(Reuters) - Conagra Brands Inc (CAG.N) reported third-quarter profit above market estimates and raised its full-year profit forecast as the maker of Swiss Miss cocoa countered higher commodities and freight costs by cutting back on discounts and other expenses.
Chief Executive Sean Connolly, who has spearheaded a turnaround at the company after taking over in 2015, said near-term margins still were under pressure from higher input and transportation costs but that Conagra’s transformation remained on track.
The company raised its full-year forecast for adjusted profit from continuing operations to $2.03 to $2.05 per share from the range of $1.95 to $2.02 it provided just a month ago to account for a boost from U.S. tax reforms.
Shares in Conagra were up 1.7 percent at $35.95 on Thursday.
The Chicago-based company cut advertising and promotion costs by nearly 14 percent and reduced selling and general expenses by about 6 percent, helping it mitigate damage from commodities inflation and higher transportation costs.
U.S. food companies, already struggling with lower demand for packaged goods and price tensions with retailers, have recently begun flagging higher commodities and transportation costs. Railroads and truck fleets have raised prices amid a shortage of drivers, reduced capacity, higher fuel prices and a strengthening U.S. economy.
Inflation in ingredients, packaging and transportation rose 3.7 percent and hurt gross profit by $50 million, with higher freight costs accounting for about a quarter of inflation, Conagra Chief Financial Officer David Marberger said on a call with analysts.
Marberger said Conagra was evaluating the expected impact of steel and aluminum tariffs on next year’s earnings, but that the company’s existing inventory would protect results in 2018.
Excluding items, Conagra’s third-quarter profit of 61 cents per share topped analysts average estimate by 5 cents, according to Thomson Reuters I/B/E/S.
Conagra’s net income attributable more than doubled to $362.8 million in the quarter ended Feb. 25, also helped by a $236.7 million bump related to U.S. tax reforms and better sales from its frozen food business.
This was not the cleanest beat in history but it will come as a relief to food investors who were spooked by General Mills’ results on Wednesday, J.P.Morgan analyst Ken Goldman wrote in a note.
U.S. consumer packaged goods stocks tumbled on Wednesday after rival General Mills Inc (GIS.N) warned that rising freight and commodities costs would take a larger-than-expected toll on full-year segment earnings.
Reporting by Richa Naidu in Chicago and Aishwarya Venugopal in Bengaluru; Editing by Savio D'Souza and Marguerita Choy