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Why Is ConAgra Foods Selling Its JM Swank Business?

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Price movement of ConAgra Foods

ConAgra Foods (CAG) rose 0.95% to close at $46.95 per share at the end of the second week of June 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 0.95%, 2.4%, and 12.7%, respectively. This means that CAG is trading 3.0% above its 20-day moving average, 3.7% above its 50-day moving average, and 11.9% above its 200-day moving average.

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Related ETF and peers

The iShares Russell 3000 (IWV) invests 0.07% of its holdings in ConAgra Foods. IWV tracks a cap-weighted index that measures the investable US equities market, covering the entire market-cap spectrum, including micro-caps. The YTD price movement of IWV was 3.5% as of June 10, 2016.

The market caps of ConAgra Foods’ competitors are as follows:

  • General Mills (GIS): $38.8 billion
  • JM Smucker (SJM): $17.1 billion
  • TreeHouse Foods (THS): $5.5 billion

New plans for ConAgra Foods

ConAgra Foods has entered into a definitive agreement to sell its JM Swank business, a national food ingredient sourcing and distribution company, to Platinum Equity, a private equity firm.

As of June 2, 2016, the company discontinued the use of partially hydrogenated oils (or PHOs) in the manufacture of all the spreads in its portfolio. These include Fleischmann’s, Blue Bonnet, and Parkay. In 2015, the FDA (U.S. Food and Drug Administration) announced the removal of PHOs from food products in three years.

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Performance in fiscal 3Q16

ConAgra Foods reported fiscal 3Q16 net sales of ~$2.9 billion. That was a rise of 0.58% compared to net sales of ~$2.9 billion in fiscal 3Q15. Sales from its Consumer Foods segment fell by 2.4%. Sales from its Commercial Foods segment rose by 6.1% in fiscal 3Q16 compared to the same period the previous year.

The company’s cost of goods sold as a percentage of net sales and income from continuing operations fell by 2.7% and 16.4%, respectively, in fiscal 3Q16 compared to fiscal 3Q15.

The company’s net income and EPS (earnings per share) rose to $204.6 million and $0.46, respectively, in fiscal 3Q16. That compares to -$954.1 million and -$2.21, respectively, in fiscal 3Q15.

Receivables and inventories

ConAgra Foods’ receivables and inventories rose by 9.8% and 7.2%, respectively, in fiscal 3Q16 compared to fiscal 4Q15. It reported cash and cash equivalents of $502.6 million in fiscal 3Q16 compared to $164.7 million in fiscal 4Q15.

Its current ratio rose to 1.4x, and its DE (debt-to-equity) ratio fell to 2.5x in fiscal 3Q16. That compares to a current ratio and DE ratio of 1.1x and 2.8x, respectively, in fiscal 4Q15.

ConAgra has completed the divestiture of its private label business and has received more than $2.6 billion in proceeds. The proceeds will be used to reduce debt. The company’s projected EPS from continuing operations is $2.05–$2.07, adjusted for items impacting comparability.

Next, we’ll take a look at Whirlpool.

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