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On Sep 26, 2013, we reiterated our Neutral recommendation on ConAgra Foods, Inc. (CAG - Analyst Report), based on mixed result for the first quarter of fiscal 2014.

Why the Retention?

ConAgra reported mixed results for the first quarter of fiscal 2014. While revenues in the quarter increased 27% year over year to $4.2 billion, adjusted earnings per share declined 16% to 37 cents.

Revenues in the quarter increased mainly due to the contribution from the recently acquired Ralcorp. The integration of Ralcorp is on track and ConAgra expects it to contribute roughly 25 cents per share in fiscal 2014. Moreover, ConAgra expects its annual cost synergy to reach $300 million by 2017.

ConAgra’s plan to form Ardent Mills is also on track, and is expected to start within the current calendar year. The mill is expected to help the company in terms of customer supply chain solutions, efficiencies, expanded innovation capabilities as well as profits. The company also intends to reduce the huge debt it incurred for the acquisition of Ralcorp. In the process, it intends to pay roughly $600 million to $700 million of debt in fiscal 2014 and a total of $1.5 billion by the end of fiscal 2015. Moreover, proceeds from the Ardent Mills will be utilized for additional debt repayment.

However, the company’s Consumer Foods segment along with the loss of a major customer in the Lamb Weston Potato business impacted the earnings severely. It is expected that the potato business will remain weak in the fiscal second-quarter 2014 as well.

In the reported quarter, higher marketing activities in the Consumer Foods segment raised the advertising and marketing expenses 14% year over year to $104 million. The intended product launches in the segment will further increase the costs in the coming quarters, impacting earnings. Moreover, volatility in the grain markets may shrink profit opportunities, especially in the case of its milling operations.

The Zacks Consensus Estimate for fiscal 2014 has dropped 4.1% in the last 30 days to $2.32 per share and for fiscal 2015 the Zacks Consensus Estimate declined 4.8% during the same time frame to $2.59 per share.

Other Stocks to Consider

ConAgra currently carries a Zacks Rank #4 (Sell). Other stocks worth a watch in the industry include Green Mountain Coffee Roasters, Inc. (GMCR - Analyst Report), Pinnacle Foods Inc. (PF - Snapshot Report) and BoulderBrands, Inc. (BDBD - Snapshot Report). While Green Mountain Coffee and Pinnacle Foods carry a Zacks Rank #1 (Strong Buy), Boulder Brands carries a Zacks Rank #2 (Buy).

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