This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Plenty of Value in ConAgra

NEW YORK ( TheStreet) -- Investors who are familiar with my writing should by now have a pretty good understanding that I get excited about mergers and acquisitions (M&A). I love deals of all sizes.

More important, though, I enjoy dissecting the long-term implications of the transaction not only between the two companies involved, but its potential ripple effect impacting upon rivals that are on the outside looking in.

In the case of ConAgra (CAG - Get Report), there were more than enough reasons to cheer the company's $5 billion deal for Ralcorp. It was during a period of turbulence for the entire packaged-food industry, not to mention inflation had caused struggles for the likes of General Mills (GIS) and Kellogg (K). This was a deal that I felt ConAgra needed to make -- even though I questioned the price tag, which included a 28% premium.

So far the results are paying off handsomely as ConAgra demonstrated in its recent fiscal fourth-quarter report. But I wouldn't get too excited about the gaudy growth numbers just yet. This was expected. In our last discussion, I said the following:

"Despite ConAgra's consistent fundamental improvements, the company should look much better once Ralcorp is fully integrated into the mix. To that end, investors should expect a leaner and more valuable company in the long term, provided that management is able to remove costs associated with Ralcorp, while improving asset utilization."

So far things are going according to plan. In some instances, ConAgra has exceeded expectations. Revenue was the biggest outlier in this recent quarter, growing 35% year over year. If this seems odd, it is. Or at least it should be after the company posted revenue growth of 13% in the previous quarter.
[Read: <a target="blank" data-add-tracking="true" href="http://www.thestreet.com/story/11971672/1/coverage-of-pandora-borders-on-criminal.html"><em>Coverage of Pandora Borders on Criminal</em></a>]

However, investors who have followed this name for a while should understand the strategies that have been at play here. The company has been growing revenue primarily due to acquisitions that were completed in the recent quarter. This quarter was no different as Ralcorp contributed to roughly 30% of the 35% growth.

This means ConAgra's organic growth would have come closer to the mid-single-digit range. Relative to expectations and peer performance this still would have qualified as a good sales quarter. But it's worth keeping things in perspective, especially when this quarter's performance can influence future expectations.

On a segmental basis, I don't believe there were any disappointments. The company posted 7% year-over-year improvement in consumer sales, helped by a 3% expansion in volume. In a sector that has been plagued by poor volume, I believe management did a good job in execution, especially given the 1% revenue opportunities that were missed due to pricing and product mix.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
CAG $44.07 0.02%
AAPL $118.40 -2.40%
FB $94.13 0.13%
GOOG $631.28 0.91%
TSLA $259.66 -2.40%

Markets

Chart of I:DJI
DOW 17,598.20 -91.66 -0.52%
S&P 500 2,098.04 -5.80 -0.28%
NASDAQ 5,115.3820 -12.8990 -0.25%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs