• by Thom Forbes  @tforbes, July 1, 2015

With a rallying-call that “we are quite clear-eyed about the need for change,” new ConAgra Foods CEO Sean Connolly yesterday said the company would get out of the private-label business it has found unfulfilling since wooing and eventually winning Ralcorp in 2013 with a $5 billion dowry.

“Clear”— as in “clear plan” and “clearly” — is a word that pops up 26 times in the transcript of yesterday’s Q4 2014 earning call with analysts, in fact. Combine that with “value,” which appears 34 times as both a noun (e.g., “sustainable value”) and a modifier (e.g., “value creation”) and you get the gist of where ConAgra is coming from and where Connolly and his team would like to go.

ConAgra “has struggled to integrate [Ralcorp] into its own business of making food branded under other companies’ names. Falling sales and profits at ConAgra’s private brands business led to a $1.3 billion goodwill write-down last year,” reports Lindsay Whipp for the Financial Times. 

“While we've seen some bright spots over the past year like the strong profit and margin improvement within consumer brands and the continued strong performance of Lamb Weston [potato products], those bright spots have been overshadowed by inconsistency, volatility and disappointments in our operating performance particularly from private brands,” Connolly said in a passage that manages to avoid both words. “The management team knows where we have been. It is time to act to create a different future.”

With the slogan “We Make The Foods You Love,” ConAgra’s consumer brands include Chef Boyardee, Orville Redenbacher’s, Slim Jim, Marie Callender’s, Reddi-wip, Pam, Banquet, Healthy Choice, Kid Cuisine, Peter Pan, P.F. Chang’s and Bertolli, among other processed staples. Some fared better than others, with overall sales for the division up 4%, with volume up 5%, worldwide for the quarter, which included an extra week, according to its news release on the results.

Ralcorp’s history dates back to 1894, when William H. Danforth and two partners created the Robinson-Danforth Commission Co. in St. Louis to mill and sell animal feed, according to a timeline of the company’s wheeling and dealing compiled by the St. Louis Post-Dispatch at the time of its sale to ConAgra.

“Among the problems facing ConAgra were deals by Ralcorp with retailers before the takeover,” the St. Louis Post-Dispatchpoints out. “They made it difficult for the business to meet targets, with sales falling nearly 6% in two years.” 

Investor’s Daily’s Ciaran McEvoy writes that “a KeyBanc Capital Markets analyst said TreeHouse, a maker of private-label foods, and Post, which was spun off from Ralcorp in 2012, could acquire the ConAgra unit. ConAgra shares were up 1.6% to 44.11, TreeHouse surged 10% and Post rallied 4% yesterday, McEvoy reports.

“When ConAgra in late 2012 announced the deal for Ralcorp, whose big customers then included Trader Joe’s and Costco Wholesale Corp., it said it planned to use the ability to buy ingredients in greater bulk, and its manufacturing and distribution capacity to run the combined business more efficiently and boost margins,” report Annie Gasparro, Chelsey Dulaney and David Benoit for the Wall Street Journal.

“But private-label’s growth has drawn more competition, suppressing margins, while at the same time grocery chains have demanded higher quality without higher prices. Some analysts say Ralcorp also proved difficult to integrate because the businesses are so different.”

Some big hedge fund investors felt that way, too. 

“The move represents a bow to Jana Partners, the investment firm that amassed a 7.2% ConAgra stake, and which earlier in June called for revamping the firm's financial strategy and changing its board in reaction to the company's spotty financial performance since the Ralcorp acquisition,” reports Kevin McCoy for USA Today.

Following yesterday’s call, Jana managing partner Barry Rosenstein emailed the company’s hometown newspaper, the Omaha World-Herald: “Today ConAgra acknowledged the need to pursue a new strategic direction, improve margins through better cost controls, and improve capital allocation, while still leaving all options to maximize shareholder value on the table. We look forward to our ongoing discussions with the company and its advisers on these and other matters.”

Connolly also said that ConAgra might sell some of its weaker consumer brands and “could look to buy new brands — especially ones centered on organic and premium foods,” report Barbara Soderlin and Russell Hubbard.  

“Organic” was uttered four times during the call. Connolly not only said that management intends “to actively work towards filling in portfolio gaps in critical areas like organic natural and premium gourmet” but also that he has been “pleasantly surprised by the organic prospects of ConAgra Foods and believe[s] we have reasons to be optimistic.”

The two uses of the word no doubt will go hand in hand in the future.