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Conagra (CAG) Q4 Earnings Top Estimates, Sales Increase Y/Y

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Conagra Brands, Inc. (CAG - Free Report) delivered fourth-quarter fiscal 2022 results, wherein the top and bottom lines increased year over year and the latter beat the Zacks Consensus Estimate. The company continues to focus on its pricing actions as cost of goods sold inflation is likely to persist in fiscal 2023.

Quarter in Detail

Conagra’s quarterly adjusted earnings per share (EPS) came in at 65 cents, a penny ahead of the Zacks Consensus Estimate. The bottom line surged 20.6% year over year. This can be attributed to the elevated operating profit and the solid performance from CAG’s Ardent Mills joint venture.

Conagra Brands Price, Consensus and EPS Surprise

Conagra Brands Price, Consensus and EPS Surprise

Conagra Brands price-consensus-eps-surprise-chart | Conagra Brands Quote

Conagra generated net sales of $2,910 million, which advanced 6.2% year over year. The figure missed the Zacks Consensus Estimate of $2,937 million. The year-over-year sales increase was the result of higher organic sales, partly negated by currency headwinds (to the tune of 0.1%) and the divestiture of the Egg Beaters business (to the tune of 0.5%). The divestiture is referred to as Sold Business.

Organic net sales rose 6.8% due to a price/mix, which improved 13.2%. The price/mix was backed by the company’s inflation-induced pricing actions. This was somewhat negated by volumes that dropped 6.4%, affected by the elasticity effect stemming from pricing actions.

The adjusted gross margin contracted 147 basis points to 24.9%, mainly due to cost of goods sold inflation (17.3%). Adjusted SG&A expenses, excluding advertising and promotional (A&P) costs, declined 7.8% to $242 million due to lower incentives and deferred compensation. A&P costs dropped 38.7% to $46 million due to favorable year-over-year comparisons.

Adjusted EBITDA (including equity method investment earnings as well as the pension and postretirement non-service income) rose 13.5% to $591 million due to the higher operating profit and the solid performance from the company’s Ardent Mills joint venture.

Segment Details

Grocery & Snacks: Quarterly net sales in the segment came in at $1,158 million, up 7.2% year over year. Organic net sales also rose 7.2%, with the price/mix up 14.4%. Volumes declined 7.2%, mainly due to the elasticity effect stemming from pricing actions. During the quarter, CAG saw an increased share in staple categories like syrup and beans as well as in snacking categories like meat snacks and popcorn.

Refrigerated & Frozen: Net sales grew 3.4% to $1,233 million due to higher organic net sales, partly countered by the impact of Sold Business. Organic sales rose 4.3% on a price/mix increase of 12.4%. However, volumes were down 8.1% due to the elasticity impacts of pricing. The company saw an improved share in frozen single-serve meals, frozen desserts and frozen meat substitute categories.

International: Net sales climbed 0.9% to $234.3 million, reflecting improved organic net sales. However, the adverse impacts of foreign currency translations were a downside. Organic sales rose 2.4%, with the price/mix up 5.6% and volumes down 3.2%. Volumes were hurt by the elasticity effect from inflation-led pricing.

Foodservice: Sales advanced 21.5% to $287.4 million due to a 21.6% rise in organic sales, somewhat negated by the impacts of Sold Business. Volumes were up 4.5%, backed by the continued recovery in restaurant traffic, partly negated by the elasticity impact of pricing actions. The price/mix increased 17.1% due to inflation-driven pricing actions and an improved product mix.

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Other Updates

Conagra exited the quarter with cash and cash equivalents of $83.3 million, senior long-term debt, excluding current installments, of $8,088.2 million and total stockholders’ equity of $8,862.2 million. During the quarter, Conagra paid out a quarterly dividend of 31.25 cents per share.

Guidance

Management expects the cost of goods sold inflation to linger in fiscal 2023 and has unveiled an additional price increase, which will be undertaken in the second quarter of fiscal 2023. In the fiscal year, gross inflation (input cost inflation before hedging and other sourcing gains) is anticipated in the low-teens range. Management further expects volume elasticities to rise compared with fiscal 2022, but they are likely to be lower than historic levels. Conagra does not expect the solid performance from its Ardent Mills joint venture (as delivered in the back half of fiscal 2022) to continue through fiscal 2023.

All said, organic net sales are anticipated to rise 4-5% in fiscal 2023. The adjusted operating margin is anticipated to be nearly 15%. The adjusted EPS growth is envisioned at 1-5%.

For fiscal 2023, capital expenditures are likely to be about $500 million, the interest expense is expected at roughly $410 million and the effective tax rate is anticipated at around 24%. Management expects the pension income to be nearly $25 million.

Shares of this Zacks Rank #3 (Hold) company have risen 3.6% in the past six months compared to the industry’s decline of 3.7%.

3 Solid Staple Stocks

Some better-ranked stocks are Sysco Corporation (SYY - Free Report) , The Chef's Warehouse (CHEF - Free Report) and Campbell Soup (CPB - Free Report) .

The Chef's Warehouse, which engages in the distribution of specialty food products, sports a Zacks Rank #1 (Strong Buy). The Chef's Warehouse has a trailing four-quarter earnings surprise of 372.3%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for CHEF’s current financial-year EPS suggests significant growth from the year-ago reported number.

Sysco, which engages in marketing and distributing various food and related products, sports a Zacks Rank #1. Sysco has a trailing four-quarter earnings surprise of 9.1%, on average.

The Zacks Consensus Estimate for SYY’s current financial-year sales and EPS suggests growth of 32.6% and 124.3%, respectively, from the year-ago reported number.

Campbell Soup, which manufactures and markets food and beverage products, currently carries a Zacks Rank #2 (Buy). Campbell Soup has a trailing four-quarter earnings surprise of 10.8%, on average.

The Zacks Consensus Estimate for CPB’s current financial-year sales suggests growth of 0.5% from the year-ago reported figure.

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