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ConAgra Q2 Earnings Miss on Currency Woes, Revenues Fall

Premier North American food company ConAgra Foods, Inc.CAG reported lower-than-expected results for first-quarter fiscal 2016 (ended Nov 29, 2015). We believe the negative impact of the strengthening U.S. dollar partially offset the benefits reaped from improvement in the company's Commercial Foods segment as well as cost-reduction strategies.

Quarterly earnings came in at 58 cents per share, lagging the Zacks Consensus Estimate of 59 cents and down from the year-ago tally of 61 cents.

Revenues

ConAgra generated net revenue of $3,092.7 million, down 1.4% year over year.

On a segmental basis, Consumer Foods revenues decreased 2.9% year over year to $1,983.2 million. The decline in sales was primarily led by unfavorable impact of foreign currency translation and weaker segmental volume.

Revenues from the Commercial Foods segment climbed 1% year over year to $1,109.5 million, driven by a rise in international sales of the Lamb Weston potato business.

Other Financial Fundamentals

ConAgra's cost of goods sold was $2,264.7 million, down 4.8% from $2,379.1 million recorded in the year-ago period. Selling, general and administrative (SG&A) expenses were $524.7 million, up 33.9% year over year. Interest expense increased 1.1% year over year to $79.6 million owing to a rise in debt levels.

Exiting second-quarter fiscal 2016, ConAgra had cash and cash equivalents of $95.9 million, down 41.8% from the value recorded on fiscal year-end 2015. Senior long-term debt (excluding current portion) was $6,204.5 million, down 7.3% from $6,693 million recorded on May 31, 2015.

For second-quarter fiscal 2016, ConAgra generated net cash worth $193.3 million from operating activities, significantly down from $286.4 million earned in second-quarter fiscal 2015. Capital spent on additions of property, plant and equipment totaled $176.7 million, up 12.1% year over year.

During the reported quarter, ConAgra paid dividends worth $215 million versus $211.7 million paid in the year-ago comparable period.

Closure of Private Brands Segment

ConAgra announced the decision to cease operations of its Private Brands segment to ensure greater value for its shareholders in the long run. Per the company's management, the concerned segment's operations were categorized as assets for sale, on which no kind of amortization or depreciation expenses can be imposed. ConAgra has reaped $2.7 billion as proceeds from the afore-mentioned sale and intends to utilize the funds for lowering its debt burden.

Outlook

ConAgra continues to expand its margin on the back of increased productivity, portfolio segmentation and price/mix focus. The company expects to witness year-over-year earnings growth in third-quarter fiscal 2016. In second-quarter fiscal 2016, the company's total operating profit was $493.1 million, up 10.1% year over year. The company intends to further improve its financial fundamentals with the help of balanced capital accumulation, higher sales and tactical cost-cutting initiatives.

Other Stocks to Consider

ConAgra Foods presently holds a Zacks Rank #2 (Buy). Other well-ranked stocks in the industry include B&G Foods Inc. BGS , Campbell Soup Co. CPB and The Chefs' Warehouse, Inc. CHEF . All three stocks sport a Zacks Rank #1 (Strong Buy).

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CONAGRA FOODS (CAG): Free Stock Analysis Report

CAMPBELL SOUP (CPB): Free Stock Analysis Report

B&G FOODS CL-A (BGS): Free Stock Analysis Report

CHEFS WAREHOUSE (CHEF): 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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