However the food firm has not been deterred from pursuing acquisitions for growth following its failed bid for private label giant, Ralcorp.
Announcing ConAgra Foods’ first quarter results for fiscal 2012, Gary Rodkin, chief executive officer, said: “Despite a very challenging environment and high inflation, we delivered accelerating price/mix contribution and robust cost savings.”
He added that short-term wheat market dynamics in its Commercial Foods segment and severe inflation in its Consumer Foods segment, which accounts for almost two thirds of Q1 sales, had a negative impact.
But Rodkin added: “We took pricing actions in the first quarter in both of our operating segments, and more pricing actions will soon be implemented in both segments.”
Raising food prices to offset rising costs is expected to help earnings further down the line this year.
ConAgra’s Commercial Foods segment (accounting for 38 percent of Q1 sales), includes specialty potato, seasonings, blends, flavors, and milled grain products.
Its sales were $1,180 million, 19 percent higher than a year-ago but operating profit was $98 million, 14 percent below year-ago amounts. Adjusting for restructuring charges, the comparable year-over-year decline in operating profit was 10 percent.
Rodkin said in a briefing: “That profit decline was driven by short-term wheat market dynamics which resulted in a decline in wheat inventory values during the quarter. The inventory valuation changes are the sole reason for the year-over-year operating profit decline.
“We have very strong milling operations so none of this valuation adjustment reflect anything about the fundamentals over the full year time frame.”
The branded and non-branded Consumer Foods segment posted sales of $1.89bn, a 4% increase on the previous year, and operating profit of $196m, 6% below last year.
Adjusting for restructuring charges, the quarter operating profit was one percent below the figure in the same period a year-ago.
ConAgra said the decline reflected very high input cost inflation (approximately 11%) in the quarter, which more than offset strong cost savings and the benefit of pricing.
It has now revised its full-year inflation expectations for the Consumer Foods segment to 9-10% from its original estimate of 7-8%.
Meanwhile, ConAgra’s persistent bid to acquire Ralcorp was again rejected by the board of directors this week.
ConAgra had asked Ralcorp to reconsider its $94/share cash offer, which followed other lower offers. But Ralcorp announced that “the Board unanimously reiterated its rejection of ConAgra's proposal to acquire Ralcorp and determined not to enter into negotiations with respect to that proposal”.
ConAgra has now withdrawn its offer and said it would pursue “other avenues for growth”.
This could mean potential acquisitions in the private label arena and products that sit with the company's core brands.