Factors That Keep Conagra (CAG) Well Positioned for 2021
Conagra Brands, Inc. CAG has been benefiting from its focus on innovation and other brand-building efforts. The company has been particularly boosting its frozen and snacks businesses, which is gaining all the more on pandemic-led increased at-home consumption. Incidentally, the company’s retail business has been doing well, courtesy of increased demand amid coronavirus-led stockpiling of essential items and higher at-home consumption.
These upsides are also helping the company battle softness in its foodservice segment, which has been troubled due to sluggish away-from-home demand amid the pandemic. Such trends drove Conagra in first-quarter fiscal 2021, with the top and bottom lines surging year over year and beating the Zacks Consensus Estimate. Let’s delve deeper into the factors that are likely to keep this Zacks Rank #2 (Buy) stock in good shape for 2021. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Factors Boosting Conagra
In first-quarter fiscal 2021, Conagra’s results were backed by increased organic sales, which in turn benefited from higher at-home consumption amid the pandemic, driving the retail business. Strength in the retail business also helped the company offset softness in the Foodservice segment, wherein sales fell due to COVID-19. During the quarter, the company’s retail sales gained from double-digit increases in Snacks, Frozen and Staples sales. Apart from Conagra, many other food companies like B&G Foods BGS, TreeHouse Foods THS and Smucker SJM, among others, are seeing increased retail demand amid the pandemic.
Total Conagra Frozen retail sales rallied 13.5%, with strength in each category such as single-serve meals, multi-serve meals and plant-based meat alternatives. Frozen has indeed picked up pace in the current situation, wherein the pandemic has caused consumers to stock up and eat at home. Snacks business sales gained 14.6%, while the quarter also saw a robust Staples business performance, thanks to the pandemic-led demand. Management expects at-home eating trends to stay high for a while and is well positioned to tap opportunities related to it.
Encouragingly, the company continued to see a considerable increase in demand in the retail business in the second quarter of fiscal 2021 (till Oct 1). Considering these factors and assuming a smooth supply chain, management expects organic sales growth of 6-8% in the second quarter of fiscal 2021. Adjusted operating margin is likely to be 18-18.5%, while adjusted earnings per share (EPS) are envisioned between 70 cents and 74 cents. Additionally, management reiterated its targets for fiscal 2022, when it reported the first-quarter results. Organic net sales are anticipated to grow 1-2% (three-year CAGR ending fiscal 2022). Adjusted operating margin is expected in a range of 18-19% and adjusted EPS for fiscal 2022 is likely to be $2.66-$2.76.
Conagra Brands Inc. Price, Consensus and EPS Surprise
Conagra Brands Inc. price-consensus-eps-surprise-chart | Conagra Brands Inc. Quote
Clearly, its focus on innovation is working well for Conagra. Even amid the pandemic, the company remained focused on carrying out innovation for its customers as well as consumers. In its first-quarter fiscal 2021 conference call, management stated that its robust focus on the Conagra Way playbook has helped it constantly surpass its target of generating 15% of total retail sales (each year) from products introduced within the past three years. Certainly, the company’s growth is rooted in its innovation platform, which is helping it aid category performance.
Wrapping Up
While coronavirus-led increased at-home trends have boosted Conagra’s retail business, the same has been dealing a blow to its Foodservice segment for a while now. Incidentally, quarterly sales in the segment declined 21.8% year over year to $195.1 million in the first quarter due to Sold Businesses and lower organic sales. Organic sales fell 20.3%, with volumes down 24.2% due to reduced restaurant traffic amid the pandemic. Further, in the second quarter of fiscal 2021 (till Oct 1), demand for foodservice products continued to be lower than the pre-pandemic level.
Nonetheless, we believe that strong demand in its retail business and focus on innovation are likely to help Conagra counter the abovementioned hurdles and fuel growth. The company’s shares have gained 4% year to date, outpacing the industry’s growth of 1%.
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Conagra Brands Inc. (CAG) : Free Stock Analysis Report
The J. M. Smucker Company (SJM) : Free Stock Analysis Report
TreeHouse Foods, Inc. (THS) : Free Stock Analysis Report
B&G Foods, Inc. (BGS) : Free Stock Analysis Report
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