On March 22, 2012, ConAgra Foods Inc. (CAG) reported third-quarter fiscal 2012 results, with diluted EPS (from continuing operations) of 65 cents, up 25% compared with 52 cents in the year-ago quarter.
This improvement in results reflect benefit from the company’s total margin management efforts, including price increase in operating segments as well as cost savings. The results beat the Zacks Consensus Estimate of 49 cents.
Net sales improved 7.4% from the year-earlier quarter to $3,373.1 million from $3,141.3 million, based on improved volumes, favorable price/mix and strategic increase in prices to mitigate rising input cost. Reported revenue was above the Zacks Consensus Estimate of $3,364 million.
On a segmental basis, Commercial Foods surged 13.7% y/y to $1,215.9 million, led by improved volumes for Lamb Weston potato operations and the benefit of commodity-driven price increases in the segment. Revenues from the Consumer Food segment rose 4.1% to $2,157.2 million during the quarter. The rise reflects contribution from favorable price/mix and recent acquisitions.
Margins
In the reported quarter, cost of goods sold (COGS) increased 10.2% from the year-earlier quarter to $2,583.1 million. SG&A (selling, general and administrative) expense was $ 373.7 million, down 7.5% year over year. Net interest expense was recorded at $49.7 million, down 3.7% year over year. Operating margin was recorded at 14.3%, up compared with 13.3% during the year-earlier quarter.
Exiting third quarter, net cash flow from operating activities was recorded at $ 779.4 million compared with $939.9 million a year ago. Moreover, at the end of the quarter, additions to property, plant and equipment was recorded at $239.1 million compared with $347.2 million in the year-earlier quarter.
Cash and cash equivalents at end of the period were $ 604.2 million, down from $ 882.9 million in the year-ago quarter.
Guidance
ConAgra reaffirms expectation of fiscal 2012 diluted EPS to grow at a low- to mid-single-digit rate, based on continued momentum in the operating segments and favorable price/mix and anticipates operating cash flow of about $1.3 billion in fiscal 2012 (before the impact of discretionary pension funding.)
Of late, the company acquired Del Monte Canada for a purchase price of approximately $185 million.
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.
Over time, ConAgra has been trying to ensure robust cost saving and strategic pricing actions to mitigate the rising input cost while addressing the ongoing food inflation. The effects have already started reflecting the financial results. Moreover, the company’s appropriate net pricing actions seem effective enough to offset soaring costs for meats, packaging, fats and fuel.
The company has given tough competition to its peers, such as HJ Heinz Co. (HNZ) and Kraft Foods Inc. (KFT).
We hold a Neutral recommendation on ConAgra over the long term. Currently, ConAgra has a Zacks #4 Rank, implying a short-term (1-3 months) Sell rating.
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