ConAgra's New Plan Includes 'Surgical' Increase in Marketing

New CEO Sean Connolly Shares His Strategy For Packaged-Food Giant

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Healthy Choice
Healthy Choice

The new CEO of ConAgra Foods on Tuesday promised big changes for the packaged-food company, including investing more in marketing for some brands as it divests its struggling private-label business.

In his first extensive public comments since taking the helm, Sean Connolly said that while ConAgra will aggressively target cost savings, it will also pour more money behind its most promising brands.

ConAgra -- whose brands include Marie Callender's, Healthy Choice, Slim Jim and Orville Redenbacher's -- has "historically underinvested in the branded side of the portfolio, so we plan to invest more in marketing as the brands can handle it," Mr. Connolly told investment analysts. But as it spends more, the company will be "surgical and extremely disciplined," he added. "The notion of dramatically jacking up spending levels for the sake of getting back on the horse does not make sense, and that's not the kind of play you will see us run," he said.

ConAgra spent $103 million on measured media last year in the U.S, down from $176 million in 2013, according to Kantar Media.

Mr. Connolly did not disclose specific spending plans going forward, but he offered some clues on which brands might get more attention. For instance, he pointed to Marie Callender's and Hunt's as brands that are "are ready for and responsive to advertising and promotion." He also said ConAgra is working to "contemporize" Banquet and Healthy Choice, which are two of its largest brands. Healthy Choice recently expanded its Cafe Steamers line with varieties called "Simply" that are designed to leverage the so-called "clean label" movement by including natural ingredients.

Mr. Connolly joined Omaha, Neb.-based ConAgra in March after serving as CEO of Hillshire Brands, which was acquired by Tyson Foods last year. At Hillshire, Mr. Connolly put an emphasis on innovation and acquired smaller trendy brands, while also targeting cost savings. He suggested that he will use a similar philosophy at ConAgra. Efficiency will be a "never-ending quest at ConAgra," he said. "It will be cultural where we just don't tolerate waste." Under his leadership, ConAgra has already acquired Blake's All Natural Foods, which makes natural and organic frozen meals, including pot pies.

But some analysts remain skeptical that ConAgra and its stable of aging processed food brands can grow as more consumers shift to fresher options. "It is yet to be seen whether the more heavily processed brands, including those in frozen, can actually grow going forward given changing consumer dynamics," Sanford C. Bernstein analyst Alexia Howard stated in a report Tuesday. ConAgra has been "dealing with underlying volume weakness for several years," she stated.

ConAgra on Tuesday reported net income of $209.2 million for the quarter ending May 31, up from a $324.2 million loss reported for the same quarter last year.

The quarterly report was highlighted by the company's announcement that it will exit the private label business, which was built via the 2012 acquisition of Ralcorp Holdings. ConAgra has not identified a buyer yet. "While we're taking the right steps to improve our execution and begin restoring this business to previous levels, we believe the better investment of our resources is on other priorities, where our capabilities are more mature," Mr. Connolly said.

David Palmer, an analyst for RBC Capital Markets, said in a report that the "spin-off of its private brands division will help the company build the remaining business." He added: "When the company greatly increased its private label exposure through the acquisition of Ralcorp, the thinking was that a strong retailer brand relationship could help the consumer brands business." But "the poor performance of its private label business has instead been a constant headache."

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