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Despite Short-Term Concerns, ConAgra Is a Solid Bet

August 07, 2014 | About:



Packaged foods manufacturer ConAgra Foods (CAG) released unimpressive results for the fourth quarter. The shares of the company fell soon after it unveiled disappointing results. This weakness in the business was a result of under-performance of some of its private brands such as Healthy Choice, Orville Redenbacher's popcorn, and Chef Boyardee pasta.

However, the company is putting meaningful efforts to bring back the lost momentum, so it is making significant investments. ConAgra’s management thinks that the company can do better in the future, and the recent acquisition of Ralcorp is expected to help ConAgra improve its earnings and top line.

A look at the performance

However, ConAgra did show some improvement in revenue. Its quarterly revenue came in at $4.44 billion, which topped analysts’ estimates of $4.40 billion. However, the food company’s revenue declined by 3.27% as compared to last year’s same quarter. On the earnings front, ConAgra’s earnings came in line with consensus estimates, reporting $0.55 per share on a non-GAAP basis.

ConAgra is a well-known name in the packaged food business with a varied portfolio consisting of many private brands. ConAgra suffered as a result of the underperformance of its brands due to several reasons, but now, the company is making efforts to bring back its lost momentum. It is now focusing on various aspects, along with many strategic initiatives. It is restructuring operations to enhance performance, and make its brands competitive.

Strategies for the future

Looking closely at its strategies, ConAgra is gearing up to improvise its product mix. It plans to add new offerings such as a proprietary streamer. On the other hand, ConAgra is also making moves to terminate underperforming brands and focus mainly on the high-yielding products. In this way, ConAgra is expected to streamline its business by successfully closing slow-moving stocks, which were one of the main reasons behind the revenue decline.

Under its investment strategy, ConAgra is making investments in its Café Streamer product. The company is seeing a lot of potential in this offering. It has also decided to accelerate this particular product line with culinary-inspired steaming meals with a crisp and fresh taste that are 100% natural.

ConAgra is seeing tremendous growth in single served meals also. The company is seeing huge traction for frozen meals. Seeing this growth, ConAgra is focusing on strengthening its Totally Frozen Meals category, including Slim Jim Meat Snacks and Reddi-wip, which, despite being slow performers, did impressively. ConAgra has emerged as a strong player in single served meals that should benefit the company to fetch extra market share.

Growth is expected

The company is doing well on the international front as well. Management is bullish about the consumer market's growth in the future. It is seeing solid opportunities for the ConAgra brand, and as a result, it has increased its pace to penetrate some of the potential markets. It is seeing tremendous growth in markets such as Latin America, Mexico, and India. ConAgra looks well-positioned to benefit from these market opportunities and drive more revenue in the future.


ConAgra, with a trailing P/E of 16.12, looks reasonable. Its forward P/E of 12.95 indicates that the earnings of the company are going to improve in the future. Considering the strong initiatives by the company, ConAgra can add new value to its business while its promotional and innovative activities will help it hold a competitive edge in the market. Investors should not mind the short-term weakness of ConAgra, and focus on its long-term prospects.

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