OMAHA, Neb. - ConAgra Foods Inc., the No. 2 U.S. food company, said yesterday that phony sales and irregular accounting at its farm-products unit has led to a federal inquiry and the overstatement of profits for the past three fiscal years.
The maker of Chef Boyardee pasta, Bumble Bee tuna and Hunt's sauces said it will reduce pretax profit by a total of $123 million for fiscal 1998 through 2000, or 3.6 percent.
The Securities and Exchange Commission is conducting an informal inquiry into United Agri Products, a seed and fertilizer unit that represents 9 percent of operating profit, the company said.
"Our preliminary findings indicate that certain conduct at UAP circumvented generally accepted accounting practices and violated ConAgra Foods' corporate policy," ConAgra's chairman and chief executive, Bruce Rohde, said in a statement.
The earnings and sales adjustments come amid stepped-up scrutiny of financial statements by the SEC, which has made accounting fraud its top enforcement priority. ConAgra joins IBP Inc., Rite Aid Corp. and Xerox Corp. among companies targeted by investigators. Sunbeam Corp. and W.R. Grace & Co. were among those the SEC accused of manipulating earnings to mislead investors.
ConAgra shares closed down 54 cents, or 2.6 percent, at $20.07 yesterday, after falling 86 cents to $19.75. The stock is down more than 11 percent during the past year and almost 19 percent since it announced Feb. 13 that rising energy and promotional expenses had unexpectedly eroded profit.
An investigation that began in November showed that United Agri Products improperly booked revenue on sales for delivery that were to take place at a later date, and that some contracts were fictitious or not binding, the company said.
Rebates that ConAgra received from its suppliers, which were connected to the deferred sales of seeds, fertilizers and pesticides, also were improperly recorded, the company said.
ConAgra's financial statements were audited by Wilton, Connecticut-based Deloitte & Touche LLP, according to SEC documents. A Deloitte & Touche spokesman wasn't available for comment.
The company estimates that it will restate fiscal 1998 profit to $1.32 a share from $1.35, 1999 profit to $1.41 a share from $1.46, and 2000 profit to $1.60 a share from $1.67. Also, revenue for the three-year period will be reduced by about $349 million, or 0.5 percent.
In connection with the review, pretax profit for fiscal 2001 will be increased by $127 million and revenue will be increased by $350 million, the company said. Fiscal 2001 profit will be raised by 15 cents a share.