The consumer spending is on the rise as people are splurging. Lower unemployment rate and decrease in gas prices have left more money with people. Thus, customers seem to get back to stores and spend on some of those discretionary items as well. Also, the holiday season is the cherry on the cake, which is driving retail sales. However, online shopping continues to gain importance in the U.S., as people prefer to buy goods online without having to get out in the cold.
The food industry is also on the rise, as people spend on food, even without thinking too much. However, the food retailers were unable to witness increased gains in sales. For instance, packaged food company, ConAgra (CAG, Financial), reported a mixed quarter recently. The top line was not so attractive, whereas the bottom line was better than the expectations. This resulted in a fall in share prices. Let us dig in deeper.
Snapshot of the numbers
Revenue for the quarter dropped 1.7% to $4.15 billion, as compared to the previous year. This was slightly lower than the estimate of $4.2 billion. Although demand for its products was good enough, weakness in the private label segment affected sales. The private label brands fell 5% to 1.1 billion, over last year. This segment is suffering for more than a year now, but it is expected to recover by next June, as stated by the company.
The consumer foods division fell 2% to $2 billion, as volumes fell 1% during the quarter. On the contrary, the commercial food segment grew 2% to $1.1 billion and was mainly benefitted from a higher quality potato crop. Thus, the company needs to work on its consumer food segment as well as the private label business.
Earnings for the quarter slipped $0.01 to $0.61 per share, over the prior year. However, it was in-line with the analysts’ expectations. The company is facing issues related to higher input costs, such as meat and vegetables.
Strategy at its best
In order to overcome the above mentioned problems, the retailer is making a number of moves to grow its business. First and foremost is acquiring other businesses. After acquiring Ralcorp Holdings in 2013, ConAgra Foods acquired TaiMei Potato in July 2014. This potato processor company should help the commercial food segment of the company.
However, problems related to higher raw material prices continue to persist and should be taken care of. The food company is making efforts to improve its market share and stabilize its sales. The buyouts should be helpful in this regard. But lower volumes and pricing pressure due to higher competition might be a deterrent. Also, competitors will provide higher discounts in order to attract customers during the peak winter season. Thus, it needs to ramp up its marketing efforts to lure more customers.
Final thoughts
ConAgra Foods is indeed going through a tough phase. There are various other challenges that need to be taken care of in order to grow. Nonetheless, the retailer is making a host of moves, including the recent buyout. Further, it reaffirmed its earnings outlook for the year, which should be helped by a stronger fall season this time. Overall, investors should stay on the sidelines and wait for the right time to invest.
