Reuters — ConAgra Foods, the maker of Slim Jim beef jerky and Chef Boyardee pasta, said it planned to exit its struggling private label foods business as it seeks to boost profit margins and focus on its faster growing consumer foods segment.
ConAgra CEO Sean Connolly, who joined in April, said on the company’s earnings call on Tuesday it was clear trying to turn around the private label business was draining resources and that the segment would likely attract significant interest from potential buyers.
ConAgra bought Ralcorp in 2013 to become the biggest maker of U.S. private label foods. The business has been plagued with problems ranging from customer service issues to pricing concessions, with sales falling nearly six per cent in two years.
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“We know that the inconsistency of our past performance is totally unacceptable,” Connolly said.
ConAgra, like others in the industry, is under pressure to cut costs and accelerate growth as consumers shift away from packaged food to options they consider to be fresher, healthier alternatives.
Earlier this month, activist hedge fund Jana Partners took a 7.2 per cent stake in ConAgra, becoming its second-largest shareholder, and said it was prepared to nominate directors to the company’s board to help address “persistent underperformance” since the $5 billion Ralcorp acquisition (all figures US$).
“Today ConAgra acknowledged the need to pursue a new strategic direction,” Barry Rosenstein, Jana Partners managing partner, said in an emailed statement on Tuesday. “We look forward to our ongoing discussions with the company and its advisers.”
KeyBanc Capital Markets analyst Akshay Jagdale wrote in a note that TreeHouse Foods and Post Holdings could be buyers for the private label business. Both companies did not respond immediately to requests for comment.
On the call, Connolly said the company would implement zero based budgeting, where expenses must be justified for each new period. He also left the door open to future divestitures.
“There may be brands that over time can find better homes elsewhere,” he said. “We will actively consider monetizing those assets to fuel other investments when appropriate.”
ConAgra’s net sales for the fiscal fourth quarter ended May 31 rose 3.7 per cent to $4.1 billion, but came in below analysts’ average estimate.
Net profit attributable to ConAgra was $209.2 million from a loss of $324.2 million a year earlier. ConAgra’s profit of 59 cents per share, excluding items, was in line with analysts’ estimates.
— Anjali Athavaley and Sruthi Ramakrishnan cover the U.S. food and beverage sectors from New York and the U.S. consumer and retail sectors from Bangalore respectively. Additional reporting for Reuters by Siddharth Cavale in Bangalore.
