Yahoo Finance How Did ConAgra Foods’ Segments Feed Its Fiscal 3Q16 Performance?
How ConAgra Foods Continued to Drive Profitability in Fiscal 3Q16
How much did ConAgra Foods’ segments contribute?
As mentioned in the previous article in this series, ConAgra Foods (CAG) earns its revenue through its two segments: the Consumer Foods and Commercial Foods segments. The Consumer Foods segment accounts for 60%–65% of ConAgra Foods’ revenue every quarter.
Consumer Foods segment
In fiscal 3Q16, the Consumer Foods segment contributed 63% to ConAgra Foods’ total revenue. The net revenue for the segment, however, fell 2% to $1.85 billion compared to $1.9 billion in the corresponding quarter in fiscal 2015. Factors that affected sales for the quarter were a 4% volume decrease and a 1% negative impact from currency translation. These factors were partially offset by a 3% favorable price/mix. The brands in this segment that lent a hand to the revenue growth were Marie Callender’s, Hunt’s, Slim Jim, Reddi-wip, Ro*Tel, PAM, and others.
Operating profit for the segment increased 17%, and the operating margin expanded by over 300 basis points. Good productivity, benefits of price/mix, supply chain efficiencies, and overall lower commodity input costs contributed to the margin expansion. As part of ConAgra Foods’ strategy to increase support behind high-potential brand equities, it spent $10 million in advertising.
Commercial Foods segment
The Commercial Foods’ segment saw sales rise 6% to $1.1 billion in fiscal 3Q16 compared to sales in fiscal 3Q15. Higher global volumes were contributed by Lamb Weston’s potato operations, which grew across North America as well as in international markets.
The operating profit also rose by 21%, mainly reflecting increased global volumes in the Lamb Weston business both domestically and internationally. The operating profit also benefited from margin expansion and resolution of the West Coast port labor dispute in fiscal 3Q15.
Peers’ performances
ConAgra Foods’ main competitors in the industry include WhiteWave Foods (WWAV), General Mills (GIS), and McCormick & Company (MKC). They reported operating margins of 8.9%, 14.6%, and 12.5%, respectively, in their last quarters. The Guggenheim S&P Equal Weight Consumer Staples ETF (RHS) and the PowerShares S&P 500 Quality Portfolio (SPHQ) invest 2.5% and 1.3% of their holdings, respectively, in MKC.
In the next part of this series, we’ll see how ConAgra Foods’ fiscal 3Q16 earnings compared to estimates.
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