ConAgra Foods (NYSE:CAG) reported its third-quarter earnings which were highlighted by a slight profit increase. Revenues for the food conglomerate remained essentially flat. The market's take on the report was lukewarm, ranging from negative on guidance to mild cheers for the earnings.
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A Mixed Report
Sales of $3.1 billion for the quarter were down 1%, while earnings rose 19%. Net income was $229.6 million, or 51 cents a share, compared to $193.2 million, or 43 cents, last year's same quarter. Excluding one-time gains, the EPS was 44 cents.
ConAgra's low-priced meals such as Banquet and Chef Boyardee and its Hunt's brand helped drive its consumer foods division, which accounts for two-thirds of its business. This segment saw a 2% increase. Currency exchange as well as discounting also contributed to increased sales in the consumer division. The commercial foods segment pulled down overall sales with its 6% decline. Operating cash flows for the year have swelled to $1.1 billion thus far, more than double the figure from last year. ConAgra continues to cut costs.
Other Food Producers
McCormick & Co. (NYSE:MKC), the spice maker, also came out with earnings. Its first quarter saw profits jump 15% with revenue increasing by 6%. Increased marketing helped appeal to cost-conscious consumers. Food giant Kraft (NYSE:KFT), whose stock had been trading at a premium to ConAgra's, is assimilating its Cadbury acquisition.
ConAgra shares have inched up over the last year. With the flat revenue and the lack of a dynamite outlook, the market's initial reaction to the ConAgra quarter is understandable. Similarly, Campbell Soup Co. (NYSE:CPB) is expected to grow sales by 2% this year, but may see profits rise by as much as 10%, given its cost-cutting efficiencies. H.J. Heinz Co. (NYSE:HNZ), another of the seemingly mundane food producers, shows that there may be more to the story here for these stocks, as it is rapidly growing its overseas earnings, including a 41% jump in Asia.
A Different Read on the ConAgra Report
Sometimes Wall Street over-thinks, over-analyzes and overreacts. With ConAgra's earnings, this may be one time. Or it may simply be the sensitive nature of the market dominated by short-term trades. Whatever the reason, ConAgra and the food stocks are like huge mastodons that move slowly across the landscape, so it's easy to sometimes overreact to what turn out to be insignificant developments long term.
One such example is the negative reaction some had to the recent General Mills (NYSE:GIS) earnings report. General Mills had a terrific report, yet some on the street focused on the penny less of guidance in its outlook, obscuring both the good news of the report and the power of that company long term.
As for ConAgra, it's still moving in mixed territory, with its consumer segment doing well and favorable currency exchange helping its sales and earnings. Cost cutting is in place, offsetting the poor performance in the commercial food division. This is the way Kraft, Campbell, Heinz and the other food makers are performing, so ConAgra is in line with its industry-wide trends.
The Bottom Line
The stock trades at a P/E of 14, still pays a dividend yielding 3.25%, so, like its competitors in the food industry, it's a healthy, stable, slow growing dividend stock. Its earnings report should be read in that light by long-term investors. (To learn more, check out Profiting In A Post-Recession Economy.)
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