Likewise, I expect that bears will continue to press the issue regarding the company's margins without fully appreciating the disruption that large deals like Ralcorp are known to cause. But I believe the risk/reward is heavily tilted to the positive side. Although gross margin was flat along with a slight decline in operating margin, I would take that given that Ralcorp contributed to $962 billion in revenue.
It seems as if management is willing to sacrifice near-term margin for long-term growth. It's not a novel idea, but it's proven very effective. Other packaged food giants including Kraft (KRFT) and Nestle (NSRGY) have gone through this same process. I've said it before and it's worth repeating -- with Ralcorp now secured, investors should expect a leaner and more valuable company in the long term.
I expect that management will figure out ways to remove costs associated with Ralcorp while improving asset utilization. But it's not going to happen overnight. When it does, margins will follow. In the meantime, I don't believe ConAgra should be criticized for any growth it is able to produce, whether organic or through acquisitions.
I don't believe it makes a difference in the grander sense unless you're scrutinizing an individual asset. With the continued fundamental improvements that I've detailed above, I remain a long-term bull on this company. The stock has traded relatively flat since I recommended it last quarter and until I see a meaningful drop in performance I have no reason to change my view.At the time of publication, the author held no position in any of the stocks mentioned. Follow @saintssense This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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