Diversified food retailer ConAgra (NYSE:CAG) reported stronger-than-expected results for its 2012 fourth quarter on Thursday. The firm recorded adjusted earnings of $0.51 per share in the period, a penny more than the consensus estimate. Revenue was also slightly higher than expectations, registering $3.41 billion, up 6% compared to the same period last year. However, the company did change how it accounts for pensions, so ConAgra posted a GAAP loss of $0.29 per share.
In addition to strong profitability, the firm reported 6% growth in its consumer foods segment in a difficult selling environment. The majority of this growth was due to acquisitions, as organic sales volumes shrunk 5%. However, after adjusting for a one-time gain in the same quarter a year ago, the company managed to grow operating profit 7%. ConAgra has shown a surprising ability to adjust to difficult higher input prices (up 6% for the quarter) and constrained consumer budgets. ConAgra pointed out that its private label business and Kangaroo pita chips were performing particularly well.
Meanwhile, fourth quarter sales for the firm's commercial business grew 7%, with profits also growing 7%. ConAgra cited continued strength in its Lamb Weston potato operations as the main growth driver in the quarter, and it expects the trend to continue throughout fiscal year 2013. International commercial sales also exceed $1 billion annually in fiscal year 2012, and the firm expects this business to continue to grow.
The firm also gave earnings-per-share growth guidance in the 6-8% range for fiscal year 2013, and a robust operating cash flow outlook of $1.2 billion. Management expects that most of this growth will come from businesses acquired in fiscal year 2012, with the rest of the earnings growth a result of only modest input inflation and skillful margin management.
Following its strong quarter, ConAgra has converged toward our fair value of the firm's shares. The firm does boast a yield in excess of 3.7%, but it scores poorly on our Valuentum Dividend Cushion, and we do not think the dividend has much room for growth. We prefer food distributor Sysco (NYSE:SYY) from a total return perspective (please click here to view our valuation reports on ConAgra and Sysco).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.