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Why Is Conagra Brands (CAG) Down 2% Since Last Earnings Report?
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A month has gone by since the last earnings report for Conagra Brands (CAG - Free Report) . Shares have lost about 2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Conagra Brands due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Conagra Q3 Earnings Top Estimates, EPS Guidance Raised
Conagra Brands delivered third-quarter fiscal 2023 results, wherein the top and bottom lines advanced year over year and the latter comfortably beat the Zacks Consensus Estimate. Results reflect strength in the company’s brands and the ongoing execution of the Conagra Way playbook. Robust pricing efforts with modest elasticities fueled top-line growth. The company continued to deliver improved service levels and productivity, which helped it improve the adjusted gross and operating margin, even amid greater-than-expected industry-wide supply-chain hurdles. Every segment registered growth in the adjusted operating profit.
Based on its year-to-date performance, continued business momentum and current operating landscape, Conagra raised its adjusted EPS guidance for fiscal 2023. However, it narrowed its guidance range for organic net sales growth and adjusted operating margin.
Quarter in Detail
Conagra’s quarterly adjusted EPS came in at 76 cents, beating the Zacks Consensus Estimate of 64 cents and our estimate of 62 cents. The bottom line increased 31% year over year, mainly due to the higher gross profit.
Conagra generated net sales of $3,086.5 million, which advanced 5.9% year over year. The Zacks Consensus Estimate stood at $3,092.3 million and our estimate was $3,047.9 million. The year-over-year sales increase resulted from higher organic sales, partly negated by currency headwinds (to the tune of 0.2%). Organic net sales rose 6.1% due to a price/mix, increasing 15.1%. The price/mix was backed by the company’s inflation-induced pricing actions. The upside was somewhat negated by volumes, which dropped 9%, affected by the elasticity effect stemming from pricing actions and supply-chain hurdles.
The adjusted gross profit jumped 23.9% to $869 million. The adjusted gross margin expanded 409 basis points to 28.1%. Gains from increased organic sales and productivity more than offset the effects of the cost of goods sold inflation (including adverse commodity positions) and unfavorable operating leverage. Adjusted SG&A expenses, excluding advertising and promotional (A&P) costs, increased 12.4% to $266 million due to higher incentive compensation. A&P costs came in at $81 million, up 23.9% from the year-ago quarter’s level. Adjusted EBITDA (including equity method investment earnings and the pension and post-retirement non-service income) rose 21.1% to $669 million, mainly led by the higher adjusted gross profit, partly offset by the reduced pension income.
Segment Details
Grocery & Snacks: Quarterly net sales in the segment came in at $1,243.7 million, up 3.7% year over year. Organic net sales also rose 3.7%, with the price/mix up 13.7%, fueled by positive inflation-driven pricing. Volumes declined 10% due to the elasticity impact of inflation-driven pricing actions and shortages stemming from supply-chain bottlenecks. During the quarter, CAG saw share gains in snacking categories like meat snacks and microwave popcorn as well as staples categories, namely refried beans and Asian sauce and marinades.
Refrigerated & Frozen: Net sales grew 5.6% to $1,307.7 million. Organic sales also rose 5.6% on a price/mix increase of 15.4%. However, volumes were down 9.8% due to the elasticity impacts of pricing and supply-chain headwind-led shortages. The company saw an improved share in plant-based protein, frozen sides and frozen breakfasts.
International: Net sales advanced 7.7% to $259.7 million, reflecting improved organic net sales. However, the adverse impacts of foreign currency translations (to the tune of 1.8%) were a downside. Organic sales rose 9.5%, with the price/mix up 16.5% and volumes down 7%. Volumes were hurt by the elasticity effect from inflation-led pricing.
Foodservice: Sales advanced 17.3% (also organically) to $275.4 million. The price/mix improved 18.5% on favorable inflation-driven pricing. Volumes declined 1.2%, mainly due to the elasticity impact of inflation-driven pricing actions.
Other Updates
The company exited the quarter with cash and cash equivalents of $71.2 million, senior long-term debt, excluding current installments, of $8,081.2 million and total stockholders’ equity of $8,938.3 million. During the quarter, Conagra paid out a quarterly dividend of 33 cents per share.
Guidance
For fiscal 2023, organic net sales are anticipated to rise 7-7.5% now, up from the prior view of 7-8% growth. The adjusted operating margin is anticipated in the band of 15.5-15.6% compared with the 15.3-15.6% projected earlier. Management now envisions an adjusted EPS in the range of $2.70-$2.75, suggesting 14-17% year-over-year growth. The adjusted EPS growth was earlier expected in the band of $2.60-$2.70, suggesting 10-14% year-over-year growth. For fiscal 2023, capital expenditures are likely to be about $370 million, interest expenses are expected at roughly $410 million and the adjusted effective tax rate is anticipated at around 24%. Management expects the pension income to be nearly $25 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
VGM Scores
At this time, Conagra Brands has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Conagra Brands has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Conagra Brands is part of the Zacks Food - Miscellaneous industry. Over the past month, General Mills (GIS - Free Report) , a stock from the same industry, has gained 2.9%. The company reported its results for the quarter ended February 2023 more than a month ago.
General Mills reported revenues of $5.13 billion in the last reported quarter, representing a year-over-year change of +13%. EPS of $0.97 for the same period compares with $0.84 a year ago.
General Mills is expected to post earnings of $1.05 per share for the current quarter, representing a year-over-year change of -6.3%. Over the last 30 days, the Zacks Consensus Estimate has changed +0%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for General Mills. Also, the stock has a VGM Score of D.
