ConAgra Foods: Earnings Preview

Dec.15.11 | About: ConAgra Foods, (CAG)

ConAgra Foods Inc. (NYSE:CAG) will be reporting its second-quarter 2012 financial results on Tuesday, December 20, 2011.

The current Zacks Consensus Estimate for earnings per share (EPS) is 43 cents, representing an annualized decline of 5.00%.

With respect to earnings surprises over the trailing four quarters, CAG outperformed the Zacks Consensus Estimate in one quarter, underperformed in two and was in line in the remaining quarter. Average earnings surprise was 0.06%, indicating that the company outperformed the Zacks Consensus Estimate by the same magnitude over the last four quarters.

First-Quarter 2012 Highlights

On September 20, 2011, ConAgra Foods Inc. reported its first quarter fiscal 2012 results, with diluted EPS (from continuing operations) of 20 cents compared with 32 cents in the year-ago quarter.

This decline of 38% reflects negative impact of short-term changes in the wheat market affecting the company’s Commercial Foods segment and the inflationary pressures in the Consumer Foods segment. The results missed the Zacks Consensus Estimate of 31 cents per share.

Net sales improved 9.5% from the year-earlier quarter to $3,072 million, primarily driven by a rise in sales volume and favorable price/mix. Reported revenue was above the Zacks Consensus Estimate of $2,942 million.

In the reported quarter, cost of goods sold (COGS) increased 14.9% from the year-earlier quarter to $2,473.3 million. SG&A (selling, general and administrative) expense was $422.9 million, up 3.1% year over year.

Agreement of Estimate Revisions

In the last 30 days, no analyst increased or decreased the company’s EPS estimates for the current quarter, whereas one increased the same for the next quarter. One analyst increased the EPS estimate for fiscal 2012, while two followed the similar trend for fiscal 2013.

Magnitude of Estimate Revisions

Estimates over the last 30 days remained static at 43 cents per share for the second quarter of 2012, representing a year-over-year decline of 5.00%.

Estimate for fiscal 2012 remained static at $1.79 over the last 30 days while that for fiscal 2013, the trend was followed at $1.95. These estimates represented a year-over-year growth of 2.46% and 9.00% for 2012 and 2013, respectively.

Our Take

ConAgra Foods has been significantly expanding and improving its business, focusing on branded and value-added products. This, along with the strategic marketing investment, has been adding dynamism to its existing product lines and we believe this will continue to raise profit and induce satisfactory results in the coming quarter. However, shifting of consumer preference toward cheaper private labels remains a concern for shrinking market share under an intensely competitive environment.

Omaha, Nebraska based ConAgra Foods Inc. is one of North America’s leading food companies, serving grocery retailers, restaurants and other foodservice establishments, with brands in 97% of America’s households. The company, over time, has given tough competition to its peers, such as HJ Heinz Co. (HNZ) and Kraft Foods Inc. (KFT).

We currently maintain a long-term Neutral recommendation on the stock. ConAgra has a Zacks #3 Rank, which translates into a short-term Hold rating (1-3 months).

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