ConAgra to Exit Private Label Business

July 1, 2015
Huge 2012 Ralcorp acquisition not paying off; net loss for the fiscal year just ended.

As it closed its fiscal 2015 – and no doubt impacted by a new CEO – ConAgra Foods announced the bombshell that it would divest the private label business it dove into with the November 2012 acquisition of Ralcorp.

In the June 30 announcement, ConAgra's Consumer Foods and Commercial Foods businesses posted operating profit growth, but Private Brands, which has been an area of disappointment since the acquisition, posted a decline in operating profit.

"The company’s new plans for creating long-term value center on a more aggressive approach to cost reduction, growing consumer brands (Consumer Foods segment) and Lamb Weston (within the Commercial Foods segment), as well as balanced capital allocation," said the announcement.

“With fiscal year 2015 now behind us [as of May 31], we are now pursuing a different plan to maximize value for our shareholders," said Sean Connolly, who has been CEO just since April. "Our new plan will center on a more aggressive approach to driving margin improvement through SG&A [selling, general and administrative expenses] reductions, supply chain efficiencies and other projects. It also sharpens our focus on growing our Consumer Foods and Commercial Foods segments. We expect to continually refine our portfolio with prudent divestitures and acquisitions, and there will be a strong emphasis on deploying capital in ways that benefit shareholders."

Connolly, who had been CEO of Hillshire Brands until its acquisition by Tyson, replaced ConAgra CEO Gary Rodkin, who had doggedly pursued the Ralcorp acquisition.

Connolly continued, “As I have intensely studied the situation in our Private Brands operations over the last few months, it has become clear that the time and energy the company is devoting to the Private Brands turnaround represent a suboptimal use of our resources. To prevent further distraction, we are pursuing the divestiture of our Private Brands operations. … We expect to offer operating details of our plans as well as long-term financial expectations at an investor event later this year.”

After a protracted and hostile battle in 2012, ConAgra paid $6.8 billion to acquire what was left of Ralcorp. The latter company already had spun off its Post Cereals into a separate company to make Ralcorp a less attractive takeover target.

For the full year of FY2015, ConAgra reported sales of $15.832 billion (down 0.1 percent from $15.844 in FY2014) and a net loss of $241 million (versus $315 million profit in FY2014 and $786 million profit in FY2013).

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