KFT Mondelez International, Inc. (MM)

We currently maintain our Neutral recommendation on ConAgra Foods Inc. (CAG), a leading processed and packaged food company with brands in over 97% of North American households.

We believe things are working in ConAgra Foods’ favor as the company posted solid earnings surprise in the last four trailing quarters—average surprise being 11%. The recently concluded fiscal first quarter 2013 impressed all as adjusted earnings per share from continuing operations of 44 cents exceeded the year-ago earnings of 31 cents and surpassed the Zacks Consensus Estimate by 25.7%.      

Net sales grew 6.7% year over year to $3,312 million, based on improved pricing, moderating inflation and contribution from acquired businesses. Operating margins also improved in the quarter.

Remarkable fiscal first quarter 2013 results and expectations of higher earnings growth through contributions from acquired businesses, continued growth in Lamb Weston potato operations, and margin management made the company raise its fiscal 2013 guidance. Earnings per share growth are now expected to be within 10%-12% in fiscal 2013, as against 6%-8% expected earlier.

Also, quarterly dividend rate increase and expansion plans in Russellville, Arkansas have made the company an attractive stock to look out for. However, the image gets a bit blurry with the rising competitiveness in the food industry, especially from the private label suppliers and producers. This is anticipated to lay an impact on the company’s market share and sales.

Adding to the peril is the rising cost of various raw materials, such as wheat, corn, oats, soybeans, beef, pork and poultry used by the company. The prices of these raw materials are at an all time high and are predicted to induce a negative impact on profits for the company.

Considering all these, we prefer to remain on the sidelines for ConAgra Foods. The stock bears a Zacks #2 (Buy) Rank while its prime competitors HJ HEINZ CO. (HNZ) and Kraft Foods Inc. (KFT) carry a Zacks #3 (Hold) Rank.

 
CONAGRA FOODS (CAG): Free Stock Analysis Report
 
HEINZ (HJ) CO (HNZ): Free Stock Analysis Report
 
KRAFT FOODS INC (KFT): Free Stock Analysis Report
 
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