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What's Behind Conagra's Strong 2nd-Quarter Results?

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GuruFocus.com
·3 min read
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- By Mayank Marwah

Conagra Brands Inc. (NYSE:CAG) released its second-quarter 2021 financial results before the market opened on Jan. 7. Both earnings and revenue edged past FactSet's 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 foods company recorded adjusted earnings of 81 cents per share, up 29% from the prior-year quarter. Analysts had anticipated earnings of 74 cents. Revenue of $3 billion grew 6% year-over-year and also surpassed projections of $2.99 billion. Stripping out the impact from mergers, acquisitions and currency fluctuations, organic net sales increased 8.1%.

The gross profit amounted to $889 million, reflecting a gain of 11.4% 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, President and CEO Sean Connolly said:


"Our second quarter results reflect strong performance across the business and outstanding execution delivered by employees across the company. We exceeded expectations on net sales, profitability, and de-leveraging while continuing to invest in the business. We have continued to selectively invest in production capacity and marketing support to increase the availability and awareness of our products to maximize long-term brand health."



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, H.K. Anderson, DSD Snacks and Gelit businesses as well as exiting the private label peanut butter business.

In the grocery and snacks business, sales grew 12.5% to $1.3 billion. Similarly, sales in the refrigerated and frozen foods division climbed 6.8% from the year-ago quarter to $1.2 billion. On the international front, net sales rose 6.6% to $250 million. By contrast, the foodservice segment saw revenue decrease roughly 23% to $212 million.

Post Holdings to buy Peter Pan business

Post Holdings Inc., (NYSE:POST), a consumer packaged goods holding company headquartered in St. Louis, has entered into an agreement with Conagra to buy the Peter Pan peanut butter business. The transaction value was not disclosed, but Conagra did mention that it expects to complete the transaction in the first calendar quarter of the year. As a result of the impending deal, the company expects to lose roughly $110 million in annual net sales while adjusted earnings per share will be reduced by 3 cents.

Looking ahead

Conagra has continued to witness heightened demand in its retail business. However, foodservice products continue to see a slump in demand. Coronavirus-related expenses have also affected the business.

Factoring in these headwinds, the branded food company has issued guidance for its third quarter of fiscal 2021. Conagra is guiding for adjusted earnings per share between 56 cents and 60 cents. Organic net sales are expected to grow by around 6% to 8%. The adjusted operating margin is projected to be between 16% and 16.5%.

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

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This article first appeared on GuruFocus.