will continue to make adjustments, but I am confident in … our ability to operate in this environment.”
As consumers continue to tighten their purse strings and whittle down their pantries, manufacturers and retailers have discounted their products more heavily to drive sales. At ConAgra, that discounting and higher costs for materials and other items cut into the company’s margins.
Revenue for its consumer foods division, which accounts for about 65 percent of ConAgra’s business, fell 2 percent to $1.82 billion. And its commercial division, which has struggled for some time with weakness in the restaurant industry, saw revenue fall 3 percent $993 million. The company’s Lamb Weston specialty potato segment had higher sales and unit volume than a year earlier, but its operating profit was hurt by costs resulting from a poor-quality potato crop.
ConAgra leaders said they expect results to improve significantly in the remainder of the fiscal year as the company begins processing a new potato crop and some other costs moderate. The company also said it expects retailers and its competitors to offer fewer discounts.
“The more intense value mindset of consumers is here to stay,” Rodkin said. “The food industry, both manufacturers and retailers, will not win by continuously dropping prices. Value does not just mean a cheaper price, it is much more holistic.”
Rodkin said this new mindset of shoppers means that, instead of relying on discounts, the company must demonstrate the inherent value in its products, whether the low cost of $1 Banquet meals and 25-cent servings of Snack Pack pudding, the nutritional value of Egg Beaters or Healthy Choice or the quality of Hunt’s tomatoes.
The company will place more emphasis on innovation, marketing, promotions and productivity.
“We understand the changed marketplace, and our portfolio is capable of succeeding in it,” Rodkin said.
ConAgra said it expects its full-year net income to rise 5 percent to 7 percent, pulling back from prior guidance of 8 percent to 10 percent growth. That implies net income of $1.83 to $1.86 per share, short of the $1.89 per share analysts expected.
ConAgra also announced a quarterly dividend.
Shares fell $1.22, roughly a 5 percent drop, to $21.15 in midday trading.
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