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Conagra (CAG) Navigates a Complex Landscape, Hurt by Volumes
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Conagra Brands, Inc. (CAG - Free Report) is navigating a complex operating landscape, with a slowdown in overall consumption weighing on the company’s volumes. Additionally, Conagra has been grappling with cost inflation. CAG is on track to make additional brand-building investments in the second half of fiscal 2024, which, however, is likely to weigh on margins.
Year-to-date results, the anticipation of slower volume improvement and higher brand investments in the second half of fiscal 2024 prompted management to lower its guidance for fiscal 2024 in its second-quarter earnings release. The Zacks Consensus Estimate for fiscal 2024 earnings per share (EPS) has declined from $2.68 to $2.62 over the past 30 days.
Challenges Aboard
Conagra has been seeing soft volumes for a while now. In the second quarter of fiscal 2024, volumes dropped 2.9% year over year, hurting the company’s organic sales. Volumes declined across most company segments, apart from International. The downside was a result of the continuation of the industry-wide slowdown in consumption and the recent changes in consumer behavior. Industry-wide macroeconomic challenges have adversely impacted consumer purchasing patterns.
Management expects slower volume improvement, per its second-quarter earnings release. For fiscal 2024, organic net sales are anticipated to decrease by 1-2% compared with the earlier view of a rise of nearly 1% year over year.
We note that Conagra witnessed an adverse impact of the price/mix in the second quarter of fiscal 2024 as a result of elevated strategic investments. During the quarter, the price/mix had a 0.5% negative effect on the company’s organic sales, which fell 3.4%. The current industry dynamics, together with the planned second-half investments, are likely to lead the second-half price/mix to be lower from the year-ago period level.
Image Source: Zacks Investment Research
Incidentally, the company has been encountering cost inflation for a while now, though the trend has been moderating of late. In the second quarter of fiscal 2024, the adjusted gross margin contracted 129 basis points (bps) to 26.9%, hurt by the inflated cost of goods sold to the tune of 1.7%, lower organic sales and unfavorable operating leverage.
Management expects the net cost of goods sold inflation of nearly 3% in fiscal 2024. Conagra is focused on ramping up brand-building investments in the second half of fiscal 2024. It expects A&P spending in the second half to increase about 20% compared with the first half.
The adjusted operating margin is expected to be roughly 15.6% in fiscal 2024, down from the earlier projected range of 16-16.5%. Management envisions an adjusted EPS in the range of $2.60-$2.65 compared with the previously guided range of $2.70-$2.75. The company reported an adjusted EPS of $2.77 in fiscal 2023.
Wrapping Up
A focus on innovation has been working well for Conagra, which has been witnessing considerable market share gains in the frozen category. Prudent innovations have been helping the company modernize its portfolio and meet consumers’ changing needs aptly. CAG’s International business also did well in the second quarter of fiscal 2024. However, it remains to be seen if these upsides can help this currently Zacks Rank #4 (Sell) company completely offset the abovementioned headwinds in the near term.
Shares of CAG have tumbled 11.2% in the past six months compared with the industry’s decline of 5.3%.
The Zacks Consensus Estimate for Sysco’s current fiscal-year sales and earnings suggests growth of 4.1% and nearly 8%, respectively, from the year-ago reported numbers.
Lamb Weston (LW - Free Report) produces, distributes and markets frozen potato products. It currently has a Zacks Rank #2. LW has a trailing four-quarter earnings surprise of 28.8%, on average.
The Zacks Consensus Estimate for Lamb Weston’s current fiscal-year sales and earnings suggests growth of 28.1% and 26.3%, respectively, from the year-ago reported figure.
Ingredion Incorporated (INGR - Free Report) , which produces and sells sweeteners, starches, nutrition ingredients and biomaterial solutions, holds a Zacks Rank #2. INGR delivered a positive earnings surprise of 23.9% in the last reported quarter.
The Zacks Consensus Estimate for Ingredion Incorporated’s current financial-year sales and earnings suggests growth of around 5% and 24.7%, respectively, from the year-ago reported numbers.
