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ConAgra Foods Inc. (CAG - Analyst Report) reported impressive financial results for the fiscal second quarter 2013 (ended November 25, 2012). The company’s earnings per share from continuing operations in the quarter were 51 cents as against 43 cents reported in the year-ago quarter.

However, diluted earnings per share from continuing operations, adjusted for items impacting comparability were recorded at 57 cents versus 49 cents reported in the year-ago quarter. Results surpassed the Zacks Consensus Estimate of 55 cents.

Revenues

Net sales improved 8.9% to $3,735.5 million from $3,431.7 million in the year-earlier quarter, driven by improved potato operations, moderating inflation and contribution from acquired businesses. Reported revenue was above the Zacks Consensus Estimate of $3,691 million.

On a segmental basis, revenue from Commercial Foods surged 4.7% year over year to $1,312.4 million, led by the benefit of favorable price-mix and healthy growth in the Lamb Weston potato operations. Revenue from the Consumer Food segment rose 11.2% to $2,423.1 million during the quarter. The rise reflects contribution from favorable acquisitions and price/mix, slightly offset by an organic revenue volume decline.

Margins

In the reported quarter, cost of goods sold (COGS) shot up 7.3% from the year-earlier quarter to $2,872.6 million. SG&A (selling, general and administrative) expense was $496.7 million, up 13.2% year over year. Net interest expense was recorded at $53.4 million, up 5.5% year over year. Operating margin was recorded at 8.4% as against 7.7% during the year-earlier quarter.

Balance Sheet/Cash Flow

Cash and cash equivalents at end of fiscal second quarter 2013 were $476.8 million, an increase from $116.5 million in the previous quarter. Senior long-term debt increased to $3,413.4 from $2,663.8 million at the end of first quarter of fiscal 2013.

Net cash flow from operating activities in the reported period was $154.7 million as against $174.8 million generated in the year-ago comparable quarter. Capital spending was up 26.0% to $81.8 million.

During the quarter, the company paid dividends amounting to $97.4 million and repurchased 6.1 million shares worth $170 million.

Subsequent to the quarter end, the company announced its plans to buy Ralcorp Holdings at $90 per share in cash. The acquisition is expected close in the first quarter of calendar 2013.

Guidance

For fiscal 2013, ConAgra expects earnings per share (adjusted for items impacting comparability) to be at least $2.06, changed from the previously announced range of $2.03-$2.06. For the Consumer Foods segment, the productivity savings are expected to exceed $250 million along with the input cost inflation to be roughly 2% -3%.

Tax rate is estimated to be roughly 34% for the year. Operating cash flow is expected to be over $1.2 billion.

We currently have a Neutral recommendation on CAG. The stock bears a Zacks #2 (Buy) Rank, while its prime competitors H J HEINZ CO. and BRF Basil Food (BRFS - Snapshot Report) carry a Zacks #3 (Hold) Rank.

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