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Conagra Brands Stock Drops on Weak Fourth Quarter

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Key takeaways

On June 27, Conagra Brands (CAG) posted lower-than-expected fourth-quarter results. Conagra Brands’ revenues continued to grow at a breakneck pace thanks to the acquisition of Pinnacle Foods. However, sales missed analysts’ estimate owing to the weakness in the base business, adverse currency rates, and divestitures.

Conagra Brands profit margins remained weak and declined on a YoY basis, reflecting brand building investments with retailers, inflation in input costs, and dilution from the Pinnacle Foods acquisition.

Lower-than-expected sales and weak margins took a toll on its bottom line, which continued to decline on a YoY basis and missed analysts’ estimate. Moreover, higher interest expenses and an increase in outstanding share count further suppressed its adjusted earnings.

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Q4 financials

Conagra Brands posted net sales of $2.6 billion, which increased 32.9% YoY, reflecting a 33.9% contribution from acquisition and divestitures. Organic sales decreased 0.7%, reflecting lower volumes partially offset by higher net pricing.

Conagra’s adjusted gross margin contracted 210 basis points to 27.1%. Meanwhile, adjusted operating margins fell 70 basis points to 13.2%. Net interest expenses increased $86 million YoY, reflecting higher debt related to the funding of the Pinnacle acquisition. Meanwhile, the average outstanding shares increased by 92 million.

Lower margins, increased interest expenses, and a higher outstanding share count dragged its earnings down. Conagra Brands posted adjusted earnings of $0.36 per share, which decreased 28% on a YoY basis and missed analysts’ estimate of $0.41.

Conagra Brands stock was trading about 6% lower during the pre-market session.

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