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- Revenue has fallen during the last quarters.
- This is the right time for a change after the company has had the same management and strategy for years without results.
- ConAgra's stock jumped more than 10% during the latest weeks.
According to investors, ConAgra Foods Inc. (CAG) is going to be one of the companies with the most positive earnings result.
For the past two quarters, the company has seen falling its revenue. In the third quarter, revenue was $3.88 billion, 13% lower than the year-ago figure. In the quarter before that, revenue fell 12%.
CAG has a 52-week low of $28.93 and a 52-week high of $44.16. The company has a market cap of $18.74 billion and a P/E ratio of 20.49. The stock has now a higher price (now is at $44.00) compared to the same date in last year (that was at $29.63),
Even so activists typically push for companies to either break up, sell themselves off to someone else, or issue debt or use cash to buy back shares, in ConAgra’s case, since it has two other units, which includes its branded goods as well as its commercial foods business, it would have to be worth significantly more than $15 billion to justify a spinoff. But ConAgra has said it prefers to pay down debts before increasing share buybacks.
The company shares climbed after Jana Partners increased its stake in CAG by 7.2%. The firm did not hold shares at the end of the last quarter ending March 31, 2015. In their opinions, the shares are undervalued and represent an attractive investment opportunity and were undervalued in the wake of ConAgra's purchase of Ralcorp Inc. in early 2013.
Finally on June 18, ConAgra Foods’ board of directors and management team were committed to act in the best interests of all shareholders, and they welcomed shareholder engagement by opening discussions with Jana Partners (Trades, Portfolio) after the ConAgra Foods’ fourth-quarter earnings announcement.
In before he said it was prepared to nominate directors to the company's board to help address "persistent underperformance" and this 7.2 percent stake makes it the second-largest shareholder in the Slim Jim Beef Jerky maker.
Recent performances are destroying value
Since the $5 billion acquisition of RalCorp, ConAgra has missed its forecasts repeatedly, cut long-term targets, not increased dividend and faced operating performance challenges..
During the last quarter, consumer foods’ volumes were flat and operating profit increased substantially, improved from the performance seen in recent quarters. Even so volumes didn’t increase, commercial foods’ sales increased, but due to a less favorable product mix and comparatively weak potato crop quality, the operating profit declined
About debts
After reducing debts by approximately $500 million in the fiscal first quarter, the company is on track to reduce debts by a total of approximately $1 billion in fiscal 2015.
Returns and margins
ConAgra's operating margin also fell largely following the acquisition like its returns as ROE and ROC. Operating margin was nearly cut in half from 2013 to 2014 from 9.2% to 5.4%; this year does not look good either with an operating margin of -3.6% on a trailing 12 months basis.
Looking forward
The company continues to expect comparable fiscal 2015 EPS to show a mid-single digit rate of growth over comparable fiscal 2014 EPS of $2.17; the remaining EPS growth in fiscal 2015 is expected to occur in the second half of the fiscal year Comparable EPS for the second quarter of fiscal 2015 is expected to be in line.
But investors must keep in mind that, while the trend of negative revisions is no different from other recent periods, the magnitude of negative revisions for 2015 Q2 is notably lower relative to what they saw ahead of the Q1 earnings season.
Information about ConAgra
ConAgra became the largest U.S. private-label food company in March 2013 when it bought Ralcorp for approximately $4.95 billion, but since then the business has fallen short of profit targets due to growing consumer demand for organic and less processed food.
