ConAgra's Lamb Weston/Meijer Business To Form JV In Russia

ConAgra Foods, Inc.’s (NYSE:CAG) partnership business, Lamb Weston/Meijer recently inked a deal with Belaya Dacha to serve the Russian market. The agreement is pending approval from FAS (Federal Anti-monopoly Service). No financial details of the deal have been disclosed yet

Lamb Weston/Meijer is a partnership business between the Netherlands’ Meijer Frozen Food and ConAgra. The partnership offers high quality potato products in several niche markets of Europe, the Middle East, Africa (EMEA) and Brazil.

Per the newly signed deal, Lamb Weston/Meijer and Belaya Dacha (Russian real estate company) would form a joint venture (JV) and allocate more than EUR100 million to set up a new French fry plant in Lipetsk, a special economic zone in south Moscow. Notably, this would be the first French fry plant in Russia. The construction work of the project would commence from mid-2016 and it would become operational in early 2018.

Moving Forward

ConAgra’s Lamb Weston business is a premium manufacturer of high quality sweet potato, frozen potato, vegetable products and appetizers. In Jun 8, 2016, ConAgra invested $200 million in its Richmond-based Lamb Weston facility to add a new French fry line. The project is expected to enhance the facilities’ productivity by more than 300 million pounds.

The new French fry plant to be constructed in Lipetsk would have a production capacity of roughly 90,000 tons per year and would largely help to fulfill the growing market demand for frozen potato products in Russia.

According to media reports, the demand for frozen potato category is likely to grow to roughly 2.6 billion by 2020. Hence, higher demand for frozen potato products is expected to drive the upside in ConAgra’s Lamb Weston business over time.

Insights

At the last quarter earnings call, ConAgra announced its decision 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 the fiscal year. The move reflects the company’s commitment toward enhancing profitability and attaining flexibility. Since the declaration, the company’s shared gained roughly 2.5% to $46.96 as of Jun 27.

Also, the announcement of JW Swank business spin-off and Lamb Weston business expansion at Richland facility on Jun 8 drove the stock higher by roughly 0.5%. In addition, the proposed $6 billion Post Holdings, Inc. merger with ConAgra’s Lamb Weston business through a Reverse Morris Trust structure is expected to result in further stock price movement. The company would report its fiscal 2016 results after the opening bell on Jun 30, 2016. Hence, it remains to be seen how such strategic initiatives benefit the stock in the near term!

Other Stocks to Consider

ConAgra presently holds a Zacks Rank #2 (Buy). Other well-ranked stocks in the industry include B&G Foods Inc. (NYSE:BGS) , Omega Protein Corporation (NYSE:OME) and Post Holdings, Inc. (NYSE:POST) . All the three companies currently sport a Zacks Rank #1 (Strong Buy).