Seeking Alpha: Not Exactly Cheap, Post Holdings Still Has Some Appeal

Cheap stocks aren't always (or even necessarily "often") the best performers, and vice versa. I think that's worth remembering when looking at Post Holdings (POST). Whether looking at EV/EBITDA, EV/revenue, ROE/PBV, or a discounted cash flow model, Post just doesn't seem very cheap and the stock has definitely been a strong performer in a sector that has weakened some in recent months.

I won't be surprised, though, if Post continues to stay fairly popular with the Street. Free of Ralcorp (now part of ConAgra (CAG)), Post is emerging from a prolonged period of benign neglect and management has already shown its willingness to leverage the balance sheet to grow and diversify the business. Competition from Kellogg (K), General Mills (GIS), and ConAgra, not to mention private labels, should not be ignored, but I believe that Post is likely to post growth rates on the upper end of the sector range, and I would expect that the Street will show its usual price insensitivity in the pursuit of that growth.

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Not Exactly Cheap, Post Holdings Still Has Some Appeal

Investopedia: ConAgra Improving Margins, But Elasticity Is A Challenge

As investors have seen with General Mills (NYSE:GIS) a couple of days ago and now again with ConAgra (NYSE:CAG), the packaged food industry is still facing pretty challenging conditions. In particular, it looks as though companies can raise prices if they want, but they see an almost immediate hit to volumes. At the same time, give credit where it's due - ConAgra has continued to make progress with its margins. With Ralcorp (NYSE:RAH) now coming into the fold, the next year or two could be pretty interesting for ConAgra, even as the retail environment remains challenging.

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Investopedia: ConAgra Wins Ralcorp After A Long Chase

With Wall Street's quarter-to-quarter obsession, it's often thought that corporate America no longer has the luxury of thinking and planning for the long term. ConAgra's (NYSE:CAG) eventual success in winning over Ralcorp (NYSE:RAH) to a friendly bid shows, though, that patience can still play a significant role in business. Although ConAgra is not getting a great bargain here, this should be a value-additive deal for the company over the long term.

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Investopedia: TreeHouse Falls Back To Earth

TreeHouse Foods (NYSE:THS) is a case in point as to why I try very hard to stick to my guns when the stock of a good company looks too pricey. While TreeHouse has been one of the more dynamic companies in the private label food space (and one of the relatively few investment plays on the space), valuation left no room for error on performance and recent results have started showing some error. Although I still don't believe these shares are especially cheap, it would be a name I'd revisit if the stock continues to slide.

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Investopedia: ConAgra Doing Better, But Can It Last?

ConAgra (NYSE:CAG) didn't pick the easiest time to start changing its business, but there's never really a bad time to try to fix an underperforming business. Although macro trends in the food sector aren't doing the companies any particular favors, and a lot of Street analysts have already bought the story on the turnaround, the company does seem to be making some sound moves.

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Investopedia: TreeHouse Foods And The Good Business / Good Stock Gap

More and more these days, and seemingly especially in sectors like food, there is a growing gap between good companies and good stocks. TreeHouse Foods (NYSE:THS) is another good example. While management has built an increasingly diversified and competitive private label packaged food business, and private label brands continue to gain share at supermarkets, investors seem to be overestimating just how valuable that market exposure is.

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Investopedia: Hormel Doing Better Than Most

These aren't easy times for food companies, as rising input prices push up costs and shoppers rebel against price increases. Hormel Foods (NYSE:HRL) seems to be holding up better than most, though, as the company's expense control and increased focus on processed/packaged goods pays benefits. Hormel looks like one of the best long-term stories in food right now, but the valuation means that investors shouldn't expect outsized capital gains from the shares.

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Investopedia: ConAgra Reheats Some Leftovers

Are share buybacks a prudent return of capital back to its real owners, or a way for a management lacking in ideas and creativity to give the appearance of "doing something" and appease the Street? It's a relevant question when looking at ConAgra (NYSE:CAG), as this company has long been a laggard, and management seems slow to address many of the fundamental issues plaguing the company. There are fixable problems at ConAgra, but is this a management that can fix them?

Encouraging Second Quarter Results  
ConAgra reported 8% revenue growth for the fiscal second quarter, more or less matching the top end of the analyst range. Growth in the consumer business came in at over 4%, with solid mid-single digit price growth offsetting a small volume decrease. Commercial sales were considerably better, up 16% as price rose at a low-teens rate and volume posted a slight increase. ConAgra's commercial business has been stronger lately, though that needs to be seen in the context of prior underperformance. (Find out what these company programs achieve and what it means for stockholders. For more, see A Breakdown Of Stock Buybacks.)

