CONAGRA FOODS INC. $30 - New York symbol CAG

CONAGRA FOODS INC. $30 (New York symbol CAG; Income Portfolio, Consumer sector; Shares outstanding: 419.5 million; Market cap: $12.6 billion; Price-to-sales ratio: 0.8; Dividend yield: 3.3%; TSINetwork Rating: Above Average; www.conagrafoods.com) reported that its sales rose 27.2% in its fiscal 2014 first quarter, which ended August 25, 2013, to $4.2 billion from $3.3 billion a year earlier.

That’s mainly due to private-label food maker Ralcorp, which it bought for $4.75 billion in January 2013. Ralcorp contributed $942.0 million to ConAgra’s sales in the latest quarter.

However, strong price competition is hurting sales of ConAgra’s branded foods. It also spent $26 million on developing new products.

As a result, ConAgra’s earnings fell 42.3%, to $144.3 million, or $0.34 a share. A year earlier, it earned $250.1 million, or $0.61. If you disregard costs to integrate Ralcorp, per-share earnings fell 15.9%, to $0.37 from $0.44.

ConAgra is now adjusting its pricing and marketing strategies to spur its sales. As well, combining its operations with Ralcorp should save it $300 million a year by fiscal 2017.

The company now expects to earn $2.36 a share in fiscal 2014, including $0.25 from Ralcorp. The stock trades at a moderate 12.7 times that forecast. The $1.00-a-share dividend seems safe and yields 3.3%.

ConAgra is still our #1 buy for 2013.

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