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ConAgra Misses by a Penny - Analyst Blog

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On December 20, 2011, ConAgra Foods Inc. ( CAG ) reported second quarter of fiscal 2012 results, with diluted EPS (from continuing operations) of 41 cents compared with 45 cents in the year-ago quarter.

This decline of 8.9% reflects negative impact of the inflationary pressures in the company's operating segments. The results missed the Zacks Consensus Estimate by a penny.

Revenues

Net sales improved 8.1% from the year-earlier quarter to $3,403.9 million from $3,147.5 million, primarily driven by a rise in sales volume, favorable price/mix and strategic pricing actions to mitigate rising input cost. Reported revenue was above the Zacks Consensus Estimate of $3,318 million.

On a segmental basis, Commercial Foods jumped 16.1% to $1,225.7 million, led by improvement in Lamb Weston operations, volume growth as well as pricing actions to cover increased input costs.

Revenues from the Consumer Food segment rose 4.2% to $2,178.2 million during the quarter. The rise reflects increase in segmental sales volume and price/mix.

Margins

In the reported quarter, cost of goods sold (COGS) increased 10.9% from the year-earlier quarter to $ 2,646.6 million. SG&A (selling, general and administrative) expense was $ 455.8 million, up 6.4% year over year. Net interest expense was recorded at $ 50.6 million, up 50.1% year over year. Operating margin was recorded at 12.3%, down marginally, compared with 12.9% during the year-earlier quarter.

Cash Flow

Exiting second quarter net cash flow from operating activities was recorded at $ 489.9 million, compared with $319.1 million a year ago. Moreover, at the end of the quarter, additions to property, plant and equipment was recorded at $ 160.5 million compared with $ 211.0million in the year-earlier quarter.

Cash and cash equivalents at end of the period was reported at $ 706.5 million, up from $ 545.2 million in the year-ago quarter.

Guidance

ConAgra reaffirms expectation of fiscal 2012 full-year diluted EPS to grow at a low- to mid-single-digit rate, based on revised inflation estimates, recent acquisitions and continued business challenges, over the comparable EPS of $1.75 during fiscal 2011. The company currently estimates that inflation for the Consumer Foods segment will be in the range of 10% for the full fiscal year.

ConAgra Foods has been significantly expanding its portfolio of businesses over a number of years, focusing on branded, value-added opportunities, through acquisition of a number of brands. Such acquisitions have been adding depth and dynamism to its existing product line of convenient meals, snacks and meal enhancers eventually. This strategy of expansion continues with the latest possession of Pretzel; which seems to have added another prestigious feather in ConAgra's honored cap.

Also, of late, the company announced approval of a $750 million increase to the company's share repurchase authorization, with no expiration date. Shares are expected to be repurchased periodically over several years, depending on market conditions and other factors, through open-market or privately negotiated transactions.

Omaha, Nebraska based ConAgra Foods Inc. is one of North America's leading food companies, serving grocery retailers, restaurants and other foodservice establishments, with brands in 97% of America's households. The company, over time, has given tough competition to its peers, such as HJ Heinz Co. ( HNZ ) and Kraft Foods Inc . ( KFT ).

We hold a Neutral recommendation on ConAgra over the long term. Currently, Conagra has a Zacks #3 Rank, which implies a Hold rating in the short term (1-3 months).

CONAGRA FOODS ( CAG ): Free Stock Analysis Report

HEINZ (HJ) CO ( HNZ ): Free Stock Analysis Report

KRAFT FOODS INC ( KFT ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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