At first glance, packaged-foods producer ConAgra
For the fourth quarter, the maker of Healthy Choice and Hebrew National brand products posted revenue of $3.06 billion, representing a year-over-year decline of 5%. However, if we strip out that pesky extra week, the company's Consumer Foods segment, which accounts for 66% of company sales, posted volume and sales growth of 3%.
Notably, foreign currency boosted quarterly segment sales by 1%, which, if we go back to that volume figure, clearly means that pricing softened by a like amount. Management explained that the decline primarily represents the pass-through of lower costs in the oil and spreads categories -- something we've seen before in the company's Commercial segment. Critics might contend that flexible pricing reveals weak brand equities, although I'd point out that passing cost savings through to consumers might actually help the brand.
On the bottom line, adjusted quarterly earnings per share came in at $0.39, versus $0.41 in the year-ago period. This decline was fully expected, owing to the extra week and an unusually expensive and low-quality potato crop.
Full-year results were somewhat more encouraging. While sales slipped 2.8% to $12.1 billion, EPS from continuing operations grew nearly 23%, to $1.67. Furthermore, management delivered more than $300 million in supply chain savings (with another $275 million expected in fiscal 2011), and operating cash flow jumped from $945 million to $1.4 billion, leaving the balance sheet flush with roughly $950 million in cash.
Offering additional cause for confidence, on an annual basis, the Consumer portfolio gained dollar and unit market share -- a first-time accomplishment in the scope of recent years -- and new products represented about 5% of sales, another substantial improvement. Reflecting strong retailer relationships, ConAgra was named Supplier of the Year by its largest customer, Wal-Mart Stores
Zooming out to a wide-angle view, I don't expect that ConAgra will ever have the pricing power of a General Mills
As for valuation, management pegs fiscal 2011 EPS at $1.88-$1.91, reflecting 8%-10% growth. Using the lower end of that guidance and a price-to-earnings multiple of 14 (slightly above the current P/E but a large discount to the industry average of 17.5), shares should trade in the neighborhood of $26. Given the prospect of a higher multiple, I'd say that shares at today's levels are a modest buy. That said, I wouldn't get aggressive unless the stock came down into the low $20s.
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