Conagra (CAG) Divests Wesson Oil Brand, Refines Portfolio

Conagra Brands, Inc. (NYSE:CAG) announced that it has completed the sale of Wesson oil brand to Richardson International. The move is aligned with the company’s commitment toward portfolio refinement. The divestiture involves the sale of all assets associated with Wesson brand along with the Memphis facility. Management has not disclosed the financial details of this deal. Let’s take a closer look at how such moves are likely to benefit the company.

Focus on Portfolio Refinement

Conagra focuses on boosting competency by reshaping the portfolio through significant inorganic moves. In sync with this, the company tries to acquire high-margin generating businesses and divest the less profitable ones. Apart from the divestiture, the company recently disclosed that it is exploring strategic alternatives to sell the Italian frozen pasta business — Gelit. Prior to this, the company exited private label brands and non-key businesses including Spicetec as well as JM Swank and executed Lamb Weston’s spin-off in 2016. Moreover, the company concluded the sale of the Canadian Del Monte processed fruit and vegetable business to Bonduelle Group during the first quarter of fiscal 2019.

Meanwhile, Conagra is carrying out buyouts to enhance business strength. On this front, the company completed the acquisition of Pinnacle Foods in October 2018. The consolidation of these food companies is likely to create a robust portfolio of leading, iconic and on-trend brands as well as exploit long-term benefits in the frozen foods space. Markedly, including the impacts from Pinnacle Foods’ acquisition, Conagra anticipates net sales to grow 22-23% in fiscal 2019. Previously, the company acquired Angie's Artisan Treats, LLC, which is strengthening the snacking business. Also, the buyout of Sandwich Bros is boosting the frozen business. In fact, contributions from the buyouts of Angie's BOOMCHICKAPOP and the Sandwich Bros. drove the company’s second-quarter fiscal 2019 sales growth by about 200 basis points.

Conagra Brands Inc. Price and Consensus

Will Efforts Revive the Stock?

Escalated input costs are a persistent threat to Conagra. During the second quarter, it witnessed input cost inflation of nearly 2.9%. Notably, the company saw a rise in transportation and warehousing expenses. Higher costs of packaging and certain ingredients also weighed on gross margin in the said period. Well, the company anticipates input cost inflation to be 3.0-3.2% in fiscal 2019, which is a threat to margins. Apart from this, sales in the Foodservice segment are witnessing year-over-year declines for four straight quarters due to soft volumes. Thanks to such headwinds, the company’s shares have plunged nearly 27% in the past three months. Well, rising input costs have also been plaguing the performance of other players from the Food-Miscellaneous space such as Campbell Soup (NYSE:CPB) , Lamb Weston (NYSE:LW) and General Mills (NYSE:GIS) .

Nevertheless, we believe that this Zacks Rank #3 (Hold) company’s portfolio refinement efforts combined with the unique value-over-volume strategy will help tide over the aforementioned hurdles.

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