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.
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.
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