ConAgra Foods: Earnings Preview

| About: ConAgra Brands, (CAG)

ConAgra Foods, Inc. (CAG) will be reporting its third-quarter 2012 financial results on Thursday, March 22, 2012. The current Zacks Consensus Estimate for earnings per share (EPS) is 50 cents, representing an annualized decline of 0.40%.

With respect to earnings surprises over the trailing four quarters, CAG outperformed the Zacks Consensus Estimate in two quarters, while underperforming in the rest. Average earnings surprise was a positive 3.02%, indicating that the company outperformed the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Second quarter 2012 highlights

On December 20, 2011, ConAgra Foods reported second-quarter fiscal 2012 results, with diluted EPS (from continuing operations) of $0.41 compared with $0.45 in the year-ago quarter. This decline of 8.9% reflects the negative impact of the inflationary pressures on the company’s operating segments. The results missed the Zacks Consensus Estimate by a penny.

Net sales improved 8.1% from the year-earlier quarter to $3,403.9 million from $3,147.5 million, primarily driven by a rise in sales volume, favorable price/mix and strategic pricing actions to mitigate rising input cost. Reported revenue was above the Zacks Consensus Estimate of $3,318 million. Moreover, in the reported quarter, cost of goods sold (COGS) increased 10.9% from the year-earlier quarter to $2,646.6 million.

Agreement of estimate revisions

In the last 30 days, no analyst increased the company’s EPS estimates, whereas five analysts decreased the same for the current quarter. None of the analysts increased the EPS estimate for fiscal 2012, while five decreased the same. On the other hand, no one increased estimate for fiscal 2013, while four of them decreased estimate.

Magnitude of estimate revisions

Estimates over the last 30 days decreased by a penny, down from 51 cents to 50 cents per share for the third quarter of 2012, representing a year-over-year decline of 0.40%.

Estimate for fiscal 2012 also demonstrated a similar trend, falling marginally from $1.81 to $1.79 over the last 30 days. However, for fiscal 2013, the estimate remained at $1.96 over the same period. These estimates represented a year-over-year growth of 2.55% and 8.94% for 2012 and 2013, respectively.

Our take

Globally, food inflation is at a soaring high and the food companies have over time been sensing the pressure of rising raw materials cost, as well as the mounting fuel charges. We are concerned that such pressures will continue to affect the company’s operating margins for the current quarter. Moreover, shifting of consumer preference toward relatively low-cost private labels may also shrink the company’s market share and revenue thereafter.

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).

CONAGRA FOODS (NYSE:CAG): Free Stock Analysis Report

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