ConAgra Foods Inc. (CAG, Financial) is a packaged foods company, and 26 of its brands are ranked first or second in their category. It is one of North America's largest packaged food companies with branded and private branded food found in 99% of America’s households as well as a strong commercial foods business serving restaurants and food service operations globally.
Consumers can find recognized ConAgra Foods brands such as Banquet, Chef Boyardee, Egg Beaters, Healthy Choice, Hebrew National, Hunt's, Orville Redenbacher's, Peter Pan, Reddi-Wip, Slim Jim, Snack Pack and many others, along with food sold by ConAgra Foods under private brand labels, in grocery, convenience, mass merchandise, club and drug stores.
Additionally, ConAgra Foods supplies frozen potato and sweet potato products as well as other vegetable, spice, bakery and grain products to commercial and food service customers. ConAgra Foods operates ReadySetEat.com, an interactive recipe website that provides consumers with easy dinner recipes and more. The company invests in making great food and in being a strong partner to its customers.
The company reported a strong third quarter and is poised to grow. The company witnessed improved profitability during the quarter. In the current quarter there was operating profit growth and expanding operating margins.
Third quarter results
Diluted EPS from continuing operations as reported was 41 cents (49 cents in the prior-year quarter).
Diluted comparable EPS was 68 cents during the quarter (59 cents in the prior-year quarter).
Consumer Foods segment
The Consumer Foods segment witnessed sales of approximately $1.9 billion.
Operating profit in this segment was $291 million in the fiscal third quarter.
Segment operating profit was $291 million ($266 million in the prior-year quarter).
After adjusting for $48 million of net expense in the current quarter and $23 million of net expense in the year-ago period from items impacting comparability, current quarter comparable operating profit of $339 million increased 17% over comparable year-ago amounts. Comparable operating margin expanded by over 300 basis points
Advertising investment increased by $10 million, or 12% compared to the prior-year quarter.
Commercial Foods segment
Sales for the Commercial Foods segment were $1.1 billion, which increased by 6% from the prior-year quarter.
Segment operating profit was $175 million, which was an increase of 21% from the prior-year quarter.
Unallocated Corporate amounts were $155 million of expense in the third quarter and $51 million of expense in the year-ago period.
Corporate expense was $73 million for the current quarter, which was $52 million in the prior-year quarter.
Net interest expense was $77 million in the current quarter, which was $80 million in the prior year quarter.
Capex during the quarter was $100 million, which was $83 million in the prior-year quarter.
Dividends during the quarter were $109 million, which was $107 million in the prior-year quarter.
During the quarter the company reduced debt by approximately $2.15 billion.
Expectations for 2016
| Â | Range |
| Full year fiscal 2016 diluted EPS from continuing operations | To range between $2.05 and $2.07 |
Focus
- Improving price/mix and driving efficiencies.
- Enhance overall fundamentals in both the segments.
- Plans to reduce costs.
- Impactful marketing.
- Support investments to drive future innovation.
- Deliver improved margins and shareholder value.
Strategic plans
- Grow Consumer Foods and Commercial Foods businesses.
- Create long-term sustainable value for shareholders.
- Accelerate our margin improvement.
- Divest private brands business.
On a concluding note
It is on track to establish two independent segments with excellent operating foundations. The management is currently emphasizing cost savings and a reduction in discounting. The Consumer Foods segment is intent on building a stronger foundation with focus and discipline. The portfolio of consumer brands delivered four consecutive quarters of operating profit growth in fiscal year 2015 along with steady progress on the top line, strong performance in select retail channels and share gains in key categories. The company is doing well as of now and I would recommend it a buy.
Disclosure: I do not hold a position in the company.
Start a free seven-day trial of Premium Membership to GuruFocus.
