ConAgra cuts jobs, seeks efficiencies in response to sluggish processed meats sales

ConAgra Foods executives on June 7 discussed recent developments in its cost-savings initiatives as well as earnings for the fiscal 2005 fourth quarter, which ended May 29. Earnings for the company’s fiscal 2005 fourth quarter will be lower than expected primarily due to continued weak profitability in the packaged meats operations. Those operations continue to be negatively impacted by high protein input costs coupled with inadequate pricing management.

Because an expected improvement in the packaged meats business did not materialize, contribution from the packaged meats operations in the fourth quarter will be in the range of $0.10 per share lower than the company had anticipated. The company previously expected aggressive pricing management to improve packaged meats results in the fourth quarter. The pricing actions that were taken were inadequate and were not executed to expectations.

The company has recently made several significant personnel changes in its packaged meats operations and expects those changes, along with better pricing management, aggressive cost-savings initiatives, and SKU rationalization, to improve the packaged meat operations over time.

Bruce Rohde, chairman and CEO, commented, “Our fiscal 2005 showed a solid first-half performance, followed by a weak second-half performance largely due to the challenges in our packaged meats business across retail, foodservice, and deli channels. Weak pricing execution negatively impacted our third quarter and continued in the fourth quarter. Our focus is on improving the packaged meat operations with new leadership team members, appropriate pricing, SKU reductions, and more efficient operations.”

He continued, “ConAgra Foods has some great packaged meat brands, such as Butterball, Armour, Eckrich, Healthy Choice, Hebrew National, and Brown ’N Serve, and we will take the necessary actions to help these fine brands return to normal profitability.”

Recent developments in cost-savings initiatives

ConAgra reported it is actively pursuing SKU and manufacturing rationalization opportunities over the next several quarters as part of business process improvement and efficiency initiatives. The company continues to identify ways to be more efficient and improve customer service across its sales, marketing, manufacturing, logistics, R&D, and administrative functions throughout the organization.

As part of these ongoing efficiency initiatives, the company is reducing general and administrative expense as well as salaried headcount. The company is in the process of eliminating several hundred salaried jobs across the organization; these reductions will be largely complete by the end of the first quarter of fiscal 2006, which ends in August 2005. Once completed, savings from the headcount and general and administrative cost reductions are expected to benefit the ConAgra’s anticipated cost structure by more than $100 million on an annualized basis.

Rohde commented, “Our company continues to be very focused on operating efficiencies to improve profit margins and returns on capital. Headcount reduction is very difficult because of the impact on employees and their families, but unfortunately it is a necessary part of creating efficient operations.”

He continued, “These headcount reductions are expected to provide significant future savings and reduce complexity in our business, which is necessary for profitable growth and shareholder value. We will continue to aggressively identify opportunities to be more efficient, and to take appropriate actions when necessary to achieve the efficiencies.”

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