Conagra Brands Crushes Q2 Earnings Estimate


Dec. 19 2019, Updated 9:55 a.m. ET

Conagra Brands (CAG) posted better-than-expected earnings for the second quarter of fiscal 2020 before the markets opened today. The company’s revenues and earnings beat Wall Street’s estimates by a wide margin.

Conagra Brands’ total revenues benefited due to incremental sales from Pinnacle Foods’ acquisition. Improved organic sales across all of the segments supported the company’s top-line growth.

As we expected, Conagra Brands’ adjusted EPS fell on a YoY (year-over-year) basis, which reflected lower margins and a higher outstanding share count. Meanwhile, higher interest expenses remained a drag.

In comparison, General Mills’ (GIS) top line fell short of analysts’ expectations. However, the company’s bottom line beat analysts’ estimates in the second quarter. The higher average share count remained a drag on the company’s bottom line.

Campbell Soup (CPB) and J.M. Smucker (SJM) posted lower-than-expected sales during the last quarter. However, both companies beat Wall Street’s expectations on the bottom-line front.

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Conagra Brands’ Q2 sales performance

Conagra Brands posted revenues of $2.82 billion, which beat Wall Street’s estimate of $2.80 billion. The revenues rose 18.3% YoY. The Pinnacle acquisition added 19.6% to the top-line growth rate. However, divestitures had a negative impact on the sales growth rate by 2.9%. Conagra Brands’ organic sales increased 1.6%, which reflected a 1% rise in volumes and 0.6% growth in the pricing and mix.

The sales in the Grocery & Snacks segment rose 14.1% to $1.1 billion. Organic sales rose 0.9%, which reflected 2.1% growth in the volumes—partially offset by a 1.2% decline in the pricing and mix. The acquisition of Pinnacle Foods contributed 16.9% to the top-line growth rate. However, divestitures impacted the company’s sales growth by 3.6%.

The Refrigerated & Frozen segment’s net sales grew 28.8% to $1.2 billion, which reflected a 28.1% contribution from the Pinnacle Foods acquisition. Organic sales rose 2.4% due to higher volumes and pricing.

The net sales in the International segment rose 7.3%. Meanwhile, the division’s organic sales increased 1.8%.

The Foodservice division’s organic net sales increased 6.8%. The organic sales rose 0.8%, which reflected 3.6% growth in the pricing and mix. However, lower volumes remained a drag.

Earnings crushed the estimate

Conagra Brands posted better-than-expected second-quarter earnings. The company posted an adjusted EPS of $0.63, which beat analysts’ estimates of $0.57. However, the adjusted EPS fell by about 6% on a YoY basis.

Conagra Brands’ gross margins took a hit due to higher input costs and brand-building investments with retailers. The adjusted operating margin expanded by 30 basis points 16.5%. The benefits from cost synergies drove the company’s operating margin.

The net interest expenses rose by $47 million YoY, which reflected higher debt levels. Meanwhile, the average share count rose by 67 million. A higher interest expense and an increase in the share count dragged Conagra Brands’ EPS down.

Conagra Brands shares rose by about 7% in the pre-market session following the solid second-quarter performance.


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