For ConAgra Foods CEO Sean Connolly, restoring the company to profitability is just one step toward regaining brand loyalty.
Creating value and changing the company culture, which will be focused on value creation, are some of the key priorities for Connolly and his staff.
“As you know, I’ve been in deep study on our business, our capabilities and our culture since I walked in the door on March 3,” Connolly said during the company’s June 30 fourth-quarter earnings conference call, according to Seeking Alpha. “My detailed review of the company has largely confirmed the perspective that I had coming in. The crux of which was, if the company is prepared to move quickly and to take bold actions on a number of fronts, there is meaningful value to be created. Importantly, before I started the Board made it clear to me they fully understood the misstep that had occurred at ConAgra and assured me that I would have the latitude to make the moves that I felt were necessary to best drive value creation. They made it clear that they wanted me to bring change. Change is needed and we have a responsibility to perform better in the market place. We know that the inconsistency of our past performance is totally unacceptable. And we need to raise our game such that when we make a long-term commitment, we deliver it. We are highly confident that we can implement the changes, operationally and culturally, that will enable just that.”
While Connolly has seen some bright spots over the past year, such as the strong profit and margin improvement within Consumer Brands and the continued strong performance of Lamb Weston, those bright spots have been “overshadowed by inconsistency, volatility, and disappointments in our operating performance particularly from Private Brands.”
Connolly delivered his four-point plan:
“One; divest our Private Brands business for greater focus,” he explained. “Two; aggressively pursue SG&A reductions and productivity improvements to drive margin expansion. Three; grow our Consumer Foods and Lamb Weston businesses through portfolio and capability improvements. And four; maintain a balanced capital allocation philosophy.”
The first step is the divesture of the company’s Private Brands business.
“While we are 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,” Connolly said. “This business has real potential and the Private Brands segment of the retail class of trade continues to grow. But, we have to come to conclusion that this asset will be more valuable outside of ConAgra Foods. We did not come to this conclusion lightly. We’ve carefully evaluated our options for this business. This work culminated in a meeting on June 10 at which the Board authorized us to develop and pursue a plan to divest this business. We believe there will be significant interest from potential buyers to support a transaction that is acceptable in terms of value and structure. We will continue our work to improve execution but believe the best outcome for value creation will be successful divesture.”
The goal is straightforward, Connolly said.
“We are driving toward a more focused corporate strategy,” he said. “The realization of proceeds associated with a fair value sale for the benefit of shareholders and potentially tax assets. The likes of which could enable additional tax efficient portfolio shaping down the road. We believe that a divesture of Private Brands will meaningfully accelerate our progress against our pursuit of change and value creation.”
Another key component will be building a performance culture where the company creates stronger accountability and a meritocracy mindset.
“Our approach to this work will be relentless,” Connolly said. “Absolutely everything is on the table. And when I say we can achieve these things over time, that is because some of this work will require system and capability improvements that are not turnkey. We just closed fiscal 2015 with SG&A in the range of 10% of net sales. That is better than some, but it is simply not good enough. Expect SG&A efficiency to be a never-ending quest at ConAgra. It will be cultural where we just don’t tolerate waste.”
What’s more, Connolly plans to gain more leverage from the company’s capabilities and consumer insights, brand building, and innovation.
“Expect heightened focus in this critical area,” he said. “We will become more efficient in areas like trade on the back of improved analytics and better work processes.”