This Company Makes the Food We Love

Nitesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

ConAgra Foods (NYSE: CAG)the provider of food products of two segments namely Consumer Foods and Commercial ConAgra has been making good progress with its operating efficiency. It was its fourth straight quarter of beating estimates as it logged revenue of $3.74 billion for the recent second quarter results. Revenue rose by 7.7% in the second quarter of the last fiscal year, 6.9% in the third quarter of the last fiscal year and 7.7% in the fourth quarter of the last fiscal year and increasing again in the first quarter.
 Its profits are multiplying driven largely from the  good results of its potato operations.

A look on performance

ConAgra’s revenue grew substantially by 9%, climbing up to $3.74 billion for the quarter from last year's mark of $3.4 billion, a gain of nearly 9% on upside. Diluted earnings per share were $0.51 for the quarter, up by 19% year-over-year. ConAgra beat the industry expectations by its stellar numbers. Consumer Food division and commercial food divisions drove growth in the second quarter; with the former gaining 11% i.e. $2.4 billion while the later making $1.3 billion, a gain of around 5%. The company’s earnings per share from its continuing operations in the quarter were 51 cents as against 43 cents reported in the  quarter year-ago. EPS of $0.61 for Q1 were 177% higher than the previous quarter's $0.22 per share. So it can be seen that numerical reports of ConAgra are very impressive for the Second quarter.  ConAgra's debt-to-equity ratio stands manageable at 64% and its cash flow per share has been increasing for the past four straight years to reach $2.80.

Future Outlook

ConAgra expects the closure of its $5 billion i.e. $90 per share acquisition of Ralcorp Holdings (NYSE: RAH)the American producer of private-label foods, in early 2013. Next quarter's average estimate for revenue is $3.61 billion. The average EPS estimate bottom line should be around 55 cents. Considering the full year, its estimates for the revenue is  $14.30 billion and that of average EPS is $2.07. ConAgra predicts its earnings to cross at least $2.06 a share for the year ending May 2013. It has earnings forecasts of $2.03 to $2.06 a share for the period. The company has acquired several companies recently, the latest being the Home Menu frozen meals businesses from Unilever (NYSE: UL) for $265 million, Odom’s Tennessee Pride which makes breakfast sandwiches and sausage, and Kangaroo which makes pita chips. These acquisitions has improved the portfolio and is expected the reap benefits in near future as well.

Its Challengers

One of the big challenges for packaged goods companies right now are that consumers aren't able to spend   because of price inflation. So when companies increase their prices, they compromise in terms of volume.

H.J.Heinz Company
(NYSE: HNZ) and Kellogg Company (NYSE: K) both managed a 3% growth as compared to the meagre 2% growth in price/volume of ConAgra. ConAgra is further facing bad times because of the concern over its price rise issue. General Mills did manage to boost its prices a bit and still keep volume flat. Further Mondelez International Inc. (NASDAQ: MDLZ) has a big presence in emerging markets, and people in those markets love their Oreo cookies and Ritz crackers. As long as the global economy stays afloat, it has a great growth opportunity ahead. Moreover its long-term organic sales growth is expected to be 5.7% and needs to be considered by ConAgra. Nestl (NASDAQOTH: NSRGY) holds the exclusive right to use Haagen-Dazs' trademark in the US and Canada on ice cream and frozen desert products resulting in the stock climb of 1%.



Takeaway Advice

ConAgra has been making good progress with its operating efficiency, and further inclusion of Ralcorp will offer some good opportunities to strip out costs in the near future and improve asset utilization turnover in the long-term. ConAgra also has opportunity for better organic growth as cost inflation stabilizes and consumers see fewer price increases in the supermarket. Thus it is a strong buy from my side in the long term.

 


Niteshag has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend H.J. Heinz Company and Unilever. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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