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Why Is Conagra Brands (CAG) Down 2% Since Last Earnings Report?
A month has gone by since the last earnings report for Conagra Brands (CAG - Free Report) . Shares have lost about 2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Conagra Brands due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Conagra Q3 Earnings Top Estimates, EPS Guidance Raised
Conagra Brands delivered third-quarter fiscal 2023 results, wherein the top and bottom lines advanced year over year and the latter comfortably beat the Zacks Consensus Estimate. Results reflect strength in the company’s brands and the ongoing execution of the Conagra Way playbook. Robust pricing efforts with modest elasticities fueled top-line growth. The company continued to deliver improved service levels and productivity, which helped it improve the adjusted gross and operating margin, even amid greater-than-expected industry-wide supply-chain hurdles. Every segment registered growth in the adjusted operating profit.
Based on its year-to-date performance, continued business momentum and current operating landscape, Conagra raised its adjusted EPS guidance for fiscal 2023. However, it narrowed its guidance range for organic net sales growth and adjusted operating margin.
Quarter in Detail
Conagra’s quarterly adjusted EPS came in at 76 cents, beating the Zacks Consensus Estimate of 64 cents and our estimate of 62 cents. The bottom line increased 31% year over year, mainly due to the higher gross profit.
Conagra generated net sales of $3,086.5 million, which advanced 5.9% year over year. The Zacks Consensus Estimate stood at $3,092.3 million and our estimate was $3,047.9 million. The year-over-year sales increase resulted from higher organic sales, partly negated by currency headwinds (to the tune of 0.2%). Organic net sales rose 6.1% due to a price/mix, increasing 15.1%. The price/mix was backed by the company’s inflation-induced pricing actions. The upside was somewhat negated by volumes, which dropped 9%, affected by the elasticity effect stemming from pricing actions and supply-chain hurdles.
The adjusted gross profit jumped 23.9% to $869 million. The adjusted gross margin expanded 409 basis points to 28.1%. Gains from increased organic sales and productivity more than offset the effects of the cost of goods sold inflation (including adverse commodity positions) and unfavorable operating leverage. Adjusted SG&A expenses, excluding advertising and promotional (A&P) costs, increased 12.4% to $266 million due to higher incentive compensation. A&P costs came in at $81 million, up 23.9% from the year-ago quarter’s level. Adjusted EBITDA (including equity method investment earnings and the pension and post-retirement non-service income) rose 21.1% to $669 million, mainly led by the higher adjusted gross profit, partly offset by the reduced pension income.
Segment Details
Grocery & Snacks: Quarterly net sales in the segment came in at $1,243.7 million, up 3.7% year over year. Organic net sales also rose 3.7%, with the price/mix up 13.7%, fueled by positive inflation-driven pricing. Volumes declined 10% due to the elasticity impact of inflation-driven pricing actions and shortages stemming from supply-chain bottlenecks. During the quarter, CAG saw share gains in snacking categories like meat snacks and microwave popcorn as well as staples categories, namely refried beans and Asian sauce and marinades.
Refrigerated & Frozen: Net sales grew 5.6% to $1,307.7 million. Organic sales also rose 5.6% on a price/mix increase of 15.4%. However, volumes were down 9.8% due to the elasticity impacts of pricing and supply-chain headwind-led shortages. The company saw an improved share in plant-based protein, frozen sides and frozen breakfasts.
International: Net sales advanced 7.7% to $259.7 million, reflecting improved organic net sales. However, the adverse impacts of foreign currency translations (to the tune of 1.8%) were a downside. Organic sales rose 9.5%, with the price/mix up 16.5% and volumes down 7%. Volumes were hurt by the elasticity effect from inflation-led pricing.
Foodservice: Sales advanced 17.3% (also organically) to $275.4 million. The price/mix improved 18.5% on favorable inflation-driven pricing. Volumes declined 1.2%, mainly due to the elasticity impact of inflation-driven pricing actions.
Other Updates
The company exited the quarter with cash and cash equivalents of $71.2 million, senior long-term debt, excluding current installments, of $8,081.2 million and total stockholders’ equity of $8,938.3 million. During the quarter, Conagra paid out a quarterly dividend of 33 cents per share.
Guidance
For fiscal 2023, organic net sales are anticipated to rise 7-7.5% now, up from the prior view of 7-8% growth. The adjusted operating margin is anticipated in the band of 15.5-15.6% compared with the 15.3-15.6% projected earlier. Management now envisions an adjusted EPS in the range of $2.70-$2.75, suggesting 14-17% year-over-year growth. The adjusted EPS growth was earlier expected in the band of $2.60-$2.70, suggesting 10-14% year-over-year growth. For fiscal 2023, capital expenditures are likely to be about $370 million, interest expenses are expected at roughly $410 million and the adjusted effective tax rate is anticipated at around 24%. Management expects the pension income to be nearly $25 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
VGM Scores
At this time, Conagra Brands has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Conagra Brands has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Conagra Brands is part of the Zacks Food - Miscellaneous industry. Over the past month, General Mills (GIS - Free Report) , a stock from the same industry, has gained 2.9%. The company reported its results for the quarter ended February 2023 more than a month ago.
General Mills reported revenues of $5.13 billion in the last reported quarter, representing a year-over-year change of +13%. EPS of $0.97 for the same period compares with $0.84 a year ago.
General Mills is expected to post earnings of $1.05 per share for the current quarter, representing a year-over-year change of -6.3%. Over the last 30 days, the Zacks Consensus Estimate has changed +0%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for General Mills. Also, the stock has a VGM Score of D.