ConAgra Drops Despite EPS Beat

ConAgra Foods (CAG) lost 2.9% Thursday, having gained as much as 6% in pre-market activity, despite the company's fiscal Q2 $0.50 vs. $0.42 EPS beat and upward revised full-year EPS guidance of $1.55/share, from $1.48 previously, compared to analyst estimates of $1.51/share. Net income rose 15% to $244.8M, on sales growth of 14% to $3.51B. Analysts were expecting revenue of $3.25B. ConAgra said earlier this month it would beat its own quarterly EPS estimate of $0.40, citing gains from commodities trading and commercial food sales. ConAgra will curtail discounts and promotions at supermarkets to help offset higher ingredient costs. A pot pie recall hurt Q2 EPS by $0.03. In a statement, CEO Gary Rodkin said ConAgra will continue to "face a very challenging input cost environment for the near term," but expects upside full fiscal year EPS growth due to the strong year-to-date EPS performance (ConAgra Foods F2Q08 Earnings Call Transcript). Competitors of ConAgra include Heinz (HNZ) and Kraft (KFT).

Despite Thursday's drop, Citigroup analyst David Driscoll was positive on the earnings: "We believe that the ConAgra turnaround story continues to play out and expect significant positive news flow over the remainder of F2008 on the back of additional new product launches and improved product pricing. We continue to see significant upside in CAG shares at current levels and reiterate the stock as our top pick in branded food," he said in a post-earnings note.

Sources: Press release, Bloomberg, MarketWatch
Additional Reading: Earnings Preview: Four Companies That Could Surprise

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