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Shares of ConAgra up on solid FQ3 results

ConAgra Foods, one of the US largest packaged food companies, issued solid financials for its fiscal 2016 third quarter ended Feb 28. Revenues increased 0.6% y-o-y to $2.92 bn and surpassed consensus estimate of $2.87 bn. On a segmental basis, Consumer Foods revenues dipped 2.4% to $1.85 bn primarily due to the unfavorable impact of foreign currency translation and weaker segmental volumes. At the same time, revenues from the Commercial Foods segment jumped 6.1% to $1.07 bn driven by higher sales at the Lamb Weston potato business. Operating income grew 13.6% to $466.3 mn supported by cost-reduction measures and improving price/mix, and operating margin expanded 180 basis points to 15.9%. Adjusted earnings per shares rose 15.3% to 68 cents and were in line with analysts’ average projection. The company anticipates full fiscal year 2016 adjusted earnings within the range of $2.05-2.07 per share.

In FQ3, ConAgra generated net cash worth $695.1 mn from operating activities, while capital spent on additions of property, plant and equipment totaled $279.7 mn. A quarterly dividend was 25 cents per share, which offers a healthy annualized dividend yield of 2.2%.

In February, ConAgra concluded the sale of its loss-making private label segment to TreeHouse Foods. The company claimed to have generated in excess of $2.6 bn in free cash through the deal, and these proceeds, in turn, have been deployed to lower its debt burden by $2.15 bn and would finance its future capital allocation programs.

Shares of ConAgra are trading above the $45 support level and, in my opinion, are well positioned to reach the $50 mark in near term.