CONAGRA FOODS INC. $35 (New York symbol CAG; Income Portfolio, Consumer sector; Shares outstanding: 416.8 million; Market cap: $14.6 billion; Price-to-sales ratio: 1.1; Dividend yield: 2.9%; TSINetwork Rating: Above Average; www. conagrafoods.com) makes a variety of packaged foods, including Chef Boyardee canned pasta, Hunt’s tomato sauce, Peter Pan peanut butter, Orville Redenbacher popcorn and Reddiwip whipped cream.
The company recently completed its $4.75-billion acquisition of Ralcorp Holdings, the largest maker of private-label food in the U.S.
The purchase helped push up ConAgra’s sales by 13.4% in its 2013 third quarter, which ended February 24, 2013, to $3.85 billion from $3.4 billion a year earlier. Ralcorp contributed $291.8 million to the latest sales. In addition, ConAgra raised its prices on its branded products to offset higher ingredient costs.
Earnings fell 57.2%, to $120.0 million, or $0.29 a share, from $280.1 million, or $0.68. If you disregard costs to integrate Ralcorp and other unusual items, earnings per share would have increased 3.8%, to $0.55 from $0.53.
The company also recently agreed to merge its flour mills into a new joint venture. Under the deal, Con- Agra, privately held Cargill and CHS Inc. (Nasdaq symbol CHSCP) will combine their North American flour mills into a new business called Ardent Mills. ConAgra and Cargill will each own 44% of this new company, and CHS will own the remaining 12%. Ardent will own 44 mills and four bakeries.
The merger should make ConAgra’s mills more profitable. The deal also gives the company a wider geographic presence. Anti-trust regulators still need to approve the merger, but the partners aim to close the deal by the end of 2013.
If you disregard unusual items, ConAgra should earn $2.15 a share in fiscal 2013, including $0.05 a share from Ralcorp. The stock trades at an attractive 16.3 times that estimate. Ralcorp should contribute $0.25 a share to ConAgra’s earnings in fiscal 2014. The $1.00 dividend yields 2.9%.
ConAgra is our #1 buy for 2013.
