ConAgra Foods Inc. (CAG), North America's leading packaged food company, is slated to release its second quarter of fiscal 2011 results on December 21. Based on the first quarter results, ConAgra narrowed its fiscal 2011 earnings per share (EPS) growth expectation from the range of 8%-10% over the fiscal 2010 EPS of $1.74 to just 5%-7%.
First Quarter Summary
ConAgra reported results for the first quarter of fiscal 2011 slightly below expectations on account of increases in costs and expenses as well as a high domestic inflation rate. EPS (excluding a one-time expense) was 34 cents, down from 38 cents in the year-ago quarter, and net income was $151.6 million, down 10.5% from $169.3 million in the first quarter of fiscal 2010. Reported EPS was far below the Zacks Consensus Estimate of 39 cents.
Net revenue slipped 2.4% to $2,817.6 million from $2,886.3 million in the corresponding quarter of fiscal 2010 and also below the Zacks Consensus Estimate of $2,975 million. The decrease in total revenues was due to a 3.2% decrease in revenues from the Commercial Foods segment and a 1.9% decrease in the Consumer Food segment.
For details please click on the link: ConAgra Underperforms
Agreement of Analysis
The slower market recovery and increase in costs in the first quarter have pushed the analysts to reduce their estimates. Commodities form the primary cost for ConAgra as it uses various raw materials such as wheat, corn, oats, soybeans, beef, pork and poultry. Commodities are subject to price volatility caused by market fluctuations, supply and demand, currency fluctuations and changes in governmental agricultural programs. Thus, commodity price increases will result in increases in raw material costs and operating costs.
The decrease in the EPS growth expectations in fiscal 2011 was also a reason for the lower estimate. Hence, for the second quarter of fiscal 2011, 8 out of 9 analysts have lowered their estimates and for fiscal 2011, all the 10 analysts following the stock have moved their estimates with none moving in the opposite direction. For fiscal 2012, 6 out of 10 analysts have reduced their estimates, while none of them raising it. Thus, the overall trend was negative.
Magnitude
For the second quarter of fiscal 2011, estimates moved down by 5 cents to 45 cents per share and fiscal 2011 estimate declined to $1.76 from $1.84. For fiscal 2012, estimate reduced by only 3 cents to $1.95 per share.
With respect to earnings surprises, AAR Corp. had a mixed track record in the preceding four quarters. Two out of the last four quarters recorded a negative while the other recorded positive surprises. The average earnings surprise was a negative of 1.56% over the last four quarters, which signifies that the company has fallen short of the Zacks Consensus Estimate by that measure.
Our Recommendation
Despite poor first quarter results, we reiterate our Neutral recommendation on the stock based on the company's various strategic moves, which significantly enhances its portfolio. In the first quarter, ConAgra acquired American Pie for approximately $130 million and divested Gilroy Foods & Flavors dehydrated vegetable operations to Olam International for $250 million. The company's expectation to save $275 million in fiscal 2011 through cost-reduction initiatives also inspires our optimism.
However, the highly-competitive food industry and extremely volatile commodity prices are matters of prime concern. Thus, the stock currently retains its short-term "Sell" rating, equivalent to a Zacks #4 Rank.
No comments:
Post a Comment