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Conagra Brands Stock Fell ~13% in May

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Jun. 3 2019, Updated 7:53 a.m. ET

Conagra Brands stock

Conagra Brands (CAG) shares fell ~13% in May due to weak organic sales and earnings in the fourth quarter. Pressure on the margins remained a drag. Conagra Brands faces tough YoY (year-over-year) comparisons in its base business in the fourth quarter, which likely hurt its organic sales growth.

Higher transportation and input costs are expected to take a toll on Conagra Brands’ gross profit margins. Conagra Brands’ adjusted EPS is expected to fall and reflect higher interest costs.

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We expect Conagra Brands’ top line to continue to grow at a strong double-digit rate in the near term due to its Pinnacle Foods acquisition. The company’s organic sales are expected to gain due to its improved volumes and pricing. However, higher brand building investments with retailers and trough comparisons could limit Conagra Brands’ organic sales.

Conagra Brands’ productivity saving measures are expected to cushion its margins. However, the gross profit margins could continue to slide and reflect higher raw material and logistics costs.

YTD stock performance

Despite the recent decline, Conagra Brands stock has risen 25.3% on a YTD (year-to-date) basis as of May 31. Conagra Brands’ improved organic sales and operating margin expansion during the last reported quarter supported its stock.

Recently, shares of other major food companies also declined. However, most of the companies have registered healthy gains in 2019. J.M. Smucker (SJM), General Mills (GIS), Hershey (HSY), and Mondelēz International (MDLZ) stock have risen 30.0%, 27.0%, 23.1%, and 27.0%, respectively.

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