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Conagra (CAG) Gains on Pricing Initiatives Amid Cost Woes
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Conagra Brands, Inc. (CAG - Free Report) appears to be in good shape. The company has been benefiting from the recovery of its foodservice business as well as efficient pricing actions. E-commerce growth and efforts to strengthen the brand are also working well for the company. These upsides have been helping Conagra amid escalated costs and volume declines due to tough year-over-year comparisons. Let’s take a closer look.
Pricing – a Key Upside
The company’s efficient pricing initiatives have been offering respite amid cost headwinds. In the second quarter of fiscal 2022, the price/mix improved 6.8% and aided organic sales growth of 2.6%. The favorable price/mix was backed by a positive brand mix and net pricing stemming from the company’s inflation-induced pricing actions. The price/mix rose 4.7%, 8.6%, 7.9% and 6.1% in the Grocery & Snacks, Refrigerated & Frozen, International and Foodservice segments, respectively. Management is focused on pricing and saving efforts to combat inflation, while the timing and gains from these initiatives are likely to be more skewed toward the second half of fiscal 2022. CAG’s prudent pricing actions are likely to support the bottom line in the forthcoming periods.
Management raised its organic net sales guidance for fiscal 2022 anticipating continued strength in the top line. Considering year-to-date trends, which include better-than-anticipated consumer demand, lower-than-expected demand elasticities as well as improved pricing actions, management expects the organic net sales improvement to be greater than the previous forecast. Organic net sales are now anticipated to rise 3%, up from nearly 1% expected before.
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Other Factors Backing Conagra Brands
Conagra is seeing recovery in its Foodservice business as restaurant traffic is resuming, with pandemic-led curbs being lifted, and outdoor movement is rising. In the second quarter of fiscal 2022, the Foodservice segment’s sales advanced 14.9% year over year to $246.3 million due to a rise in organic sales, slightly offset by divestitures of the H.K. Anderson business, the Peter Pan peanut butter business and the Egg Beaters business. These divestitures are collectively referred to as Sold Businesses. Organic sales surged 15.2% and volumes were up 9.7%, backed by recovering restaurant traffic. With a persistent rise in outdoor dining trends, the Foodservice business looks well-placed.
Conagra’s e-commerce investments have been yielding favorable results. In the second quarter of fiscal 2022, the company continued to see robust growth in its e-commerce business, which is worth $1 billion. E-commerce sales formed a greater proportion of the company’s total retail sales when compared with peers. Apart from this, CAG has been focused on boosting the frozen and snacks businesses. The company is on track with a range of innovation and brand-building efforts for exploring growth prospects in its frozen and snacks businesses. Such efforts are likely to yield results in the forthcoming periods.
Will Cost Hurdles be Offset?
Conagra is encountering cost of goods sold inflation for a while now. Despite raising its fiscal 2022 organic net sales guidance, management kept its bottom line intact due to the expected cost of goods sold inflation. In the second quarter of fiscal 2021, adjusted gross margin contracted 483 basis points to 25.1% due to greater-than-anticipated cost of goods sold inflation, elevated transitionary supply-chain expenses and increased investments related to prioritizing servicing orders for maximizing the food supply for consumers.
Management lowered its adjusted operating margin view due to increased cost of goods sold inflation and the timing of extra pricing activities. Though it is taking necessary pricing and saving actions, the effect of these initiatives is likely to aid margins in the second half of fiscal 2022. Gross inflation is likely to be 14% now in fiscal 2022 compared with nearly 11% expected before. Adjusted operating margin is anticipated to be nearly 15.5% now compared with the previous view of 16%. Third-quarter margins are likely to be nearly in line with the second quarter, while the operating margin is expected to increase in the fourth quarter as the company’s pricing actions catch up with inflation.
Shares of this Zacks Rank #3 (Hold) company have increased 3.3% in the past six months compared with the industry’s growth of 1.3%.
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Helen of Troy, a designer, developer, marketer, importer and distributor, carries a Zacks Rank #1 (Strong Buy) at present. Shares of Helen of Troy have dipped 15% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Helen of Troy’s current financial-year sales and earnings per share (EPS) suggests growth of 0.8% and 0.6%, respectively, from the year-ago reported number. HELE has a trailing four-quarter earnings surprise of 19.1%, on average.
Inter Parfums, which manufactures, markets, and distributes a range of fragrances and related products, carries a Zacks Rank #1. Shares of Inter Parfums have moved up 27.9% in the past six months.
The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales and EPS suggests growth of 15.4% and 14.7%, respectively, from the year-ago reported number. IPAR has a trailing four-quarter earnings surprise of nearly 30%, on average.
Medifast, the manufacturer and distributor of weight loss, weight management, healthy living products, and other consumable health and nutritional products, currently carries a Zacks Rank #2 (Buy). Shares of Medifast have dropped 20.2% in the past six months.
The Zacks Consensus Estimate for Medifast’s current financial-year sales and EPS suggests growth of about 63% and 49.3%, respectively, from the year-ago reported figure. MED has a trailing four-quarter earnings surprise of 17.3%, on average.
