Will Divestiture Help ConAgra Foods Drive Its Growth?



Upcoming fiscal 4Q16 results

ConAgra Foods (CAG) will report its fiscal 4Q16 and fiscal 2016 earnings before markets open on June 30, 2016. Before we dive into the expectations for its 4Q16 results, we’ll discuss the recent divestiture and expansion news from the company.

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Recent divestiture announced

In the second week of June, ConAgra announced its agreement with Platinum Equity to acquire ConAgra Foods’ JM Swank business. Platinum Equity is a California-based private equity firm. The terms of the deal weren’t disclosed. ConAgra’s JM Swank business was a national food ingredient sourcing and distribution company. It was part of the Commercial Foods segment. This divestiture was part of the company’s initiative to drive growth by continuing to invest in its product portfolio. Management expects the deal to generate greater shareholder value by making ConAgra Foods a more focused and higher performing company.

Consistent with this goal, ConAgra Foods also announced the sale of its Spicetec Flavors & Seasonings business to Givaudan for ~$340 million last month. Spicetec Flavors was also part of the Commercial Foods segment. The agreement includes the transition of facilities in Cranbury, New Jersey, and Carol Stream, Illinois, along with existing employees. It’s expected to close in ~60–90 days.

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Lamb Weston to continue global growth

In the earnings call for the last quarter, the company confirmed its progress in completing the separation of ConAgra into two public companies in the fall of 2016. The consumer brands business will operate under ConAgra Brands. The frozen potato business will operate under Lamb Weston. Lamb Weston was also part of the Commercial Foods segment. The motive behind the spin-off is to enable both brands to function as vibrant, pure-play companies with improved strategic focus and flexibility.

Consistent with this motive, on June 8, ConAgra’s Lamb Weston business announced the expansion at its facility in Richland, Washington. It will include the addition of a new French fry processing line with more than a $200 million investment. This expansion is expected to let Lamb Weston enhance its global growth with the increase in worldwide demand for French fries. The processing line is scheduled for completion by the fall of 2017. It will contribute more than 300 million pounds to its annual processing capacity. ConAgra is part of the PowerShares Dynamic Food and Beverage ETF (PBJ).

What’s in this series?

In this series, we’ll discuss how the stock has benefited in 2016. We’ll also see what Wall Street analysts are estimating for ConAgra’s revenues and earnings for fiscal 4Q16. We’ll look at how the company performed in its last quarter and how it plans to use the sale proceeds. Finally, we’ll wrap up by comparing ConAgra with its peers in the packaging food industry like Campbell Soup (CPB), McCormick & Company (MKC), and Kraft Heinz (KHC) in terms of valuations and moving averages.

Let’s start with stock price performance.


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