Conagra Fails to Impress Wall Street

After a weak quarter, fiscal 2022 guidance disappoints

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Apr 07, 2022
Summary
  • Price increases coming to offset rising costs.
  • CEO Sean Connolly lauds ‘focus on strategic innovation and our intentional approach to investment.'
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Investors took notice as Conagra Brands Inc. (

CAG, Financial) reported disappointing results for its third quarter of fiscal 2022 and lowered its full fiscal 2022 profit projection, due largely to rapidly rising input prices and transportation costs.

The Chicago, Illinois-based producer of packaged foods reported results for its third quarter of fiscal 2022 on Thursday, which ended on Feb. 27, 2022. It also updated its fourth quarter and full fiscal 2022 guidance.

The company, whose portfolio of well-known brands includes Birds Eye, Marie Callender's, Banquet, Healthy Choice, Slim Jim, Reddi-wip and Vlasic, experienced higher-than-expected cost pressures as the third quarter progressed, and management expects those pressures to continue into the fourth quarter, particularly in certain frozen, refrigerated and snacks businesses. As a response, the company has taken steps to implement additional inflation-driven pricing actions, the benefits of which are expected to arrive in the first quarter of fiscal 2023.

Shares dipped by 5.5% pre-market on Thursday as a result of declining earnings and weaker-than-expected estimates. Earnings predictions for the full year have been adjusted to about $2.35 per share, a dip of 10 cents from the previous projection. Late Thursday morning, shares were trading at around $34.52, having given up their losses for a 0.5% gain over the previous day's close.

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Third quarter net sales increased 5.1%, while organic net sales increased 6.0%. On a two-year compounded annualized basis, third quarter net sales increased 6.8% and organic net sales increased 7.8%. The operating margin decreased 387 basis points to 12.3%, while the adjusted operating margin decreased 230 basis points to 13.7%. Diluted earnings per share (EPS) for the third quarter decreased 22.4% to 45 cents, and adjusted EPS decreased 1.7% to 58 cents. On a two-year compounded annualized basis, third quarter EPS increased 3.5% and adjusted EPS increased 11.1%.

Conagra’s updated fiscal 2022 guidance calls for organic net sales growth of approximately 4% versus prior guidance of approximately 3%, the company said. Gross inflation (input cost inflation before the impacts of hedging and other sourcing benefits) is expected to be approximately 16% versus prior guidance of approximately 14%. The adjusted operating margin is projected to be approximately 14.5% versus prior guidance of approximately 15.5%. Adjusted EPS is expected to be $2.35 versus prior guidance of $2.50.

The food producer’s fiscal 2022 fourth quarter guidance expects that organic net sales growth will be approximately 7%, while gross inflation (input cost inflation before the impacts of hedging and other sourcing benefits) is expected to be 16%. The adjusted operating margin is expected to be 15.5%, while adjusted EPS is expected to be approximately 64 cents.

Sean Connolly, President and CEO of Conagra Brands, said in a statement, "Our business delivered another quarter of strong net sales growth as our brands continued to resonate with consumers. Our focus on strategic innovation and our intentional approach to investment helped us capture share across each of our domains – frozen, snacks, and staples. The team's dedication to executing our Conagra Way playbook has continued to pay dividends in the face of a challenging external landscape."

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