ConAgra Foods (CAG, Financial) is benefiting hugely from the continually changing trend of the major consumer foods brands witnessing significant development opportunities reverting positively.
Targeting share growth
The food major is eyeing significant domestic share gains in frozen single-serve meals. In the beginning of this year, ConAgra recorded the top dollar share position in frozen single-serve meals and has contained it. Further, ConAgra plans to utilize its key mass and unique capability to maintain a leading position and allow retailers to expand. There’s continued improving performance of Marie Callender with expanding volume, share and sales for the second quarter in single-serve meals and grew share in multi-serve meals.
The frozen single-serve and multi-serve meals are estimated to considerably expand the market share for ConAgra Foods.
ConAgra Foods has renovated the product line of the P.F. Chang's Home Menu which it had acquired earlier. ConAgra re-launched the product line in the marketplace in the second quarter with better pricing and packaging strategy. This line of foods currently offers all the courses of a packaged full meal that includes rice, entrées and appetizers.
ConAgra introduced three of its constant and expansion brands including Orville Redenbacher's, Healthy Choice and Chef Boyardee. ConAgra recorded healthy volume growth for the Chef Boyardee brand registering healthy share gains coupled with dollar sales expansion.
Key product launches will drive growth
The re-launching of the key product lines of ConAgra along with the introductions of other major brands is expected to reposition ConAgra as a stable and growing brand for the key investors.
For Healthy Choice, ConAgra is pushing the Café Steamers line which is expected to have huge growth potential. Its offerings are actually very much differentiated with unique tray-in-tray technology producing supreme tasting product. ConAgra promoted Healthy Choice simply Café Steamers during the second quarter, which are estimated to be made all fresh with no artificial ingredients and have 100% natural white-meat chicken. Entrées like lemon herb chicken utilize the steamy technique for a new and crunchy taste.
ConAgra is witnessing improved traction with Orville Redenbacher's brand. It has basic and smooth flavor collection and expects to have an on-shelf existence for a greater impact. It estimates to implement packaging modifications in January for improving the retail visibility at the Super Bowl primarily encouraged by the success of a comparable change in ACT II Popcorn in the previous year with double-digit sales growth. It is also supported by the significant traction for Orville Redenbacher's Skinnygirl assortments.
The re-positioning of some its major brands are forecast to attract newer customers, expanding the company’s already robust user base and driving significant shareholder value.
Some key brands in the Consumer Foods segment including Reddi-Wip, RoTel and Slim Jim all expanded volume during the second quarter with ConAgra controlling the price effectively for improving the effect of expanding product input costs.
ConAgra is accelerating its sharp focus on Dollar, Club and Convenient stores. Actually, these retail outlets are expanding rapidly over conventional grocers and ConAgra is increasingly capturing share within these channels. It is controlling distribution for brands such as Peter Pan in Dollar stores, Reddi-Wip and Hunt's in Club. ConAgra is aligning its innovation with the key offering and formats required by these outlets for improving growth.
The healthy volume expansion of some major brands for ConAgra helps it in controlling costs and improving profits. Also, the major ConAgra Convenient stores are increasingly outpacing the traditional stores at an accelerated pace.
ConAgra is focused on improving its customer speed and responsiveness through enhanced and accelerated packaging graphics. It is keen on recovering its commercialization processes by avoiding any mistakes and launching new products in line with the customer expectations. It is implementing enhanced service levels for customers including on-time delivery and accurate fill rates. It is developing improved connection between the supply chain and sales to improve margin management.
The commercial foods segment including Lamb Weston is demonstrating excellent increase in sales and profit for the quarter. It is continually diversifying and solidifying its customer base, adding share domestically and gaining assets globally, in line with its long-term expansion plans.
The key and regularly modified graphical improvements in packaging are forecast to maintain the company’s already robust customer base and attract fresh customers as well.
ConAgra acquired the Chinese potato processor in the first quarter, which is currently running at its full potential. This acquisition enables it to serve its customers in this key market with local production and must allow it to expand this business in the market with time.
Lamb Weston/Meijer is a major joint venture between Lamb Weston, ConAgra Foods and Netherlands-based Meijer Frozen Foods which lately declared plans to develop its frozen potato facility in Bergen Op Zoom, Netherlands, estimated to be completed in 2016. Moreover, ConAgra Foods' milling joint venture Ardent Mills comprising of the previous business of ConAgra Mills has started strongly.
These major acquisitions by ConAgra are believed to add significant value to the company’s already solid portfolio of products and service offerings.
Conclusion
Overall, the investors are advised to invest in ConAgra Foods, Inc. looking at the impressive valuations levels with the trailing P/E and forward P/E ratios of 38.44 and 15.05 respectively. The PEG ratio of 1.73 suggests slightly costlier growth for the investors but better than the industry’s average of 2.54. The profit margin of 2.28% is satisfactory for the shareholders. Diluted EPS of 0.94 is marginally better than the industry’s average of 0.90. However, ConAgra has unmanageable debt levels on the balance sheet with total debt of $8.48 billion compared to the total cash position of $131.70 million only.
