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Conagra (CAG) Q4 Earnings & Sales Top Estimates, Rise Y/Y

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Conagra Brands, Inc. (CAG - Free Report) posted robust fourth-quarter fiscal 2020 results, with both top and bottom lines surging year over year and beating the Zacks Consensus Estimate. Results were backed by increased organic sales, which in turn benefited from higher at-home consumption amid the pandemic, driving Conagra’s retail business. This also helped the company offset softness in the Foodservice segment, wherein sales fell due to COVID-19.

Sales were backed by solid e-commerce business, considerable consumer trials, robust repeat sales and initial launches of fiscal 2021 planned innovation. Apart from this, an additional week aided the performance, though divestiture of Sold Businesses had an adverse impact. The Sold Businesses include the divested businesses of Direct Store Delivery (DSD) snacks, Gelit, Lender's Bagel and Wesson oil along with the exited private-label peanut butter business.

Conagra Brands Inc. Price, Consensus and EPS Surprise

Conagra Brands Inc. Price, Consensus and EPS Surprise

Conagra Brands Inc. price-consensus-eps-surprise-chart | Conagra Brands Inc. Quote

Quarter in Detail

Conagra’s quarterly adjusted earnings came in at 75 cents, which surpassed the Zacks Consensus Estimate of 68 cents. Moreover, the figure jumped significantly from adjusted earnings of 36 cents reported in the year-ago quarter. The year-over-year growth can be attributable to increased adjusted net income, which in turn benefited from higher sales volume and the related profit. Adjusted EPS was somewhat affected by greater shares outstanding.

Conagra generated net sales of $3,287.9 million, which advanced 25.8% year over year and beat the Zacks Consensus Estimate of $3,185 million. The year-over-year sales growth was backed by higher organic sales and the impact of an additional week, partly offset by the divestiture of Sold Businesses and adverse currency movements.

Organic sales grew 21.5% on higher volumes and favorable price/mix. Volumes were aided by elevated at-home consumption amid the coronavirus pandemic, which in turn boosted Conagra’s retail business but hurt the Foodservice segment. Also, price/mix was favorable in the quarter.

Adjusted gross profit jumped 31.1% to $929 million on account of higher sales volume, productivity related to supply chain, improved price/mix, the impact of an additional week and cost synergies from Pinnacle Foods’ buyout. These were somewhat countered by inflated input costs and costs associated with COVID-19, including investments in employees’ safety, bonuses for supply-chain workers and other costs related to catering to the burgeoning demand.

Segmental Details

Grocery & Snacks: Quarterly sales in the segment came in at $1,474.1 million, which soared 44.1% year over year owing to higher organic sales and impact of an additional week, partially hurt by divestiture of Sold Businesses. Organic sales increased 40.4% with volumes and price/mix up 38% and 2.4%, respectively. Volumes rose across several categories owing to consumers’ higher at-home consumption amid coronavirus.

Refrigerated & Frozen: Net sales advanced 23.3% to $1,355.4 million due to the same factors that drove the Grocery & Snacks segment’s sales. Organic sales rose 17.6%, with volumes up 17.8% but price/mix down 0.2%. COVID-19-related higher consumption at home boosted volumes across multiple categories.

International: Net sales improved 18.6% to $265.7 million on account of higher organic sales and impact of a 53rd week, offset by unfavorable currency movements. On an organic basis, net sales rose 19.8%, as volumes grew 18% and price/mix was up 18%. This was again backed by higher demand amid the pandemic. The company’s Canadian, Mexican and export businesses witnessed considerable growth in volumes, though India saw soft volumes due to country-wide store and plant closures.

Foodservice: Quarterly sales in the segment declined 27.9% year over year to $192.7 million due to Sold Businesses and lower organic sales. The extra week offered partial respite. Organic sales fell 31.5%, with volumes down 34.2% but price/mix up 2.7%. Volumes were hurt by reduced restaurant traffic amid the pandemic.

Other Financial Fundamentals

Conagra exited the quarter with cash and cash equivalents of $553.3 million, senior long-term debt (excluding current portion) of $8,900.8 million and total stockholders’ equity of $7,950.7 million. During fiscal 2020, the company generated net cash of $1,842.6 million from operating activities.

During the quarter, Conagra paid out a quarterly dividend of 21.25 cents per share. The company is on track with its de-leveraging goals and has lowered its total gross debt by more than $1.8 billion since it concluded Pinnacle Foods’ buyout through the fourth-quarter-end. As of the end of fiscal 2020, the company’s net debt to last twelve month’s adjusted EBITDA ratio (or Leverage Ratio) was 4.0x. Management expects to achieve its 3.5x-3.6x target by the end of fiscal 2021.


Management remains uncertain about the impact of coronavirus on Conagra’s fiscal 2021 performance. The company expects retail and foodservice demand to return to their normal levels as the year proceeds, though it remains unsure about the exact degree and timing. Management did not offer any guidance for fiscal 2021.

Nonetheless, the company continued to see a considerable increase in demand in the retail business in the first quarter of fiscal 2021, to date. Demand for foodservice products continues to be lower than the pre-pandemic level. Additionally, costs associated with the pandemic have been impacting Conagra’s business.

Considering these factors and assuming a smooth supply chain, management expects organic sales growth of 10-13% in the first quarter of fiscal 2021. Adjusted operating margin is likely to be 17-17.5% while adjusted EPS is envisioned between 54 cents and 59 cents.

Apart from this, management reiterated its targets for fiscal 2022. Organic net sales are anticipated to grow 1-2% (three-year CAGR ending fiscal 2022). Adjusted operating margin is expected in a range of 18-19% and adjusted EPS for fiscal 2022 is likely to range between $2.66 and $2.76.

Shares of this Zacks Rank #3 (Hold) company have rallied 14.8% in the past three months compared with the industry’s growth of 10%.

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