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Conagra Brands, Inc. (CAG - Free Report) has been encountering cost inflation for a while now, though pressure has been easing of late, with inflation-justified pricing actions being a major help. The company is also benefiting from strength in its frozen & snacks categories.
Conagra has been strongly committed to undertaking innovation, which is the key to the company’s success. Prudent innovations have been helping CAG modernize its portfolio and meet consumers’ changing needs aptly. However, costs associated with innovation are a threat to profits.
Pricing – a Key Driver
Conagra’s efficient pricing initiatives have been offering respite amid cost headwinds. In the fourth quarter of fiscal 2023, the price/mix improved by 9.9% and aided the organic sales growth of 2.2%. The favorable price/mix was backed by CAG’s inflation-induced pricing actions.
The price/mix rose 9.1%, 10.4%, 13.8% and 9.3% in the Grocery & Snacks, Refrigerated & Frozen, International and Foodservice segments, respectively. The continuation of these upsides is likely to work well for Conagra.
For fiscal 2024, organic net sales are anticipated to rise nearly 1% year over year.
Image Source: Zacks Investment Research
Frozen & Snacks Categories Appear Strong
Conagra has been focusing its innovation on the frozen and snacks categories in particular. On its fourth-quarter fiscal 2023 earnings call, management stated that the frozen and snacks categories have improved 9% and 8%, respectively, over the past four years. Together, these categories form about 70% of the company’s domestic retail dollar sales.
Growth in the frozen category reflects the strength of the company’s brands and the effective execution of the Conagra Way playbook. In the fourth quarter, Conagra saw an improved share in multi-serve meals, frozen sides and frozen breakfast sausage. In fiscal 2023 (a year of considerable pricing), seven out of the company’s top 10 frozen product categories either held or increased the unit share.
Moving to snacks, Conagra’s two biggest snacking platforms — meat snacks and microwave popcorn — witnessed an increased unit share in fiscal 2023. Management expects fiscal 2024 results to benefit from the company’s investments in innovation in these categories.
Cost Woes Matter
In the fourth quarter of fiscal 2023, Conagra’s adjusted gross margin was partly hurt by the effects of the cost of goods sold inflation (including adverse commodity positions) and unfavorable operating leverage. Management expects net cost of goods sold inflation of nearly 3% in fiscal 2024.
Adjusted SG&A expenses, excluding advertising and promotional (A&P) costs, increased 24.3% to $301 million in the quarter due to higher incentive compensations, and greater supply chain and technology investments. A&P costs came in at $69 million, up 49.7% from the year-ago quarter’s level. Management expects increased investments in A&P as well as SG&A in fiscal 2024 to facilitate innovation.
For fiscal 2024, management envisions an adjusted EPS in the range of $2.70-$2.75. This indicates a decline from the adjusted EPS of $2.77 recorded in fiscal 2023. This is likely to result from higher investments in innovation and increased interest expenses.
Shares of this Zacks Rank #3 (Hold) company have decreased 15.4% in the past three months compared with the industry’s decline of 8.2%.
Solid Consumer Staple Bets
Inter Parfums (IPAR - Free Report) , which manufactures, markets and distributes a range of fragrances and fragrance-related products, currently sports a Zacks Rank #1 (Strong Buy). IPAR has an expected EPS growth rate of 15% for three to five years. You can see the complete list of today’s Zacks #1 Rank stocks here
The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales indicates 19.7% growth from the year-ago reported figure. IPAR has a trailing four-quarter earnings surprise of 45.9%, on average.
Flowers Foods (FLO - Free Report) , a packaged bakery food product company, currently carries a Zacks Rank #2 (Buy). FLO has a trailing four-quarter earnings surprise of 7.6% on average.
The Zacks Consensus Estimate for Flowers Foods’ current fiscal-year sales suggests growth of 6.7% from the corresponding year-ago reported figure.
Helen of Troy (HELE - Free Report) , a provider of several consumer products, currently has a Zacks Rank #2. HELE’s expected EPS growth rate for three to five years is 8%.
The Zacks Consensus Estimate for Helen of Troy’s current fiscal-year sales suggests a decline of 2.9% from the year-ago reported numbers. HELE has a trailing four-quarter earnings surprise of 8.1%, on average.
