After a successful spinoff two years ago, this stock has now completed a major acquisition.
The merger will add several well-known labels to the company’s already extensive collection of premium brands. It will also expand this stock’s market share and push annual sales up to $11 billion. In the meantime, expected cost savings should spur a dividend hike for the next fiscal year.
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CONAGRA BRANDS INC. (New York symbol CAG; www.conagrabrands.com) makes packaged foods, including Chef Boyardee canned pasta, Hunt’s tomato sauce, Peter Pan peanut butter, Orville Redenbacher popcorn and Reddi-wip whipped cream.
In its fiscal 2019 first quarter, ended August 26, 2018, Conagra’s sales rose 1.7%, to $1.83 billion from $1.80 billion a year earlier. That missed the consensus forecast of $1.85 billion.
If you factor out contributions from acquisitions and foreign currency rates, sales gained 1.2%. On a comparable basis, sales of grocery and snack products rose 3.4%, while sales of frozen and refrigerated brands improved 3.2%.
If you exclude costs related to an ongoing cost-cutting plan and a gain on the sale of a business, overall earnings in the quarter fell 3.0%, to $186.4 million from $192.1 million. Due to fewer shares outstanding, per-share earnings improved 2.2%, to $0.47 from $0.46. However, that missed the consensus estimate of $0.49.
Conagra has made several deals that have modified its product lines over the past two years, culminating in the recent completion of a major acquisition.
In 2016, it spun off its frozen potato business Lamb Weston. It also sold some of its non-core businesses, including Spicetec and JM Swank, which make flavours and seasonings for other foodmakers.
However, in March 2018 the company cancelled plans to sell its Wesson cooking oils business to J.M. Smucker Co. (New York symbol SJM). That’s because the U.S. Federal Trade Commission challenged the deal; it would have given Smucker over 70% of the branded canola and vegetable oil market. Had the sale gone through, Conagra would have received $285 million for Wesson.
Dividend stocks: Company expects savings from merger to fuel dividend increase
Conagra has now completed its acquisition of food maker Pinnacle Foods Inc. (New York symbol PF). That firm’s top brands include Duncan Hines (cake mixes), Vlasic (pickles), Wish-Bone (salad dressings) and Aunt Jemima (table syrups).
The company agreed to pay roughly $8.2 billion (65% cash, 35% stock). If you include Pinnacle’s debt, the price rises to $10.9 billion.
Pinnacle shareholders will own 16% of the combined company, which will have annual sales of $11 billion.
The company will borrow $7.9 billion to help fund the purchase. That will increase its long-term debt from $3.0 billion (as of August 26, 2018) to $10.9 billion. That’s a high 82% of its $13.3 billion market cap (the value of all outstanding shares).
However, eliminating overlapping operations will let Conagra cut $215 million from its annual costs by the end of fiscal 2022. Those savings will help the company pay down its loans. Conagra also plans to sell shares to the public to help cut its debt.
As well, the company will maintain the current annual dividend rate of $0.85 a share until the end of fiscal 2019. It yields 2.4%. After that, Conagra expects savings from the merger will let it raise its dividend.
Conagra is expected to earn $2.16 a share in fiscal 2019. The stock trades at a moderate 16.7 times that forecast.
Recommendation in Wall Street Stock Forecaster: Conagra Brands is a buy.
I’m a retired successful IA, and enjoyed my career helping people, with the same objectives that Pat uses. I enjoy all his dividend advice, and his conservatism. Works for me!
t
CAG is a good pick but I would wait to see signs of the price recovering. Currently, the RSI and MACD are both negative, indicating that the stock price will decline in the near term. I’d wait for the price to move up to around $36 (near the 200 day moving average) before buying CAG.
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I’m a retired successful IA, and enjoyed my career helping people, with the same objectives that Pat uses. I enjoy all his dividend advice, and his conservatism. Works for me!
t
CAG is a good pick but I would wait to see signs of the price recovering. Currently, the RSI and MACD are both negative, indicating that the stock price will decline in the near term. I’d wait for the price to move up to around $36 (near the 200 day moving average) before buying CAG.