ConAgra posts disappointing earnings report, citing soaring raw materials costs

Commodities' prices have surged over the past two years, as demand from emerging economies eroded global stockpiles. The surging costs helped to drive the spate of revolutions that resulted in the overthrow of autocratic governments in the Middle East and North Africa, and they are hurting companies' profit margins as well.

Food giant ConAgra Foods Inc. is the latest company to suffer from the burden of surging commodity costs. The firm said its first quarter fiscal earnings were significantly lower than the same period in the year prior, with officials attributing the lackluster financial report to the uptick in commodity prices.

ConAgra officials said first quarter earnings sank 42 percent compared to last year. Though the company reported brisk sales, analysts noted the rise did little to make up for the precipitous jump in the prices of many food staples, including corn, wheat and sugar.

In a further acknowledgement of the tepid economic climate, ConAgra executives asserted volatile commodity costs, coupled with increased marketing expenditures, could diminish its earnings during its current fiscal quarter, according to The Wall Street Journal.

Nevertheless, officials worked to quell investor unease over the earning report, affirming the company would meet its earnings outlook for the year. The assertion surprised some experts, who noted the consumer-foods segment's inflation rate is expected to hit 9 percent to 10 percent, higher than the company's previous inflation projections of 7 percent to 8 percent.

ConAgra's struggles with rising business costs are emblematic of the consumer foods sector as a whole, experts say, as commodity prices have soared into record territories over the past year. Though commodity prices retreated slightly in August, and are down through the beginning of this month, analysts contend scorching demand from Brazil, Russia, China and India is unlikely to fall, meaning high prices could persist indefinitely.

Amid such a backdrop, companies have increasingly moved to work with procurement consultants and other experts as they endeavor to achieve business cost reductions. Many firms have been successful in their quest to boost profit margins, and ConAgra officials said the company is poised to reduce its operating costs during the current quarter.