The Prudent Investor

How ConAgra Makes Its Money
April 17, 2007, 7:04 am
Filed under: Consumer Goods

The third largest company in consideration is ConAgra Foods.

The company is divided into four segments: consumer foods, which provids 57% of total sales, foods and ingredients (28%), trading and merchandising (10%), and international foods (5%).

The consumer foods segment consists of numerous popular major brands, such as Hunt’s, Healthy Choice, Chef Boyardee, Wesson, Orville Redenbacher, Slim Jim, Peter Pan, Gulden’s, Swiss Miss, and La Choy. Major frozen grocery brands include Healthy Choice, Banquet, Marie Callender’s, Kid Cuisine, Morton, Chun King, La Choy and Wolfgang Puck. Refrigerated products include Armour, Butterball, Brown ‘N Serve, Healthy Choice, Hebrew National, Parkay, Blue Bonnet, Fleischmann’s, and Reddi-wip.

The foods and ingredients segment includes meals, entrees, prepared potatoes, a variety of custom manufacturedproducts for sale to foodservice establishments, and branded and commodity food ingredients.

CAG’s trading and merchandising segment includes the sourcing, marketing and distribution of agriculturaland energy commodities. International foods includes branded food products.

This appears to be a company in transition, which means that a number of things are happening that are changing the face of the company. In the past several years they have adopted an acquisition and divestiture strategy in an attempt to move its focus toward its core branded food products, and away from its commodity-related businesses. Time will tell whether or not this direction will find itself beneficial at the bottom line. They have also implemented operational improvement initiatives to generate better sales growth, profit margins, and capital. While it is laudable to work on changing the direction of the company, it also makes an evaluation extremely difficult.

And speaking of difficulty, in February they estimated that they would be looking at a $50-60 Million charge for the recall of it Peter Pan peanut butter, which translates to 6-8 cent per share.

Another concern is that their largest customer, Wal-Mart, accounts for about 12% of their total sales. Wal-Mart is in the process of finding ways to grow their stagnated business, and putting pressure on suppliers is one way of doing this. CAG’s bottom line could be eroded if this happens.

ConAgra Foods is a company to which I would like to return at some point well into the future, but its future at this point is just too uncertain to me, so I will be removing it from consideration.


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