Packaged foods company Conagra Brands Inc. (CAG, Financial) released its first quarter of fiscal 2018 results on Sept. 28.
The Chicago-based company posted adjusted EPS of 46 cents, a 17.9% increase from 39 cents in the prior-year quarter. The company beat earnings expectations by six cents, producing a positive surprise of 15%.Â
Quarterly revenue of $1.8 billion beat expectations of $1.79 billion, but decreased 4.8% year over year.
By segment, grocery and snack sales were down 2% year over year to $746 million; refrigerated and frozen sales increased 2% year over year to $616 million; international sales declined 2% from the year-ago quarter to $191 million; and foodservice sales fell 6% to $252 million.
The adjusted gross margin increased 26.2 basis points to 29.2% of net sales due to "improvements in price/mix and the impact of divesting lower margin businesses," which offset the impact of input cost inflation.
For full fiscal 2018, Conagra guided -2% to flat net sales growth, -2% to flat organic net sales growth and the adjusted operating margin to range from 15.9% to 16.3%. The effective tax rate is projected to range between 32.5% and 33.5%. EPS is forecasted to be $1.84 to $1.89.Â
President and CEO Sean Connolly said he is confident about Conagra’s ability “to build on this [sales] momentum and drive long-term shareholder value."
The company closed the quarter with approximately $251.4 million in cash on hand and securities and about $2.97 billion in total debt, for a debt-equity ratio of 76.4% versus an industry average of 107.21%.
Conagra Brands is currently trading around $34.23 per share with a market capitalization of $14.19 billion, a price-book (P/B) ratio of 3.65, a price-earnings (P/E) ratio of 23.52 and a price-sales (P/S) ratio of 1.75.
The forward P/E ratio is 18.35. When this is multiplied by the 2018 EPS estimate of $1.86, it yields a value of $34.13 per share.
The recommendation rating is 2.4 out of 5. The analysts’ average target price per share is $39.93, which is a 16.7% upside to the current market value. According to the Peter Lynch chart below, however, the stock is currenlty overvalued.
Conagra Brands distributes an annual dividend of 85 cents through quarterly payments of 21.25 cents, for a dividend yield of 2.56%.
Disclosure: I have no positions in Conagra Brands.
