Conagra Brands Posts Mixed Q2 Results; Shares Drop

Conagra Brands, Inc. (NYSE: CAG) reported mixed fiscal Q2 results, with revenue exceeding estimates. However, CAG missed the earnings expectations due to higher-than-anticipated inflation, increased investments in service orders, and additional transitory costs.

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Following the earnings release, shares of American branded food giant lost 1.8% to close at $33.53 on January 6.

Q2 Performance

In Q2, adjusted earnings of $0.64 per share declined 21% year-over-year and fell short of analysts’ expectations of $0.68 per share.

Positively, revenues grew 2.1% year-over-year to $3.1 billion and exceeded consensus estimates of $3 billion. The increase in revenues reflected a 2.6% surge in organic net sales driven by a 6.8% improvement in price mix and a favorable impact of foreign exchange. This somewhat offset a 0.7% decline from the divestitures of some of its businesses.

However, adjusted gross margin declined 483 basis points to 25.1% during the quarter due to higher-than-anticipated cost inflation, higher investments to prioritize servicing orders, and transitory supply chain costs.

Fiscal 2022 Outlook

Based on Q2 results, management updated its financial guidance for fiscal 2022. The company continues to forecast adjusted earnings of $2.50 per share, while the consensus estimate is pegged at $2.47 per share.

Positively, based on trends to date, including robust consumer demand and additional planned pricing actions, organic net sales growth is now projected at over 3% compared to prior growth guidance of over 1%.

CEO Comments

Sharing his views on the coming quarter, Conagra Brands CEO, Sean Connolly, stated, “We expect to continue experiencing cost pressures above original expectations in the second half of fiscal 2022.”

However, he added, “We believe the sustained elevated consumer demand coupled with the mitigating actions we have successfully executed, and will continue executing, put us on track to overcome these near-term challenges, improve margins in the back half of the fiscal year, and deliver on our profit plan.”

Wall Street’s Take

Following the Q2 results, Jefferies analyst Robert Dickerson reiterated a Buy rating on Conagra Brands with the price target of $38 (13.3% upside potential).

The Wall Street community is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on 2 Buys and 3 Holds. The average Conagra Brands stock price prediction of $38.40 implies 14.5% upside potential to current levels.

Bloggers Weigh In

TipRanks data shows that financial blogger opinions are 100% Bullish on CAG stock, compared to a sector average of 73%.

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