With the markets experiencing volatility, investors who are looking for stability and long term gains can invest in the consumer food industry. One of my all-time favorites is ConAgra Foods, Inc. (NYSE:CAG), one of the largest U.S.-based food companies with famous product lines like Healthy Choice, Slim Jim, Peter Pan, and Swiss Miss. The company has faced a lot of criticism over the last few years because of pathetic growth compared to its peers. However, with the company’s release of an impressive fourth quarter earnings report, I feel this is the right time to invest in this stock. Below, I have listed three reasons that make ConAgra a good buy.
Impressive earnings report
The company reported a net income of $192.2 million, or $0.45 per share, as compared to the loss of $86.2 million, or $0.21 per share, reported for the same quarter last year. Consumer sales increased by 7%, with the Ralcorp Holdings, Inc. (NYSE:RAH) deal contributing around $962 million to the sales. The company generated revenue of $4.59 billion, an increase of around 33.81%, as compared to the $3.43 million revenue in the same quarter last fiscal year. The operating profit came in at $554.5 million (including the Ralcorp operating results), as compared to the operating profit of $407.5 million, in the fourth quarter last year.
Benefits from the Ralcorp deal
ConAgra Foods, Inc. (NYSE:CAG) struck a deal to buy the private label food producer, Ralcorp Holdings, Inc. (NYSE:RAH), in November 2012 for $5 million. Ralcorp products include pasta, cereals, snacks, sauces, and frozen bakery products. The companies value the transaction at about $6.8 billion, when debt is included. ConAgra plans to finance the acquisition mostly with available cash, existing credit facilities, and new borrowings. ConAgra CEO, Gary Rodkin, said that private-label products are growing at twice the rate of name brands and now accounts for 18% of the overall packaged food market. The private label food business is very fragmented and the diverse list of Ralcorp’s products provides ConAgra with tremendous business opportunities to grow. The company has raised its cost savings estimate to $300 million by 2017 from the previous estimate of $225 million. The Ralcorp acquisition has generated $1 billion in sales for ConAgra. Even though ConAgra had tried the acquisition many times before in the last fiscal year, the deal has been worth the wait.
ConAgra vs. peers
With a dividend yield of 2.8%, as compared to the industry average of 2.4%, ConAgra Foods, Inc. (NYSE:CAG) has been a shareholder-friendly company. The company has constantly increased its dividend payout since 2008. There have been other key players in the food industry like Nestle SA Reg Shs. Ser. B Spons (ADR) (OTCMKTS:NSRGY), Unilever N.V. (ADR) (NYSE:UN), and Kraft Foods Group Inc (NASDAQ:KRFT). The table below shows a comparison between ConAgra and its peers: