CONAGRA FOODS INC. $40(New York symbol CAG; Income Portfolio, Consumer sector; Shares outstanding: 429.2 million; Market cap: $17.2 billion; Price-to-sales ratio: 1.1; Dividend yield: 2.5%; TSINetwork Rating: Above Average; www.conagrafoods.com) paid $4.75 billion for Ralcorp Holdings, the largest private-label food maker in the U.S., in January 2013. However, strong competition and higher ingredient costs have hurt Ralcorp’s earnings. In response, ConAgra aims to sell Ralcorp by the end of 2015.
Excluding Ralcorp’s contribution and unusual items, ConAgra’s earnings rose 15.4% in its fiscal 2016 first quarter, which ended August 30, 2015, to $0.45 a share from $0.39 a year earlier. Sales gained 1.1%, to $2.79 billion from $2.76 billion.
Consumer foods, such as Chef Boyardee canned pasta and Hunt’s tomato sauce, now supply 61% of ConAgra’s revenue. These products’sales fell 0.3%, as unfavourable currency rates offset higher selling prices.
Businesses, including restaurants and other food makers, provide the remaining 31% of ConAgra’s sales. Sales to these clients rose 3.5%, thanks to strong demand for its Lamb Weston frozen potato products.
The company will probably use the proceeds from the Ralcorp sale to pay down its long-term debt of $6.1 billion, which is equal to 35% of its market cap. The $1.00-a-share dividend seems secure and yields 2.5%.
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