ConAgra Foods Inc cut its full-year profit forecast for the second time, blaming weak sales in its private-label business and a steeper-than-expected fall in sales of its own brands such as Chef Boyardee pastas.
The company's shares fell 8 percent on Tuesday to their lowest in more than a year.
ConAgra became the top U.S. producer of private-label foods when it bought Ralcorp for $5 billion in January last year as recession-hit shoppers grew accustomed to cheaper store-branded products.
ConAgra cut its fiscal 2014 profit forecast in September as shoppers opted for lower-priced private labels over the company's branded foods.
The company said on Tuesday its own private-label business was taking longer-than-estimated to reach expected operating profit levels, forcing it to cut prices to stem a fall in sales volumes.
"The (forecast) revision again seems to reflect weakness in each and every part of CAG's business, including a longer-than-expected timeframe to integrate Ralcorp properly," Barclays analyst Andrew Lazar wrote in a note.
ConAgra blamed the higher prices that Ralcorp had been charging and the disruption caused by restructuring before the acquisition for the weaker-than-expected results at its private-label business.
"Our biggest issue is that the private brands operations are taking longer to fix than we thought," Chief Executive Gary Rodkin said on a conference call after forecasting a weaker-than-expected profit for the third quarter ending February.
Analysts, including Lazar, pointed that even though ConAgra spent more on advertising and promotions to beef up sales, the return on investment (ROI) did not rise proportionately.
"Because U.S. consumers are so cash-strapped today, we do not expect incremental promotional and/or advertising dollars from food companies to generate the same ROI they once did," JP Morgan analysts Ken Goldman said.
