Free Annual Reports
A Healthy Choice (CAG)
In the 1970s, Avis Budget (CAR), invoked its popular anthem "We're number two, so we try harder" in a clever marketing campaign to overtake Hertz. ConAgra (CAG), the Omaha, Nebraska-based food processor and packager, pinched, if not the marketing slogan, then at least the slogan's spirit.
It's about time. In the past, ConAgra – whose brands include Egg Beaters, Slim Jim, Orville Redenbacher, Hunt's, Banquet, and Swiss Miss – had demonstrated a languid propensity to settle for place or show in the race for supermarket shelf space. In contrast, Kraft Foods (KFT), ConAgra's largest competitor, would settle for nothing less than win, which is why today many of its brands, its revenues, its market cap, and its net income trump ConAgra's.
So why consider a company composed of secondary and tertiary brands that compete in a slow-growth business sector? For one, size and cash flow. ConAgra sells nearly $12 billion of its products annually, and it throws off a good chunk of change, $1.6 billion, in doing so.
More important, ConAgra has greater potential than Kraft. Yes, everyone knows that Kraft has better brand recognition than ConAgra, just like everyone knows that Toyota (TM) builds better automobiles than Fiat (FIA). That said, Fiat's stock has provided a better return than its larger, more respected competitor over the past two years, for the simple reason that Fiat has more room to improve than Toyota, and is improving.
Like Fiat, ConAgra has more room to improve than its larger competitor. For years, management had been willing to let ConAgra's brands ossify. ConAgra's stock, not surprising, ossified as well, trading in $20 to $30 range.
But that's the past. Investing is about the future, and ConAgra has been taking steps to ensure the past doesn't repeat itself. To that end, the board of directors hired Gary Rodkin, a highly respected former PepsiCo (PEP) executive, who successfully led marketing and brand development for Pepsi-Cola, Gatorade, Quaker Oats, and Tropicana.
To be sure, ConAgra's brands are less robust than PepsiCo's, but the same concepts for brand-building apply, which is why one of Rodkin's first moves as new chief executive was to increase advertising on higher-margin brands.On that front, ConAgra will ante up an additional $75 million to promote Pam cooking spray, Hunt's tomatoes, Orville Redenbacher's popcorn, Slim Jim, and Healthy Choice. To help fund the new ad campaigns, ConAgra jettisoned low-margin Armour, Eckrich, and Butterball brands to Smithfield Foods (SFD) for $571 million in cash.
Management commitment and confidence are another factor in ConAgra's future success. And management is, if anything, committed and confident. Rodkin's employment contract requires that he own ConAgra shares equivalent to six times his $1 million annual salary. The requirement is met as part of as his compensation package. Nevertheless, Rodkin purchased an additional 150,000 shares on his own dime. His confidence and leadership, along with improved financial results, inspired ConAgra's board to approve a $500 million stock repurchase plan.
Investors are noting the change; ConAgra's stock is up 25% year to date. What's more, improved margins, competent management, greater earnings visibility (the company recently increased its 2007 earnings-per-share guidance by 5 cents to a range of $1.15 to $1.20.), and a 3% dividend yield should continue to make ConAgra a healthy investing choice into the relevant future.
It's about time. In the past, ConAgra – whose brands include Egg Beaters, Slim Jim, Orville Redenbacher, Hunt's, Banquet, and Swiss Miss – had demonstrated a languid propensity to settle for place or show in the race for supermarket shelf space. In contrast, Kraft Foods (KFT), ConAgra's largest competitor, would settle for nothing less than win, which is why today many of its brands, its revenues, its market cap, and its net income trump ConAgra's.
So why consider a company composed of secondary and tertiary brands that compete in a slow-growth business sector? For one, size and cash flow. ConAgra sells nearly $12 billion of its products annually, and it throws off a good chunk of change, $1.6 billion, in doing so.
More important, ConAgra has greater potential than Kraft. Yes, everyone knows that Kraft has better brand recognition than ConAgra, just like everyone knows that Toyota (TM) builds better automobiles than Fiat (FIA). That said, Fiat's stock has provided a better return than its larger, more respected competitor over the past two years, for the simple reason that Fiat has more room to improve than Toyota, and is improving.
But that's the past. Investing is about the future, and ConAgra has been taking steps to ensure the past doesn't repeat itself. To that end, the board of directors hired Gary Rodkin, a highly respected former PepsiCo (PEP) executive, who successfully led marketing and brand development for Pepsi-Cola, Gatorade, Quaker Oats, and Tropicana.
To be sure, ConAgra's brands are less robust than PepsiCo's, but the same concepts for brand-building apply, which is why one of Rodkin's first moves as new chief executive was to increase advertising on higher-margin brands.On that front, ConAgra will ante up an additional $75 million to promote Pam cooking spray, Hunt's tomatoes, Orville Redenbacher's popcorn, Slim Jim, and Healthy Choice. To help fund the new ad campaigns, ConAgra jettisoned low-margin Armour, Eckrich, and Butterball brands to Smithfield Foods (SFD) for $571 million in cash.
Management commitment and confidence are another factor in ConAgra's future success. And management is, if anything, committed and confident. Rodkin's employment contract requires that he own ConAgra shares equivalent to six times his $1 million annual salary. The requirement is met as part of as his compensation package. Nevertheless, Rodkin purchased an additional 150,000 shares on his own dime. His confidence and leadership, along with improved financial results, inspired ConAgra's board to approve a $500 million stock repurchase plan.
Investors are noting the change; ConAgra's stock is up 25% year to date. What's more, improved margins, competent management, greater earnings visibility (the company recently increased its 2007 earnings-per-share guidance by 5 cents to a range of $1.15 to $1.20.), and a 3% dividend yield should continue to make ConAgra a healthy investing choice into the relevant future.
by
Stephen Brown
Stephen P. Brown is a Chartered Financial Analyst, former equity analyst, investor, and freelance financial writer living in Brighton, Colorado. His work has been published in Barron's, CFA Magazine, Wealth Manager Magazine and The Denver Post.
Free Annual Reports
