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ConAgra (CAG) Beats Q1 Earnings on Restructuring Initiatives

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North American food company, ConAgra Foods, Inc. (CAG - Free Report) reported mixed results for first-quarter fiscal 2017 (ended Aug 28, 2016).

Quarterly earnings from continuing operations, adjusted for items impacting comparability, came in at 61 cents, above the Zacks Consensus Estimate of 48 cents.

The bottom line also comfortably surpassed the year-ago tally by 48.8%.

The remarkable year-over-year improvement came on the back of benefits generated from the company’s meaningful restructuring moves.

ConAgra is currently undergoing rigorous structural changes by divesting its less profitable businesses and acquiring new brands, for boosting its revenues and margins.

Revenues

ConAgra generated net revenue of $2,667.5 million in the fiscal first quarter, down 4.6% year over year. The year-over-year decline resulted from lower volumes accrued due to the company’s initiatives to create an improved quality revenue base.

The company’s divestitures and unfavorable foreign currency translation lowered sales by roughly 2%. However, these headwinds were partially offset by raised price/mix and improved Lamb Weston trade.

The top line also missed the Zacks Consensus Estimate of $2,742 million.

Segmental Break-Up

Effective from fiscal 2017, ConAgra would account its results in five reporting segments:

Grocery & Snacks: The segment’s quarterly sales were $757.2 million, 5.4% year over year.

Refrigerated & Frozen: Quarterly revenues declined 8.1% year over year to $604.6 million.

International: Sales of the segment were $194.7 million, down 5.7% year over year.

Foodservice: The segment’s quarterly revenues were $268 million, down 1% year over year.

Commercial: Revenues came in at $843 million in fiscal first quarter, down 2% year over year.

Other Financial Fundamentals

ConAgra’s cost of goods sold decreased 7.2% year over year to $1,943.4 million. Selling, general and administrative (SG&A) expenses plummeted 30.6% year over year to $281.5 million. Interest expenses plunged 26.5% to $59 million stemming from lower debt levels.

ConAgra exited the fiscal first quarter with cash and cash equivalents of $794.6 million, lower than $843.5 million recorded at the end of fiscal 2016. Senior long-term debt (excluding current portion) was $4,255.5 million, down from $4,721.9 million as of May 29, 2016.

In the fiscal first quarter, ConAgra generated net cash worth $325.9 million from operating activities, up from $93.1 million in first-quarter fiscal 2016. Capital spent on additions of property, plant and equipment totaled $117.4 million, up 15.6% year over year.

During the reported quarter, ConAgra paid dividends worth $109.5 million compared with $107.1 million paid a year ago.  

Outlook

ConAgra claimed that by the end of fiscal 2017, it would successfully spin off its Lamb Weston business. This would result in the formation of two separate pure play public companies – ConAgra Brands and Lamb Weston. The decision reflects the company’s focus on greater commercial flexibility and intention to boost near-term profits.

Lamb Weston and ConAgra Brands would be hosting investor events on Oct 13 and Oct 18, 2016, respectively.

Zacks Rank and Share Price

ConAgra currently carries a Zacks Rank #3 (Hold). ConAgra’s stock price was $43.18 per share, nearly up 0.12% on pre-market trading basis. Clearly, the initial reaction to the release has been positive. We view the company’s robust earnings performance in the fiscal first quarter as the primary reason responsible for this positive sentiment.

CONAGRA FOODS Price, Consensus and EPS Surprise

 

CONAGRA FOODS Price, Consensus and EPS Surprise | CONAGRA FOODS Quote

Share price of the company was $43.13 per share as of Sep 28, 2016.

Stocks to Consider

Some better-ranked stocks in the industry that warrant a look are listed below:

Omega Protein Corp. (OME - Free Report) and US Foods Holding Corp. (USFD - Free Report) sport a Zacks Rank #1 (Strong Buy).

While Omega Protein generated a positive average earnings surprise of 24.01% over the trailing four quarters, US Foods Holding Corp. reported a positive average earnings surprise of 5% in the trailing four quarters.

You can see the complete list of today’s Zacks #1 Rank stocks here

Ingredion Inc. (INGR - Free Report) currently carries a Zacks Rank #2 (Buy). The company has a positive average earnings surprise of 9.63% over the last four trailing quarters.

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