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Conagra (CAG) Q1 Earnings & Sales Likely to Increase Y/Y

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Conagra Brands, Inc. (CAG - Free Report) is scheduled to release first-quarter fiscal 2019 results on Sep 27. This renowned food company boasts a splendid earnings surprise history and has outperformed the Zacks Consensus Estimate by an average of 10.8% in the trailing four quarters.

Conagra Brands Inc. Price and EPS Surprise
 

Conagra Brands Inc. Price and EPS Surprise | Conagra Brands Inc. Quote

Factors Likely to Drive Conagra

Conagra has been progressing well with its transformation plan, which helped it deliver solid fourth-quarter fiscal 2018 results. Further, the company, which is set to acquire Pinnacle Foods (PF - Free Report) is likely to continue gaining from its focus on buyouts. Conagra remains focused on boosting its competency by reshaping portfolio through meaningful inorganic moves. In sync with this, the company tries to acquire high margin generating businesses, while divesting the less profitable ones. Notably, strategic acquisitions like Angie’s, Sandwich Bros, and Duke’s and Bigs are fueling Conagra’s operations and we expect these businesses to remain significant growth drivers.

Additionally, Conagra remains focused on boosting top line on the back of its unique value-over-volume strategy. Under this regime, Conagra ensures that its robust volume performance is not driven by price discounts but by stronger innovation as well as new merchandising, distribution and consumer trail-related investments. For instance, new investments to strengthen frozen business will likely boost sales of Refrigerated & Frozen segment, going forward. On the other hand, brand renovation initiatives executed to reinforce snacks business would likely help in improving Grocery & Snacks segment’s near-term sales. Incidentally, the consensus marks for first-quarter sales of Foodservice, Grocery & Snacks, International, and Refrigerated & Frozen units are pegged at $230 million, $789 million, $189 million and $639 million compared with the year-ago reported sales figures of $252 million, $746 million, $191 million and $616 million, respectively.

All aforementioned upsides helped Conagra deliver solid results in fourth-quarter fiscal 2018, wherein both the top and the bottom lines improved year over year and came ahead of the Zacks Consensus Estimate. Markedly, operating profit grew across all segments. Further, sales were driven by contributions from buyouts and favorable currency movements. Continued strength in Refrigerated & Frozen, and Grocery & Snacks segments, in particular, also fueled sales. Markedly, each segment witnessed improved pricing and mix.

Are Cost Hurdles Likely to be Offset?

Escalated input costs remain a threat to Conagra. The company's adjusted gross margin witnessed a contraction in fiscal 2018 on account of greater-than-expected input costs, higher transportation costs, soft volumes and impact of retailer marketing investments. Management stated that it looks to channelize investments from A&P marketing to retailer marketing in order to generate higher returns. However, this is likely to decrease gross margin by 150 bps. Further, the company anticipates input cost inflation of 3.0-3.2% in fiscal 2019, which remains a threat to margins. Notably, many other food companies like General Mills (GIS - Free Report) and Campbell Soup (CPB - Free Report) are also battling input cost inflation.

Coming back to Conagra, management however remains confident about the company’s fiscal 2019 performance, wherein it expects strong growth in net sales and profit. This also gives out positive signals for the quarter to be reported. The Zacks Consensus Estimate for sales is pegged at $1,849 million, up 2.5% from the year-ago reported figure. Further, the consensus mark for earnings has gone up by a notch over the past seven days to 49 cents, which shows a 6.5% jump from 46 cents recorded in the year-ago period.

What Does the Zacks Model Unveil?

To top it, our proven model shows thatConagrais likely to beat bottom-line estimates this quarter. For this to happen, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

ConagraFoodscarries a Zacks Rank #2, which along with an Earnings ESP of +0.34% makes us reasonably confident of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

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