No. of Recommendations: 8
(Note: I also posted this under the CAG discussion folder)

I have CAG as a long term holding in my dividend growth portfolio.  My
interest in the stocks of companies in this portfolio is the security
of the dividend and annual increases in that dividend each year going
forward.  I've diversified among at least 5 industries, with no more 
than 2 stocks in an industry.  My holdings include: CAG, JNJ, PG, BAC,

I've been concerned about the 2004 results for CAG where they were not
able to fund their dividend from free cash flow (FCF).  I've reviewed
their 10K filed this week and it appears that they did not fund 2005
from FCF this year either.  I've done some back of the envelope
calcuations to see what I thought would happen in FY 2006 and I'm still
concerned.  I've listened to the conf call and CAG was confident they
would pay the dividend.  Based on the numbers below, how would they do
that?  Cash is down to $207.6M in fiscal '05.

Would appreciate any comments or thoughts on the numbers below.  Am I
missing something? Maybe the Pilgrims Pride sale isn't in '06 EPS 
estimates? Is it time to find a replacement for CAG in my portfolio?

Cash Flow statement recap:

                                       2004    2005   2006 Projection
Net Income from continuing ops:       $714.0  $663.1    $725.2(1)
Depreciation:                          345.4   350.9     350.0(2)
Pilgrims Pride gain                     --    (185.7)   (218.9)(3)
Other (incl pension)                    66.3   117.3      75.0 (4)
everything else:                      (420.2) (108.4)    (50.0) (5) 
                                      ------- -------  ----------  
Net Cash flow from continuing ops:    $705.5  $837.2    $881.3 

Property Plant & Equip:               -348.6  -453.4    -400.0 (6)

Free Cash Flow:                       $356.9  $383.8    $481.3 

Dividends:                            $536.7  $550.3    $569.8 (7)

(1) $1.40 per share estimate x 518M shares 
(2) swag
(3) used same % net from '05 sale on $333M proceeds in '06
(4) I can't find what this actual is in the 10K, so I swagged $75M to
 be conservative. Their pension underfunded if I read it right.
(5) An optimistic swag based on trend of all the other items: 
inventory, AR, AAP, prepaids.
(6) 10K states CAG expects $400M capex in 2006.
(7) assumes only $.01 annual div increase to keep record of consecutive
 dividend increases intact $1.10 x 518M shrs

Thanks in advance,


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