ConAgra Growth Initiatives Impress, Stiff Competition A Drag

On Jul 5, 2016, we issued an updated research report on premium consumer goods firm ConAgra Foods, Inc. (NYSE:CAG) . The company is one of the leading food companies in North America and caters to grocery retailers, restaurants and other foodservice establishments. It also boasts a brand presence across 97% of American households. However, tough competition and headwinds market volatility remain concerns.

Growth Drivers

ConAgra strives to maintain its leading position in the market and makes lucrative investments in its product portfolio to this end. In sync with this strategy, the company is divesting its loss incurring segments to garner greater cash proceeds to fund new investments. The company has decided to split its more profitable Commercial Foods segment and less profitable Consumer Foods segment into two separate public companies – ConAgra Brands and Lamb Weston – by the end of 2016. The decision reflects the company’s focus on greater commercial flexibility and intention to improve business in the near term. Concurrently, ConAgra has started to reinforce its Lamb Weston business to capture the increasing demand for frozen potato products and in turn boost top line going forward. Also, the company is strategically expanding its business inorganically and implementing productive marketing programs to support its revenue and margin growth rates over time.

Headwinds

ConAgra conducts its business in a highly competitive industry. Some of the biggest rivals of the company include Post Holdings, Inc. (NYSE:POST) , The J. M. Smucker Company (NYSE:SJM) and United Natural Foods, Inc. (NASDAQ:UNFI) . Intense competition increases the bargaining power of consumers and exposes the company to risks of market share loss. Moreover, buyers take their purchasing decisions based on the performance, taste and price of products. In order to increase or retain market demand for its products, ConAgra needs to satisfy end-users by maintaining greater corporate transparency or ensuring health & wellness aspects of products. Moreover, ConAgra makes huge investments in new growth projects or research & development to maintain its market share. However, such costs add to its existing debt burden.

Also, the company intends to boost its revenues and margins via increased business internationalization. However, international operations expose the company to several economic, political and environmental headwinds.