ConAgra Attempts to Enhance Volume - Analyst Blog

Leading food maker ConAgra Foods Inc.'s (CAG) Peter Pan peanut butter brand partners with M&M'S Holiday Milk Chocolate Candies in order to enhance the company's sales volume in the holiday season.

Early this month, ConAgra inaugurated its Lamb Weston's new state-of-the art, sweet potato processing plant in Delhi, Louisiana. The new plant is going to enhance its production at a much-reduced cost based on economies of scale, which is going to improve its results in the coming quarters.

During the first quarter of fiscal 2011, ConAgra reported results slightly below expectations resulting from an increase in costs and expenses as well as high domestic inflation rate. EPS (excluding a one-time expense) was 34 cents, down from 38 cents in the year-ago quarter, and net income was $151.6 million, down 10.5% from $169.3 million in the first quarter of fiscal 2010. Reported EPS was far below the Zacks Consensus Estimate of 39 cents.

Net revenues slipped 2.4% to $2,817.6 million from $2,886.3 million in the corresponding quarter of fiscal 2010, and were also below the Zacks Consensus Estimate of $2,975 million. The decrease was due to lower sales in flour mills based on the combined effect of lower volume and price.

Based on first quarter results, ConAgra narrowed its EPS growth expectation from the range of 8%–10% over the fiscal 2010 EPS of $1.74 to just 5%–7%. Moreover, a highly-competitive food industry and extremely volatile commodity prices are matters of concern in the present sluggish environment. ConAgra's direct competitors are HJ Heinz Co. (HNZ), and Kraft Foods Inc. (KFT) Thus, the stock currently retains its short term Sell rating, equivalent to a Zacks #4 Rank.

However, ConAgra has been making various strategic moves in order to enhance its portfolio. During the quarter, ConAgra acquired American Pie for approximately $130 million and divested Gilroy Foods & Flavors dehydrated vegetable operations to Olam International for $250 million. Hence, we reiterate our Neutral recommendation over the longer term.

 
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