CAG ConAgra Brands Inc

ConAgra Foods Inc. (CAG) has reported first quarter of fiscal 2012 results, with diluted EPS (from continuing operations) of $0.20 compared with $0.32 in the year-ago quarter.

This decline of 38% reflects negative impact of short-term changes in the wheat market affecting the company’s Commercial Foods segment and the inflationary pressures in the Consumer Foods segment.The results missed the Zacks Consensus Estimate of $0.31 per share.

Revenues

Net sales improved 9.5% from the year-earlier quarter to $3,072 million, primarily driven by a rise in sales volume and favorable price/mix. Reported revenue was above the Zacks Consensus Estimate of $2,942 million.

On a segmental basis, Commercial Foods jumped 18.9% to $1,180.3 million, led by Lamb Weston's price increases, necessitated by higher input costs, and volume gains as well as and price increases due to higher input costs of wheat.

Revenues from the Consumer Food segment rose 4.4% to $1,891.7 million during the quarter. The rise reflects increase in sales and price/mix, partially offset by high input cost inflation.

Margins                      

In the reported quarter, cost of goods sold (COGS) increased 14.9% from the year-earlier quarter to $2,473.3 million. SG&A (selling, general and administrative) expense was $422.9 million, up 3.1% year over year.

General corporate expenses were $117.9 million, up from $79.5 million during the same period of the previous year. Net interest expense was recorded at $52.9 million, up 41.8% year over year.

Operating margin was recorded at 9.6%, compared with 11.4% during the year-earlier quarter.

Cash Flow

Net cash flows from operating activities was recorded at $315.1 million, up from $ 108.8 million in the year-ago comparable quarter. Moreover, during the quarter, additions to property, plant and equipment was recorded at $95.6 million compared with $129.1 million in the year-earlier quarter.  

Cash and cash equivalents at end of the period was reported at $1,095.2 million, up from $ 840.9million in the year-ago quarter.

Management stated that ConAgra demonstrated robust cost saving and accelerating price/mix contribution; despite the challenge of high input cost inflation.

Guidance

ConAgra reaffirms expectation of fiscal 2012 full-year diluted EPS to grow at a low- to mid-single-digit rate, based on high inflation and increased marketing investments, over the comparable EPS of $1.75 during fiscal 2011. The company revised its full-year inflation expectations to 9-10% for the Consumer Foods segment from original estimate of 7-8%.

ConAgra Foods Inc. is one of North America’s leading food makers operating in the Consumer Foods and Commercial Foods segments. The company, over time, has given tough competition to its peers such as HJ Heinz Co. (HNZ) and Kraft Foods Inc. (KFT), based on its cost-control measures on the backdrop of rising raw material prices as well as its product-line expansion program in a highly-competitive food industry.

We maintain a Neutral recommendation on the stock backed by a Zacks #4 Rank, which translates into a short-term Sell rating.

 
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