For the first quarter of fiscal 2006, ConAgra reported diluted earnings per share of $0.68 versus last year's $0.26. But those bottom-line figures obscure the true operational profitability of the company, which requires sorting out a number of one-time items and an unusually strong performance from the company's Food Ingredients business, the smallest of its units. After taking into account the company's $0.40-per-share gain on the sale of Pilgrim's Pride
But there are still more adjustments to be made, because of restructurings in both periods. The one-time charges in the retail products and food service businesses totaled $7 million for this year and $24 million for last year, meaning this year's numbers aren't as robust as they appear. Finally, there is the 27% gain in the food ingredients business, which turned in an operating profit of $76 million. $47 million of this operating profit comes from the sales and trading of energy, grains, fertilizer, and other commodities. It's a great performance, but the trading business cuts both ways, and investors shouldn't assume such large gains will continue.
I love well-priced companies that pay dividends, but only when they are well-funded by free cash flow. If you're looking at ConAgra for that 4.7% dividend yield, it's probably best to look for another opportunity. The last couple of years, the dividend has been funded by a variety of asset sales and one-time gains rather than free cash flow. In the company's conference call, management hinted that free cash flow was stronger this year than last; that's not just a positive, but also an improvement the company truly needed to make. However, if the company raises its dividend again this year, consider it a big warning sign to move on now or face disappointment later.
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