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Conagra Brands, Inc. (CAG - Free Report) delivered third-quarter fiscal 2022 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate and the former increased year over year. The company continued to benefit from solid consumer demand. A focus on innovation and prudent investments helped the company to capture its share across the snacks, frozen and staples categories.
However, earnings per share or EPS declined year over year. Conagra saw higher-than-anticipated cost pressure in the quarter, which is expected to linger in the fourth quarter, especially in the refrigerated, snacks and frozen businesses. Management is on track with increased inflation-induced pricing actions, though gains from these are expected to be reflected in the first quarter of fiscal 2023.
Management raised its organic net sales guidance for fiscal 2022 anticipating continued strength in consumer demand. However, it lowered its adjusted operating margin and EPS view due to increased cost of goods sold inflation and the timing lag related to extra pricing activities.
Conagra’s quarterly adjusted EPS came in at 58 cents, a penny ahead of the Zacks Consensus Estimate per share but dipped 1.7% year over year. This can be attributed to the reduced adjusted gross profit stemming from cost inflation. On a two-year compound annualized basis, adjusted EPS rose 11%.
Conagra generated net sales of $2,913.7 million, which advanced 5.1% year over year. The figure surpassed the Zacks Consensus Estimate of $2,836 million. The year-over-year sales increase was the result of higher organic sales, partly negated by currency headwinds (to the tune of 0.1%) and the divestitures of the Peter Pan peanut butter business and the Egg Beaters business (to the tune of 0.8%). These divestitures are collectively referred to as Sold Businesses.
Organic net sales rose 6% due to a price/mix, which improved 8.6%. The price/mix was backed by a positive brand mix and the company’s inflation-induced pricing actions. This was somewhat negated by volumes that dropped 2.6%, affected by the elasticity effect stemming from pricing actions. On a two-year compounded annualized basis, quarterly net sales and organic net sales rose 6.8% and 7.8%, respectively.
The adjusted gross margin contracted 342 basis points to 24.1%, mainly due to cost of goods sold inflation ( 15.4%) and increased supply-chain operating costs. Adjusted SG&A expenses, excluding advertising and promotional (A&P) costs, declined 3.3% to $237 million due to lower incentives and deferred compensation. A&P costs dropped 11.5% to $65 million due to lower broadcast media investments.
Adjusted EBITDA (including equity method investment earnings as well as the pension and postretirement non-service income) fell 2.4% to $553 million due to the reduced adjusted gross profit, partly compensated by the solid performance from the company's Ardent Mills joint venture.
Image Source: Zacks Investment Research
Segment Details
Grocery & Snacks: Quarterly net sales in the segment came in at $1,199 million, up 6.2% year over year, due to higher organic sales, partly hurt by the impact of Sold Businesses. Organic net sales rose 7%, with a price/mix up 8.8%. Volumes declined 1.8%. During the quarter, CAG saw an increased share in staple categories like syrup and beans as well as in snacking categories like meat snacks and popcorn.
Refrigerated & Frozen: Net sales grew 2.9% to $1,238.6 million due to higher organic net sales, partly countered by the impact of Sold businesses. Organic sales rose 3.9% on a price/mix increase of 8.4%. However, volumes were down 4.5% due to the elasticity impacts of pricing and supply restrictions. The company saw an improved share in frozen single-serve meals, frozen desserts and frozen multi-serve meals categories.
International: Net sales climbed 0.1% to $241.2 million, reflecting improved organic net sales. However, the adverse impacts of foreign currency translations and Solid Businesses were downsides. Organic sales rose 1%, with a price/mix up 8% and volumes down 7%.
Foodservice: Sales advanced 18.9% to $234.9 million due to an equal rise in organic sales. Volumes were up 10.5%, backed by recovering restaurant traffic, partly negated by the elasticity impact of pricing actions. The price/mix increased 8.4% due to inflation-driven pricing actions and an improved product mix.
Other Updates
Conagra exited the quarter with cash and cash equivalents of $79.7 million, senior long-term debt, excluding current installments, of $8,089.1 million and total stockholders’ equity of $8,853.3 million. During the quarter, Conagra paid out a quarterly dividend of 31.25 cents per share.
Guidance
Conagra had earlier stated that it expects consumer demand for its retail products to be above historical levels during fiscal 2022 due to new consumer habits cultivated amid the pandemic. Considering the trends to date, which include better-than-anticipated consumer demand, lower-than-expected demand elasticities, increased planned pricing actions, management expects the organic net sales improvement to be greater than the previous forecast. Organic net sales are now anticipated to rise more than 4%, up from more than 3% growth expected before.
