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Conagra Brands Inc. Reports 1st Quarter Earnings

- By Mayank Marwah

Conagra Brands Inc. (CAG) came out with its first-quarter financial results on Thursday before the market opened. The packaged food company reported revenue and earnings that grew from the year-ago quarter. However, the company failed to meet top-line growth expectations due to adverse currency rates and discontinuation of an underperforming business in the Foodservice sector.


Key metrics

Conagra posted earnings of 47 cents per share for the first quarter. As a matter of fact, revenue during the same period came in at $1.8 billion, up 1.7% year over year.

The company reported organic sales growth of 1.2% excluding the sale of Trenton production facility. It also saw a decline in the gross margin to 28.6% of sales, yet it surpassed the consensus estimate of 28.5%. Gross profit plunged 0.7%, while selling, general and administrative dropped 0.9% in the quarter.

Segment detail

In the Refrigerated and Frozen segment, the company saw net sales growth of 3.2%. Organic sales in the segment spiked 1.4% thanks to company's recent acquisition of Angie's BOOMCHICKAPOP and Sandwich Bros of Wisconsin that contributed 200 basis to its organic growth. The company's organic sales growth spiked for the fifth consecutive quarter.

The Grocery and Snacks sector witnessed growth in organic net sales thanks to impressive performance in the snacks business, which was only partially offset by a decline at certain non-core grocery brands. Operating profit amounted to $179 million, up 1.5%.

In the International segment, net sales stood at $194 million, up 1.5%. Organic sales were up 6.3%. Operating profit surged a mammoth 97.4% as a result of gain on sale of the Canadian Del Monte business. Higher input cost and unfavorable foreign exchange was more than offset by higher net sales, strong realized productivity, and lower SG&A.

The president and CEO of Conagra Sean Connolly was pleased with the company's quarterly results and segment performance. He said, "We continue to stay focused on supporting our brands with robust marketing programs, including increased retailer investments, to drive brand saliency, enhanced distribution, and consumer trial of our products."

Guidance

The company projects revenue growth for the whole year to be in the range of 0.5% to 1.5% for fiscal 2019. Organic sales growth is expected to grow between 1% and 2%. Adjusted operating margin is expected to be at around 14.4% to 14.7%.

Last word

The company is currently eyeing the addition of Pinnacle Foods (PF) to its portfolio. An acquisition is expected to close by end of October this year. While Conagra is the maker of frozen foods, Pinnacle Foods makes Birds Eye foods, Hungry-Man TV dinners, Mrs. Paul's fish sticks and Duncan Hines. This collaboration would make combined annual sales touch $11 billion. An extraordinary general meeting of Pinnacle shareholders would be held on Oct. 23 for obtaining their consent for the sale to Conagra.

Disclosure: I do not hold any positions in the stock mentioned in this article.

This article first appeared on GuruFocus.