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ConAgra Earnings Leap; Forecast Raised

Reuters
Thursday, 21 Dec 2006 | 10:31 AM ET

ConAgra Foods posted a 44% jump in quarterly profit, helped by improved operating margins and asset sales, and forecast full-year earnings above analyst expectations, sending the stock upward .

The maker of Healthy Choice meals and Slim Jim beef sticks said net income rose to $219.6 million, or 43 cents a share, in the fiscal second quarter ended Nov. 26, up from $152.5 million, or 29 cents a share, a year earlier.

The latest results included several one-time items, such as a gain on the sale of an oat milling business. It also sold its refrigerated packaged meats business, an interest in a malt joint venture, and its Mama Rosa refrigerated pizza operation.

Excluding one-time items, earnings were 40 cents a share. On that basis, analysts' average forecast was 33 cents, according to Reuters Estimates.

"Rapid expansion of our operating margins is helping build a solid foundation for the future," Gary Rodkin, chief executive officer, said in a statement. "Together with earlier-than-expected completion of key divestitures, this is providing a significant boost to our fiscal 2007 results."

Pablo Zuanic, an analyst with J.P. Morgan, said the earnings were 3 cents a share better than he had expected, largely because of improved margins.

"We remain cautious on valuation, and are skeptical about the retail unit profit margin upside potential," he wrote in a note to clients, reiterating his "underweight" rating on the stock.

ConAgra's quarterly sales rose nearly 3% to $3.09 billion.

The company has been closing factories, selling off brands and spending more on marketing to jump-start its businesses.

Rodkin said the stronger first-half performance will allow it to further increase spending on marketing and innovations.

For the full year, ConAgra forecast earnings of $1.28 to $1.33 a share, excluding one-time items. Analysts, on average, expected $1.26 a share, according to Reuters Estimates.

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The shares trade at about 19.5 times analysts' profit forecasts for next year, compared with multiples of 17.7 for H.J. Heinz and 19.1 for Sara Lee.

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