CONAGRA FOODS INC. $39(New York symbol CAG; Income Portfolio, Consumer sector; Shares outstanding: 427.1 million; Market cap: $16.7 billion; Price-to-sales ratio: 0.9; Dividend yield: 2.6%; TSINetwork Rating: Above Average; www.conagrafoods .com) makes packaged foods, including Chef Boyardee canned pasta, Hunt’s tomato sauce, Peter Pan peanut butter, Orville Redenbacher popcorn and Reddiwip whipped cream.
Consumers supply 70% of ConAgra’s sales. Businesses, including restaurants and other food makers, provide the remaining 30%.
In January 2013, the company bought Ralcorp Holdings, the largest private-label food maker in the U.S., for $4.75 billion.
Since then, strong competition has hurt Ralcorp’s sales and earnings. As a result, ConAgra wrote down its value by $1.3 billion in its fiscal 2015 third quarter, which ended February 22, 2015.
This charge was the main reason why ConAgra lost $954.1 million, or $2.23 a share, in the latest quarter. A year earlier, it earned $234.3 million, or $0.56 a share. Without unusual items, earnings per share fell 4.8%, to $0.59 from $0.62.
Overall sales fell 1.8%, to $3.88 billion from $3.95 billion. Sales to businesses (27% of the total) rose 1.4% on strong demand for frozen potato products. But sales of branded consumer goods (47%) fell 1.9%, while private-label food sales (26%) were down 4.7%.
ConAgra plans to improve Ralcorp’s performance with better packaging, faster delivery times and new products. It will also boost its efficiency so it can better handle rising ingredient costs. These moves should begin to increase Ralcorp’s earnings in fiscal 2016.
The company now expects to earn $2.15 to $2.19 a share for all of fiscal 2015, and the stock trades at a reasonable 18.0 times the midpoint of that range. The $1.00 dividend seems safe and yields 2.6%.
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