Packaged foods company Conagra Brands Inc. (CAG, Financial) reported solid second-quarter 2020 results before the opening bell on Thursday, sending shares higher.
The Chicago-based company, which produces food products ranging from Slim Jim beef jerky to Orville Redenbacher’s popcorn and Healthy Choice frozen meals, posted adjusted earnings of 63 cents per share, topping Refinitiv’s estimates of 57 cents. Revenue grew 18% from the prior-year quarter to $2.82 billion, beating expectations of $2.8 billion.
In a statement, President and CEO Sean Connolly said Conagra’s sales were boosted largely by its acquisition of Pinnacle Foods last year, recording a 19.6% increase, as well as by strong demand for its snacks and frozen food products. Sales in the grocery and snacks segment grew 14.2% in the second quarter, while the refrigerated and frozen foods division recorded a 28.8% increase.
“We also made good progress on our large grocery brands, Hunt's and Chef Boyardee, both of which made sequential improvements,” he said. “We also continued to make very good progress on the Pinnacle integration, and we remain squarely on-track with our plans to improve key Pinnacle brands."
In an attempt to fend off competition from private labels, Conagra has been working to revive the Pinnacle brands it acquired, which include Birds Eye, Hungry-Man and Duncan Hines. It has also been heavily investing in brands it already owned prior to the $8 billion deal. In July, the company introduced a slew of new products that will be launched throughout the year, including a line of gluten-free trail mixes from the Angie’s Boomchickapop brand, ramen offerings from P.F. Chang’s home menu and vegetable bowls and steamers from Healthy Choice and Birds Eye, among others.
Looking ahead, Conagra reiterated its organic sales guidance for full fiscal 2020 of 1% to 1.5% growth, but lowered its adjusted earnings projections slightly to a range of $2.07 to $2.17 per share. It also raised its total targeted annual cost synergies for the Pinnacle acquisition from $285 million to $305 million by the end of fiscal 2022. It plans to invest the savings to help drive sales.
"Our expectation for fiscal 2020 remains that first-half investments will result in strong second-half performance,” Connolly said. “The second-half is when we expect to see the greatest impact from new frozen and snacks innovation, continued smart promotional support in key grocery brands, the ongoing implementation of our Pinnacle action plan, and synergy capture."
With a $16.53 billion market cap, shares of Conagra were trading 19.36% higher on Thursday morning at $34.67. GuruFocus estimates the stock has climbed nearly 40% year to date.
Of the gurus invested in Conagra Brands, Jana Partners (Trades, Portfolio) has the largest stake with 3.07% of outstanding shares. Other gurus that see value in the stock include the T Rowe Price Equity Income Fund (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Joel Greenblatt (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Jeff Auxier (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio).
Disclosure: No positions.
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