ConAgra has been one of top-performing companies in the packaged food sector in 2014, posting stock gains of 8.46% and beating the 6.73% gain in the S&P 500 (SPY) and the 2.97% gain in the Dow Jones Industrial Average (DJI) .
The company best known for popular brands like Chef Boyardee, Healthy Choice, and Slim Jim reports its second quarter Thursday, expected to show year-over-year declines. But ConAgra has moved to satisfy consumers' potato craving, and that's a good thing for shareholders.
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According to Euromonitor International, a strategy research service for consumer markets, the frozen potato category is projected to grow by 1.8 billion pounds (about $2.83 billion) between 2013 and 2018.
The growing global popularity of french fries and hash-browns (among other potato products) has moved Omaha, Neb.-based ConAgra to recently announced it will invest $150 million in adding a second production line to its frozen potato processing plant in Netherlands as part of its Lamb Weston-Meijer joint venture. The company said the second production line will be fully operational in the middle part of 2016.
This is the second time in less than a month ConAgra has shown that potatoes will be an important part of its long-term growth.
In late November, ConAgra opened its Lamb Weston potato processing facility in Shangdu, Inner Mongolia -- its first food plant in China. This is a part of the company's international expansion strategy, prompting it to purchase TaiMei Potato Industries Limited in July.
ConAgra's love for potatoes and its aggressive growth strategy is well-thought out.
Paul Maass, ConAgra's president of Private Brands and Commercial Foods, said these moves positions ConAgra to meet emerging market growth through a highly efficient, well-established dual sourcing model supplying. ConAgra, he added, will be able to offer its consumer base in both North America and Europe the frozen potato products they want.
Regarding their investments in China and other countries, Maass said local potato sourcing and production will play an important role in the company's growth prospects.
The entire packaged food sector has struggled this year to meet the shift in consumer demand and spending. ConAgra, as evident by its 8.46% gains this year, has figured out ways to differentiate its products and meet that demand.
In the most recent quarter, GAAP earnings surged over 230% from $144.3 million to $482.3 million. On a non-GAAP basis, earnings were at 39 cents a share -- a two cent improvement from last year. And despite concerns about organic growth and operational efficiency, ConAgra surprised analysts with margins of 11.6%, a year-over-year improvement of 160 basis points.
With its potato investments and international growth strategy, the company seems poised to continue that trend. The company's CEO Gary Rodkin, who will retire in May of next year, said this year's focus will be on stabilizing the business. As evidenced by the company's recent investments, stabilization doesn't exclude growth and profits. And that's something investors should be excited about.
At the time of publication, the author held no position in any of the stocks mentioned.
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