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Conagra (CAG) to Report Q2 Earnings: What's in the Offing?

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Conagra Brands, Inc. CAG is slated to report second-quarter fiscal 2018 results (ended November 2017) on Dec 21, before the market opens.

Over the last three months, Conagra’s shares yielded a return of 12.1%, outperforming 4.3% growth recorded by the industry.

The company pulled off an average positive earnings surprise of 6.94% over the last four quarters. In first-quarter fiscal 2018, the company’s earnings came in at 46 cents, surpassing the Zacks Consensus Estimate of 41 cents.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

Conagra believes its ongoing volume strategy, supply-chain productivity and improvement in price mix will continue to widen margins in the quarters ahead. In addition, margin expansion, increased share repurchases, and lower interest expenses as a result of reduced debt burden will drive earnings in the quarter to be reported.

We also anticipate that the company’s strategic inorganic moves will enhance its competency in the near term. For instance, buyouts of fast-growing meat snack brands like Duke’s and BIGS (April 2017), as well as Angie's Artisan Treats, LLC acquisition (October 2017) are anticipated to bolster the company’s revenues in the fiscal second quarter. Moreover, the divestiture of J.W. Swank and Spicetec Flavors & Seasonings businesses (July 2016) will prove conducive to the company’s earnings growth.

In addition, Conagra’s recently-launched products (such as Power Bowls rolled out in May and the Pam Spray Pumps launched in September) are expected to drive its revenues in the upcoming quarters.

However, poor volumes (due to the planned discontinuation of low-performing products and lesser promotional activities) of Grocery & Snacks, Refrigerated & Frozen, Foodservice and International segments might dent Conagra’s top-line performance. Also, increased slotting dues associated with innovation investments might also continue to weigh over the company’s organic sales in the near future.

Additionally, Conagra conducts its business in a highly competitive industry. Intense competition might expose the company to risks of market share loss. Furthermore, inflation in prices of major products like proteins, peanuts and packaging will continue to mar the company’s margins.

Conagra currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for the stock is currently pegged at 52 cents for the quarter under review.  

It should be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

Here are some stocks in the same industry that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat:

Flowers Foods, Inc. FLO currently carries a Zacks Rank of 2. The company’s earnings per share (EPS) are predicted to be up 6.1% in the next three to five years. You can see the complete list of today’s Zacks Rank #1 (Strong Buy) Rank stocks here.

Lamb Weston Holdings Inc. (LW - Free Report) has a Zacks Rank of 2. The company’s EPS is estimated to climb 5.7% over the next three to five years.

Medifast Inc MED also carries a Zacks Rank of 2. The company’s EPS is projected to rise 15% during the same time frame.

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