ConAgra Foods, Inc. (CAG) divested its Gilroy Foods & Flavors, the dehydrated and vegetable product operations, part of Commercial Foods segment, to Olam International for $250 million.
In the near term, ConAgra might get hurt as the divested operations generated revenues of $300 million in fiscal 2010. However, the Commercial Foods segment reported a decline of 8.3% in revenues in fiscal 2010, which probably prompted the sale to improve conditions in the long term.
ConAgra has a conscious business strategy of acquisitions and divestitures, which would continue in the future. ConAgra has divested several businesses in fiscal 2008 and 2009, including trading and merchandising operations, Pemmican beef jerky business and Knott’s Berry Farm jelly and jam business.
ConAgra has also made various strategic investments in 2010 in order to enhance the portfolio, which includes building a state-of-the-art sweet potato processing plant in Delhi, Louisiana. ConAgra completed the acquisition of Elan Nutrition, a nutrition and snack bar manufacturer, for approximately $105 million.
During the fourth quarter of fiscal 2010, ConAgra repurchased 4 million shares. At the end of fiscal 2010, $400 million out of the $500 million share repurchase authorization remained outstanding. This reflects the company’s strong cash position and positive cash flow outlook.
ConAgra plans to repurchase its shares periodically, depending on market conditions and other factors, and may do so in the open market or through privately negotiated transactions. The company expects this to be a multi-year program.
The company has significant potential based on the improvements in its supply chain, sales execution, marketing and innovation capabilities. Lastly, ConAgra’s cost reduction initiatives, which have helped in total cash savings of $300 million in fiscal 2010, will generate higher profits going forward.
For 2011, ConAgra expects a growth of 8% to 10% over the fiscal 2010 earnings of $1.74, and anticipates cash flow from operating activities of $1.2 billion. We reiterate our Neutral recommendation on the stock in line with the Zacks #3 Rank, which means a short-term Hold rating.
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