The company continues to battle elevated cost of goods sold inflation, which came in higher than anticipated in the third quarter. Though it 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 nearly 14% expected before. The adjusted operating margin is anticipated to be nearly 14.5% now compared with the previous view of about 15.5%. Adjusted EPS is still envisioned to be about $2.35 now, down from $2.50 expected earlier.
For the fourth quarter of fiscal 2022, management anticipates organic sales growth of about more than 7%, gross inflation of roughly 16%, adjusted operating margin of around 15.5% and adjusted EPS of nearly 64 cents.
Shares of this Zacks Rank #3 (Hold) company have risen 3.7% in the past six months compared with the industry’s growth of 5.6%.
Pilgrim’s Pride, which produces, processes, markets and distributes fresh, frozen, and value-added chicken and pork products, sports a Zacks Rank #1 (Strong Buy). Shares of Pilgrim’s Pride have moved down 9.6% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Pilgrim’s Pride’s current financial-year EPS suggests growth of 19.7% from the year-ago reported number. PPC has a trailing four-quarter earnings surprise of 24.9%, on average.
Tyson Foods, a renowned meat products company, carries a Zacks Rank #2 (Buy) at present. Shares of Tyson Foods have jumped 16.7% in the past six months.
The Zacks Consensus Estimate for Tyson Foods’ current financial-year sales and EPS suggests growth of 9.5% and 5.6%, respectively, from the year-ago reported number. TSN has a trailing four-quarter earnings surprise of 32.2%, on average.
Flowers Foods, the producer and marketer of packaged bakery products, currently carries a Zacks Rank #2. Shares of Flowers Foods have risen 6.4% in the past six months.
The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales and EPS suggests growth of 7.2% and roughly 4%, respectively, from the year-ago reported figure. FLO has a trailing four-quarter earnings surprise of around 9%, on average.
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Conagra (CAG) Q3 Earnings & Sales Top Estimates, Cost Woes Stay
Conagra Brands, Inc. (CAG - Free Report) delivered third-quarter fiscal 2022 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate and the former increased year over year. The company continued to benefit from solid consumer demand. A focus on innovation and prudent investments helped the company to capture its share across the snacks, frozen and staples categories.
However, earnings per share or EPS declined year over year. Conagra saw higher-than-anticipated cost pressure in the quarter, which is expected to linger in the fourth quarter, especially in the refrigerated, snacks and frozen businesses. Management is on track with increased inflation-induced pricing actions, though gains from these are expected to be reflected in the first quarter of fiscal 2023.
Management raised its organic net sales guidance for fiscal 2022 anticipating continued strength in consumer demand. However, it lowered its adjusted operating margin and EPS view due to increased cost of goods sold inflation and the timing lag related to extra pricing activities.
Conagra Brands Price, Consensus and EPS Surprise
Conagra Brands price-consensus-eps-surprise-chart | Conagra Brands Quote
Quarter in Detail
Conagra’s quarterly adjusted EPS came in at 58 cents, a penny ahead of the Zacks Consensus Estimate per share but dipped 1.7% year over year. This can be attributed to the reduced adjusted gross profit stemming from cost inflation. On a two-year compound annualized basis, adjusted EPS rose 11%.
Conagra generated net sales of $2,913.7 million, which advanced 5.1% year over year. The figure surpassed the Zacks Consensus Estimate of $2,836 million. The year-over-year sales increase was the result of higher organic sales, partly negated by currency headwinds (to the tune of 0.1%) and the divestitures of the Peter Pan peanut butter business and the Egg Beaters business (to the tune of 0.8%). These divestitures are collectively referred to as Sold Businesses.
Organic net sales rose 6% due to a price/mix, which improved 8.6%. The price/mix was backed by a positive brand mix and the company’s inflation-induced pricing actions. This was somewhat negated by volumes that dropped 2.6%, affected by the elasticity effect stemming from pricing actions. On a two-year compounded annualized basis, quarterly net sales and organic net sales rose 6.8% and 7.8%, respectively.
The adjusted gross margin contracted 342 basis points to 24.1%, mainly due to cost of goods sold inflation ( 15.4%) and increased supply-chain operating costs. Adjusted SG&A expenses, excluding advertising and promotional (A&P) costs, declined 3.3% to $237 million due to lower incentives and deferred compensation. A&P costs dropped 11.5% to $65 million due to lower broadcast media investments.
