Acquisitions Help This Company Deliver

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ConAgra Foods (NYSE: CAG) reported its second quarter earnings on Thursday, with both revenues and earnings beating expectations. Strong sales in the company’s consumer food segment and acquisitions have helped results prosper.

The Numbers

Revenue surged up by 9% to $3.74 billion from $3.43 billion compared to the same period last year. Revenues improved as sales at ConAgra’s consumer food business, which accounts for about two-third of the company's business, rose by 11% to $2.42 billion. ConAgra's commercial food division’s sales improved by 5% and were reported at $1.31 billion. The profit has increased by 17.45% and was reported at $211.6 million, up from $180.2 million last year.

Acquisitions Did the Trick

ConAgra has made 6 acquisitions over the last one year which has helped in strengthening the foundation of the company. Organic sales were flat as growth achieved by better price mix was equally offset by fall in volume. ConAgra’s $5 billion acquisition of Ralcorp should make ConAgra the nation's biggest maker of store-brand foods. Earlier this year Bertolli and P.F. Chang's Home Menu frozen meals were acquired from Unilever which boosts the product portfolio of ConAgra and the company with its own innovation capabilities is able to derive further value.

Private Label

Private Labels are double win situations as consumers love them because they are cheaper than branded products and stores prefer them as they provide better margins. Consumers are more attracted to private labels currently because of the lingering economic downturn. Private label in general have great growth prospects that ConAgra seems to be wisely tapping with its acquisition of Ralcorp. The recent acquisition along with ConAgra’s consumer packaged goods capabilities should help the company in becoming the top American producer of private-label foods, a ~$2 trillion market in North America.

A Look into Others Around

Mondelēz (NASDAQ: MDLZ), known for its chocolates, biscuits, and candies competes with ConAgra. Snacks produced by the company have high calories and lots of saturated fat, and thus they have less market share in developed markets as consumers have become health-conscious. Now Mondelēz derives its main strength from its exposure in emerging markets like India, China, Brazil, and Russia that have tremendous growth prospects. The company has a great International growth opportunity ahead with long-term organic sales growth that is expected to be 5.7%.  Its distribution network is impossible to replicate and has an enormous amount of goodwill. The company should perform well in the long-run even in the current economic conditions.

Another company that has its focus on emerging market is H. J. Heinz (NYSE: HNZ). Emerging markets comprise about 40% of company’s sales and should create better long-term growth for shareholders. Frank Moison has been appointed to the Heinz Board of Directors; this should benefit the company because he has a strong international perspective and keen understanding of global consumer trends. Heinz, better known as a ketchup brand, is also investor friendly because it pays a dividend yield of more than 3% that keeps increasing year after year. Additionally, through share repurchases, the company returns cash to its investors almost every year. The acquisitions in Brazil and China have provided newer platforms for delivering sustainable growth in a rapidly changing environment.

Final Words

Organic sales of ConAgra have been flat, but the acquisitions are helping its revenue to grow. The acquisition of Ralcorp will help the company to broaden its private label business which has tremendous scope of growth in general. The company returns great value to its investors through a high dividend yield which it is increasing for the last three quarters. The company is optimistic because of its strong quarterly earnings and has raised its full year’s outlook to at least $2.06 per share which seems easily achievable. This company remains a good pick for investors.


tarunbachhawat 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. 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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