CAG ConAgra Brands Inc

We currently maintain our Neutral recommendation on ConAgra Foods Inc. (CAG).

ConAgra Foods has been significantly expanding its portfolio of businesses over a number of years (focusing on branded, value-added foods) through acquisition of a number of brands while widening its existing product line. This strategy of expansion is expected to boost profit margins and improve returns on capital over the coming quarters.

During the first quarter of 2012, the company’s net sales improved 9.5% year over year, driven by a rise in sales volume and favorable price/mix. It maintains a steady cash position, recording the net cash flow from operating activities at $315.1 million, which is up compared to the prior-year quarter. Moreover, the company has been practicing robust cost saving initiatives over time. Going forward, ConAgra expects to increase marketing investments, targeted to boost sales and EPS for the full-year fiscal 2012.

However, the company has been operating in a competitive food industry, wherein it faces intense challenge from the private label suppliers and producers. This is anticipated to shrink the company’s market share and sales or force a reduction in prices despite input cost hikes.

Adding to the peril is the rising cost of various raw materials, such as wheat, corn, oats, soybeans, beef, pork and poultry used by the company. The prices of these raw materials are at an all time high and are predicted to induce a negative impact on profits for the company.

In order to offset the soaring cost of ingredients, the company adopted a strategy of raising product prices, which was roughly 4% during the first quarter of 2012, in order to maintain its steady revenue in both the Commercial and Consumer food segments. Furthermore, ConAgra expects to increase marketing investments, targeted to raise sales and EPS for the full-year fiscal 2012

The company, over time, has given tough competition to its peers such as HJ Heinz Co. (HNZ) and Kraft Foods Inc. (KFT).

 
CONAGRA FOODS (CAG): Free Stock Analysis Report
 
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