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Conagra Brands, Inc. (CAG - Free Report) delivered decent first-quarter fiscal 2024 results despite battling industry-wide macroeconomic challenges, which have adversely impacted consumer purchasing patterns and extended the volume recovery time. During the quarter, the bottom line increased and came ahead of the Zacks Consensus Estimate, while the top line remained flat year over year.
Management remains focused on the execution of its Conagra Way playbook, as part of which it is committed to making prudent investments to fuel the top line throughout the year. Conagra reiterated its guidance for fiscal 2024 as it remains optimistic about its plans, even amid a changing consumer landscape.
Quarter in Detail
Conagra’s quarterly adjusted earnings per share (EPS) came in at 66 cents, beating the Zacks Consensus Estimate of 60 cents. The bottom line increased 15% year over year due to higher gross profit and reduced SG&A expenses.
Conagra generated net sales of $2,904 million, which remained flat year over year. However, the metric missed the Zacks Consensus Estimate of $2,946 million. The top line included a 0.3% positive impact of currency movements.
Organic net sales decreased 0.3% due to a 6.6% drop in volumes, which stemmed from an industry-wide slowdown in consumption and the recent changes in consumer behavior. This was partly made up by a 6.3% increase in the price/mix. Our model suggested a volume decline of 7.3% and a pricing increase of 8.8% for the first quarter.
The adjusted gross profit jumped 10.9% to $801 million. The adjusted gross margin expanded 272 basis points (bps) to 27.6%. Gains from the inflation-induced pricing actions implemented in fiscal 2023, along with productivity, countered the negative effects of the cost of goods sold, adverse operating leverage and a decline in organic sales. We had expected the adjusted gross margin to expand 180 bps to 26.7%.
Adjusted SG&A expenses, excluding advertising and promotional (A&P) costs, decreased 1.5% to $258 million due to reduced incentive compensation. A&P costs came in at $59 million, down 5.3% from the year-ago quarter’s level.
Adjusted EBITDA (including equity method investment earnings and the pension and post-retirement non-service income) ascended 12.1% to $613 million, mainly led by the higher adjusted gross profit.
Grocery & Snacks: Quarterly net sales in the segment came in at $1,202.9 million, up 1.2% year over year. We had expected Grocery & Snacks net sales growth of 1%. Organic sales also increased 1.2% on a 5.6% improvement in the price/mix, partly countered by a 4.4% drop in volumes. During the quarter, CAG saw share gains in snacking categories like seeds and microwave popcorn, as well as a few staple categories such as chili and canned meat.
Refrigerated & Frozen: Net sales and organic sales declined 4.6% to $1,151.6 million. The price/mix increased 5.9%, but volumes were down 10.5% due to sluggish industry-wide consumption patterns. The company saw an improved share in frozen sides and frozen breakfast sausage.
International: Net sales advanced 11.4% to $260.2 million, reflecting improved organic net sales (up 8.2%) and positive currency effects (of 3.2%). Organic sales growth was driven by the price/mix, which was up 7.9%, and volumes, which rose 0.3%.
Foodservice: Reported and organic sales advanced 5.2% to $289.3 million. We had expected Foodservice net sales growth of 3% for the first quarter. The price/mix improved 10.3%, whereas volumes declined 5.1%, mainly due to the elasticity impact of inflation-driven pricing actions.
Other Updates
This Zacks Rank #3 (Hold) company exited the quarter with cash and cash equivalents of $93.3 million, senior long-term debt, excluding current installments, of $7,745.1 million and total stockholders’ equity of $8,955.1 million. Conagra paid out a dividend of 33 cents per share in the first quarter.
Guidance
For fiscal 2024, organic net sales are anticipated to rise nearly 1% year over year. The adjusted operating margin is expected in the band of 16-16.5%. Management envisions an adjusted EPS in the range of $2.70-$2.75. The company reported an adjusted EPS of $2.77 in fiscal 2023.
For fiscal 2024, capital expenditures are likely to be about $500 million, interest expenses are expected at nearly $450 million and the adjusted effective tax rate is anticipated at around 24%.
For the second quarter of fiscal 2024, organic net sales are anticipated to decline in the low single digits on improved volume trends due to the wrapping up of inflation-driven pricing actions from fiscal 2023. For the second quarter, management expects a sequential decline in the gross and operating margins resulting from escalated trade and A&P investments.
In the back half of fiscal 2024, CAG expects low-single-digit organic net sales growth due to a volume increase. However, margins are likely to remain at the second-quarter levels as trade and A&P spend are likely to remain elevated.
Shares of the company have fallen 19.8% in the past three months compared with the industry’s decline of 13.3%.
The Zacks Consensus Estimate for Lamb Weston’s current financial-year sales and EPS calls for growth of 41.6% and 45.3%, respectively, from the corresponding year-ago reported figures.
Kraft Heinz Company (KHC - Free Report) , a food and beverage product company, currently carries a Zacks Rank #2. KHC has a trailing four-quarter earnings surprise of 11.3%, on average.
The Zacks Consensus Estimate for Kraft Heinz’s current fiscal-year sales suggests growth of 2.2% from the corresponding year-ago reported figure.
Flowers Foods (FLO - Free Report) , a packaged bakery food product company, currently has a Zacks Rank #2. FLO has a trailing four-quarter earnings surprise of 7.6%, on average.
The Zacks Consensus Estimate for Flowers Foods’ current fiscal-year sales indicates growth of 6.7% from the year-ago reported number.
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Conagra (CAG) Beats Q1 Earnings Estimates Despite Low Volumes
Conagra Brands, Inc. (CAG - Free Report) delivered decent first-quarter fiscal 2024 results despite battling industry-wide macroeconomic challenges, which have adversely impacted consumer purchasing patterns and extended the volume recovery time. During the quarter, the bottom line increased and came ahead of the Zacks Consensus Estimate, while the top line remained flat year over year.
