ConAgra’s Investors Are Impressed With It’s Gameplan


ConAgra’s Investors Are Impressed With It’s Gameplan

Published on 19/10/2016 – – Follow us on Twitter: @SMDailyCo and Facebook: @StockMarketDaily

Shares of ConAgra Foods (NYSE: CAG) hit a new 52-week high of $48.81 on Tuesday as the packaged food company hosted an investor and analyst presentation.

ConAgra made the investment case loud and clear that while it is a strong leader in the packaged goods segment, there is plenty of room for change.

The company’s four pronged approach best exemplified management’s game plan moving forward:

  1. Instead of focusing on volume and sales, focus on value creation.
  2. Instead of pushing the brands towards consumers, make the consumer seek out the products.
  3. Create a new culture of disciplined innovation.
  4. Create a consistent advertising and promotional campaign.

Another area that ConAgra has identified for fixing is its reliance on promotional activity.  For example, the company’s operating margins of 11.6 percent lagged the industry average of 16.0 percent.

The company is off to a strong start in its game-plan to improve areas where it has found weakness.  For instance, a $300 million efficiency plan remains on track, margin expansion initiatives are showing signs of progress and a stronger focus on innovation.

ConAgra also plans to reduce approximately 1,500 jobs in fiscal 2016 after slashing 450 jobs in fiscal 2016.  This will create fewer layers of bureaucracy and create a leaner organization with a focus on speed and empowerment.

Taking a look at ConAgra’s peers indicates management’s initiatives has some merits.  For example, its adjusted gross margin for fiscal 2016 is expected to be 29 percent and only two peers are expected to record a lower margin rate.  On the other hand, five different peers are expected to report adjusted gross margins between 35 percent and 39 percent.

To achieve the necessary growth, the company will look towards mergers and acquisitions but will take two different approaches.

Acquisitions to modernize the business will tend to be smaller in size, consistent with emerging trends and platform the platform for expansion.

Synergistic acquisitions will be larger in size, enhance the company’s network and capabilities and offer large economic benefits.

ConAgra will also explore divesting brands that offer a limited coherence with its overall strategy, margin dilutive, or if an outside buyer offers to acquire a segment for a price that is above management’s internal valuation.

Finally, the company’s game-plan through fiscal 2017 is to reset top-line expectations and expand margins.  In fiscal 2018 management will focus on improving top-line growth while still focusing on expanding margins.  The next two years will focus on accelerating growth with a non-stop focus on expanding margins even further.