CONAGRA FOODS INC. $25 (New York symbol CAG; Income Portfolio, Consumer sector; Shares outstanding: 414.5 million; Market cap: $10.4 billion; Price-to-sales ratio: 0.8; Dividend yield: 3.8%; TSINetwork Rating: Average; www.conagrafoods.com) makes a wide variety of packaged foods, including Chef Boyardee canned pasta, Hunt’s tomato sauce, Peter Pan peanut butter and Orville Redenbacher popcorn.
The company gets 65% of its sales from consumers. Businesses, such as restaurants, account for the remaining 35%.
The company’s sales fell 3.5%, from $12.0 billion in 2007 to $11.6 billion in 2008. That’s because ConAgra sold its commodity trading operations. Sales rebounded to $12.7 billion in 2009, but fell 5.1%, to $12.1 billion, in 2010. Sales rose to $12.3 billion in 2011, thanks to acquisitions and price increases.
Earnings fell from $1.35 a share (or a total of $683.8 million) in 2007 to $1.06 a share (or $518.7 million) in 2008. Earnings improved to $1.75 a share (or $761.0 million) in 2011.
Unlike Heinz, ConAgra prefers to focus on the U.S., which accounts for 90% of its sales. Recently, it tried to buy rival food company Ralcorp Holdings Inc. (New York symbol RAH) for $7.7 billion. Buying Ralcorp would have made ConAgra the third-largest packaged food maker in the U.S. However, ConAgra dropped its bid after Ralcorp moved ahead with its plan to spin off its cereals business.
Lower costs will support dividend
Meanwhile, ConAgra continues to cut costs, mainly by closing older plants, streamlining its distribution network and selling slow-growing, low-margin businesses. These savings will let it keep raising its annual dividend. The current rate of $0.96 yields 3.8%.
ConAgra’s long-term debt of $2.9 billion is a manageable 28% of its market cap. It holds cash of $1.1 billion, or $2.64 a share.
The company will probably earn $1.79 a share in fiscal 2012. The stock trades at 14.0 times that estimate.
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