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Investopedia: Ralcorp Needs To Offer More

If this fiscal fourth quarter is a sign of what Ralcorp Holdings (NYSE:RAH) has to offer investors, then many of them are right to wonder why management did not accept ConAgra's (NYSE:CAG) overtures to buy the company. The company is certainly trying to change things up, including spinning off its branded cereal business, but this is supposed to be a good time for the makers of private label food and Ralcorp is looking decidedly beige.

An Iffy End to the Fiscal Year  
Ralcorp closed out the fiscal year with reported revenue growth of 8%, half of that coming from the acquisition of American Italian Pasta Company. Core revenue missed estimates slightly, with reported volume growth of 3% and an internal volume contraction of 4%. Volume erosion was consistent across product lines, while the snack/sauce/spread, bakery and private label cereal businesses did scratch out some overall net growth. (To know more about acquisition, read Analyzing An Acquisition Announcement.)

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Investopedia: PepsiCo Really Close Now

If there's anything good about widespread market routes, it's that they can often bring expensive stocks back to a more palatable price. That's perhaps the most significant takeaway from PepsiCo's (NYSE:PEP) third quarter earnings; while business continues to move along apace, the stock is finally at a point where long-term investors may see some real value.


A Decent Fiscal Third Quarter 
The market seemed to be girding itself for a bad performance, but PepsiCo did alright. Revenue rose more than 13% as reported, with organic growth in excess of 5%. With worldwide organic snack volume growth of 3%, and beverage volume growth of 1%. It's clear that Pepsi products are still finding their way into shopping carts, but the company hasn't really pushed as hard on pricing as other food and beverage companies.


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Investopedia: McCormick A Good Mix Of Stable And Spicy

It's probably trite to make "spicy" quips about McCormick (NYSE:MKC) anymore, but if the shoe fits .... After all, its dominating presence in spices and seasonings is a major positive factor in the investment thesis, and the company does have some options that could significantly enhance the growth and returns of this business over time. To the extent that there can be defensive growth stories in packaged food, McCormick certainly looks like one. 

Sweet and Sour Third Quarter Results   
This was a pretty textbook example of a "mixed" quarter for McCormick. Reported revenue rose 16 and 11% on a local currency basis - strong even by the relatively lofty recent standards of this industry. Growth was balanced between improved pricing (up almost 5%) and better volume (up more than 6%), making McCormick one of the relatively rare companies to pass through significant price hikes without really paying for it in volume.

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Investopedia: ConAgra Chooses To Move On

There is little doubt that ConAgra (NYSE:CAG) needs to change quite a few things about how it operates - the company has long been a mediocre collection of me-too brands in the packaged food space. Nevertheless, management deserves credit for walking away from a Ralcorp (NYSE:RAH) deal that was likely to get too expensive. What remains to be seen now is whether management can find new value-additive strategies to improve the business or whether less imaginative steps like debt reduction and share buybacks will be the order the day.

First Quarter Financials Still Problematic  
ConAgra reported sales growth nearly 10% to open this fiscal year, but overall performance was still not so great. Consumer sales were up more than 4% on a reported basis and the company reported that volumes were flat despite ongoing price increases. That's a solid improvement for ConAgra; the bear thesis on the stock has been that its lack of brand strength puts it in a more vulnerable position vis-à-vis Kraft (NYSE:KFT), Heinz (NYSE:HNZ), General Mills (NYSE:GIS) and the like when it comes to pushing price increases.

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Investopedia: No Need To Chase General Mills

There are certainly some good things going on at General Mills (NYSE:GIS). The company is seeing growth again in the majority of its businesses and the company enjoys strong brands (and the better margins those brands bring). All of that said, though, investors should not overlook how much General Mills has benefited from competitor missteps and the extent to which the current stock price already bakes in a lot of this company's quality.

Iffy First Quarter Results
While General Mills reported 9% headline growth, overall performance was not so exceptional. Organic revenue growth was more on the order of 2%, though there was reported growth in most of the company's categories. International revenue jumped about 30%, getting a big boost from the Yoplait acquisition.


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Investopedia: Ralcorp Adds Both Clarity And Confusion

There is no doubt that Ralcorp (NYSE:RAH) is getting creative in its efforts to get value for its assets. Still not willing to agree to ConAgra's (NYSE:CAG) bid, Ralcorp apparently believes that separating the company may be its best chance at guaranteeing greater value for its shareholder base. 

