Unfolding ConAgra’s Performance
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As I had mentioned earlier, the food industry is quite a lucrative one since people will continue to eat as long as they are alive. Hence, betting on this industry is a pretty safe option. Recently, the industry had been experiencing some common challenges such as restrained demand, rising input prices, and cut throat competition among the industry players. In such a situation, only some have been shining in terms of tackling the situation and outperforming it.
ConAgra Foods (NYSE: CAG) is one such company, which by its great strategies has been performing really well each quarter. Its recent first quarter results overwhelmed investors, sending its stock prices north.
What Makes It A Great Performer?
Revenue surged 7% to $3,312 million over last year, driven by price hikes made in order to offset the effects of increasing input prices. Even though price increases led to slightly lower volumes, the overall effect was a positive one on the top line. Moreover, the company was smart enough to market its products efficiently, which lured customers. It increased its advertising spending by 20% in order to push demand for its large variety of products.
A Mix Bag of Products…
An obvious strength of the Omaha-based company lies in offering different varieties of products which makes it increasingly attractive. The company offers single serve meals as well as multi serve meals. Along with meals, it also has a great variety of desserts which pulls the crowd. Most importantly, it caters to all kinds of people. It has value based meals for the budget conscious customers. On the other hand, it also offers higher priced meals which cater to people with higher income, helping ConAgra’s margin expansion.
In fact, because of the high end segment’s strong performance, the food retailer has expanded it further by its recent acquisition of Bertolli and P.F Chang’s Home Menu which was completed towards the end of the quarter. The company plans to introduce new products for its premium customers which will be an added attraction.
On the innovation front, the retailer has been quite active, which helped its top line. Its list of new launches includes cream pies and Greek Frozen yogurt which have been stealing customer attention. Greek yogurt has been the favorite of customers and ConAgra is not the only one who has been reaping its benefits.
Even peers such as General Mills (NYSE: GIS) have been witnessing huge benefits from the Greek yogurt market. This is mainly because of the fact that consumers are getting increasingly health conscious and are looking for healthier options, especially products made up of natural ingredients. Both yogurt and products such as baked snacks helped the food retailer witness 5% growth in revenue. However, General Mills has not been able to reap in full benefits of its new introduction of Greek yogurt since it was launched late in the quarter.
The attractiveness of the yogurt business has also attracted PepsiCo (NYSE: PEP), a beverage maker, so that it can diversify its portfolio as well as take advantage of the booming segment. PepsiCo plans to open the largest factory for yogurt in partnership with a German diary company. This is making the segment increasingly competitive. In fact, PepsiCo already enjoys a significant presence in the food industry, especially through its snacks such as chips. Hence, this is not the first time that the beverage provider is eyeing on the food segment in order to reduce dependence on soda sales.
Going By the Segments…
The food retailer operates in two segments and each of them performed remarkably well. The consumer foods segment is the largest by revenue and its jump of 8% helped the retailer strengthen its performance. All thanks to the pricing initiatives and a host of acquisitions which boosted the top line.
However, the commercial foods segment has not been a laggard. It has been performing equally well with as much as 43% surge in the segment’s operating profit helped by its recent acquisition of potato business which has huge demand in restaurants. ConAgra’s marketing initiatives have also played an important role (apart from price hikes).
The food retailer’s marketing efforts have been incremental in its growth, especially its strategy of advertising through social media such as Facebook and gaming software companies. Moreover, ConAgra is planning to roll out a marketing strategy which asks for customer feedbacks and keeps the customer connected to the company. The implementation of the feedbacks received can be quite a helpful technique to improve.
ConAgra has been making the right efforts at the right time. It has efficiently managed the falling demand with new product launches, increased marketing efforts and market expansion. In fact, even after a number of buyouts in the last one year it plans to do more of them to expand its geographic presence.
Further, with more new launches in the queue, better marketing strategies up its sleeve and moderation of input cost inflation can be very fruitful to the company’s growth. With a wide range of products in its portfolio, an upgraded guidance and an increased focus on high end customers I believe this one is off to a great future.
justhimanshu has no positions in the stocks mentioned above. The Motley Fool owns shares of PepsiCo. Motley Fool newsletter services recommend PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.