ConAgra Foods Inc, the maker of Slim Jim beef jerky and Chef Boyardee pasta, said it would exit its struggling private label foods business after the unit failed to post an increase in sales for the fifth straight quarter.
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The deal was a bet that Ralcorp’s faster-growing private- label business, which sells supermarket brands, would be a good fit for the company.
ConAgra posted earnings of 48 cents a share, compared with last year’s losses of 77 cents a share.
Earlier this month, activist hedge fund Jana Partners took a 7.2 percent stake in ConAgra, becoming its second-largest shareholder, and said it was prepared to nominate directors to the company’s board to help address “persistent underperformance” since the $5 billion Ralcorp acquisition.
Assuming ConAgra receives cash proceeds of $3.7B from a sale of Private Brands at a 10x EBITDA multiple and uses all of it to buy back stock, our analysis indicates that the net impact (including the lost income from Private Brands) would be accretive by +23c/sh, or +10% to ConAgra’s EPS.
Shares of ConAgra have gained 1.4% to $44.02 at 1:12 p.m. today, while TreeHouse has jumped 8.7% to $80.55.
The business is ConAgra’s smallest, accounting for a quarter of revenue in the year ended May.
Company shares have received an average consensus rating of Hold for the current week Shares of ConAgra Foods, Inc.
But at that time, he said he needed a few months to learn more about ConAgra before he could outline a strategy for investors-one they are hoping to hear more about this week. Earnings adjusted for one-time gains and costs, were 59 cents per share, in line with analyst forecasts. Rodkin insisted a fix was in the works.
The disappointing performance of Ralcorp might have attracted Jana, which has a reputation for pouncing when it sees weakness in otherwise solid businesses.
The maker of ACT II popcorn noted that it will offer details on full-year fiscal 2016 expected earnings per share, as well as long-term financial guidance, at an investor event likely to be scheduled for the fall of 2015.
During a conference call, Connolly pointed to the potential for improving results for ConAgra’s name-brand products, such as its Banquet and Healthy Choice frozen meals.
“How exciting is the pot pie category?”
ConAgra, based in Omaha, has struggled with slumping sales and profit since the 2013 acquisition of Ralcorp.
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Consumer foods sales for the quarter increased 4.5 percent to $1.86 billion, and commercial foods sales grew 6.6 percent to $1.23 billion from past year. Analysts at JPMorgan Chase & Co. upgraded shares of ConAgra Foods from a “neutral” rating to an “overweight” rating and raised their price target for the stock from $39.00 to $52.00 in a research note on Monday, June 22nd.
