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How Conagra Delivered Impressive Earnings in Fiscal 3Q17

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Conagra beats on earnings

Conagra Brands’ (CAG) fiscal 3Q17 EPS (earnings per share) topped analysts’ estimates. However, sales fell again YoY (year-over-year) and missed Wall Street analysts’ consensus estimate.

Conagra’s fiscal 3Q17 adjusted EPS of $0.48 easily surpassed the estimate of $0.44 and rose 37.1% YoY. The following more than offset the fall in volume, the unfavorable sales mix, and the adverse currency movement:

  • cost-saving initiatives
  • lower interest expenses, which fell 40.2% due to reduced debt
  • productivity gains
  • lower weighted average shares outstanding
  • pricing

Last week, General Mills (GIS) also reported its fiscal 3Q17 results, which were similar to Conagra’s. General Mills’ top line fell YoY. However, its adjusted earnings of $0.72 came in ahead of analysts’ estimate by $0.01.

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Outlook

As we saw in the previous part of this series, food manufacturers are going through a rough patch. Renowned brands, including Kellogg (K), General Mills, Campbell Soup (CPB), and JM Smucker (SJM), are seeing weak demand for their products, and most of them are reporting falling sales. In this tough operating environment, food companies are focusing on expanding gross margins and reducing SG&A (selling, general, and administrative) costs to drive their bottom line results.

As for Conagra, it’s strategically focusing on revamping its product portfolio. That includes shedding unprofitable brands and adding new products based on innovation. Conagra’s SG&A rate remains one of the lowest in the sector. Its focus on expanding margins is likely to help its bottom line performance. The company now expects its fiscal 2017 adjusted EPS to be at or slightly above its earlier guidance of $1.65–$1.70.

ETF investors seeking exposure to Conagra can consider the Consumer Staples Select Sector SPDR ETF (XLP), which invests 1.0% of its portfolio in the company.

In the next part, we’ll see how Conagra’s sales are trending.

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