The packaged food industry is facing a number of problems as people shift to fresh and healthy food from the packaged food items. They are willing to pay extra for food made of natural ingredients. Thus, companies, such as ConAgra Foods (CAG, Financial), are having a tough time attracting customers.
This is evident in the company’s performance over the last few quarters. Nonetheless, ConAgra managed to post a decent quarter, wherein its earnings were significantly ahead of the Street’s expectations. Let us explore further.
What happened?
Due to weakness in the private label segment as well as in the consumer food segment, revenue slipped slightly. Sales inched down by 0.4% to $3.7 billion, over last year. The company’s frozen meals and other packaged food products failed to resonate with customers, resulting in lower volumes.
Thus, sales in the Consumer Foods segment fell 2% to $1.6 billion. Weakness in Healthy Choice Frozen Foods, popcorn and canned pasta led to this decline. However, volumes were flat for the quarter. It is important to increase sales in this category since it makes most of the revenue.
Even the private brands segment posted a drop of 2% in sales. This was mainly because of a 3% decline in volumes. This segment witnessed weakness mainly due to stiff competition from other industry players which provide store branded products. Also, generic labels have attracted a lot of customers.
However, the commercial business segment registered a growth of 2% over last year’s quarter, clocking in at $1.1 billion. The volumes in this category rose 3%, driven by higher demand in the Lamb Weston potato business. However, change in price/mix impacted revenue unfavorably by 1%.
Nonetheless, the results got better as we moved to the bottom line. Earnings surged to $0.39 per share from $0.37 per share in the year ago quarter. In fact, analysts were expecting the bottom line to drop to $0.35 per share. But, the foot company managed its costs pretty well.
As against the peers
When compared to its peer General Mills (GIS, Financial), ConAgra has indeed done a better job. General Mills registered a dip of 2.3% in its revenue, clocking in at $4.3 billion. Also, its earnings dropped 13% over the prior year, missing badly on both the top line and the bottom line estimates. This company too is finding it difficult to cope with the problem of rising input costs. However, it plans to acquire Annie’s to expand its natural and organic food category and boost overall revenue.
Even ConAgra has made a number of acquisitions to expand its business. Last year, it bought Ralcorp Holdings, which added to its growth. Further, it acquired TaiMei Potato Industry Limited in July this year in order to expand its presence in the potato processor industry. This will not only expand the food company’s international footprint, but will also enhance its Lamb Weston business operations, which is already doing well. Thus, this is a smart addition to its portfolio.
Conclusion
ConAgra is among those players who are fighting with all the problems and are being able to overcome it. Although the top line was not so impressive, it managed to deliver a strong bottom line which is commendable. Also, it stuck to its previously announced guidance and has made acquisitions to bolster top line growth. Thus, this company might prove to be a rewarding investment.