Adjusted EBITDA (including equity method investment earnings as well as the pension and postretirement non-service income) fell 2.4% to $553 million due to the reduced adjusted gross profit, partly compensated by the solid performance from the company's Ardent Mills joint venture.
Image Source: Zacks Investment Research
Segment Details
Grocery & Snacks: Quarterly net sales in the segment came in at $1,199 million, up 6.2% year over year, due to higher organic sales, partly hurt by the impact of Sold Businesses. Organic net sales rose 7%, with a price/mix up 8.8%. Volumes declined 1.8%. During the quarter, CAG saw an increased share in staple categories like syrup and beans as well as in snacking categories like meat snacks and popcorn.
Refrigerated & Frozen: Net sales grew 2.9% to $1,238.6 million due to higher organic net sales, partly countered by the impact of Sold businesses. Organic sales rose 3.9% on a price/mix increase of 8.4%. However, volumes were down 4.5% due to the elasticity impacts of pricing and supply restrictions. The company saw an improved share in frozen single-serve meals, frozen desserts and frozen multi-serve meals categories.
International: Net sales climbed 0.1% to $241.2 million, reflecting improved organic net sales. However, the adverse impacts of foreign currency translations and Solid Businesses were downsides. Organic sales rose 1%, with a price/mix up 8% and volumes down 7%.
Foodservice: Sales advanced 18.9% to $234.9 million due to an equal rise in organic sales. Volumes were up 10.5%, backed by recovering restaurant traffic, partly negated by the elasticity impact of pricing actions. The price/mix increased 8.4% due to inflation-driven pricing actions and an improved product mix.
Other Updates
Conagra exited the quarter with cash and cash equivalents of $79.7 million, senior long-term debt, excluding current installments, of $8,089.1 million and total stockholders’ equity of $8,853.3 million. During the quarter, Conagra paid out a quarterly dividend of 31.25 cents per share.
Guidance
Conagra had earlier stated that it expects consumer demand for its retail products to be above historical levels during fiscal 2022 due to new consumer habits cultivated amid the pandemic. Considering the trends to date, which include better-than-anticipated consumer demand, lower-than-expected demand elasticities, increased planned pricing actions, management expects the organic net sales improvement to be greater than the previous forecast. Organic net sales are now anticipated to rise more than 4%, up from more than 3% growth expected before.
The company continues to battle elevated cost of goods sold inflation, which came in higher than anticipated in the third quarter. Though it 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 nearly 14% expected before. The adjusted operating margin is anticipated to be nearly 14.5% now compared with the previous view of about 15.5%. Adjusted EPS is still envisioned to be about $2.35 now, down from $2.50 expected earlier.
For the fourth quarter of fiscal 2022, management anticipates organic sales growth of about more than 7%, gross inflation of roughly 16%, adjusted operating margin of around 15.5% and adjusted EPS of nearly 64 cents.
Shares of this Zacks Rank #3 (Hold) company have risen 3.7% in the past six months compared with the industry’s growth of 5.6%.
Looking for Consumer Staple Stocks? Check These
Some better-ranked stocks are Pilgrim’s Pride (PPC - Free Report) , Tyson Foods (TSN - Free Report) and Flowers Foods (FLO - Free Report) .
Pilgrim’s Pride, which produces, processes, markets and distributes fresh, frozen, and value-added chicken and pork products, sports a Zacks Rank #1 (Strong Buy). Shares of Pilgrim’s Pride have moved down 9.6% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Pilgrim’s Pride’s current financial-year EPS suggests growth of 19.7% from the year-ago reported number. PPC has a trailing four-quarter earnings surprise of 24.9%, on average.
Tyson Foods, a renowned meat products company, carries a Zacks Rank #2 (Buy) at present. Shares of Tyson Foods have jumped 16.7% in the past six months.
The Zacks Consensus Estimate for Tyson Foods’ current financial-year sales and EPS suggests growth of 9.5% and 5.6%, respectively, from the year-ago reported number. TSN has a trailing four-quarter earnings surprise of 32.2%, on average.
Flowers Foods, the producer and marketer of packaged bakery products, currently carries a Zacks Rank #2. Shares of Flowers Foods have risen 6.4% in the past six months.
The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales and EPS suggests growth of 7.2% and roughly 4%, respectively, from the year-ago reported figure. FLO has a trailing four-quarter earnings surprise of around 9%, on average.