Conagra Brands: Mixed Q1 Results, Solid 2H Outlook

  • Conagra Brands reported mixed results for the first quarter of 2020.
  • Management expects the second half of 2019 to be strong due to investments and innovation.

Conagra Brands (CAG) posted mixed first-quarter results. The company’s revenues maintained the momentum and registered strong growth. However, Conagra Brands’ revenues fell short of the consensus estimate, which reflected lower organic sales and divestitures.

Conagra Brands’ organic sales stayed low, which reflected lower volumes due to softness in the international and foodservice segments. However, higher net pricing and a favorable mix partially offset the negatives. Notably, weak organic volumes remained a drag on peers’ top lines including General Mills (GIS) and J.M. Smucker (SJM). General Mills’ first-quarter revenues fell short analysts’ estimate and fell on a YoY (year-over-year) basis. The fall reflected weak volumes across most of the company’s business segments.

Meanwhile, J.M. Smucker’s first-quarter net sales fell more than 6% and lagged analysts’ consensus estimate. Lower volumes (-3%) and pricing (-1%) dragged the company’s revenues down.

Weak organic volumes and dilution from the Pinnacle Foods acquisition dragged Conagra Brands’ adjusted gross margins down. However, increased pricing and supply chain productivity supported the gross margins.

Conagra Brands’ adjusted EPS fell 8.5%. Lower gross margins and higher interest expenses remained a drag. Also, the higher outstanding share count pressured the bottom line. The company’s bottom line beat analysts’ estimate due to the higher net income.

Conagra Brands expects its investments in the first half of 2019 to drive strong growth in the second half of 2019. Innovation-driven new products and smart promotions will likely support the company’s performance in the second half of 2019.

Conagra Brands key first-quarter financials

Conagra Brands posted revenues of $2.39 billion, which increased 30.3% YoY. However, the revenues were short of analysts’ estimate of $2.48 billion. The company’s divestitures had a negative impact of 3.7% on its top-line growth. Meanwhile, organic sales fell 1.7%, which reflected a 2.5% decrease in volumes.

The adjusted gross margin fell by 29 basis points, which reflected a negative impact of 46 basis points from the Pinnacle business. Higher pricing and productivity savings cushioned the gross margins. The adjusted SG&A rate fell by 93 basis points, which reflected cost savings.

Conagra Brands posted an adjusted EPS of $0.43, which fell 8.5% YoY. The lower adjusted EPS reflected higher interest expenses and a higher share count. The EPS beat analysts’ estimate due to the higher net income.

Conagra Brands stock was trading 2% higher in this morning. Meanwhile, the stock has risen about 40% on a year-to-date basis as of Wednesday. The stock has beat broader markets.