Good performance by a food major is music to investors' ears in these difficult times. ConAgra Foods
Relief in sight
Adjusting for one-time items that were related primarily to a change in the method of accounting for pensions, ConAgra's bottom line climbed 9% from the year-ago period. Sales in its largest division, consumer foods, rose 6% despite a drop in volumes, thanks to higher prices and acquisitions.
Interestingly, though, volumes were higher in the company's other division, commercial foods. Its Lamb Weston (potato products) business is doing particularly well, gaining traction in the world's fast-developing markets. The annual global footprint of the business has now reached a whopping $1 billion.
Gross margins in the company's consumer foods division were up in the quarter compared to last year, which is great news. Better still, easing input prices should help margins improve further in the coming quarters. General Mills
Along with moderating inflation, ConAgra's growth initiatives should push up volumes further. When inflation didn't allow its top line to grow, ConAgra took to acquisitions to fuel growth. The strategy is apparently paying off well, as acquisitions made last year were a key driver of its fourth-quarter profits. But what I like most is that the company is not just expanding existing product lines, but also adding new ones to tickle the taste buds of consumers. Frozen breakfast foods and pita chips are two recent examples.
ConAgra will acquire the second-biggest frozen-breakfast-sandwich maker in the U.S., Odom's Tennessee Pride. The U.S. market for frozen food is huge, with forecasts of the market topping $70 billion by the middle of this decade. Little wonder then industry players are showing interest in this area. For instance, leading frozen-food company Kellogg
As for pita chips, the name that first pops up may be PepsiCo subsidiary Stacy's pita chips. ConAgra is set to enter the market after having acquired Milwaukee-based Kangaroo Brands' chips business last month. It will be an addition to ConAgra's private labels, which is a welcome move. Private labels are gaining popularity because they are good "value for money," and the U.S. is likely to see record demand for private labels this year. ConAgra understands how consumers expect significant value for everything, and doesn't want to miss out on the opportunity.
The Foolish bottom line
ConAgra is balancing its act well when it comes to deployment of cash. Apart from acquisitions, it bought back $360 million worth of shares in the last financial year, and might go for more. A handsome dividend yield of 3.8% gives ConAgra's shareholders further reason to be happy.
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Neha Chamaria does not own shares of any of the companies mentioned in this article. The Motley Fool owns shares of PepsiCo. Motley Fool newsletter services have recommended buying shares of PepsiCo. Motley Fool newsletter services have recommended creating a diagonal call position in PepsiCo. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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