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Conagra’s Earnings Beat Estimate, Mark Double-Digit Growth

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Earnings versus estimate

Conagra Brands (CAG) reported stronger-than-expected fiscal 2Q18 results (period ended November 26, 2017) on December 21. Conagra Brands’ adjusted EPS (earnings per share) of $0.55 surpassed analysts’ estimate of $0.52 and increased 12.2% YoY (year-over-year). Notably, the company’s sales switched to growth, which supported its bottom line during the reported quarter.

Factors that drove EPS growth

Conagra Brands’ EPS gained from higher sales, driven by increased demand owing to this year’s hurricanes. Supply-chain productivity savings, a favorable mix and prices, and a lower outstanding share count and interest expenses further supported the company’s EPS.

However, increased input costs, higher SG&A (selling, general, and administrative) expenses, brand investments driven by marketing and slotting expenses, and transportation expenses due to the hurricanes were a drag on its performance. A higher effective tax rate also restricted bottom-line growth.

Similar to Conagra, General Mills (GIS), which reported its fiscal 2Q18 earnings on December 20, saw its bottom line improve YoY thanks to its top line returning to growth. However, margin pressure due to higher input costs remained a drag.

Higher transportation and logistics costs and commodity price inflation have also pressured the profitability of other major US (SPY) food companies. Campbell Soup’s (CPB) and J.M. Smucker’s (SJM) EPS fell YoY, reflecting higher costs. Meanwhile, higher transportation and logistics costs impacted Hershey’s (HSY) bottom line.

Guidance

Conagra now expects its fiscal 2018 adjusted EPS to be at the higher end of its earlier guidance of $1.84–$1.89. A lower share count, improved top line, and cost savings are projected to drive the company’s bottom-line growth. However, higher-than-expected input cost inflation, an anticipated rise in transportation costs, and brand investments are expected to present challenges.

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