Conagra (CAG) Stock Rises On Q3 Earnings Beat, Sales Miss
Zacks Investment Research | Mar 20, 2019 10:24PM ET
Shares of Conagra Brands, Inc. (NYSE:CAG) climbed more than 7% in the pre-market session on Mar 21 following its third-quarter fiscal 2019 results. While its earnings beat the Zacks Consensus Estimate, revenues missed the same.
Results were aided by robust performance of its domestic retail segment along with improved consumption trends. Conagra witnessed sturdy growth in its frozen and snacks portfolios. The company’s Legacy Conagra business also performed well.
Earnings & Sales
Conagra’s quarterly adjusted earnings from continuing operations decreased 16.4% year over year to 51 cents. However, the figure surpassed the Zacks Consensus Estimate of 48 cents. The year-over-year decline was due to higher outstanding share count.
Conagra generated net sales of $2,707.1 million, which advanced 35.7% year over year but missed the Zacks Consensus Estimate of $2,750 million. Sales growth was driven by contributions from Pinnacle Foods and Sandwich Bros. buyouts. However, divestitures of Trenton production facility and Canadian Del Monte business weighed on sales growth. Additionally, foreign currency hurt sales by 0.5%.
Organic sales (excluding Trenton) increased 2%, mainly driven by higher Legacy Conagra volume and improved price/mix.
Gross Margin
Adjusted gross profit increased 30.5% to $781 million, with adjusted gross margin expanding to 28.9%. The upside was backed by Pinnacle Foods’ inclusion along with productivity gains from supply chain and favorable pricing in the Legacy Conagra business. This was somewhat offset by elevated transportation and input costs, and higher retailer marketing investments in the Legacy Conagra business.
Segmental Details
Grocery & Snacks: The segment’s quarterly sales came in at $862.6 million, which rose 2.9% year over year driven by solid growth in snacks portfolio. Organic sales grew 2.9% with volumes up 2.1%.
Refrigerated & Frozen: Net sales jumped 3.3% to $711.2 million as Sandwich Bros.’ buyout contributed about 90 bps to net sales growth. Organic sales increased 2.4%. Markedly, volumes rose 3.5%, backed by robust performance of the frozen portfolio.
International: Net sales dropped 11.4% to $198 million due to the divestiture of Canadian Del Monte business and adverse currency movements. On an organic basis, net sales dipped 0.9%, courtesy of 2% volume decline. Price/mix grew 1.1%.
Foodservice: The segment’s quarterly sales declined 8.7% year over year to $223 million, largely owing to Trenton facility’s sale. Organic sales declined 0.6% in the reported quarter. Volumes declined 6.7%, whereas price/mix rose 6.1%.
Pinnacle: Sales in this segment came in at $712.3 million, largely owing to Trenton facility’s sale. The soft performance of brands including Birds Eye, Wish-Bone, and Duncan Hines remains a matter of concern. Nevertheless, management is making efforts to get these brands back on track, which will take some time.
Other Financial Fundamentals
Advertising and promotion (A&P) costs declined 13.9% to $67.4 million due to shift in investments from A&P marketing to the retailer’s brand building investments in the Legacy Conagra business.
Conagra exited the quarter with cash and cash equivalents of $282.2 million, senior long-term debt (excluding current portion) of $10,911.8 million and total stockholders’ equity of $7,451.5 million. In the nine months ending Feb 24, 2019, the company generated net cash of $745.1 million from operating activities (continued operations).
During the quarter, Conagra paid quarterly dividend per share of 21.25 cents.
Business Development
Conagra concluded the sale of Wesson oil business on Feb 25, 2019 and will use the net proceeds from this sale to reduce its debt level in the fiscal fourth quarter. Additionally, management stated that it is progressing well with the integration of Pinnacle Foods (acquired on October 2018) and realized cost savings of $12 million in the reported quarter. Going forward, the company expects cost synergies of more than $215 million from this buyout.
Conagra Brands Inc. Price, Consensus and EPS Surprise
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