CONAGRA FOODS INC. $23 (New York symbol CAG; Income Portfolio, Consumer sector; Shares outstanding: 443.4 million; Market cap: $10.2 billion; Price-to-sales ratio: 0.8; Dividend yield: 3.5%; WSSF Rating: Above Average) 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 64% of its revenue by selling its products to consumers, so the company benefits as more people eat at home because of the slow economy. That has helped offset slower sales to businesses, such as restaurants, which account for the remaining 36% of its revenue.
ConAgra continues to benefit from its plan to lower its annual costs by $250 million. These measures mainly include selling slow-growing, low-margin brands. Falling ingredient prices are also helping increase earnings.
In ConAgra’s second quarter, which ended November 29, 2009, sales fell 2.4%, to $3.17 billion from $3.25 billion a year earlier.
The drop was largely due to an 11.4% sales drop at the commercial-foods division. As well, an explosion last June cut production of Slim Jim snacks. Despite the lower Slim Jim volumes, the consumer division’s sales rose 3.0%.
Earnings rose 41.3%, to $243 million from $172 million. Earnings per share rose 44.7%, to $0.55 from $0.38, on fewer shares outstanding. Without unusual items (mainly commodity hedging gains and losses), earnings per share would have risen 20.9%, to $0.52 from $0.43.
ConAgra should earn $1.73 a share in fiscal 2010. The stock trades at 13.3 times that estimate.
ConAgra is a buy.
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