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Why Is Conagra Brands (CAG) Down 14.5% Since the Last Earnings Report?

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A month has gone by since the last earnings report for Conagra Brands, Inc. (CAG - Free Report) . Shares have lost about 14.5% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Conagra Posts In-Line Q4 Earnings, Gives FY18 EPS View

Conagra reported in-line earnings for fourth-quarter fiscal 2017 (ended May 31, 2017).

In the fiscal fourth quarter, Conagra’s quarterly earnings from continuing operations came in at $0.37 per share, in line with the Zacks Consensus Estimate. However, the bottom line came in 15.6% higher than the year-ago tally. The company noted that the year-over-year upside was stemmed by lower interest expense, and reduced selling, general and administrative costs.

Adjusted earnings from continuing operations in fiscal 2017 came in at $1.74 per share compared to $1.30 per share reported in the year-ago period.

Revenues: Conagra generated net revenue of $1,861.7 million in the reported quarter, down 9.3% year over year. However, the top line surpassed the Zacks Consensus Estimate of $1,859 million.

Revenues for fiscal 2017 came in at $7,826.9 million, down 9.7% year over year. The dismal top-line performance came due to the lower volumes accrued from the company’s initiatives to create an improved quality revenue base.

Segmental Details

Grocery & Snacks: The segment’s quarterly sales were $749.4 million, down 3% year over year.

Refrigerated & Frozen: Quarterly revenues declined 5.1% year over year to $640.2 million.

International: Sales of the segment came in at $204.7 million, down 1.3% year over year.

Foodservice: The segment’s quarterly revenues were $267.4 million, down 5.3% year over year.

Margins/Costs: Conagra’s cost of goods sold dropped 9.5% year over year to $1,332.7 million. Selling, general and administrative (SG&A) expenses plunged 42.9% year over year to $417.8 million. Interest expenses plummeted 37.6% to $37.5 million due to lower debt levels.

Adjusted gross profit expanded 130 basis points (bps) to 29% during the quarter. Adjusted gross margin for fiscal 2017 came in at 30.2%, expanding 180 basis points year over year. The company mentioned that its margins improved on the back of robust supply chain productivity, improved price/mix and divestiture of low-margin businesses.

Balance Sheet/Cash Flow: Conagra exited the fiscal fourth quarter with cash and cash equivalents of $251.4 million, lower than $798.1 million recorded at the end of fiscal 2016. In fiscal 2017, Conagra generated net cash of $1,175.5 million from its operating activities, down from $1,259.2 million recorded in the year-ago period. Capital spent on additions of property, plant and equipment totaled $242.1 million, down 12.8% year over year.

During the reported quarter, the company repurchased 10 million shares of common stock with an amount of $405 million.

Outlook: Conagra anticipates reporting adjusted earnings from continuing operations within the range of $1.84–$1.89 per share for fiscal 2018. The company plans to buyback roughly $1.1 billion worth shares of its common stock in fiscal 2018.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter.

VGM Scores

At this time, Conagra's stock has an average Growth Score of 'C', while it is lagging a lot on the momentum front with 'F'.  The stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for value investors than those looking for growth.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.




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