Management remains focused on the execution of its Conagra Way playbook, as part of which it is committed to making prudent investments to fuel the top line throughout the year. Conagra reiterated its guidance for fiscal 2024 as it remains optimistic about its plans, even amid a changing consumer landscape.
Quarter in Detail
Conagra’s quarterly adjusted earnings per share (EPS) came in at 66 cents, beating the Zacks Consensus Estimate of 60 cents. The bottom line increased 15% year over year due to higher gross profit and reduced SG&A expenses.
Conagra generated net sales of $2,904 million, which remained flat year over year. However, the metric missed the Zacks Consensus Estimate of $2,946 million. The top line included a 0.3% positive impact of currency movements.
Organic net sales decreased 0.3% due to a 6.6% drop in volumes, which stemmed from an industry-wide slowdown in consumption and the recent changes in consumer behavior. This was partly made up by a 6.3% increase in the price/mix. Our model suggested a volume decline of 7.3% and a pricing increase of 8.8% for the first quarter.
The adjusted gross profit jumped 10.9% to $801 million. The adjusted gross margin expanded 272 basis points (bps) to 27.6%. Gains from the inflation-induced pricing actions implemented in fiscal 2023, along with productivity, countered the negative effects of the cost of goods sold, adverse operating leverage and a decline in organic sales. We had expected the adjusted gross margin to expand 180 bps to 26.7%.
Adjusted SG&A expenses, excluding advertising and promotional (A&P) costs, decreased 1.5% to $258 million due to reduced incentive compensation. A&P costs came in at $59 million, down 5.3% from the year-ago quarter’s level.
Adjusted EBITDA (including equity method investment earnings and the pension and post-retirement non-service income) ascended 12.1% to $613 million, mainly led by the higher adjusted gross profit.
Conagra Brands Price, Consensus and EPS Surprise
Conagra Brands price-consensus-eps-surprise-chart | Conagra Brands Quote
Segment Details
Grocery & Snacks: Quarterly net sales in the segment came in at $1,202.9 million, up 1.2% year over year. We had expected Grocery & Snacks net sales growth of 1%. Organic sales also increased 1.2% on a 5.6% improvement in the price/mix, partly countered by a 4.4% drop in volumes. During the quarter, CAG saw share gains in snacking categories like seeds and microwave popcorn, as well as a few staple categories such as chili and canned meat.
Refrigerated & Frozen: Net sales and organic sales declined 4.6% to $1,151.6 million. The price/mix increased 5.9%, but volumes were down 10.5% due to sluggish industry-wide consumption patterns. The company saw an improved share in frozen sides and frozen breakfast sausage.
International: Net sales advanced 11.4% to $260.2 million, reflecting improved organic net sales (up 8.2%) and positive currency effects (of 3.2%). Organic sales growth was driven by the price/mix, which was up 7.9%, and volumes, which rose 0.3%.
Foodservice: Reported and organic sales advanced 5.2% to $289.3 million. We had expected Foodservice net sales growth of 3% for the first quarter. The price/mix improved 10.3%, whereas volumes declined 5.1%, mainly due to the elasticity impact of inflation-driven pricing actions.
Other Updates
This Zacks Rank #3 (Hold) company exited the quarter with cash and cash equivalents of $93.3 million, senior long-term debt, excluding current installments, of $7,745.1 million and total stockholders’ equity of $8,955.1 million. Conagra paid out a dividend of 33 cents per share in the first quarter.
Guidance
For fiscal 2024, organic net sales are anticipated to rise nearly 1% year over year. The adjusted operating margin is expected in the band of 16-16.5%. Management envisions an adjusted EPS in the range of $2.70-$2.75. The company reported an adjusted EPS of $2.77 in fiscal 2023.
For fiscal 2024, capital expenditures are likely to be about $500 million, interest expenses are expected at nearly $450 million and the adjusted effective tax rate is anticipated at around 24%.
For the second quarter of fiscal 2024, organic net sales are anticipated to decline in the low single digits on improved volume trends due to the wrapping up of inflation-driven pricing actions from fiscal 2023. For the second quarter, management expects a sequential decline in the gross and operating margins resulting from escalated trade and A&P investments.
In the back half of fiscal 2024, CAG expects low-single-digit organic net sales growth due to a volume increase. However, margins are likely to remain at the second-quarter levels as trade and A&P spend are likely to remain elevated.
Shares of the company have fallen 19.8% in the past three months compared with the industry’s decline of 13.3%.
Appetizing Food Picks
Lamb Weston (LW - Free Report) , which produces, distributes and markets frozen potato products, currently carries a Zacks Rank #2 (Buy). LW has a trailing four-quarter earnings surprise of 44.8%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
The Zacks Consensus Estimate for Lamb Weston’s current financial-year sales and EPS calls for growth of 41.6% and 45.3%, respectively, from the corresponding year-ago reported figures.
Kraft Heinz Company (KHC - Free Report) , a food and beverage product company, currently carries a Zacks Rank #2. KHC has a trailing four-quarter earnings surprise of 11.3%, on average.
The Zacks Consensus Estimate for Kraft Heinz’s current fiscal-year sales suggests growth of 2.2% from the corresponding year-ago reported figure.
Flowers Foods (FLO - Free Report) , a packaged bakery food product company, currently has a Zacks Rank #2. FLO has a trailing four-quarter earnings surprise of 7.6%, on average.
The Zacks Consensus Estimate for Flowers Foods’ current fiscal-year sales indicates growth of 6.7% from the year-ago reported number.