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Conagra's (CAG) Pricing & Innovation Aid, Inflated Costs Hurt
Conagra Brands, Inc. (CAG - Free Report) has been encountering cost inflation for a while now, though pressure has been easing of late, with inflation-justified pricing actions being a major help. The company is also benefiting from strength in its frozen & snacks categories.
Conagra has been strongly committed to undertaking innovation, which is the key to the company’s success. Prudent innovations have been helping CAG modernize its portfolio and meet consumers’ changing needs aptly. However, costs associated with innovation are a threat to profits.
Pricing – a Key Driver
Conagra’s efficient pricing initiatives have been offering respite amid cost headwinds. In the fourth quarter of fiscal 2023, the price/mix improved by 9.9% and aided the organic sales growth of 2.2%. The favorable price/mix was backed by CAG’s inflation-induced pricing actions.
The price/mix rose 9.1%, 10.4%, 13.8% and 9.3% in the Grocery & Snacks, Refrigerated & Frozen, International and Foodservice segments, respectively. The continuation of these upsides is likely to work well for Conagra.
For fiscal 2024, organic net sales are anticipated to rise nearly 1% year over year.
Image Source: Zacks Investment Research
Frozen & Snacks Categories Appear Strong
Conagra has been focusing its innovation on the frozen and snacks categories in particular. On its fourth-quarter fiscal 2023 earnings call, management stated that the frozen and snacks categories have improved 9% and 8%, respectively, over the past four years. Together, these categories form about 70% of the company’s domestic retail dollar sales.
Growth in the frozen category reflects the strength of the company’s brands and the effective execution of the Conagra Way playbook. In the fourth quarter, Conagra saw an improved share in multi-serve meals, frozen sides and frozen breakfast sausage. In fiscal 2023 (a year of considerable pricing), seven out of the company’s top 10 frozen product categories either held or increased the unit share.
Moving to snacks, Conagra’s two biggest snacking platforms — meat snacks and microwave popcorn — witnessed an increased unit share in fiscal 2023. Management expects fiscal 2024 results to benefit from the company’s investments in innovation in these categories.
Cost Woes Matter
In the fourth quarter of fiscal 2023, Conagra’s adjusted gross margin was partly hurt by the effects of the cost of goods sold inflation (including adverse commodity positions) and unfavorable operating leverage. Management expects net cost of goods sold inflation of nearly 3% in fiscal 2024.
Adjusted SG&A expenses, excluding advertising and promotional (A&P) costs, increased 24.3% to $301 million in the quarter due to higher incentive compensations, and greater supply chain and technology investments. A&P costs came in at $69 million, up 49.7% from the year-ago quarter’s level. Management expects increased investments in A&P as well as SG&A in fiscal 2024 to facilitate innovation.
For fiscal 2024, management envisions an adjusted EPS in the range of $2.70-$2.75. This indicates a decline from the adjusted EPS of $2.77 recorded in fiscal 2023. This is likely to result from higher investments in innovation and increased interest expenses.
Shares of this Zacks Rank #3 (Hold) company have decreased 15.4% in the past three months compared with the industry’s decline of 8.2%.
Solid Consumer Staple Bets
Inter Parfums (IPAR - Free Report) , which manufactures, markets and distributes a range of fragrances and fragrance-related products, currently sports a Zacks Rank #1 (Strong Buy). IPAR has an expected EPS growth rate of 15% for three to five years. You can see the complete list of today’s Zacks #1 Rank stocks here
The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales indicates 19.7% growth from the year-ago reported figure. IPAR has a trailing four-quarter earnings surprise of 45.9%, on average.
Flowers Foods (FLO - Free Report) , a packaged bakery food product company, currently carries a Zacks Rank #2 (Buy). FLO has a trailing four-quarter earnings surprise of 7.6% on average.
The Zacks Consensus Estimate for Flowers Foods’ current fiscal-year sales suggests growth of 6.7% from the corresponding year-ago reported figure.
Helen of Troy (HELE - Free Report) , a provider of several consumer products, currently has a Zacks Rank #2. HELE’s expected EPS growth rate for three to five years is 8%.
The Zacks Consensus Estimate for Helen of Troy’s current fiscal-year sales suggests a decline of 2.9% from the year-ago reported numbers. HELE has a trailing four-quarter earnings surprise of 8.1%, on average.