ConAgra Retains Neutral Territory - Analyst Blog
January 04 2012 - 12:53PM
Zacks
We reiterate our Neutral recommendation on ConAgra Foods
Inc. (CAG).
ConAgra has been significantly expanding its business portfolio
over time, focusing on branded, value-added opportunities, through
the acquisition of a number of private labels as well as
promotional campaigns. We believe that the company’s strong sales
force, dedicated customer-serving teams, innovative marketing
approach along with consumer insights and category leadership have
been adding depth and dynamism to its existing product lines.
However, the food industry is immensely competitive, facing
challenges from big banners as well as private label suppliers. The
company’s branded food category continued to demonstrate increasing
price trend, affecting consumer budget for quite some time.
On the other hand, relatively lower prices charged by the
private labels have gained an advantage among household consumers,
who are willing to try cheaper alternatives during the economic
downturn. This has been affecting the profitability of the
foodmakers, including CAG.
Even under such competitive circumstances, the company’s net
sales improved 8.1% year over year during the first quarter of
2012, driven by a rise in sales volume and favorable price/mix. The
year-over-year rise in net cash flow from operating activities
depicted a strong cash position for the company.
We presume that strong productivity and volume improvement in
both the Commercial and Consumer food segments will continue to
drive growth for the coming quarters.
Worldwide food inflation is at a soaring high and various raw
materials used in the food industry are exposed to market
fluctuations, supply-demand inconsistency, currency fluctuations as
well as changes in governmental agricultural programs.
Nevertheless, ConAgra demonstrated robust cost saving and
strategic pricing actions to mitigate rising input cost and address
the ongoing commodity as well as food inflation. We believe these
actions will continue to address the long-standing inflation issue
while stabilizing the company’s business portfolio going ahead.
Based in Omaha, Nebraska, ConAgra Foods Inc. is one of North
America’s leading food companies, serving grocery retailers,
restaurants and other foodservice establishments, with brands in
97% of America’s households. The company, over time, has given
tough competition to its peers, such as HJ Heinz
Co. (HNZ) and Kraft Foods Inc. (KFT).
Currently, ConAgra has a Zacks #2 Rank, implying a short-term
Buy rating (1-3 months)
CONAGRA FOODS (CAG): Free Stock Analysis Report
HEINZ (HJ) CO (HNZ): Free Stock Analysis Report
KRAFT FOODS INC (KFT): Free Stock Analysis Report
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