ConAgra Foods, Inc. (CAG), PepsiCo, Inc. (PEP): Are These Companies Worth Their Salt?

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A recent report from the NPD Group concerning snacking habits of U.S. consumers stated that 53 percent of American consumers snack more than once daily. The NPD Group report also related that over 90 percent of U.S. households have traditional salty snacks in their kitchen cupboards.

It’s no wonder that major consumer brand companies are focusing on those “in between” eating times, and garnering significant profits from doing so. Two of the major players throwing in their salty chips…and/or popcorn… into the snack market pot are ConAgra Foods, Inc. (NYSE:CAG) and PepsiCo, Inc. (NYSE:PEP). In addition, a company focusing on creative salt solutions for the food and beverage industry is Tate & Lyle (NASDAQOTH:TATYY).

ConAgra Foods, Inc. (NYSE:CAG)ConAgra Foods, Inc. (NYSE:CAG) is the purveyor of Act II Popcorn, Orville Redenbacher’s Gourmet Popping Corn, and Jiffy Pop Popcorn, among many other well-known consumer brands. In December 2012 the company reported strong Second-Quarter EPS Growth. Fiscal 2013 Second-Quarter highlights compared to the prior-year period amounts included Diluted EPS from continuing operations of $0.51 as reported and $0.57 adjusted for items impacting comparability, up 19 percent as reported and up 16 percent on a comparable basis.

Their Consumer Foods’ operating profit increased 12 percent as reported and 8 percent on a comparable basis. This segment posted sales of $2,423 million and operating profit of $286 million for the second quarter, while sales increased 11 percent. This reflects an 11 percent contribution from acquisitions, a 4 percent favorable price/mix, and a 4 percent organic volume decline. Sequentially, organic volume improved by a small amount on an unrounded basis.

Brands posting sales growth for the quarter included their Act II and Orville Redenbacher’s popcorn brands. In January 2013, ConAgra Foods launched a new Orville Redenbacher’s product – “Pop Crunch.” This new product is a ready-to-eat popcorn “… with a very significant crunch,” according to Mr. Gary Rodkin, CEO.

What does this mean for investors? It means ConAgra is looking to build more momentum from a core brand in 2013. They’re innovating within an already established brand portfolio. The strength of this brand has the potential to grow revenues and profits for the company.

PepsiCo, Inc. (NYSE:PEP) is tossing in their chips with their Frito-Lay brands. Frito-Lay North America is the $13 billion convenient foods business unit of the company. In October 2012, PepsiCo reported third quarter 2012 results. They grew worldwide snacks net revenue on a reported basis, and grew worldwide snacks and worldwide beverage net revenue on an organic basis.

For Frito-Lay North America (FLNA) Organic Net Revenue increased 3 percent. A 1 percent increase in volume in tandem with 2 percent effective net pricing drove this increase.  The company reported that volume was negatively impacted in the quarter by a calendar shift related to the Labor Day holiday.

Reported Net Revenue grew 3 percent, and the Frito-Lay division had an Operating Profit growth of 1 percent in the quarter. This reflected higher commodity costs and a substantial increase in advertising and marketing investments (offset by effective net pricing and productivity initiatives).

What does this mean for investors? It means that PepsiCo’s Frito-Lay potato chips and other snacks are still contributing significantly to the overall revenues of the Company. Furthermore, investors should consider the productivity programs companies implement that increase efficiency and trim costs. PepsiCo has committed to a multi-year productivity program. They expected to deliver more than $1 billion in productivity savings in 2012, and expect $3 billion in savings by 2015.

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