On Sep 26, 2013, we reiterated our Neutral recommendation on
ConAgra Foods, Inc.
), based on mixed result for the first quarter of fiscal
Why the Retention?
ConAgra reported mixed results for the first quarter of fiscal
2014. While revenues in the quarter increased 27% year over year
to $4.2 billion, adjusted earnings per share declined 16% to 37
Revenues in the quarter increased mainly due to the
contribution from the recently acquired Ralcorp. The integration
of Ralcorp is on track and ConAgra expects it to contribute
roughly 25 cents per share in fiscal 2014. Moreover, ConAgra
expects its annual cost synergy to reach $300 million by
ConAgra's plan to form Ardent Mills is also on track, and is
expected to start within the current calendar year. The mill is
expected to help the company in terms of customer supply chain
solutions, efficiencies, expanded innovation capabilities as well
as profits. The company also intends to reduce the huge debt it
incurred for the acquisition of Ralcorp. In the process, it
intends to pay roughly $600 million to $700 million of debt in
fiscal 2014 and a total of $1.5 billion by the end of fiscal
2015. Moreover, proceeds from the Ardent Mills will be utilized
for additional debt repayment.
However, the company's Consumer Foods segment along with the
loss of a major customer in the Lamb Weston Potato business
impacted the earnings severely. It is expected that the potato
business will remain weak in the fiscal second-quarter 2014 as
In the reported quarter, higher marketing activities in the
Consumer Foods segment raised the advertising and marketing
expenses 14% year over year to $104 million. The intended product
launches in the segment will further increase the costs in the
coming quarters, impacting earnings. Moreover, volatility in the
grain markets may shrink profit opportunities, especially in the
case of its milling operations.
The Zacks Consensus Estimate for fiscal 2014 has dropped 4.1%
in the last 30 days to $2.32 per share and for fiscal 2015 the
Zacks Consensus Estimate declined 4.8% during the same time frame
to $2.59 per share.
Other Stocks to Consider
ConAgra currently carries a Zacks Rank #4 (Sell). Other stocks
worth a watch in the industry include
Green Mountain Coffee Roasters, Inc.
Pinnacle Foods Inc.
). While Green Mountain Coffee and Pinnacle Foods carry a Zacks
Rank #1 (Strong Buy), Boulder Brands carries a Zacks Rank #2
BOULDER BRANDS (BDBD): Free Stock Analysis
CONAGRA FOODS (CAG): Free Stock Analysis
GREEN MTN COFFE (GMCR): Free Stock Analysis
PINNACLE FOODS (PF): Free Stock Analysis
To read this article on Zacks.com click here.