Despite Lackluster Results, Could ConAgra be an Amazing Buy?

Source: Wikimedia Commons

After ConAgra Foods (NYSE: CAG  ) reported operating results that fell short of analyst estimates, the stock rose more than 1% to close at $29.99. Although this shortfall might typically be greeted with selling activity, investors appear to be cautiously optimistic about the company's future. With this in mind, should the Foolish investor consider buying into ConAgra, or is there simply too much risk in doing so?

ConAgra just couldn't measure up
For the quarter, ConAgra saw its revenue come in at $4.39 billion. Although this is 14% higher than the $3.8 billion reported a year earlier, it's just a hair under the $4.4 billion analysts hoped to see. In its report, management attributed the revenue increase to strong performance from its private-brands segment.

Compared to the year-ago period, the company's private-brands segment reported a 148.5% sales increase from $427.9 million to $1.1 billion. At first glance, this looks impressive. But when you consider that the operations grew through means of an acquisition as opposed to organically, the performance loses its appeal. In fact, according to management, the acquired Ralcorp business fell short of expectations in the private-label segment for the year.

  Revenue Growth EPS Growth
ConAgra 14.5% 89.7%

Source: ConAgra

Just as in the case of revenue, ConAgra saw its profitability fall short. For the quarter, earnings per share came in at $0.55. This is significantly better than the $0.29 reported in the year-ago quarter but fell short of the $0.60 analysts hoped to see. The company was hurt by a rising cost of goods sold and soaring interest expenses. But it benefited from a 10% reduction in selling, general, and administrative expenses, driven, in part, by a $15 million decline in advertising and promotional costs. 

Does ConAgra have company in its mediocrity?
To see how attractive ConAgra's results were, it's necessary to pit it up against rivals like Kraft Foods (NASDAQ: KRFT  ) and General Mills (NYSE: GIS  ) . Over the past quarter, Kraft saw some rather interesting results. Revenue come in at $4.6 billion, only 2% above the $4.5 billion it reported in the year-ago period. This came despite the slight revenue decline the business saw for all of fiscal year 2013.

Source: Wikimedia Commons

Kraft's profits made up for its modest revenue uptick. For the quarter, earnings per share were $1.54. This represents an almost 1,000% jump compared to the $0.15 reported in the year-ago quarter; but some adjustments are warranted.

Because of some post-employment benefit expenses in 2012 and gains in 2013 (which should be one-time expenses), the company's profitability was understated and overstated in those years, respectively. After making these adjustments, Kraft's earnings per share came in at $0.68 for the quarter. This is 66% higher than the $0.41 the company earned a year earlier and beat analyst expectations by $0.07.

Source: Wikimedia Commons

General Mills hasn't been so lucky. Unlike Kraft and ConAgra, both of which reported a revenue increase, General Mills saw its top line decline 1% from $4.43 billion to $4.38 billion. According to management, the sales decline was attributable to lower pound volume and foreign exchange differences.

In terms of profits, however, the company did see a slight improvement. Benefiting from a lower cost of goods sold and a smaller selling, general, and administrative expense, the company's bottom line expanded by 3%. This, combined with a 4% reduction in shares outstanding, allowed General Mills to report earnings per share of $0.64, 7% above the $0.60 the company reported a year earlier.

  Revenue Growth EPS Growth
Kraft Foods 2.3% 65.9%*
General Mills -1.1% 6.7%

*Kraft's earnings after taking out its post-employment adjustments
Source: Kraft Foods and General Mills

Foolish takeaway
Based on the data provided, it looks as though ConAgra had a decent quarter but not good enough to match analyst forecasts. In spite of this, however, results were impressive enough to entice investors to push shares higher. Moving forward, it's impossible to tell what the future holds for ConAgra. But its recent performance suggests that it may be a better prospect than General Mills, while Kraft may be the most interesting company to analyze.

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