Earnings Preview: ConAgra Foods - Analyst Blog

ConAgra Foods (CAG), one of North America 's leading food companies, is scheduled to report its first-quarter fiscal 2011 financial results on Tuesday, September 21, 2010. The current Zacks Consensus Estimate for the quarter is 39 cents a share.

Fourth Quarter Summary

ConAgra Foods Inc. reported fourth quarter EPS of 39 cents, down from 41 cents in the year-ago quarter due to a 5% decrease in operating sales. Reported EPS was a penny below the Zacks Consensus Estimate of 40 cents.

On a yearly basis, net revenues slipped 5.0% to $3,062.5 million from $3,224.3 million in the same quarter of fiscal 2009. The decrease in total revenue was due to a 6.3% decline in revenues from the Commercial Foods segment. However, revenues from the Consumer Food segment rose 3.0% year over year.

During the fourth quarter, ConAgra repurchased 4 million shares. At the end of fiscal 2010, $400 million out of the $500 million share repurchase authorization remained outstanding.
 
At the end of fiscal 2010, cash flow from operating activities increased to $1,472.7 million from $124.0 million at the end of fiscal 2009, based on working capital adjustment.
 
Details are available in the link below: ConAgra Misses by a Penny 

First-Quarter 2011 Outlook

Management did not provide guidance for the first quarter of fiscal 2011. However, eleven analysts covering the stock expect first quarter EPS at 39 cents and revenues at $2,975 million.

For fiscal 2011, management expects growth of 8% -10% over fiscal 2010 EPS of $1.74, and expects cash flows from operating activities of $1.2 billion.

The Zacks Consensus Estimate has remained stagnant over the last 30 days. Although, only one analyst moved up his estimate, the upside seems insignificant and hence, did not get reflected in the earnings estimate for the quarter.

With respect to earnings surprises, ConAgra on an average had a positive track record in the preceding four quarters with only the last quarter showing a negative surprise. In the last four quarters it recorded an average positive earnings surprise of 7.76%, meaning that the company has beaten the Zacks Consensus Estimate by that measure.
 
Our Recommendation

ConAgra has significant potential based on improvements in its supply chain, sales execution, and marketing and innovation capabilities. ConAgra's cost reduction initiatives, which have helped in total cash savings of $300 million in fiscal 2010, are expected to generate higher profits going forward.

The company has grown primarily through a series of acquisitions and divestitures, which is going to continue. ConAgra made various strategic investments in 2010 in order to enhance the portfolio, which includes building a state-of-the-art sweet potato processing plant in Delhi , Louisiana . The company completed the acquisition of Elan Nutrition, a nutrition and snack bar manufacturer, for approximately $105 million, and the assets of American Pie. ConAgra also divested its Gilroy Foods & Flavors dehydrated vegetable business to Olam International for $250 million.

However, the highly-competitive food industry is a matter of concern. Commodity prices are extremely volatile. Therefore, overdependence on commodities is a challenge. Thus, over the longer term, we reiterate our Neutral recommendation on the stock. The stock at present reiterates its short term “Sell” rating, equivalent to a Zacks #4 Rank.

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