Why sales continued to miss estimate
Conagra Brands’ (CAG) top line marked strong growth during the last reported quarter thanks to the incremental sales from its acquisition. However, its net sales missed analysts’ estimates in the past three consecutive quarters, which is a concern. An adverse foreign exchange rate and planned divestitures remained a drag on Conagra Brands’ net sales growth.
However, the base business showed signs of improvement, which is positive. Conagra Brands’ organic sales benefitted from innovation and brand investments. Plus, higher net price realization and a favorable mix supported organic sales.
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Notably, packaged food companies have managed to drive their top-line growth through acquisitions in the recent past. General Mills’ (GIS) impressive sales came on the back of its Blue Buffalo acquisition. Meanwhile, the acquisitions of Snyder’s-Lance and Pacific Foods are driving net sales of Campbell Soup (CPB). Kellogg (K) gained from its RXBAR acquisition and consolidation of Multipro’s operations. Moreover, J.M. Smucker’s (SJM) top line benefitted from its Ainsworth acquisition.
We expect Conagra Brands’ net sales to continue to grow at a stellar rate in the coming quarters. Wall Street projects Conagra Brands’ top line to mark more than 35% growth in the next couple of quarters, driven by the Pinnacle Foods acquisition. Meanwhile, organic sales are likely to benefit from improved volumes, pricing, and favorable mix.
However, Conagra Brands’ organic sales face tough YoY comparisons in the fiscal 2019 fourth quarter, which could limit the underlying sales growth rate.