Will ConAgra's Lamb Weston spinoff pay off?

Dive Brief:

  • Analysts remain split on whether ConAgra's frozen potato spinoff Lamb Weston will be profitable for the company, Omaha World-Herald reported.
  • Some experts believe Lamb Weston could be one of the most lucrative spinoffs of the year. They recommend that individuals buy ConAgra shares now and hold onto both companies' shares after the break is finalized Nov. 9.
  • Other analysts are concerned about the volatility of commodity costs, Conagra Brands' potential inability to sell off as many assets as expected, and a decline in efficiency since the two businesses will no longer share back-office functions.

Dive Insight:

After the spinoff, ConAgra will be better suited to focus on its portfolio of grocery brands. However, this portfolio could be challenging, even with additional investments the company would be able to afford after a year or two of significant cost-cutting efforts.

Center store and frozen food brands dominate Conagra Brands' portfolio. Many consumers no longer purchase these products, deeming them more processed and less healthy than fresh foods located along the store's perimeter. Experts say consumers may also find much of Conagra Brands' portfolio to consist of "value brands," that appeal more to consumers focused solely on price versus quality and healthfulness.

But ConAgra will have the potential to overcome these challenges. Campbell was also once primarily relegated to center store products. But through acquisitions like Bolthouse Farms and Garden Fresh, the company has built up its presence in the produce section under its Campbell Fresh business. Conagra Brands could do the same through acquisitive growth of the right companies.

ConAgra can also overcome the perception of its brands as being focused on "value" rather than quality by expanding its premium brand offerings. The company has already demonstrated interest in premium, fast-growing categories, particularly its recent acquisition of the grocery brands under the gourmet Mexican company Frontera Foods. Mexican foods are a booming industry in the U.S., so this acquisition was key for helping ConAgra better align with consumer trends.

ConAgra may also direct some of its cost savings at investments into developing premium tier products for its existing brands, such as Marie Callender's and Hunt's. These would enable ConAgra to better compete against other branded manufacturers and private label brands that are beginning to offer more multi-tiered options.

Filed Under: Corporate