Conagra to Sell Wesson Oil: Portfolio Refinement on Track
Conagra Brands, Inc. CAG is committed toward refining its portfolio, which is evident from the latest deal inked to sell its Wesson oil brand to Richardson International. The divestiture includes all assets associated with Wesson brand, which includes the facility in Memphis, Tenn. The sale of Wesson oil brand, which includes products like vegetable, canola, corn and blended oils, is expected to get finalized by first-quarter 2019 end.
Well, Conagra has long been focused on boosting its competency by reshaping the portfolio through meaningful inorganic moves. In sync with this, the company tries to acquire high-margin generating businesses, while divesting the less profitable ones. Conagra’s latest development on this front includes the acquisition of Pinnacle Foods. Notably, the combined giant is likely to be the second largest player in the frozen foods space.
Conagra is most likely to gain from the addition of Pinnacle Foods, which boasts annual net sales of more than $3 billion. The consolidation of these food companies is likely to create a robust portfolio of leading, iconic and on-trend brands, which will help the combined entity speed up innovation and exploit the long-term benefits in the frozen foods space. The companies’ complementary portfolios, cultures and supply chain are likely to ease Pinnacle Foods’ integration into Conagra, which has a solid buyout record. Clearly, this combination is likely to be a deemed fit, especially at a time when demand for the frozen foods and snacks category is perking up.
In previous instances, Conagra acquired Angie's Artisan Treats, LLC (in October 2017), which is strengthening its snacking business. The buyout of Sandwich Bros. (completed in February 2018) is also aiding Conagra’s frozen business. In fact, contributions from Angie's BOOMCHICKAPOP and the Sandwich Bros. buyout aided Conagra’s first-quarter sales growth by about 200 (basis points) bps.
This Zacks Rank #3 (Hold) company has exited private label brands and non-key businesses including Spicetec and JM Swank, while it also executed Lamb Weston’s LW spin-off in 2016. Moreover, the company concluded the sale of its Canadian Del Monte processed fruit and vegetable business to Bonduelle Group during the first quarter. Clearly, the sale of Wesson oil brand also seems to fit into this strategy.
We expect these endeavors to aid Conagra’s transformation into a pure-play branded food company and help uplift investors’ confidence in the stock that has lost 22.4% this year compared with the industry’s decline of 15.1%.
Well, Conagra has been battling escalated input costs like many other food companies including Campbell Soup CPB and General Mills GIS, among others. During the first quarter of fiscal 2019, Conagra’s adjusted gross margin contracted 60 bps to 28.6% due to elevated transportation and input costs, and greater retailer investments to improve ROI. Management stated that it looks to channelize investments from A&P marketing to retailer marketing in order to generate higher returns. Also, the company’s focus on portfolio and volume enhancement should provide it some cushion from these cost woes.
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