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Why ConAgra Foods (CAG) is Tumbling on Tuesday

NEW YORK (TheStreet) -- ConAgra Foods (CAG - Get Report) is tumbling on Tuesday after the company cut its full-year earnings guidance to below Wall Street consensus.

By late morning, shares had unloaded 6.4% to $29.07.

The packaged foods company said it expects lower net income for the full year ending May after noting softer volume trends for its key private-label brands. ConAgra expects fiscal per-share earnings between $2.22 and $2.25, lower than previous guidance of $2.34 to $2.38 a share.

Analysts surveyed by Thomson Reuters had expected earnings of $2.34 a share.

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The Slim Jim maker said the revision was due to weaker-than-expected operating profit in its Private Brands segment, which was purchased in January last year, and margin pressures in Commercial Foods. Also, expected volumes in Consumer Foods are expected to drop 3% to 4%.

"These challenges have made forecasting fiscal 2014 very difficult," said CEO Gary Rodkin in a statement. "I want to be clear that nothing has changed with regard to our conviction about our long-term potential and EPS growth prospects."

The company said it expects the challenges to weigh on earnings through to fiscal 2015, but a recovery should be underway by 2016. Over 2016 and 2017, management predicts double-digit earnings per share growth.

TheStreet Ratings team rates CONAGRA FOODS INC as a Buy with a ratings score of A-. The team has this to say about their recommendation:

"We rate CONAGRA FOODS INC (CAG) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its robust revenue growth, reasonable valuation levels, good cash flow from operations, increase in net income and growth in earnings per share. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 0.5%. Since the same quarter one year prior, revenues rose by 26.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Food Products industry average. The net income increased by 17.5% when compared to the same quarter one year prior, going from $211.60 million to $248.70 million.
  • Net operating cash flow has significantly increased by 151.84% to $389.60 million when compared to the same quarter last year. In addition, CONAGRA FOODS INC has also vastly surpassed the industry average cash flow growth rate of 0.61%.
  • CONAGRA FOODS INC's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, CONAGRA FOODS INC increased its bottom line by earning $1.87 versus $1.11 in the prior year. This year, the market expects an improvement in earnings ($2.34 versus $1.87).

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