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What happened
Shares of ConAgra Foods (CAG 0.55%), a consumer-foods producer with brands including Banquet, Hunt's, and Marie Callender's, are dropping roughly 27% as of 11 a.m. EST as the market reevaluates the company after it spun off its commercial food (Lamb Weston) businesses.
So what
This has been a long time coming, but today marks the official separation of ConAgra's commercial Lamb Weston business -- which provides French fries and other frozen potato products to fast-food chains.
"The decision to separate into two pure-play companies reflects our ongoing commitment to implementing bold changes in order to deliver sustainable growth and enhanced shareholder value," said Sean Connolly, president and chief executive officer of ConAgra Foods, in a press release. "We carefully considered a variety of strategic alternatives, and believe that the separation of our Lamb Weston specialty potato business from our consumer brands business is the best way to drive shareholder value."
This is the latest move in a new course for ConAgra as it had previously sold its private-label and spice operations.
Now what
Despite management's attempt to focus its business strategy, the problem for me, as a potential investor, is that there doesn't appear to be any competitive advantage. ConAgra's collection of brands doesn't carry enough clout or leverage to hold pricing power with retailers, and thus its consumer-brand profits have lagged those of its competitors. That said, the company hopes to reduce annual costs by $300 million over the next few years, which could help improve its margins.
On the bright side, now with the separation completed, the company can move forward with its additional $1.25 billion share-repurchase program that was provisional on the spinoff. Still, that isn't enough to convince me this is a stock worth buying into.
