This leading foodmaker continues to post strong sales gains, mainly because it’s increasing its selling prices as it copes with higher costs for ingredients, labour and fuel.
Thanks to its strong brands, higher prices have not significantly hurt its volumes. The company is also improving its efficiency. This helps support the dividend.
Meanwhile, the stock trades at 16.5 times the company’s 2023 earnings forecast.
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CONAGRA BRANDS INC. (New York symbol CAG; www.conagrabrands.com) makes a variety of popular foods, including Chef Boyardee canned pasta, Hunt’s tomato sauce, Orville Redenbacher popcorn and Reddi-wip whipped cream.
The company’s other top brands include Birds Eye (frozen meals), Duncan Hines (cake mixes), Healthy Choice (low-calorie foods), Slim Jim (meat snacks), Vlasic (pickles), and Pam (cooking spray).
About 82% of its brands are either #1 or #2 in their niche markets.
Conagra has four main businesses: Grocery & Snacks (41% of fiscal 2022 sales, 54% of earnings); Refrigerated & Frozen (42%, 35%); International (8%, 7%); and Foodservice (9%, 4%).
Walmart is its biggest single customer, accounting for 27% of sales in fiscal 2022.
Value Stocks: Higher selling prices and cost cutting deliver results
Conagra has raised its selling prices to offset increasing costs for ingredients, packaging and shipping. As a result, its sales in the fiscal 2023 first quarter, ended August 28, 2022, rose 9.5%, to $2.90 billion from $2.65 billion a year earlier.
If you factor out the sale of smaller businesses and currency rates, sales improved 9.7% on higher prices (up 14.3%), which offset lower volumes (down 4.6%).
Disregarding costs related to a cost-cutting plan and other unusual items, earnings in the quarter gained 14.0%, to $0.57 a share (or a total of $274.8 million) from $0.50 a share (or $240.5 million).
The company has used its improved earnings to pay down its debt, from $8.09 billion as of May 29, 2022, to $7.58 billion at the end of August 2022. That’s a somewhat high, but still manageable, 40% of its market cap. It also held cash of $67.4 million.
For all fiscal 2023, Conagra expects its sales will improve between 4% and 5% compared to 2022. It also sees earnings per share rising between 1% and 5%. Using the midpoint of that range, the company will probably earn $2.43 a share and the stock trades at 16.5 times that forecast.
Conagra also continues to reward its shareholders. With the September 2022 payment, it raised your quarterly dividend by 5.6%, to $0.33 a share from $0.3125. The new annual rate of $1.32 yields a solid 3.3%.
Recommendation in Wall Street Stock Forecaster: Conagra Brands Inc. is a buy.