ConAgra Foods Announces $300 Million Efficiency Plan
Reductions in SG&A and improved trade efficiency expected to be achieved in three years
ConAgra Foods, Inc. announced restructuring plans to improve profitability, advance its growth agenda and unlock shareholder value. ConAgra Foods expects to realize at least $300 million of efficiency benefits within the next three years through a combination of reductions in SG&A and enhancements to trade spend processes and tools.
Cost savings of approximately $200 million are expected to be derived from a combination of lower headcount and non-headcount costs which will be achieved by aggressively embracing zero-based budgeting, simplifying organizational structure by increasing spans of control and reducing layers, and outsourcing technology and back office functions to improve scalability. Additionally, the company expects to realize approximately $100 million of efficiency benefits from enhancements to trade spend processes and tools.
The company expects the plan to provide a modest benefit to fiscal year 2016 earnings. More than half the savings are anticipated to be realized by the end of fiscal year 2017 with the balance achieved in fiscal year 2018. These savings are in addition to the approximately $150 million in cost reductions achieved by the company over the past two years and are expected to enhance the company's cost-competitiveness, margins and agility, while also providing fuel for future brand-building and innovation initiatives.
The restructuring is expected to result in the elimination of approximately 1,500 positions or approximately 30% of the company’s global office-based workforce, and excludes any impact from the planned divestiture of the private label operations. Plant positions will not be eliminated in connection with this restructuring. ConAgra Foods estimates it will incur total non-recurring charges of approximately $345 million, substantially all of which are expected to be cash charges, over the next two to three years in connection with the restructuring.
The company also announced the relocation of its headquarters to Chicago. Beginning in the summer of 2016, approximately 700 employees will be located in the new offices in the city’s Merchandise Mart, including the company’s senior leadership team and certain functions of the Consumer Foods business, which are currently located in Omaha, Neb. and Naperville, Ill. The company will continue to maintain a significant presence in Omaha, including approximately 1,200 employees within key administrative functions, as well as research & development and supply chain management.
“Today’s announcements are important milestones as we continue to execute against our strategic plan to build a focused, higher-margin, more contemporary and higher-performing company,” said Sean Connolly, president and chief executive officer, ConAgra Foods. “We are making difficult, but necessary, decisions to enhance productivity, drive standardization and enhance flexibility to deliver improved profitability. And through our organization redesign, we will better harness the power of our front line by deploying our talent against our largest opportunities for future growth and value creation.” Mr. Connolly continued, “Locating our headquarters and our largest business segment in Chicago places us in the heart of one of the world’s business capitals and consumer packaged goods centers, enhancing our ability to attract and retain top talent with a focus on brand building and innovation.”
“Importantly, we will also retain a major presence in Omaha, where we have deep roots. Together with our new efficiency plan, we believe this geographic rebalancing will serve as a catalyst for improved organic and inorganic growth, and ultimately, stronger value creation for our shareholders.”
“We appreciate the strong support offered by both Mayor Rahm Emanuel and Governor Bruce Rauner during this process of evaluating a move to Chicago. Equally, we are grateful to Governor Pete Ricketts, Senator Heath Mello, Mayor Jean Stothert and Omaha Chamber President David Brown for the great support we have always received and continue to receive in Omaha. The decision to move headquarters was solely based on the strategic needs of our business and was not a city-vs-city exercise. We feel fortunate to have a meaningful relationship with two outstanding business centers,” concluded Connolly.
“I am thrilled to welcome ConAgra Foods' worldwide corporate headquarters to Illinois,” Governor Bruce Rauner said. “ConAgra has relied on the hardworking men and women of Illinois for almost 30 years, with over hundreds of employees calling our state their home. We look forward to the opportunities created by ConAgra's decision to invest in Illinois, and welcome them to their new home.”
“I am honored to welcome ConAgra Foods to the City of Chicago. By choosing Chicago as their new home, ConAgra Foods sees the same strengths that so many other companies see in relocating their headquarters here from our talent, to our transportation, to our quality of life,” said Mayor Rahm Emanuel. “This decision by ConAgra Foods further solidifies Chicago’s role as one of the world’s leading destinations for food processing companies. I look forward to watching them become part of Chicago’s future by creating even more jobs and opening up more opportunities for the residents of our city.”