Challenging industry outlook
For most of the food manufacturing companies in the US, stock prices are witnessing a steep downtrend. Weak consumption due to consumers’ shift towards healthy foods is taking a toll on their financials. Meanwhile, stiff competition among retailers on the price front, the rise of private label products, and fresh foods’ low prices continue to pose challenges. The industry-wide challenges probably won’t subside in the foreseeable future. There isn’t as much hope for a recovery in these stocks in the near term.
As for Conagra Brands (CAG), the company’s sales are taking a hit from lower volumes, portfolio restructuring, and negative currency movements. The company has taken several measures to improve its sales—a shift from offering deep discounts, innovation, and portfolio premiumization. However, it will take time for the efforts to have a meaningful impact on the sales growth rate. For fiscal 2018, the company’s top line is expected to remain muted. For its margins, the growth rate is also projected to slow down compared to the previous fiscal year.
YTD stock price performance
Conagra Brands stock has fallen ~18.0% on a YTD (year-to-date) basis as of August 29, 2017. The company has largely underperformed the S&P 500 Index (SPX-INDEX) and the Consumer Staples Select Sector SPDR ETF (XLP), which rose 9.3% and 5.8%, respectively, during the same period.
In comparison, most of the company’s peers are also trading in red. The soft industry trend is impacting packaged food manufacturers’ performance. The stock prices of J. M. Smucker (SJM), General Mills (GIS), Campbell Soup (CPB), Kellogg (K), and Kraft Heinz (KHC) have fallen 18.2%, 12.7%, 16.0%, 10.1%, and 6.7%, respectively, on a YTD basis.
In this series, we’ll focus on Conagra’s sales and profitability outlook in fiscal 2018. We’ll also discuss analysts’ latest recommendations as well as the valuation for Conagra stock.