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High Input Costs Dim Conagra's (CAG) Q4 Earnings Prospect

Zacks Equity Research

Conagra Brands, Inc. CAG is scheduled to release fourth-quarter fiscal 2019 results on Jun 27. We note that the company’s bottom line surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average being 10%. Let’s see what’s in store for the company in the upcoming quarterly results.

Factors Likely to impact Q4 Performance

Conagra boosts its portfolio through prudent acquisitions. In fact, the buyout of Pinnacle Foods in October 2018 is yielding results. The consolidation of these food companies has enabled to create a robust portfolio of leading, iconic and on-trend brands. The acquisition is likely to drive the top line in the fourth quarter. Additionally, the company is progressing well with portfolio-reshaping initiatives and focusing more on the Refrigerated & Frozen as well as the Grocery & Snacks units. The company’s value-over-volume strategy is also optimizing operations. Such efforts are likely to support the company’s performance in the to-be-reported quarter.

In spite of the aforementioned upsides, there are certain headwinds that are likely to hamper the upcoming quarterly announcement. Markedly, the company’s Foodservice segment has been weak for quite some time, thanks to business exits. These business divestitures are part of the company’s portfolio refinement efforts.

Moreover, input cost inflation is anticipated to be a persistent limitation. The company is witnessing inflation in areas such as transportation, crops and packaging. Notably, rising input costs are denting the performance of other food players as well, such as Campbell Soup CPB, Lamb Weston LW and General Mills GIS. Such headwinds along with adverse currency fluctuations are likely to dent Conagra’s bottom line in the fourth quarter.

Conagra Brands Inc. Price, Consensus and EPS Surprise


Conagra Brands Inc. Price, Consensus and EPS Surprise

Conagra Brands Inc. price-consensus-eps-surprise-chart | Conagra Brands Inc. Quote


Which Way Are Estimates Treading?

The Zacks Consensus Estimate for fourth-quarter earnings is pegged at 42 cents, which suggests a decline of 16% from the year-ago quarter's level. The current estimate has been stable in the past 30 days.

Further, the consensus mark for revenues is pegged at $2,652 million, calling for a growth of approximately 34.9% from the year-ago quarter’s figure.

What Does the Zacks Model Unveil?

Our proven model doesn’t show that Conagra is likely to beat bottom-line estimates in the to-be-reported quarter. For this to happen, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Conagra has an Earnings ESP of +0.80%, its Zacks Rank #4 (Sell) makes us apprehensive about an earnings beat. Markedly, we caution against sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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