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Will High Input Costs Weigh on Conagra's (CAG) Q3 Earnings?

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Conagra Brands, Inc. (CAG - Free Report) is scheduled to release third-quarter fiscal 2019 results on Mar 21. We note that the company’s bottom line surpassed the Zacks Consensus Estimate in three of the trailing four quarters, with an average of 10.7%. Let’s see what’s in store for the company this time.

Efforts to Strengthen Portfolio Bode Well

Conagra focuses on boosting competency by reshaping portfolio. In sync with this strategy, the company tries to acquire high margin generating businesses and divests the less profitable ones. Markedly, it completed the acquisition of Pinnacle Foods in October 2018. The consolidation of these food companies is likely to create a robust portfolio of leading, iconic and on-trend brands as well as provide long-term benefits in the frozen foods space. Previously, the company acquired Angie's Artisan Treats, LLC, which is strengthening the snacking business. Also, the buyout of Sandwich Bros is boosting the frozen business. In fact, contributions from the buyouts of Angie's BOOMCHICKAPOP and the Sandwich Bros drove the company’s second-quarter fiscal 2019 sales by about 200 basis points. We expect that these buyouts will boost the upcoming quarterly results.

Further, the company’s value-over-volume strategy and efforts to modernize brands are yielding results. Under the value-over-volume regime, Conagra ensures that volume performance is not driven by price discounts but by innovations as well as new merchandising, distribution and consumer trail-related investments. Progressing on such lines, the company is making investments to boost the snacking and frozen business units.

We expect the company’s top line to keep gaining from such well-chalked efforts. Notably, the Zacks Consensus Estimate for sales for the impending quarter is pegged at $2,773 million, which reflects a jump of almost 39% from the year-ago quarter’s reported figure.

Conagra Brands Inc. Price, Consensus and EPS Surprise

 

 

High Costs Blur Profitability Prospects

Escalated input costs are a persistent threat to Conagra. Notably, the company is witnessing rise in transportation and warehousing expenses. Higher costs of packaging and certain ingredients are also a drag. Well, the company anticipates input cost inflation to be 3.0-3.2% in fiscal 2019, which raises concerns regarding the upcoming quarterly performance. Notably, rising input costs are plaguing the performance of other food players such as Campbell Soup (CPB - Free Report) , Lamb Weston (LW - Free Report) and TreeHouse Foods (THS - Free Report) .

Such headwinds are likely to weigh on the company’s profitability in the forthcoming quarterly announcement. In fact, the Zacks Consensus Estimate for earnings has moved down a notch in the past 30 days to 48 cents. This indicates a 21.3% decline from 61 cents recorded in the year-ago quarter.

What Does the Zacks Model Unveil?

Our proven model doesn’t show that Conagra is likely to beat bottom-line estimates in the to-be-reported quarter. For this to happen, a stock needs to have 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.

Though Conagra carries a Zacks Rank #3, its Earnings ESP of 0.00% makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

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