This Retailer is Looking Towards a Bright Future
tarun 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 food giant looks forward to a great year ahead. The company beat estimates in the previous quarter and earnings grew two-fold. The share price moved up sharply by nearly 7% after the results were announced last Thursday. The results were driven because of many acquisitions the company had made.
ConAgra’s sales in both its segments, consumer foods and commercial foods showed strength. Although the company did endure a dip in volumes, it was more than offset by increased prices that drove revenue 7% higher. Sales in its consumer foods segment is expected to improve going forward as prices of inputs are expected to stabilize in the near-term.
The cost of the goods sold was slightly lower than anticipated because of the nature of raw materials required in the production. A better procurement process helped in cost savings of $75 million. Further cost reduction has been possible because of restructuring and organizational efficiencies.
Let’s talk numbers
ConAgra reported a profit of $250.1 million, or 61 cents a share, for the quarter ended compared to last year’s earnings of $93.8 million, or 22 cents a share for the similar period. The Consumer Foods segment posted sales of $2.043 billion which is about 62% of the entire sales figure of the last quarter while sales in the Commercial Foods segment were $1.269 billion. The sales have increased by 8% and 5% in both the consumer and commercial segment respectively.
The above stated profit of $250.1 million includes $130 million onetime gain from hedging commodity and foreign currency translation. Excluding onetime activities, acquisitions and restructuring, per-share earnings rose to 44 cents from 31 cents. The cash flows have also improved and have been slightly higher than last year.
ConAgra’s combined strategy of organic investments; inorganic growth moves and strategic price hikes have held led it to perform better even in an inflationary environment. With the impact of inflation lessening, ConAgra’s prospects would improve going forward.
The company is following a tested strategy of improving its business through acquisitions. Its peer, General Mills (NYSE: GIS) also posted a decent quarter last time around with a 5% jump in sales. Its acquisition of Yoplait International last year proved to be beneficial in driving sales north. ConAgra is planning its growth through places like India and Mexico, where infrastructure and sales are already on its side. Hence, the company is foraying into emerging markets and I believe that this will help it drive its sales higher in the long run.
New innovative products are also doing well for the company. Its yogurt offerings have done pretty decently and are expected to improve in the future. However, ConAgra is poised to face competition in this segment from the likes of General Mills and beverage player PepsiCo (NYSE: PEP). PepsiCo has also trained its eyes on the booming yogurt business and has penned a deal with the Theo Muller Group of Germany for selling yogurt in the U.S. The company has already started selling its yogurt products since July and we would need to keep an eye on how the competition fans out in this space.
ConAgra has remained focused on its three strategic areas - expanding core adjacencies; growing their private label business; and increasing their international presence. The company has given decent dividends and sustainable growth over the previous periods. Though sales volume has marginally dropping, but with acquisitions and innovative products, the company should be able to give investors more returns going forward. Investors should take note.
tarunbachhawat 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.