ConAgra Meets, Stock Slides

ConAgra Foods, Inc. (CAG) reported results for the third quarter of fiscal 2010. During the quarter EPS was 44 cents, up from 40 cents in the year-ago quarter due to a 25% increase in operating profit in the Consumer Foods segment. Reported EPS was in line with the Zacks Consensus Estimate.

On a yearly basis, net revenue decreased 0.9% to $3,098.8 million from $3,125.0 million in the same quarter of fiscal 2009. The decrease in total revenue was due to a 6.3% decrease in revenue in the Commercial Foods segment. However, revenue in the Consumer Food segment rose 2.2% year over year.

Revenue in the Commercial Foods segment decreased due to lower sales in flour mills. The increase in revenue in the Consumer Foods segment was based on continuous innovation, marketing and customer service initiatives taken by the company.

Corporate expense was $104 million, up from $81 million during the same period of previous year based on higher incentive compensation accruals during the quarter.

During the third quarter, ConAgra spent $121 million as capital expenditures for property, plant and equipment compared to $100 million in the year-ago period.

During the quarter, ConAgra approved a $500 million share repurchase authorization. This reflects the company’s strong cash position and positive cash flow outlook. ConAgra plans to repurchase its shares periodically, depending on market conditions and other factors, and may do so in the open market or through privately negotiated transactions. The company expects this to be a multi-year program.

ConAgra expects fiscal 2010 EPS at $1.73, compared to $1.42 in fiscal 2009. Annual sales growth is expected in the range of 3% to 4% over the long term and annual EPS growth is expected in the range of 8% to 10%. Return on Invested Capital is expected between 13% and 14% over the long term.

The company has significant potential, based on the improvements in its supply chain, sales execution, marketing and innovation capabilities.

ConAgra is a leading North American food processing company serving grocery retailers, restaurants and other foodservice establishments.

The company has grown primarily through acquisitions and divestitures, which would continue in the future. ConAgra has divested several businesses in fiscal 2008 and 2009, including trading and merchandising operations.

The company’s cost reduction initiatives should bear fruit going forward. ConAgra continues to focus on controlling general and administrative costs by driving a culture of “zero overhead growth” across the organization. We anticipate this initiative will generate benefits in fiscal 2010 and beyond.