First, a Warning  
Ralcorp led off its Thursday night announcements with a warning on fiscal third quarter results. Citing weak volumes in cereal and some difficulty in getting better pricing through, Ralcorp lowered its guidance for the third quarter to a range of $1.13 to $1.18 - well below the $1.37 average estimate. Just as a point of reference, investors should also note that the lowest published estimate was $1.28, so this was indeed a meaningful miss. 


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Investopedia: General Mills Between A Rock And A Hard Place

Brands matter a great deal in the packaged food industry, but they cannot do all of the heavy lifting. While ConAgra (NYSE:CAG) has suffered in part from its weak brand position (few leading brands across its portfolio), General Mills (NYSE:GIS) is finding that even its stronger brand portfolio does not immunize the company to the difficulties of today's market.


A Challenging Close to the Year
General Mills reported that sales rose 3% for the fiscal fourth quarter, missing the average analyst estimate by a trivial amount. Although the company got a solid boost from price and mix, volume fell 4% in the period. U.S. retail sales were notably weak (down more than 2%), but the company did get a nice boost from its international business. These international sales, boosted in part by a collaboration with Nestle (OTCBB:NSRGY), grew more than 16% for the fiscal Q4.

Although the company faces bruising input cost inflation, margins have held up fairly well. Gross margin rose a full point on an adjusted basis, while operating margin growth clocked in at 80 basis points. Even allowing for more effective ad spending and corporate cost containment, General Mills can only do so much to keep goosing operating income without better sales growth. (Your investments suffer when general price levels rise. For more, see Curbing The Effects Of Inflation.)



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Investopedia: ConAgra Still Not Very Appetizing

When it came to light a little while ago that ConAgra (NYSE:CAG) was interested in acquiring Ralcorp (NYSE:RAH) and really focusing on private label food, it made a lot of sense. With another quarter in the books, it is increasingly clear that they may be ConAgra's only real chance of competing - this company just cannot gain much traction in the supermarket and has done little to improve a portfolio of brands that lacks leaders. (For more on supermarket stock, check out Evaluating Grocery Store Stocks.)


A Weak Close to the Fiscal Year
ConAgra's press release boasts of "strong" comparable growth, but I have to wonder what definition of "strong" the company is using. Yes, revenue was up over 5% this quarter and that's not bad for a large food company. What ConAgra management is glossing over, though, is that sales in the year-ago period were down about 5%, so the comp was especially easy. In fact, sales in this quarter were still lower than in 2009, so just exactly how strong does ConAgra think their business is? It is worth noting, though, that this is the first positive comp after four straight negative quarters.

Looking further at the top line, the consumer business saw less than 1% growth as a modest boost from pricing was overwhelmed by a fall in volume. Commercial sales were much stronger, though, and climbed about 14%.


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Investopedia: ConAgra And Ralcorp - If You Can't Beat Them...

Everybody knows the old expression, "If you can't beat 'em, join 'em". Apparently ConAgra (NYSE:CAG) is taking a different strategy - "if you can't beat 'em, quit and try something else". With ConAgra publicly making a bid for Ralcorp (NYSE:RAH), it would seem that this large Nebraskan packaged food company is content to cede the field to the likes of Kellogg (NYSE:K), Heinz (NYSE:HNZ), Kraft (NYSE:KFT) and General Mills (NYSE:GIS) in branded foods and focus much more closely on private label and value-oriented products. 


The Deal That May Be
A deal between ConAgra and Ralcorp has been running through the rumor mill for a little while now, with Ralcorp recently mentioning that it had declined an unsolicited proposal while also preannouncing better-than-expected quarterly results. Clearly there was a not-so-subtle message here - namely, "we're improving quite well on our own, thanks".

Nevertheless, ConAgra has decided to go public with an offer of $86 per share in cash for Ralcorp. Not only does that represent a 32% premium to the pre-speculation price of Ralcorp, it also represents a sweetening of $4 per share from ConAgra's prior offer. 



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General Mills Treads Water

These are not great days to be a packaged food company. The lousy economy seriously limits what you can do in terms of price increases (at least without resorting to sneaky tricks like shrinking the contents), but production prices keep creeping up. Retailers like Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) are increasingly looking to reduce the number of brands in each category, so they can make the producers jump through all sorts of hoops. On top of all that, public health officials routinely harangue them about the nutritional value of their products and their role in worsening the health of consumers. 

With all that in mind, then, a "just muddling through" result from General Mills (NYSE:GIS) should not be all that bad really. The catch, though, is that some of the food stocks have been moving up lately and it does not seem like an okay result is going to satisfy investors.
 
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