Conagra Brands, Inc. (CAG Quick QuoteCAG - Free Report) posted mixed first-quarter fiscal 2022 results, with the top and the bottom lines declining year over year. Nevertheless, both metrics beat the Zacks Consensus Estimate. Sales in most segments were hurt by tough comparisons with the year-ago period’s initial demand surge. That said, the Foodservice segment benefited from a recovery in the restaurant traffic. Management also updated its fiscal 2022 organic net sales guidance upward.

Quarter in Detail

Conagra’s quarterly adjusted earnings came in at 50 cents, which surpassed the Zacks Consensus Estimate of 48 cents per share, though it tumbled 28.6% year over year. The year-over-year downside was primarily caused by a lower gross profit.  

Conagra generated net sales of $2,653.3 million, which inched down 1% year over year. The figure surpassed the Zacks Consensus Estimate of $2,547 million. The year-over-year sales decline was a result of the divestitures of the H.K. Anderson business, the Peter Pan peanut butter business and the Egg Beaters business. The divestitures are collectively referred to as Sold Businesses. Nevertheless, currency had a positive impact on sales.

Organic net sales dropped 0.4% due to lower volumes to the tune of 2%, whereas price/mix improved 1.6%. Volumes were affected by tough comparisons with the year-ago period’s initial spike in at-home food demand stemming from the pandemic outbreak. Favorable price/mix was mainly a result of positive net pricing and brand mix. On a two-year compounded annualized basis, quarterly net sales went up 5.3% and organic net sales rose 7%.

Gross profit declined 16.9% to $673 million, while gross margin contracted 486 basis points to 25.4%. The downside was a result of a decline in net sales, cost of goods sold inflation as well as lost profits related to Sold Businesses. Nevertheless, cost synergies associated with the buyout of Pinnacle Foods, supply-chain productivity and lower pandemic-induced costs offered some respite.

Selling, general and administrative (SG&A) expenses, including advertising and promotional (A&P) costs increased 3.3% to $310 million. A&P costs grew 35.3% to $62 million thanks to increased e-commerce investments.

Segmental Details

Grocery & Snacks: Quarterly net sales in the segment came in at $1,075.1 million, down 4.9% year over year due to lower organic sales and impacts from Sold Businesses. Organic net sales declined 3.3%, with volumes down 3.3%. Volumes were mainly hurt by lapping of the year-ago quarter’s spike in at-home food demand. Price/mix was flat year over year. During the first quarter, Conagra saw an increased share in staple categories like canned tomatoes and chili as well as snacking categories like microwave popcorn and pudding.

Refrigerated & Frozen: Net sales fell 2.5% to $1,101.8 million due to the impact of Sold businesses and reduced organic net sales. Organic sales inched down 1.7%, with volumes down 3.8%. Price/mix was up 2.1%. The company saw an improved share in categories like frozen handhelds, frozen single serve meals and whipped topping.

International: Net sales increased 8.1% to $236.6 million, reflecting positive impact from foreign currency translations and improved organic net sales. However, adverse impact from the Solid Businesses was a downside. On an organic basis, net sales rose 2%, as volumes fell 4.6% and price/mix rose 6.6%.

Foodservice: Sales advanced 20.9% to $239.8 million, owing to a rise in organic sales, slightly offset by the Sold Businesses’ impact. Organic sales surged 21.7% and volumes were up 20.1%, backed by recovering restaurant traffic. Price/mix inched up 1.6%.

Other Updates

Conagra exited the quarter with cash and cash equivalents of $67 million, senior long-term debt, excluding current installments of $8,779.6 million and total stockholders’ equity of $8,635.9 million.

During the quarter, Conagra paid out a quarterly dividend of 27.5 cents per share. The company repurchased nearly 1.5 million shares worth $50 million in the quarter.

Image Source: Zacks Investment Research

Fiscal 2022 Guidance

The company had earlier stated that it expects consumer demand for its retail products to be above historical levels during fiscal 2022, thanks to new consumer habits cultivated amid the pandemic. Taking into account the year-to-date trends, which includes better-than-anticipated consumer demand, lower-than-expected demand elasticities as well as improved pricing actions, management is raising its organic net sales view. Management reaffirmed its earnings guidance for fiscal 2022.

Organic net sales are now anticipated to rise 1% year over year. The company had earlier expected the metric to be nearly flat year over year. Adjusted operating margin is anticipated to be nearly 16% and adjusted earnings per share are likely to be about $2.50.

The company expects to see escalated cost of goods sold inflation. Although management is focused on undertaking relevant saving and pricing efforts to combat this inflation, the timing and gains from these initiatives are likely to be more skewed toward the second half of fiscal 2022.

Shares of the Zacks Rank #3 (Hold) company have declined 4.5% in the past three months compared with the industry’s fall of 2.9%.

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