On Jul 4, we reiterated our Neutral recommendation on the food
ConAgra Foods, Inc.
), based on its top- and bottom-line growth. However, we are
cautious about ConAgra's Commercial Foods segment, going
Why the Reiteration?
ConAgra's earnings in fourth quarter of fiscal 2013 were 60
cents, increasing 17.6% year over year. Revenues for the quarter
jumped 33.7% year over year to $4.6 billion. The results reflect
positive contribution from its acquired assets and strong
performance of its Consumer Foods segment.
The Ralcorp acquisition, undertaken in January this year, has
been a significant contributor to the revenues. Once the
integration is complete, Ralcorp is expected to drive the
synergies further. The cost synergies are expected to reach $300
million by fiscal 2017.
The Consumer Foods segment is expected to grow further in the
quarters ahead, driving ConAgra's business further. Moreover,
ConAgra expects to use the proceeds from its new joint venture,
Ardent Mills, to repay the debt incurred for the Ralcorp
acquisition. The reduction in debt will improve the company's
leverage ratios, in turn enhancing shareholders' value.
However, ConAgra's Commercial Foods segment is not performing
as was expected, pulling the growth in revenues down. The segment
is likely to remain in doldrums in the coming quarters due to the
loss of a major customer in the potato business.
Also, the product launches in the segments call for higher
advertising expenses, increasing the overall expenses for the
company. Rising prices of raw materials used by ConAgra also
temper our outlook on the stock.
Other Stocks to Consider
ConAgra currently carries a Zacks Rank #3 (Hold). Other stocks
worth a look in the industry are
B&G Foods Inc.
Flowers Foods, Inc.
), both carrying a Zacks Rank #1 (Strong Buy). Another company,
Campbell Soup Company
) carrying a Zacks Rank #2 (Buy), is worth a look.
B&G FOODS CL-A (BGS): Free Stock Analysis
CONAGRA FOODS (CAG): Free Stock Analysis
CAMPBELL SOUP (CPB): Free Stock Analysis
FLOWERS FOODS (FLO): Free Stock Analysis
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