Food giant ConAgra (CAG, Financial) started fiscal 2015 on a positive note as its first quarter results were better than Wall Street estimates on the bottom line. Its sales stabilized and volumes were comparatively better in the reported quarter for segments such as consumer foods and commercial foods. The company continues to benefit from the underlying strength in the brands under potential product line like snacks, bars, cereal, in-store bakery and pasta. In addition, ConAgra remains on track to explore new business through its Lamb Weston operation that should drive its growth in the coming years.
The good times should continue
Looking ahead, the company expects its earnings for the full year to grow at a mid single-digit rate as compared to fiscal 2014, while analysts anticipate earnings of $2.25 per share for the full year fiscal 2015. CEO Gary Rodkin said that fiscal 2015 would be a year of stabilization and recovery as its cost-saving programs thoughout the company has started displaying positive signs.
ConAgra continues to demonstrate high inclination towards being more effective and efficient across the board that should drive performance for its wide-spread segments. It also remains focused on resurrecting its struggling business that produces foods for supermarket labels and reviving sales for its weak performing brands such as Chef Boyardee canned pastas. These smart moves should become profit accretive to the company in the remaining quarters for the fiscal 2015.
In addition, the company should also benefit from the successful completion of Ardent Mills transaction. This transaction will certainly strengthen its performance for the bottom line going forward as it will enable the company to lower its costs. This spin-off of its operation of flour millings should become profit accretive for the company in the long run. Also, ConAgra has effectively integrated Ralcorp’s private brands with its branded products that brighten its prospects in the future.
The company also expects its Lamb Weston potato products to drive its sales in the local and international markets due to strong growth in the food service channels. The company has recently acquired a Chinese potato processor during the first quarter that should certainly enhance its performance in the processed potatoes. ConAgra has recently expanded its board Portland, Oregon plant that should assist the company to serve its international customer more effectively.
Focus on private brands
The private brands section now looks more appealing with the new flavor platform for its Lofthouse Cookies that should help the company in leveraging its effectiveness in the upcoming holiday periods. Also, the company has gotten rid of pricing concession for its private brands in the current quarter that should strengthen its profitability in the remaining quarters. ConAgra is seeing strong demand in the snacking category like snacks, bars, cereal, in-store bakery and pasta that should drive its results this quarter.Â
Furthermore, ConAgra is engaged in producing its own various unique innovations for various retailers that should uplift its performance for private brands and drive its growth in the long run. It has recently increased the breadth of its stores across the region and working with retailers to design solutions to better meet the needs and preferences of the shoppers. ConAgra has also picked up some new business and plans to bring it the market in the second half of fiscal 2015.
Conclusion
ConAgra looks a promising bet due to resurrection in its business. Also, the company is doing fairly better in its private-label business in spite of various headwinds that should drive its profit and operating profit margins in the remaining quarters. The company is currently trading at the trailing P/E of 22.46 and forward P/E of 14.10 that indicate potential growth for the stock in the future. Moreover, it has PEG ratio of 1.84 that continues to support its growth in the long run. Analysts have estimated CAGR of 8.03% for the next five years that highlights strong prospects for the stock in the future.
