ConAgra Q2 net income hurt by rising commodity costs

US packaged foods company ConAgra Foods saw its second quarter net income drop 14.5% to $171.8m, compared with $200.9m during the same period the previous year, as a result of higher commodity costs.

Sales for the quarter ended 27 November 2011 rose 8.1% to $3.40bn, exceeding analysts’ estimates of $3.34bn.

Like several other food companies, ConAgra is trying to offset the continuing higher prices by raising product prices.

The consumer foods segment, the company’s largest division accounting for about 63% of the sales, saw a 4% increase in revenue to $2.18bn, but there was a 1% decline in volume and 8% fall in operating profit to $256m.

The brands that led the sales growth in the division include Banquet, Chef Boyardee, Hunt’s, Marie Callender’s, Orville Redenbacher’s, PAM, Peter Pan, Reddi-wip, Rosarita, Slim Jim, Snack Pack, Swiss Miss, Van Camp’s, Wesson and Wolf.

The commercial food segment, which accounts for 37% of the sales, reported a revenue rise of 16% to $1.22bn and 26% increase in operating profit to $161m.

Rise in the segment sales was due to price increases at Lamb Weston potato operations as well as higher volume growth across its major product lines.

ConAgra Foods CEO Gary Rodkin said the company is pleased with its progress in both operating segments, but it also remains cautious as the market environment remains tough due to continuing inflationary pressures and the impact of the current economy on consumers.

The company also announced that it will continue to pursue opportunities where there is a strategic fit and a good financial return.

After ConAgra’s $5.18bn takeover bid was rejected by cereal manufacturer Ralcorp in September, the company tried to expand with a series of smaller acquisitions.

ConAgra acquired National Pretzel Company from Brookstone for a cash purchase price of approximately $300m, and also agreed to pay $10m to an unidentified third party to become a major stakeholder in India-based Agro Tech Foods, to strengthen its international presence.

Caption: Like several other food companies, ConAgra is trying to offset the continuing higher prices by raising product prices. Image courtesy of ConAgra Foods.