ConAgra Foods Inc. (CAG, Financial) recently revealed better-than-expected results for the third quarter of fiscal 2015. However, although the company’s adjusted earnings of $0.59 per share for the quarter beat the consensus estimate of $0.53 a share, the figure represents a 5% decline in adjusted earnings compared to $0.62 in the year-ago quarter. On a non-GAAP basis, the company swung to a net loss of $954.1 million, or $2.23 a share for the quarter, from a profit of $234.3 million, or 52 cents a share, in the year-earlier period. Following the results, ConAgra shares was up around 2.8% at $35.72 at closing bell.
Revenues slump across segments
ConAgra reported net revenue of $3.87 billion, in line with the consensus estimate but down 1.8% from the year-ago quarter’s $3.88 billion. The dip was attributed to a sales decline of 2% at its consumer foods division and a strong dollar, although an improving commercial foods division and lower operating expenditure helped offset losses. While ConAgra saw operating expenses rise 1% year over year to $3.05 million, SG&A expenses, as a percentage of revenue, grew by a significant 3090 basis points to 44.5%. Concurrently, interest expenses declined 15.5% to $80.3 million compared to the year-ago figures, due to a drop in debt levels.
Segmentwise, ConAgra saw flat year-over-year sales at its Consumer Foods division, with revenues dipping 1.9% to $1.83 billion for the quarter owing to negative foreign currency headwind as well as a drop in price/mix. Profits from its Private Brands division also dropped 4.7% year-over-year to $1.01 billion owing to lower production of certain items such as pasta, in-store bakery, condiments, snacks and cereal. However, the company managed to log year-over-year growth of 1.4% to $1.02 billion at its Commercial Foods division, driven by increased sales at its Lamb Weston potato operations.
ConAgra, which competes with businesses such as Kraft Foods Group Inc. (KRFT, Financial) and Nestle (NSRGY, Financial) in the Processed & Packaged Goods industry, has paid dividends worth $318.2 million during the first three quarters of fiscal 2015.
Outlook for fiscal 2015
For fiscal 2015, ConAgra projected adjusted EPS in the $2.15-$2.19 a share range, above the consensus estimate of $2.14 a share. The company, which has repaid more than $600 million of debts thus far in the fiscal, also reiterated plans to reduce debts by around $1 billion in FY2015. However, ConAgra lowered its guidance for operating cash flow for the fiscal from the earlier $1.6 billion to $1.55 billion, reflecting higher inventory levels owing to some crop-based inputs and higher costs of raw material.
Final thoughts
Although ConAgra’s earnings for the third quarter beat consensus estimates, the company saw a 5% year-over-year decline in earnings. Revenues for the quarter were also down compared to the year-ago levels, with sales declining in all but the commercial foods division. However, the company foresees its Private Brands segment getting back on the positive track in early 2016. Further, investors are upbeat with the company’s higher-than-expected projected earnings for fiscal 2015. Experts foresee the company’s earnings grow at an average annual rate of around 7% over the next five years, although earnings for the current fiscal are expected to decline compared to the previous year’s levels. The ConAgra stock has lost 3.7% year to date and currently carries a "hold" guidance.
