ConAgra Foods (CAG) Beats the Top and Bottom Lines; Shares Rally to a 7-Month High

Shares of food giant ConAgra Foods (CAG: Charts, News) rallied to a 7-month high yesterday, after the company posted first quarter earnings that exceeded analysts' estimates. In the first quarter, ConAgra reported adjusted earnings of 44 cents per share, topping the consensus estimate of 36 cents.

Excluding the adjustments, which included derivatives used to hedge commodity costs, net income came in a 61 cents per share, or $250.1 million, nearly triple the 22 cents per share, or $93.8 million, it posted in the prior year quarter. Revenue rose 6.7% to $3.31 billion, also topping the analyst estimate of $3.24 billion. Daily Chart
The company, best known for its Chef Boyardee meals, Hebrew National hot dogs and Banquet frozen meals, attributed its strong earnings to an 8% sales increase in its consumer foods segment, the company's largest division, primarily fueled by earnings accretive acquisitions and price increases. ConAgra recently acquired Unilever's (UL: Charts, News) Bertolli and P.F. Chang's Home Menu frozen meals, along with National Pretzel Company, Del Monte Canada, Odom's Tennessee Pride and Kangaroo Brands' Pita chip division. Through these acquisitions, ConAgra has shaken off prior criticism that its stable of "second and third tier" brands has become stale and unappealing to customers. ConAgra's commercial foods segment posted a sales increase of 5%, primarily due to its Lamb Weston potato business. ConAgra also ramped up its marketing budget by a double-digit percentage in order to promote these new brands. The company is also rumored to be in talks to acquire private-label food maker Ralcorp Holdings, which rejected ConAgra's takeover attempts last year. Ralcorp has been under pressure from major investors, such as Corvex Management, to sell itself to ConAgra. Morningstar analyst Erin Lash commented, "They [ConAgra] have been building up their private-label business; they have been building up their international business by making some reasonably priced deals." These factors offset a volume decline in the segment, exacerbated by a strong U.S. dollar diluting overseas profits. On top of the positive earnings, ConAgra raised its full year 2013 adjusted EPS forecast to a range between $2.03 to $2.06 per share, up from the $1.95 to $1.99 per share it had previously expected. Echoing the sentiment of food conglomerate General Mills (GIS: Charts, News), which reported earnings earlier this week, ConAgra stated that cost inflation would be slightly lower than expected for fiscal 2013, which would lead to more stable prices and margins. Shares of ConAgra trade at 13 times forward earnings with a 5-year PEG ratio of 1.95. The stock pays a quarterly dividend of 24 cents per share, a 3.5% yield at current prices. ConAgra has traded in a narrow 52-week range between $22.39 and $27.75, with a low beta of 0.67. Despite its conservative fundamentals, the stock has rallied 19% over the past twelve months. However, ConAgra has underperformed market peers Kraft (KFT: Charts, News) and Unilever, which have rallied 20% and 19% respectively over the past year. Other News About CAG ConAgra Profit Beats With Acquisitions' Help; Shares Up ConAgra beats Street estimates. ConAgra Foods Inc. Has Jumped to a 7-Month High After Q1 Report Shares of ConAgra soar to new highs after impressive earnings. Other Stocks in the News Starbucks Perks Up Single-Cup Competition with Verismo Debut Is Starbucks about to take out Nestle and Green Mountain in one fell swoop? Trulia Stock Soars in Debut Will Trulia follow in LinkedIn's footsteps, or falter as Facebook did? Copyright 2012 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Sep 21, 2012
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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