Conagra Brands, Inc. (CAG - Free Report) appears to be in troubled waters. The company has been struggling with major cost headwinds, which are likely to persist. While it is undertaking saving and pricing actions to counter cost inflation, it is yet to be seen how effective these initiatives turn out. Despite raising its fiscal 2022 organic net sales guidance, management lowered its adjusted operating margin and earnings per share (EPS) view in its third-quarter earnings release due to increased cost of goods sold inflation and the timing lag related to extra pricing activities.
The Zacks Consensus Estimate for fiscal 2022 EPS has gone down from 73 cents to 64 cents over the past 60 days. Shares of this Zacks Rank #4 (Sell) company have dropped 4.4% in the past three months compared with the industry’s decline of 1.5%.
Let’s delve deeper.
High Costs – a Key Concern
Conagra is encountering cost of goods sold inflation for a while now. In the third quarter of fiscal 2022, the adjusted gross margin contracted by 342 basis points to 24.1%, mainly due to cost of goods sold inflation (15.4%) and increased supply-chain operating costs. Costs were particularly higher for transport and protein, which remained high as the company started the fourth quarter. Dairy costs have also been high.
Though management is taking necessary pricing and saving actions, these are not likely to fully offset input cost inflation in fiscal 2022 due to a timing lag between announcing and implementing these actions. Gross inflation is likely to be roughly 16% now in fiscal 2022 compared with the nearly 14% expected before. The changed view is mainly a result of management’s expected market inflation for the fourth quarter (of $100 million). Gross inflation is likely to be roughly 16% in the fourth quarter. The greater-than-expected inflation is disproportionately affecting some of CAG’s strongest businesses, such as meat snacks and frozen. The adjusted operating margin for fiscal 2022 is anticipated at nearly 14.5% now compared with the previous view of about 15.5%.
Other Concerns & Lowered Guidance
In the third quarter of fiscal 2022, Conagra’s net sales growth was partly affected by the Peter Pan peanut butter and Egg Beaters businesses. These divestitures are collectively referred to as Sold Businesses. During the quarter, divestitures adversely impacted net sales by 0.8%. Apart from this, sales were affected by soft volumes, which dropped 2.6% affected by the elasticity effect stemming from pricing actions. However, these downsides were more than compensated by an improved price/mix, which led to top-line growth.
Management lowered its adjusted EPS view for fiscal 2022 due to increased cost of goods sold inflation and the timing lag related to extra pricing activities. Adjusted EPS is envisioned at about $2.35 now, down from the $2.50 expected earlier. In fiscal 2021, the adjusted EPS came in at $2.64.
Looking for Consumer Staple Stocks? Check These
Some better-ranked stocks are Sysco Corporation (SYY - Free Report) , McCormick & Company (MKC - Free Report) and Medifast (MED - Free Report) .
Sysco, which engages in the marketing and distribution of various food and related products, carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Sysco’s current financial-year sales and EPS suggests growth of 32% and 122.9%, respectively, from the year-ago reported number. SYY has a trailing four-quarter earnings surprise of 9.1%, on average.
McCormick, the manufacturer, marketer and distributor of spices, seasoning mixes and condiments, currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for McCormick’s current financial-year sales and EPS suggests growth of nearly 5% and 3.9%, respectively, from the year-ago reported figure. MKC has a trailing four-quarter earnings surprise of around 1.3%, on average.
Medifast, which manufactures and distributes weight loss, weight management, healthy living products and other consumable health and nutritional products, currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Medifast’s current financial-year sales and EPS suggests growth of nearly 19% and 11.5%, respectively, from the year-ago reported figure. MED has a trailing four-quarter earnings surprise of 12.9%, on average.
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Conagra Brands, Inc. (CAG - Free Report) appears to be in troubled waters. The company has been struggling with major cost headwinds, which are likely to persist. While it is undertaking saving and pricing actions to counter cost inflation, it is yet to be seen how effective these initiatives turn out. Despite raising its fiscal 2022 organic net sales guidance, management lowered its adjusted operating margin and earnings per share (EPS) view in its third-quarter earnings release due to increased cost of goods sold inflation and the timing lag related to extra pricing activities.
The Zacks Consensus Estimate for fiscal 2022 EPS has gone down from 73 cents to 64 cents over the past 60 days. Shares of this Zacks Rank #4 (Sell) company have dropped 4.4% in the past three months compared with the industry’s decline of 1.5%.
Let’s delve deeper.
High Costs – a Key Concern
Conagra is encountering cost of goods sold inflation for a while now. In the third quarter of fiscal 2022, the adjusted gross margin contracted by 342 basis points to 24.1%, mainly due to cost of goods sold inflation (15.4%) and increased supply-chain operating costs. Costs were particularly higher for transport and protein, which remained high as the company started the fourth quarter. Dairy costs have also been high.
Though management is taking necessary pricing and saving actions, these are not likely to fully offset input cost inflation in fiscal 2022 due to a timing lag between announcing and implementing these actions. Gross inflation is likely to be roughly 16% now in fiscal 2022 compared with the nearly 14% expected before. The changed view is mainly a result of management’s expected market inflation for the fourth quarter (of $100 million). Gross inflation is likely to be roughly 16% in the fourth quarter. The greater-than-expected inflation is disproportionately affecting some of CAG’s strongest businesses, such as meat snacks and frozen. The adjusted operating margin for fiscal 2022 is anticipated at nearly 14.5% now compared with the previous view of about 15.5%.
Other Concerns & Lowered Guidance
In the third quarter of fiscal 2022, Conagra’s net sales growth was partly affected by the Peter Pan peanut butter and Egg Beaters businesses. These divestitures are collectively referred to as Sold Businesses. During the quarter, divestitures adversely impacted net sales by 0.8%. Apart from this, sales were affected by soft volumes, which dropped 2.6% affected by the elasticity effect stemming from pricing actions. However, these downsides were more than compensated by an improved price/mix, which led to top-line growth.
Management lowered its adjusted EPS view for fiscal 2022 due to increased cost of goods sold inflation and the timing lag related to extra pricing activities. Adjusted EPS is envisioned at about $2.35 now, down from the $2.50 expected earlier. In fiscal 2021, the adjusted EPS came in at $2.64.
Looking for Consumer Staple Stocks? Check These
Some better-ranked stocks are Sysco Corporation (SYY - Free Report) , McCormick & Company (MKC - Free Report) and Medifast (MED - Free Report) .
Sysco, which engages in the marketing and distribution of various food and related products, carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Sysco’s current financial-year sales and EPS suggests growth of 32% and 122.9%, respectively, from the year-ago reported number. SYY has a trailing four-quarter earnings surprise of 9.1%, on average.
McCormick, the manufacturer, marketer and distributor of spices, seasoning mixes and condiments, currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for McCormick’s current financial-year sales and EPS suggests growth of nearly 5% and 3.9%, respectively, from the year-ago reported figure. MKC has a trailing four-quarter earnings surprise of around 1.3%, on average.
Medifast, which manufactures and distributes weight loss, weight management, healthy living products and other consumable health and nutritional products, currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Medifast’s current financial-year sales and EPS suggests growth of nearly 19% and 11.5%, respectively, from the year-ago reported figure. MED has a trailing four-quarter earnings surprise of 12.9%, on average.
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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