ConAgra May Be Ready to Jettison Some Poorer-Performing Units
ConAgra Foods Inc.’s recent move to separate financial results of its branded foods from agricultural businesses might be more than a bookkeeping shuffle, and could prepare the ground for an eventual spinoff or sale of the company’s slower-growing units, analysts said.
“This could be the first step,” said Deutsche Banc Alex. Brown analyst Eric Katzman. “They’ve been putting resources behind the higher-margin packaged-foods areas, and by their own admission have disclosed that parts of their agricultural products, and even meat-processing, have under-performed.”
ConAgra, which released results for its fiscal second-quarter earnings last week, has shifted from three reporting divisions to four: packaged foods, food ingredients, meat processing and agricultural products.
It moved nearly all of its branded foods--well-known products such as Healthy Choice meals, Slim Jim snacks, Reddi-wip dessert topping and Parkay margarine--under one unified “packaged foods” division. It now lists its meat processing business, including fresh beef, pork and poultry--all commodity-dependent and tied to agricultural trends--separately.
Omaha-based ConAgra also created a separate division for its spices and other food ingredients, pulling them out from under the fold of its agricultural products, which primarily consists of fertilizers and crop chemicals.
At the same time, the company, which has been criticized by Wall Street for weakness in some of its retail lines, is ramping up marketing spending behind branded products. The company sacrificed profit in the second quarter for a planned increase in advertising for its retail products.
“They’re clearly focused on building up and expanding the branded and packaged food segment,” Credit Suisse First Boston analyst David Nelson said. “The era of farm to fork is over.”
ConAgra, a conglomerate whose more than $27 billion in annual sales is second in North America only to larger rival Kraft Foods Inc., has struggled with its commodity businesses for several years.
ConAgra discussed the possibility of shedding under-performing units as far back as 1997. The company’s recent earnings disclosure said its unit rejiggering reflects “changes in how the company manages its business.” A company spokeswoman declined to comment further.
Though big moves are slow to conceive and implement in a massive conglomerate with expansive U.S. operations, ConAgra Chief Executive Bruce Rohde and his team are clearly under pressure to drive up share performance, analysts said. ConAgra stock, which was trading at highs for more than $34 in early 1999, closed off 5 cents at $24.18 on the New York Stock Exchange.
