Earnings Scorecard: ConAgra

ConAgra Foods Inc. (CAG) reported results for the second quarter 2011 on December 21, 2010 with an EPS of 45 cents, in line with the Zacks Consensus Estimate. Analysts following the stock remain neutral, but we expect a much improved result in the second half of fiscal 2011 due to the gradually increasing food prices. ConAgra expects 2011 EPS growth in the range of 5%–7% over the fiscal 2010 EPS of $1.74.

Second Quarter Highlights

ConAgra reported results for the second quarter of fiscal 2011 with an EPS (excluding a one-time expense) of 45 cents, down from $0.52 in the year-ago quarter, and net income of $200.9 million, down 16.2% from $239.7 million in the second quarter of fiscal 2010. Slower market recovery as well as increased costs negatively affected EPS.

Net revenues marginally moved up to $3,161.1 million from $3,100.1 million in the corresponding quarter of fiscal 2010, representing an increase of 2.0% year over year. Reported revenue was also above the Zacks Consensus Estimate of $3,157 million. The increase in total revenue was due to a 3.4% increase in revenues from the Commercial Foods segment and a 1.3% rise in the Consumer Food segment.

For details version: ConAgra Meets Zacks Estimate

Agreement of Estimate

None of the analysts covering the stock moved their estimate in either direction for fiscal 2011 in the last seven days. However, for fiscal 2012, out of 11 analysts, two decreased their estimate while none increased it.

Magnitude of Estimate

For fiscal 2011, EPS estimate remained at $1.76, while for fiscal 2012, it went down by a penny from $1.94 to $1.93.

With respect to earnings surprises, the company has a mixed track record in the last four quarters with a negative average earnings surprise of 7.66%. This suggests that it missed the Zacks Consensus Estimate by that amount over the last year.

Our Take

We reiterate our Neutral recommendation on the stock based on expectations of much improved result in the second half of fiscal 2011 due to the gradually increasing food prices. The company’s expectations to save $275 million in fiscal 2011 through its various cost reduction initiatives will lead to a better result in future.

The new share repurchase authorization will also enhance shareholders’ confidence. Further, the company’s incessant strategic moves like acquisition of American Pie and divestiture of Gilroy Foods & Flavors significantly enhances its portfolio.

However, the highly-competitive food industry and extremely volatile commodity prices are matters of prime concern. ConAgra’s prime competitors are HJ Heinz Co. (HNZ) and Kraft Foods Inc. (KFT). Hence, the stock currently retains its short-term Sell rating (Zacks #4 Rank).

CONAGRA FOODS (CAG): Free Stock Analysis Report

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