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Conagra (CAG) Gains on Pricing Initiatives Amid Cost Woes
Conagra Brands, Inc. (CAG - Free Report) appears to be in good shape. The company has been benefiting from the recovery of its foodservice business as well as efficient pricing actions. E-commerce growth and efforts to strengthen the brand are also working well for the company. These upsides have been helping Conagra amid escalated costs and volume declines due to tough year-over-year comparisons. Let’s take a closer look.
Pricing – a Key Upside
The company’s efficient pricing initiatives have been offering respite amid cost headwinds. In the second quarter of fiscal 2022, the price/mix improved 6.8% and aided organic sales growth of 2.6%. The favorable price/mix was backed by a positive brand mix and net pricing stemming from the company’s inflation-induced pricing actions. The price/mix rose 4.7%, 8.6%, 7.9% and 6.1% in the Grocery & Snacks, Refrigerated & Frozen, International and Foodservice segments, respectively. Management is focused on pricing and saving efforts to combat inflation, while the timing and gains from these initiatives are likely to be more skewed toward the second half of fiscal 2022. CAG’s prudent pricing actions are likely to support the bottom line in the forthcoming periods.
Management raised its organic net sales guidance for fiscal 2022 anticipating continued strength in the top line. Considering year-to-date trends, which include better-than-anticipated consumer demand, lower-than-expected demand elasticities as well as improved pricing actions, management expects the organic net sales improvement to be greater than the previous forecast. Organic net sales are now anticipated to rise 3%, up from nearly 1% expected before.
Other Factors Backing Conagra Brands
Conagra is seeing recovery in its Foodservice business as restaurant traffic is resuming, with pandemic-led curbs being lifted, and outdoor movement is rising. In the second quarter of fiscal 2022, the Foodservice segment’s sales advanced 14.9% year over year to $246.3 million due to a rise in organic sales, slightly offset by divestitures of the H.K. Anderson business, the Peter Pan peanut butter business and the Egg Beaters business. These divestitures are collectively referred to as Sold Businesses. Organic sales surged 15.2% and volumes were up 9.7%, backed by recovering restaurant traffic. With a persistent rise in outdoor dining trends, the Foodservice business looks well-placed.
Conagra’s e-commerce investments have been yielding favorable results. In the second quarter of fiscal 2022, the company continued to see robust growth in its e-commerce business, which is worth $1 billion. E-commerce sales formed a greater proportion of the company’s total retail sales when compared with peers. Apart from this, CAG has been focused on boosting the frozen and snacks businesses. The company is on track with a range of innovation and brand-building efforts for exploring growth prospects in its frozen and snacks businesses. Such efforts are likely to yield results in the forthcoming periods.
Will Cost Hurdles be Offset?
Conagra is encountering cost of goods sold inflation for a while now. Despite raising its fiscal 2022 organic net sales guidance, management kept its bottom line intact due to the expected cost of goods sold inflation. In the second quarter of fiscal 2021, adjusted gross margin contracted 483 basis points to 25.1% due to greater-than-anticipated cost of goods sold inflation, elevated transitionary supply-chain expenses and increased investments related to prioritizing servicing orders for maximizing the food supply for consumers.
Management lowered its adjusted operating margin view due to increased cost of goods sold inflation and the timing of extra pricing activities. Though it is taking necessary pricing and saving actions, the effect of these initiatives is likely to aid margins in the second half of fiscal 2022. Gross inflation is likely to be 14% now in fiscal 2022 compared with nearly 11% expected before. Adjusted operating margin is anticipated to be nearly 15.5% now compared with the previous view of 16%. Third-quarter margins are likely to be nearly in line with the second quarter, while the operating margin is expected to increase in the fourth quarter as the company’s pricing actions catch up with inflation.
Shares of this Zacks Rank #3 (Hold) company have increased 3.3% in the past six months compared with the industry’s growth of 1.3%.
Looking for Solid Consumer Staple Stocks? Check These
Some better-ranked stocks are Helen of Troy (HELE - Free Report) , Inter Parfums (IPAR - Free Report) and Medifast, Inc. (MED - Free Report)
Helen of Troy, a designer, developer, marketer, importer and distributor, carries a Zacks Rank #1 (Strong Buy) at present. Shares of Helen of Troy have dipped 15% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Helen of Troy’s current financial-year sales and earnings per share (EPS) suggests growth of 0.8% and 0.6%, respectively, from the year-ago reported number. HELE has a trailing four-quarter earnings surprise of 19.1%, on average.
Inter Parfums, which manufactures, markets, and distributes a range of fragrances and related products, carries a Zacks Rank #1. Shares of Inter Parfums have moved up 27.9% in the past six months.
The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales and EPS suggests growth of 15.4% and 14.7%, respectively, from the year-ago reported number. IPAR has a trailing four-quarter earnings surprise of nearly 30%, on average.
Medifast, the manufacturer and distributor of weight loss, weight management, healthy living products, and other consumable health and nutritional products, currently carries a Zacks Rank #2 (Buy). Shares of Medifast have dropped 20.2% in the past six months.
The Zacks Consensus Estimate for Medifast’s current financial-year sales and EPS suggests growth of about 63% and 49.3%, respectively, from the year-ago reported figure. MED has a trailing four-quarter earnings surprise of 17.3%, on average.