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We reiterate our Neutral recommendation on ConAgra Foods Inc. (CAG - Analyst Report).

ConAgra has been significantly expanding its business portfolio over time, focusing on branded, value-added opportunities, through the acquisition of a number of private labels as well as promotional campaigns. We believe that the company’s strong sales force, dedicated customer-serving teams, innovative marketing approach along with consumer insights and category leadership have been adding depth and dynamism to its existing product lines.

However, the food industry is immensely competitive, facing challenges from big banners as well as private label suppliers. The company’s branded food category continued to demonstrate increasing price trend, affecting consumer budget for quite some time.

On the other hand, relatively lower prices charged by the private labels have gained an advantage among household consumers, who are willing to try cheaper alternatives during the economic downturn. This has been affecting the profitability of the foodmakers, including CAG.

Even under such competitive circumstances, the company’s net sales improved 8.1% year over year during the first quarter of 2012, driven by a rise in sales volume and favorable price/mix. The year-over-year rise in net cash flow from operating activities depicted a strong cash position for the company.

We presume that strong productivity and volume improvement in both the Commercial and Consumer food segments will continue to drive growth for the coming quarters.

Worldwide food inflation is at a soaring high and various raw materials used in the food industry are exposed to market fluctuations, supply-demand inconsistency, currency fluctuations as well as changes in governmental agricultural programs.

Nevertheless, ConAgra demonstrated robust cost saving and strategic pricing actions to mitigate rising input cost and address the ongoing commodity as well as food inflation. We believe these actions will continue to address the long-standing inflation issue while stabilizing the company’s business portfolio going ahead.

Based in Omaha, Nebraska, ConAgra Foods Inc. is one of North America’s leading food companies, serving grocery retailers, restaurants and other foodservice establishments, with brands in 97% of America’s households. The company, over time, has given tough competition to its peers, such as HJ Heinz Co. and Kraft Foods Inc. .

Currently, ConAgra has a Zacks #2 Rank, implying a short-term Buy rating (1-3 months)

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