Looking for investment ideas? Check out your pantry or refrigerator and you may find a Hershey's (HSY 0.45%) chocolate bar, Orville Redenbacher's popcorn sold by ConAgra (CAG 0.55%), or a dozen eggs sold by Cal-Maine Foods (CALM 6.22%). Would these companies make good investments? Let's take a look at their financials to see if they're growing revenue and cash and retaining some of that cash for reinvestment into the business.
The candy king
Hershey's owns brands such as the Hershey's milk chocolate bar and Reese's peanut butter cups. In addition it also sells candy under brand names such as Almond Joy, Rolo Minis, and Pay Day. In the most recent quarter Hershey's grew its revenue and net income 2% and 4%, respectively. Revenue increases were primarily brought about by volume increases stemming from product innovations, which is something that any investor should want to see, such as its Hershey Spreads, Lancaster Creme Caramels, and Kit Kat Minis. Higher margins, lower business realignment and impairment charges, and lower interest expense due to refinancing and reduction of some of its long-term debt contributed to higher net income. However, its free cash flow declined 38% during that time. The timing of payments from customers contributed to the decline in free cash flow.
Hershey's possesses an OK balance sheet with cash and long-term debt to equity coming in at 60% and 107%, respectively. Lower free cash flow meant that Hershey's paid out 84% of its free cash flow in dividends this past quarter. Currently, the company pays shareholders $1.94 per share per year and yields 2%.
Chef Boyardee and Co.
ConAgra sells packaged foods such as Peter Pan peanut butter, Slim Jim, Chef Boyardee, and Banquet frozen meals. So far this year, ConAgra has grown its revenue and net income 22% and 8%, respectively, primarily as the result of the acquisition of Ralcorp. Its free cash flow declined 3% so far this year, stemming primarily from increased capital expenditures relative to the gains in operating cash flow. Volume in ConAgra's consumer and commercial businesses declined 2% each so far this year.
Looking at ConAgra's balance sheet, cash represented a minuscule 4% of stockholder's equity. Its long-term debt balance declined year over year, going from 166% in the third quarter of fiscal year 2013 to 153% in the most recent quarter. Lower long-term debt typically translates into lower interest, choking out profitability and cash flow; however, 153% remains in the high range. ConAgra paid out 65% of its free cash flow in dividends in the most recent quarter. Currently, the company pays shareholders $1 per share per year and yields 3.3%.
The egg king
Cal-Maine is the largest creator and seller of eggs in the United States according to its latest 10-K. The company sells eggs under brand names such as Land O' Lake, Egg-Land's Best, 4-Grain, and Farmhouse. Cal-Maine's revenue, net income, and free cash flow increased 11%, 43%, and 30%, respectively, so far this year. Acquisitions and gains in selling price all contributed to revenue and net income gains. Increases in net income filtered all the way down to free cash flow. Cal-Maine's cash balance came in at 3% of stockholder's equity last quarter. Cal-Maine's long-term debt-to-equity ratio stands at 9% versus 11% the same time last year.
Cal-Maine has an interesting dividend policy; it pays 33% of quarterly net income. Looking at it from a cash flow standpoint, Cal-Maine paid out 34% of its free cash flow in dividends so far this year. Over the past five years, annual dividends ranged from $0.75 per share to $1.25 per share. Last year Cal-Maine paid a dividend that amounted to a 1.2% yield at current prices.
Now what?
Both Hershey and ConAgra recently paid down some debt to cut back on interest expense. Moreover, Hershey's has a market leadership position in the candy market. In addition, Hershey's doesn't rest on its laurels as it demonstrates the desire to innovate and expand internationally into new markets.
ConAgra also possesses a strong portfolio of brands. However, its cash balance is in the low range; its long-term debt-to-equity is in the stratosphere, and its operating income only exceeded interest expense by a slim four times so far this year. Investors may want to shy away from this company.
Cal-Maine represents the king of the egg industry in the U.S. It also showed an extremely lower debt balance, comparatively speaking. Hershey's and Cal-Maine definitely merit a spot on your watchlist.