ConAgra Brands (NYSE: CAG) declared stronger-than-expected fiscal Q3 results, topping both earnings and revenue estimates driven by robust performance across all segments.
However, the company lowered its annual outlook to account for the higher costs driven by inflationary pressures.
Headquartered in Chicago, Conagra Brands, Inc. is an American consumer packaged goods holding company that makes and sells processed and packaged foods under various brand names that are available in supermarkets, restaurants, and food service establishments.
Q3 Beat
Q3 adjusted earnings of $0.58 per share declined 1.7% year-over-year but was a cent better than the analysts’ expectations of $0.57 per share.
Net sales jumped 5.1% year-over-year to $2.91 billion, exceeding consensus estimates of $2.84 billion. The increase in revenues reflects a surge in organic net sales, which increased 6% during the quarter.
On the downside, adjusted operating margin declined 230 basis points to 13.7%.
Lowered FY2022 Outlook
Based on Q3 results and ongoing challenges, including rising inflation, management updated financial guidance for FY2022.
For the fiscal full year 2022, the company now forecasts adjusted earnings of $2.35 per share, lower than the prior guidance of $2.50 and the consensus estimate of $2.42 per share.
Positively, however, organic net sales are forecast to grow by 4% versus prior guidance of 3% growth.
For the fiscal fourth quarter, adjusted earnings are likely to be approximately $0.64 per share, while the consensus estimate is pegged at $0.70 per share. Organic net sales growth is projected to be 7%.
CEO Comments
Commenting on higher-than-expected cost pressures that are expected to continue into the fourth quarter, Conagra Brands CEO, Sean Connolly, stated, “In response, we have taken steps to implement additional inflation-driven pricing actions.”
He added, “We will begin to see the benefits of these actions in the first quarter of fiscal 2023. Consumer demand has remained strong in the face of our pricing actions to date, but there will continue to be a lag between the timing of the incremental inflation and the benefits of our mitigating actions.”
Wall Street’s Take
Following the Q3 results, Jefferies analyst Robert Dickerson reiterated a Buy rating on Conagra Brands with a price target of $40 (16.2% upside potential).
The rest of the Wall Street community is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on two Buys and five Holds. At the time of writing, the average Conagra Brands price forecast of $36.67 implies 6.5% upside potential to current levels.
Bottom-Line
Going forward, it’s a double-edged sword for the company, with higher demand combined with price increases pushing sales higher, but rising inflation pulling down the profits.
Given the challenging landscape of higher costs amidst growing inflation, the company has prudently lowered its outlook going forward.
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