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Today we’re removing LONG ConAgra (CAG) from our Best Ideas List, with the stock working against us for a single digit loss since we added it on 2/11/13.

Here’s our updated thinking:

  • We continue to like the synergies with the Ralcorp acquisition but believe the company may have a couple more quarters of growing pains through the re-org
  •  Last quarter’s results (Q1 2014) disappointed (EPS down 16% to $0.37) – we’ll look to next quarter to better gauge a turn-around
  • The loss of the Lamb Weston potato business in the Commercial Food segment was a significant hit to the quarter, and should weigh on Q2 results, as Consumer Foods was hit by competitor promotional activity, weakness in frozen, and the timing of slotting and promotion activity around the launch of new products
  • We like the price point and portfolio advantage of Ralcorp’s cereals, especially for a mid to lower end income earner still impacted by the macro environment; however we expect cereal consumption trends to weaken alongside increased yogurt consumption and more QSR breakfast options
  • As we look ahead, the company reaffirmed its FY EPS guidance of $2.34-2.38, has begun additional SG&A cost management initiatives, has revised merchandizing to push volumes, and the Lamb Weston loss looks to mitigate into its fiscal full year
  • We’ll revisit the name in the coming quarters, and cut the loss today

Matthew Hedrick

Senior Analyst