ConAgra may be looking to put money to work
ConAgra Foods could receive hundreds of millions of dollars from a series of deals in coming months.
So what might the company do with all that cash?
At ConAgra's Sept. 23 annual meeting, Chief Executive Bruce Rohde said that when the company has extra cash, it has five options: grow existing operations, increase the dividend, buy back shares, pay down debt or make acquisitions.
ConAgra has done the first four this year, and Rohde said it is looking for suitable acquisitions, too. But there is a limit to how much ConAgra can spend.
"We've got our spending plans in line for organic growth. We have our debt paid down as far as we can pay it down. We're throwing off cash to a point (through the dividend). I've been buying back shares," he said in an interview after the annual meeting. "If we find something (to acquire), we'll do that as well."
Dividends have been a mainstay of ConAgra's cash allocation strategy, rising every year for the past 30 years. Several shareholders interviewed at the annual meeting said the company's dividend is more important to them than its share price.
But Rohde said ConAgra is not wedded to its dividend. If it found a better use for its cash, he said, the company would simply take on a new shareholder base more interested in growth than dividends. Repurchasing shares is attractive because it reduces the dividends ConAgra has to pay, Rohde said.
In the 1990s, ConAgra made frequent deals, spending billions in cash and stock to buy other food companies, increasing its grocery presence by adding brands such as Hunt's, Peter Pan and Hebrew National. ConAgra's purchase of International Home Foods for $2.9 billion in 2000 was its last major acquisition.
Rohde said buying back stock and repaying debt are the flip side of issuing more stock and borrowing to finance big deals in the past.
"Maybe now they're just in a holding pattern until something attractive comes along," said Jeffrey Pittsburg, of Pittsburg Research, who follows ConAgra's stock.
He said all of the areas Rohde mentioned for spending money, especially reducing debt, are reasonable. Pittsburg wouldn't even be surprised if the company bought back more shares than current plans call for or increased the dividend by a larger percentage next year.
"Having too much cash is never a problem," he said.
Wesley Moultrie, a food industry analyst for Fitch Ratings, also said he expects ConAgra to use spare cash to reduce debt. If the company does seek acquisitions, he said he expects it to look only at branded packaged food products, and to not stray too much from its current product mix.
According to the company's most recent financial filings, ConAgra has:
• Decreased subordinated debt 47 percent in the past year to $400 million but increased senior long-term debt, excluding current installments, by 8 percent to $4.89 billion.
• Spent $600 million to buy back 22 million shares since December. It plans to buy back a total of $1 billion worth of shares.
• Paid $537 million in dividends in the last fiscal year. It raised its dividend nearly 5 percent at the annual meeting last week and will pay $564 million in dividends this fiscal year if the number of shares outstanding stays constant.
• Has $370 million in cash and equivalents, about 48 percent less than it had a year ago.
In the past two years, ConAgra had received about $1.6 billion in cash from selling its agricultural products, fresh-chicken divisions and the majority of its beef and pork unit.
On Tuesday, the company announced the $194 million sale of its remaining 46 percent stake in the beef and pork company - now called Swift & Co. - to that company's owners, Hicks, Muse, Tate and Furst Inc. and Booth Creek Management.
ConAgra also received from Swift cattle and feedlots that had secured a $300 million line of credit. ConAgra said it plans to sell the assets.
The company could get additional millions in November. When ConAgra sold its poultry division to Pilgrim's Pride last November, it received 25 million shares of Pilgrim's Pride, one third of which may be sold after one year.
Those 8-million-plus shares are worth about $230 million at today's price, almost three times what they were worth when the deal was made. A company spokesman said future market conditions will determine when ConAgra sells the shares.
If ConAgra does decide to use some of its forthcoming cash for an acquisition, it will have plenty of choices. Three producers of high-carbohydrate products have gone bankrupt this year, and they might need to sell part or all of their companies.
The companies are New World Pasta, maker of Ronzoni and Creamette brand pastas; Jays Foods, which makes Jays potato chips, Krunchers and O-Ke-Doke popcorn; and Interstate Bakeries, which makes Dolly Madison, Twinkies and Drake's brand snack cakes.
Rohde has said the low-carbohydrate diets, which helped sink the companies, are "fads" that will soon disappear.
