Conagra Brands (CAG) Exhibits Bright Prospects, Risks Persist
Conagra Brands, Inc. CAG has been experiencing a solid recovery in its Foodservice business as restaurant traffic has picked up over the past few quarters. In the third quarter of fiscal 2023, sales from the company’s Foodservice segment increased 17.3% year-over-year to $275.4 million. The Foodservice business is well-poised to grow with a continued rise in outdoor dining trends.
The company has also been witnessing strength in its Frozen business, as evident from its strong performance in third-quarter fiscal 2023. In the quarter, net sales grew 5.6% to $1,307.7 million in the company’s Refrigerated and Frozen segment. The upside can be attributed to several key categories, like breakfast sausages and single-serve meals. The company saw an improved share in plant-based protein, frozen sides and frozen breakfasts.
Conagra’s efficient pricing initiatives have been offering respite amid the cost headwinds. In the fiscal third quarter, its overall price/mix improved by 15.1% and aided organic sales growth of 6.1%. The favorable price/mix was driven by the company’s inflation-induced pricing actions. The company’s focus on effective pricing actions is likely to be favorable amid cost inflation.
Based on the continued business momentum and current operating landscape, Conagra provided a solid sales and earnings outlook. For fiscal 2023, it anticipates organic net sales to grow 7-7.5%, with an operating margin in the band of 15.5-15.6%. CAG envisions adjusted earnings to lie in the range of $2.70-$2.75 per share, suggesting 14-17% year-over-year growth.
However, the company has been grappling with higher selling, general and administrative (SG&A) expenses for a while. In the first three quarters of fiscal 2023, its adjusted SG&A expenses increased by 47.5% to $1.46 billion. Higher incentive compensation and increased promotion and advertising expenditures contributed to the rise in SG&A expenses. The persistence of these factors might be a concern for the company. Also, it has been subject to cost inflation and supply-chain challenges. CAG expects total gross inflation of roughly 10% for fiscal 2023.
Given its extensive presence across international markets, Conagra is exposed to the risk of adverse currency fluctuations. For instance, in the fiscal third quarter, its net sales were hurt by currency headwinds to the tune of 0.2%.
Image Source: Zacks Investment Research
In the past year, this Zacks Rank #3 (Hold) stock has declined 0.3% against the industry’s growth of 6.3%.
Stocks to Consider
Some top-ranked stocks are Ingredion Incorporated INGR, Nomad Foods Limited NOMD and Vital Farms, Inc. VITL, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Ingredion is a producer and distributor of sweeteners, nutrition ingredients and biomaterial solutions. The Zacks Consensus Estimate for INGR’s current financial-year earnings per share is expected to rise by 22.1% from the corresponding year-ago reported figure.
Nomad Foods manufactures and distributes frozen foods. NOMD has a trailing four-quarter earnings surprise of 8.5%, on average. The Zacks Consensus Estimate for Nomad Foods’ current financial year sales suggests growth of 8%, while earnings are likely to decline 3.4% from the prior-year reported numbers.
Vital Farms operates as a supplier of pasture-raised products in the United States. The Zacks Consensus Estimate for VITL’s current financial-year sales and earnings per share suggests growth of 27.7% and 1,100%, respectively, from the corresponding year-ago reported figures. Vital Farms has a trailing four-quarter earnings surprise of 120%, on average.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Conagra Brands (CAG) : Free Stock Analysis Report
Ingredion Incorporated (INGR) : Free Stock Analysis Report
Nomad Foods Limited (NOMD) : Free Stock Analysis Report
Vital Farms, Inc. (VITL) : Free Stock Analysis Report
