Conagra (CAG) appears to be struggling with cost inflation – December 21, 2021

Brands Conagra, Inc. (CAG Free Report) appears to be in poor condition. The company faces high cost headwinds, which are expected to persist. As it takes cost saving and pricing actions to counter cost inflation, the gains from these initiatives are likely to take time to be realized. In addition, the disposals had an impact on Conagra’s commercial performance.

Let’s dig deeper.

High costs – a major concern

In recent times, Conagra has faced inflation in the cost of goods sold. In the first quarter of fiscal 2021, gross margin declined 16.9% to $ 673 million, while adjusted gross margin fell 18.0% to $ 675 million. Gross margin contracted 486 basis points (bps) to 25.4% and adjusted gross margin declined 530 basis points to 25.4%. The downside was the result of lower net sales, cost of goods sold inflation and loss from business sold. Adjusted EBITDA decreased 22.6% to $ 501 million due to lower adjusted gross margin.

Management expects costs to rise nearly 11% in fiscal 2022, up from 9% previously. While management is focused on implementing relevant savings and pricing efforts to combat this inflation, the timing and earnings of these initiatives are likely to be more skewed towards the second half of the year. 2022. Apart from this, CAG’s brand building investments could also impact margins.

In the first quarter of fiscal 2022, selling and administrative expenses, including advertising and promotion (A&P) expenses increased 3.3% to $ 310 million. A&P costs rose 35.3% to $ 62 million due to increased investment in e-commerce. Management continues to expect selling and administrative expenses to have a negative impact on operating margins.

Image source: Zacks Investment Research

Other disadvantages

During the first quarter of fiscal 2022, Conagra’s net sales growth was impacted by the divestiture of the HK Anderson business, the Peter Pan peanut butter business and the Egg Beaters business. Assignments are collectively referred to as businesses sold. During the first quarter, the divestitures negatively impacted net sales by nearly 110 basis points.

Net sales of $ 2,653.3 million decreased 1% year-over-year in the quarter. Organic sales were down 0.4% due to a drop in volumes of around 2%. Volumes in most segments of the company were affected by difficult comparisons with the initial demand surge caused by last year’s pandemic. Adjusted profit was 50 cents, down 28.6% year-on-year, mainly due to lower gross margin.

Shares of this company Zacks Rank # 4 (Sell) are down 2.4% in the past six months compared to the industry’s 4.1% drop.

3 choices of basic products

Some of the top-ranked stocks in the consumer staples sector are Pop ingredients (MGPI Free report), Hain’s Celestial Group (HAIN Free report) and Inter Parfums, Inc. (IPAR Free report).

MGP Ingredients, the producer and supplier of distilled spirits, specialty wheat protein and starch-based food ingredients, currently sports a Zacks Rank # 1 (strong buy). The company’s shares have risen 31.8% in the past six months. You can see The full list of today’s Zacks # 1 Rank stocks here.

Zacks ‘consensus estimate for MGP Ingredients’ current year sales and earnings per share (EPS) suggests growth of 55.5% and 61.4%, respectively, over period numbers from last year. MGPI has a surprise profit over the last four quarters of 117.6%, on average.

Inter Parfums develops, manufactures and distributes prestigious perfumes and cosmetics. He currently sports a Zacks Rank # 1. Inter Parfums posted a surprise profit of 29.7% on average over the last four quarters.

Zacks’ consensus estimate for IPAR’s current year sales and EPS suggests growth of 55.9% and 100%, respectively, from a year earlier. The company’s shares have jumped 31.4% in the past six months.

The Hain Celestial, which supplies a variety of natural and organic foods as well as personal care products in North America and Europe, currently carries a Zacks Rank # 2 (Buy). It has a surprise of 9.7% on average over the last four quarters. Shares of The Hain Celestial have risen 2.2% in the past six months.

Zacks’ consensus estimate for HAlN’s current year EPS suggests growth of 14.5% over the previous year’s published number.


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