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Conagra Posts 1st-Quarter Earnings and Revenue Beat

GuruFocus.com
·3 min read

- By Mayank Marwah

Conagra Brands Inc. (NYSE:CAG) released its first-quarter fiscal 2021 financial results before the market opened on Oct. 1. Both earnings and revenue edged past FactSet consensus estimates thanks to robust digital performance as well strong demand in the retail business. Partly offsetting the growth was reduced foodservice demand.

Performance at a glance


The American packaged food company recorded adjusted earnings per share of 70 cents, up 62.8% from the prior-year quarter. Analysts had anticipated EPS of 57 cents. Revenue of $2.7 billion jumped 12.1% year-over-year and also surpassed projections of $2.61 billion. Stripping out the impact from mergers, acquisitions and currency fluctuations, organic net sales increased 15%.

The gross profit amounted to $810 million, reflecting a gain of 21.9% year-over-year due to the cost synergies related with Pinnacle Foods acquisition, improved price-mix and supply chain productivity as well as fixed cost leverage, which was partly offset by higher input costs, pandemic-related costs, foreign currency impact and loss of profit from divested businesses.

Reflecting on the quarterly performance, Conagra President and CEO Sean Connolly commented:


"Our first quarter results demonstrate that our business is healthy, our products are relevant, and our capabilities are strong. We exceeded our expectations on net sales, profitability, and de-leveraging, and continued to make investments to ensure the physical availability of our products, maintain momentum with consumers, and build brand health. Now that customers have begun rebuilding inventories and we have increased production capacity in certain areas of our business, we are selectively increasing our marketing support for the businesses where capacity permits. These investments are intended to help sustain brand momentum and maximize the long-term value of our consumer base."



Segment details

All of the company's divisions reported sales growth with the exception of the foodservice segment. Conagra attributed its strong performance to strong organic net sales, which was only partly offset by the divestiture of the Wesson Oil, DSD Snacks and Gelit businesses as well as exiting the private label peanut butter business.

In the grocery and snacks business, sales grew 16% to $1.1 billion. Similarly, sales in the refrigerated and frozen foods division climbed 17.9% from the year-ago quarter to $1.1 billion. On the international front, net sales rose 7.2% to $219 million. By contrast, the foodservice segment saw revenue decrease roughly 22% to $195 million.

Utz Brands to buy HK Anderson business

Utz Quality Foods, LLC, a subsidiary of Utz Brands (NYSE:UTZ), has entered into an agreement with Conagra to buy certain assets of HK Anderson (the peanut butter filled pretzels). The transaction value is less than $10 million and is expected to close in November of 2020. The acquisition will not include employees, facilities or equipment, only intellectual property specific to the H.K. Anderson brand. The CEO of Utz brands, Dylan Lissette, commented the following on the impending acquisition:


"The approximate $100 million filled segment of pretzels is ripe for innovation and growth. As we look to increase our share in the rapidly expanding salty snack category through new products and geographic growth, this type of acquisition is tailor made for the synergies and growth opportunity afforded by our platform."



Guidance

Conagra has continued to witness heightened demand in its retail business in the second quarter so far. On the other hand, foodservice products continue to see a slump in demand. Coronavirus-related expenses have also affected the company's business.

Factoring in these headwinds, the branded food company has issued guidance for its second quarter of fiscal 2021. Conagra is guiding for adjusted EPS between 70 cents and 74 cents. Organic net sales are expected to grow by around 6% to 8%. The adjusted operating margin is projected to be between 18% and 18.5%.

Disclosure: I do not hold any positions in the stocks mentioned.

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This article first appeared on GuruFocus.