ConAgra: This Dividend Champion Will Rise Again

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Source: Thinkstock

Source: Thinkstock

ConAgra Foods Inc (NYSE:CAG) is a company that everyone knows. Chances are at least one of its products are in your pantry or refrigerator right now. And let me tell you, this company’s stock is a dividend champion. It currently yields 3.5 percent, and I expect its dividend to grow over time. For those who don’t know the company or the stock, you should get to know it. It operates as a food company primarily in North America. The company operates through four segments: Consumer Foods, Commercial Foods, Ralcorp Food Group, and Ralcorp Frozen Bakery Products. The Consumer Foods segment provides branded, private brand, and customized food products in various categories, such as meals, entrées, condiments, sides, snacks, and desserts, which are sold in various retail and foodservice channels. This segment’s principal brands include Alexia, ACT II, Banquet, Blue Bonnet, Chef Boyardee, Egg Beaters, Healthy Choice, Hebrew National, Hunt’s, Marie Callender’s, Odom’s Tennessee Pride, Orville Redenbacher’s, PAM, Peter Pan, Reddi-whip, Slim Jim, Snack Pack, Swiss Miss, Van Camp’s, and Wesson.

The Commercial Foods segment offers commercially branded foods and ingredients that are sold primarily to foodservice, food manufacturing, and industrial customers. It provides specialty potato products, milled grain ingredients, vegetable products, seasonings, blends, and flavors under the ConAgra Mills, Lamb Weston, and Spicetec Flavors & Seasonings brand names. The Ralcorp Food Group segment principally offers private brand food products that are sold in various retail and foodservice channels. Its products consist of cereal products, snacks, sauces and pasta. The Ralcorp Frozen Bakery Products segment primarily offers private brand frozen bakery products that are sold in various retail and foodservice channels. This segment’s primary products comprise frozen griddle products, including pancakes, waffles, french toast, frozen biscuits and other frozen pre-baked products, such as breads and rolls; and frozen and refrigerated dough products. The stock is trading at about $24.70, and I expect it to move higher over time given its recent performance and its commitment to maintaining a strong dividend.

Now on the surface of things, ConAgra’s most recent quarter appeared terribly weak. In fact diluted loss per share from continuing operations was ($0.76) due primarily to significant impairment charges, vs. diluted earnings per share of $0.45 a year ago. Comparable earnings per share of $0.55 declined 8 percent. The Consumer Foods segment sales and comparable operating profit declined due to weak volumes. The Commercial Foods segment sales and comparable operating profit were in line with year-ago amounts. In contrast, the Private Brands segment sales were in line with year-ago amounts, while comparable operating profit decreased significantly. Pricing concessions were needed because of operating challenges, as well as higher operating costs associated with business transitions. I mentioned impairment charges above. Well, due to expectations for continued profit challenges for Private Brands and certain Consumer Foods brands, the company recognized $681 million of non-cash impairment charges. That hurt results.

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