Hungry For This Stock?
Mihir is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The probability is high that you would have come across this company’s product(s) when a hunger pang troubled you and I assume, this would have been the case numerous times. ConAgra Foods (NYSE: CAG), headquartered in Omaha, Nebraska has served its customers with various products under brand names like Reddi-wip, Slim Jim, and Hunt’s etc. Hopefully, my analysis will satisfy your hunger pangs for valuable insights into ConAgra.
ConAgra declared a strong fiscal 2013 first quarter performance wherein the comparable EPS was $0.44, beating the street estimates by 8 cents. The company also raised its full year EPS expectations to $2.03 - $2.0 beating the analyst estimates. Overall, sales rose by 7 % to $3.3B, essentially driven by pricing and acquisition in the consumer foods segment.
Segment Analysis:
Consumer Foods segment: For this segment, sales were up by 8% and operating profit increased 14% on a comparable basis, reflecting a good quarter. These metrics were primarily driven by acquisitions, which contributed 8 points of sales growth along with thoughtful pricing mixes. Well-sized brands under this segment, like Marie Callender's and Slim Jim showed pretty good growth in terms of volume and share.
Overall, the performance for this segment looked really pleasing, more so in the times of difficult business and economic environment. Inflation, though less severe, is still being experienced by the business.
Commercial Foods segment: Sales for this segment rose by 5% compared to the same period a year ago, while the comparable segment profits rose by 37%. It has been a really good quarter for this segment with all the product lines posting volume growth. The overall sales growth was driven by the largest brand in this segment, Lamb Weston, which continues to expand into higher-margin products, the biggest example being the Sweet Potato Fries.
This segment has shown brilliant progress in terms of volume and revenue. The cost saving initiatives are on track and have proved beneficial. It has demonstrated good potential in terms of future international growth opportunities.
Competitor Analysis:
Among ConAgra’s competitors, General Mills (NYSE: GIS) posted a good quarterly result for the first quarter, with net sales up by 5 %. This was in sync with the plans of the company, however the analysts felt it was a mixed result. Here also the surge was driven by recent acquisitions that included Yoplait International in July 2011. From the second quarter onwards company’s results are expected to benefit further from purchases of Brazilian food maker YokiAlimentos and Yoplait Canada.
Kellogg Company (NYSE: K) recently acquired the iconic Pringles brand from Proctor & Gamble. The cash flows of the company have been good, generated to the tune of $1.12M over the last 12 months reflecting a healthy business operation.
Kraft Foods (NASDAQ: KRFT) has continued to perform well that has resulted in growth in its EPS, good cash flow from operations and expanding profit margins. Recent headlines indicated that Kraft has been replaced on the Dow Jones industrial average, a decision that was prompted by Kraft’s decision to spin-off its North American grocery business.
Smithfield Foods (NYSE: SFD) results fell short of the street expectations, with earnings tumbling 18% year over year to $0.40 per share during the first quarter, as total-pork and hog-production operating profit dropped from last year. A year-over-year revenue decrease last quarter breaks a four-quarter streak of revenue increases. The best quarter in that time frame was the second quarter of the last fiscal year.
ConAgra recently completed a big transaction, sealing the purchase of Bertolli and P.F. Chang's Home Menu multi-serve frozen meals from Unilever. Together, these brands represent about $300 million in annual sales and are very strong equities. This has given ConAgra access to a new and different segment of customers, which if successfully scaled, can be of high value to the company.
The company is exploring further global opportunities as it seeks to increase its international presence. With the inflation gradually going down, the operating income of the company can move to the upside.
Whether a stock to keep?
Let me now address the important question, which as an investor would definitely stay at the top of your mind, whether to hold the stock or not?
I have considered that an important metric while analyzing a company’s performance and future aspects is the kind of cash flows it is generating. ConAgra’s net cash flows from operating activities for the quarter stood at $324M, an increase of 3% compared to the same period a year ago. Also, the company has been vocal about the emphasis laid on cash flows within the business, and for fiscal 2013 it expects to deliver strong operating cash flows in the range of $1.2B to $1.3B.
The Board of directors of the company has increased the quarterly dividend to $0.25 per share or an annualized rate of $1 per share. This reflects that the management has confidence in the business and its growth potential and also expects to generate strong cash flows during the fiscal.
ConAgra is currently trading at a P/E of 18, which is indicative of the investor confidence in the business and the management team to expand revenue numbers by working on effective pricing and cost saving strategies. Another reason to be happy is the fact that the company expects the net inflation for this fiscal year to be slightly lower than the original estimate of mid-single digits. ConAgra’s capex is expected to narrowly exceed the estimates, but if they can work on an effective price mix along with achieving scale by leveraging their capabilities, it will turn out to be a pleasing fiscal for the business.
Apart from the numbers, what really makes me trust this stock is the fact that ConAgra’s management team resonates with investor beliefs and expectations. It remains focused on profit enhancement opportunities and investments, which make strategic fits to the overall business and vision of the company. This obviously is a big thumbs up in terms of thoughtful leadership and governance.
Based on above analysis and opinions, I would recommend ConAgra to be an inclusion in your equity portfolio.
MihirMehta has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. MihirMehta has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend The Procter & Gamble Company. 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.
