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Subject:  Re: CAG Enough FCF to pay '06 Dividend? Date:  8/17/2005  2:07 PM
Author:  griffkat Number:  1912 of 11310

Based on Russ's comments, I decided to review the likelihood of $1.40 in EPS in '06.

These comments were reported when 4Q earnings were released: "Looking
ahead, the company said 2006 earnings per share should rise above 2005
results, excluding items, but earnings in the first quarter of 2006
are likely to fall below year-ago results of 28 cents per share. Any
profit growth for fiscal 2006 is expected to be more likely in the 
second half of the year, ConAgra said."

EPS estimates:
     2005    2006 proj
1Q  $0.26    $0.23 (current estimate)
2Q  $0.47    $0.50 (asuumed 1H06=1H05 based on comments)
3Q  $0.32    $0.34 (7% growth)
4Q  $0.19    $0.33? (this is what's needed to hit $1.40 estimate)
  --------  -------
    $1.24    $1.40

I've analyzed and projected their income statement forward into 2006 
and in the end, it seems to me that it all comes down to their Cost 
Goods Sold.  Their gross margin was 22.8% in '04, 21.3% in '05.  This
alone made over a $200M difference in net income.  Decline in margin
was due to execution, promotion issues, etc...

I don't want to sell CAG if the long term prospects are good, dividend
stays intact and continues to increase.  They seem to be doing the 
right things: paying down debt, buying back shares.

Is it time to sell or buy more?


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