Premier North American food company ConAgra Foods, Inc. (CAG - Analyst Report) reported better-than-expected results for third quarter of fiscal 2015 (ended Feb 22, 2015). We believe the negative impact from the strengthening dollar and poor performance of the company’s Private Brands was offset by benefits reaped from improving Commercial Foods business as well as lower operating expenses.

Earnings from continuing operations, adjusted for items impacting comparability, came in at 59 cents per share, down 5% from 62 cents earned in the year-ago quarter. However, the bottom line topped the Zacks Consensus Estimate of 53 cents.

Revenues

ConAgra generated net revenue of $3876.7 million, reflecting a slight year-over-year fall of 1.8%. The top line, nevertheless, managed a marginal beat over the Zacks Consensus Estimate of $3,876.0 million.

On a segmental basis, Consumer Foods revenues inched down 1.9% year over year to $1835.2 million. The decline was led by a 1% fall in price/mix and 1% adverse impact from foreign currency translations.

Revenues from the Commercial Foods segment climbed 1.4% year over year to $1028.3 million, driven by a rise in sales from the Lamb Weston potato business. The Private Brands segment generated $1013.2 million in revenues, down 4.7% year over year. The decline was due to lower production of some items such as cereal, snacks, in-store bakery, pasta and condiments.

Margins/Costs

ConAgra’s cost of goods sold stood at $3052.9 million, up roughly 1% from $3024.2 million recorded in the year-ago comparable period. Selling, general and administrative (SG&A) expenses, as a percentage of revenue, jumped a significant 3090 basis points (bps) to 44.5%. Interest expenses dropped 15.5% year over year to $80.3 million owing to a fall in debt levels.

Balance Sheet/Cash Flow

Exiting third-quarter fiscal 2015, ConAgra had cash and cash equivalents of $137.3 million. Senior long-term debt (excluding current portion) stood at $6723.4 million, down 21.6% from $8,571.5 million recorded in the preceding quarter.

ConAgra generated cash of $740.5 million from continuing operations for the first nine months of fiscal 2015, down 23.5% year over year. Capital spent on additions of property, plant and equipment totaled $318.4 million, down 33% year over year.

During the first nine months of fiscal 2015, ConAgra paid dividends worth $318.2 million.

Outlook

For fiscal 2015, ConAgra expects earnings in the range of $2.15–$2.19 and targets to reduce its debt by roughly $1 billion through specialized debt-reduction programs. However, for maintaining higher inventory levels, the company has lowered its fiscal year guidance for operating cash flow to $1.55 billion from the earlier projection of $1.6 billion, keeping in mind increased input expenses.

The company generated decent third-quarter fiscal 2015 results on the back of superior surplus generated by its Commercial and Consumer Foods segment. However, the company expects the performance of its Private Brands segment to improve around early 2016.

Stocks to Consider

With a market capitalization of $14.88 billion, ConAgra currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry include Flowers Foods, Inc. (FLO - Snapshot Report), Nestlé S.A. (NSRGY) and SUPERVALU Inc. (SVU - Analyst Report). All the three stocks hold a Zacks Rank #2 (Buy).