011233 ConAgra Mulls Fate of Laggard Units

“This could be the first step,” said Deutsche Banc Alex. Brown analyst Eric Katzman. “They've been putting resources behind the higher-margin packaged foods areas, and by their own admission have disclosed that parts of their agricultural products, and even meat-processing, have underperformed.”

ConAgra, which released fiscal second-quarter earnings, has shifted from three reporting divisions to four: packaged foods, food ingredients, meat processing and agricultural products.

It moved nearly all of its branded foods -- well-known products such as Healthy Choice meals, Slim Jim snacks, Reddi-wip dessert topping, and Parkay margarine -- under one unified “packaged foods” division. It now lists its meat processing business, including fresh beef, pork and poultry -- all commodity-dependent and tied to agricultural trends -- separately.

Omaha, Nebraska-based ConAgra also created a separate division for its spices and other food ingredients, pulling them out from under the fold of its agricultural products, which primarily consists of fertilizers and crop chemicals.

At the same time, the company, which has been criticized by Wall Street for weakness in some of its retail lines, is ramping up marketing spending behind branded products. The company sacrificed profits in the second quarter for a planned increase in advertising for its retail products.

“They're clearly focused on building up and expanding the branded and packaged food segment,” Credit Suisse First Boston analyst David Nelson said. “The era of farm to fork is over.”

CONAGRA LEADERS SEEN PRESSURED TO IMPROVE STOCK PRICE

ConAgra, a conglomerate whose more than $27 billion in annual sales is second in North America only to larger rival Kraft Foods Inc. has struggled with its commodity businesses for several years.

In the 2001 fiscal year ended in May, its operating profit was essentially flat at $1.86 billion, held back by its agricultural products unit and refrigerated foods unit, the division that used to include meat processing.

Agricultural products posted an operating profit of $281.0 million, having fallen 11% from $316.7 million in the last five years. The unit has struggled due to weakening demand for chemicals from cash-strapped farmers.

And earlier this year, ConAgra was believed to have put its beef processing business up for sale and to have had buyout talks with No. 1 U.S. pork producer Smithfield Foods Inc. The company, which never commented on the speculation, does not disclose results for the Greeley, Colorado-based business, but analysts believe it has roughly $5.5 billion in annual sales.

However, ConAgra has discussed the possibility of shedding underperforming units as far back as 1997. The company's recent earnings disclosure said its unit rejiggering reflects “changes in how the company manages its business.” A company spokeswoman declined to comment further.

While big moves are slow to conceive and implement in a massive conglomerate with expansive U.S. operations, ConAgra Chief Executive Bruce Rohde and his team are clearly under pressure to drive up share performance, analysts said. ConAgra stock, up 12 cents at $24.25 on the New York Stock Exchange on Wednesday afternoon, has fallen from highs of more than $34 a share in early 1999. This year it has lagged the Standard & Poor's Food Index by nearly 10%.

“The segment breakout might suggest that they are re-evaluating their competitive position in some of their underperforming businesses,” said Midwest Research analyst Christine McCracken.

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