Conagra Brands Inc. (CAG, Financial) released its second-quarter financial results before the market opened on Dec. 19. Both earnings and revenue topped analysts’ expectations.
By the numbers
Conagra recorded adjusted earnings of 63 cents per share, down 6% from the prior-year quarter. Analysts had anticipated earnings of 57 cents per share. Revenue of $2.82 billion surpassed projections of $2.8 billion. Organic net sales increased 1.6%.
The gross profit amounted to $758 million, reflecting a gain of 17.8% year over year due to the Pinnacle acquisition as well as improved price-mix and supply chain productivity, which was partly offset by loss of profits from divestitures and higher input costs.
Reflecting on the quarterly performance, Conagra President and CEO Sean Connolly commented:
"Our second quarter results reflect solid execution in applying the Conagra Way playbook across our portfolio. We maintained our strong momentum in frozen and snacks. We also made good progress on our large grocery brands, Hunt's and Chef Boyardee, both of which made sequential improvements. 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."
Segment details
The branded food company attributed its strong performance to the acquisition of Pinnacle Foods, which was partially offset by the divestiture of the Wesson Oil, DSD Snacks and Gelit businesses, along with weakness in several other areas.
In the grocery and snacks business, sales grew 14.2% to $1.1 billion. Similarly, sales in the refrigerated and frozen foods division climbed 28.8% from the year-ago quarter to $1.2 billion. On the international front, net sales rose 7.3% to $234 million. The foodservice segment saw revenue increase 6.8% to $276 million.
The Pinnacle Foods buyout
The company bought Pinnacle Foods last year for $8.2 billion.
Conagra’s portfolio of products increased as the company now owns brands like Birds Eye frozen vegetables and Gardein plant-based meats as a result of the buyout.
The Chicago-based food conglomerate also achieved cost synergies from the deal. The company saw adjusted operating margin of 17.1% in the reported quarter, which was more than what analysts had predicted (16.7%). The savings realized through synergies is being invested in marketing new products as well as in making factories productive.
Guidance
Conagra is guiding for adjusted diluted earnings from continuing operations between $2.07 and $2.17 per share for fiscal 2020. On the other hand, net sales for the same period are expected to grow by around 12.4% to 12.9%. Organic net sales growth is projected to be between 1% and 1.5%.
"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."
Disclosure: I do not hold any positions in the stocks mentioned.
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