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(Reuters) - Chef Boyardee pasta maker Conagra Brands Inc (CAG.N) reported a 29 percent rise in quarterly profit as it cut back on promotions and jettisoned low-margin products.
However, Conagra's shares fell as much as 3.5 percent in morning trading due to the company's lower-than-expected gross margins and its 2018 profit forecast that came in largely below analysts' expectations.
The company's adjusted gross margin rose 130 basis points to 29 percent for the fourth quarter ended May 28, while Wall Street was expecting a 140 basis point increase, according to J.P.Morgan Securities analysts.
U.S. packaged food makers, including Conagra, General Mills Inc (GIS.N) and Kellogg Co (K.N), are struggling with sluggish demand as more consumers shift to fresh foods and products perceived as healthier.
In response, Conagra has been focusing on boosting margins by adding premium products, while cutting back on discounting and raising prices in some cases.
The maker of popular snack brand ACT II also said it would buy back an additional $1 billion in shares, taking its repurchase authorization to about $1.38 billion.
Conagra forecast adjusted earnings from continuing operations of $1.84 to $1.89 per share for the fiscal year 2018. Analysts were expecting $1.88 per share, according to Thomson Reuters I/B/E/S.
Net income attributable to the company rose to $151.3 million, or 36 cents per share, in the latest quarter from $117.6 million, or 27 cents per share, a year earlier.
Excluding items, the company earned 37 cents per share.
Net sales fell 9.3 percent to $1.86 billion.
The company's adjusted profit and revenue were both in line with analysts' estimate.
The company's shares recouped some of the losses to trade down 1.5 percent at $36.83. Up to Wednesday's close, Conagra's stock had fallen 5.5 percent this year.
Reporting by Sruthi Ramakrishnan in Bengaluru, Editing by Anil D'Silva