Premier North American food company ConAgra Foods, Inc. CAG reported mixed results for fourth-quarter fiscal 2015 (ended May 31, 2015). We believe the negative impact of the strengthening U.S. dollar and poor performance of the company’s Private Brands segment have partially offset the benefits reaped from improving Commercial Foods and Consumer Foods business as well as lower operating expenses.
Quarterly earnings came in at 59 cents per share, up 7.3% from 55 cents earned in the year-ago quarter. However, earnings were in line with the Zacks Consensus Estimate.
For fiscal 2015, the company reported a loss of 60 cents per share versus earnings of 72 cents accrued in fiscal 2014.
Revenues
ConAgra generated net revenue of $4104.7 million, up 3.7% year over year. However, the top line missed the Zacks Consensus Estimate of $4,140 million.
For fiscal 2015, revenues totaled $15,832.4 million versus $15,843.6 million generated in fiscal 2014.
On a segmental basis, Consumer Foods revenues increased 4.5% year over year to $1,859.7 million. The improvement came primarily on the back of favorable volume and price/mix. Moreover, increase in market price of some items traded under the segment added to its sales year over year.
Revenues from the Commercial Foods segment climbed 6.6% year over year to $1,225.8 million, driven by a rise in sales from the Lamb Weston potato business.
The Private Brands segment generated $1,019.2 million in revenues, down 1% year over year. The decline was due to lower production of certain items such as cereal, snacks, in-store bakery, pasta and condiments.
Other Financial Fundamentals
ConAgra’s cost of goods sold stood at $3,192 million, up roughly 2.4% from $3115.9 million recorded in the year-ago comparable period. Selling, general and administrative (SG&A) expenses were $541.7 million during the fourth quarter, down a remarkable 53% year over year. Interest expense dropped 4.8% year over year to $88.6 million owing to a fall in debt levels.
Exiting fourth-quarter fiscal 2015, ConAgra had cash and cash equivalents of $183.1 million. Senior long-term debt (excluding current portion) stood at $6693 million, down 21.5% from $8,524.6 million recorded in May 25, 2014.
ConAgra generated cash of $1,480.6 million from continuing operations for fiscal 2015, down 5.6% year over year. Capital spent on additions of property, plant and equipment totaled $471.9 million, down 20.3% year over year.
During fiscal 2015, ConAgra paid dividends worth $425.2 million.
Exit of Private Brands Segment
ConAgra announced the decision to cease operations of its Private Brands segment to ensure greater value for its shareholders in the long run. As per management, investments made in this segment are not paying back appropriately, as a result of which it is facing lower demand and high input cost issues.
Outlook
ConAgra aims to improve its revenues in the near term on the back of new investments. Also, the company continues to focus on lowering its selling and administrative expenses with the help of tactical cost-saving plans. Anticipating negligible impact from the closure of Private Brands’ operations, the company expects earnings in first-quarter fiscal 2016 to come in line with the year-ago value.
With increased portfolio segmentation, innovation, business acquisitions and marketing activities, ConAgra aims to improve its revenues and margins in fiscal 2016. The company also promises to enhance its shareholders’ wealth with novel capital-deployment programs.
Stocks to Consider
ConAgra currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Associated British Foods plc ASBFY, Cal-Maine Foods, Inc. CALM and Campbell Soup Co. CPB. All these stocks hold a Zacks Rank #2 (Buy).
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