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Conagra (CAG) Navigates a Complex Landscape, Hurt by Volumes
Conagra Brands, Inc. (CAG - Free Report) is navigating a complex operating landscape, with a slowdown in overall consumption weighing on the company’s volumes. Additionally, Conagra has been grappling with cost inflation. CAG is on track to make additional brand-building investments in the second half of fiscal 2024, which, however, is likely to weigh on margins.
Year-to-date results, the anticipation of slower volume improvement and higher brand investments in the second half of fiscal 2024 prompted management to lower its guidance for fiscal 2024 in its second-quarter earnings release. The Zacks Consensus Estimate for fiscal 2024 earnings per share (EPS) has declined from $2.68 to $2.62 over the past 30 days.
Challenges Aboard
Conagra has been seeing soft volumes for a while now. In the second quarter of fiscal 2024, volumes dropped 2.9% year over year, hurting the company’s organic sales. Volumes declined across most company segments, apart from International. The downside was a result of the continuation of the industry-wide slowdown in consumption and the recent changes in consumer behavior. Industry-wide macroeconomic challenges have adversely impacted consumer purchasing patterns.
Management expects slower volume improvement, per its second-quarter earnings release. For fiscal 2024, organic net sales are anticipated to decrease by 1-2% compared with the earlier view of a rise of nearly 1% year over year.
We note that Conagra witnessed an adverse impact of the price/mix in the second quarter of fiscal 2024 as a result of elevated strategic investments. During the quarter, the price/mix had a 0.5% negative effect on the company’s organic sales, which fell 3.4%. The current industry dynamics, together with the planned second-half investments, are likely to lead the second-half price/mix to be lower from the year-ago period level.
Image Source: Zacks Investment Research
Incidentally, the company has been encountering cost inflation for a while now, though the trend has been moderating of late. In the second quarter of fiscal 2024, the adjusted gross margin contracted 129 basis points (bps) to 26.9%, hurt by the inflated cost of goods sold to the tune of 1.7%, lower organic sales and unfavorable operating leverage.
Management expects the net cost of goods sold inflation of nearly 3% in fiscal 2024. Conagra is focused on ramping up brand-building investments in the second half of fiscal 2024. It expects A&P spending in the second half to increase about 20% compared with the first half.
The adjusted operating margin is expected to be roughly 15.6% in fiscal 2024, down from the earlier projected range of 16-16.5%. Management envisions an adjusted EPS in the range of $2.60-$2.65 compared with the previously guided range of $2.70-$2.75. The company reported an adjusted EPS of $2.77 in fiscal 2023.
Wrapping Up
A focus on innovation has been working well for Conagra, which has been witnessing considerable market share gains in the frozen category. Prudent innovations have been helping the company modernize its portfolio and meet consumers’ changing needs aptly. CAG’s International business also did well in the second quarter of fiscal 2024. However, it remains to be seen if these upsides can help this currently Zacks Rank #4 (Sell) company completely offset the abovementioned headwinds in the near term.
Shares of CAG have tumbled 11.2% in the past six months compared with the industry’s decline of 5.3%.
3 Appetizing Bets
Sysco Corporation (SYY - Free Report) , a food and related product company, currently carries a Zacks Rank #2 (Buy). SYY delivered a back-to-back positive earnings surprise in the past two quarters. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Sysco’s current fiscal-year sales and earnings suggests growth of 4.1% and nearly 8%, respectively, from the year-ago reported numbers.
Lamb Weston (LW - Free Report) produces, distributes and markets frozen potato products. It currently has a Zacks Rank #2. LW has a trailing four-quarter earnings surprise of 28.8%, on average.
The Zacks Consensus Estimate for Lamb Weston’s current fiscal-year sales and earnings suggests growth of 28.1% and 26.3%, respectively, from the year-ago reported figure.
Ingredion Incorporated (INGR - Free Report) , which produces and sells sweeteners, starches, nutrition ingredients and biomaterial solutions, holds a Zacks Rank #2. INGR delivered a positive earnings surprise of 23.9% in the last reported quarter.
The Zacks Consensus Estimate for Ingredion Incorporated’s current financial-year sales and earnings suggests growth of around 5% and 24.7%, respectively, from the year-ago reported numbers.