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Factors to Watch Before Conagra Brands' (CAG) Q1 Earnings

Conagra Brands' (CAG) first-quarter fiscal 2022 results are likely to reflect the impact of input cost inflation. The Foodservice business recovery is likely to have acted as an upside.

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This story originally appeared on Zacks

Conagra Brands, Inc. CAG is likely to display year-over-year declines in the top and bottom lines, when it reports first-quarter fiscal 2022 numbers on Oct 7. The Zacks Consensus Estimate for revenues is pegged at $2,538 million, suggesting a drop of 5.3% from the prior-year quarter’s reported figure.



The Zacks Consensus Estimate for earnings has remained stable over the past 30 days at 48 cents per share, which indicates a slump of 31.4% from the figure reported in the prior-year period. In the last reported quarter, the company delivered an earnings surprise of 1.9%. This consumer packaged goods food company has a trailing four-quarter earnings surprise of 9.4%, on average.

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CONAGRA BRANDS Price, Consensus and EPS Surprise



CONAGRA BRANDS Price, Consensus and EPS Surprise

CONAGRA BRANDS price-consensus-eps-surprise-chart | CONAGRA BRANDS Quote

Key Factors to Note

Conagra has been lately encountering a cost of goods sold inflation. Management, on its fourth-quarter fiscal 2021 earnings call, stated that it expects a cost inflation of nearly 9% in fiscal 2022. Although the company is focused on undertaking relevant saving and pricing efforts to combat this inflation, the timing and gains from these initiatives are likely to be more skewed toward the second half of fiscal 2022. These actions are unlikely to completely offset the input cost woes in fiscal 2022. The first quarter of fiscal 2022 is, in fact, expected to be the lowest-margin quarter in the fiscal year. Apart from this, Conagra’s brand-building investments might also impact its margins.



Apart from this, the company’s performance remains prone to the impact of divestitures. During the fourth quarter of fiscal 2021, Conagra’s net sales growth was affected by the divestiture of the H.K. Anderson business, the Peter Pan peanut butter business and the Egg Beaters business. The divestitures are collectively referred to as Sold Businesses. In fact, the divestiture of the Egg Beaters (concluded on May 27) is likely to reduce the annual reported net sales by nearly $40 million and the adjusted earnings per share (EPS) by roughly 1 cent. This might have impacted the company’s performance in the quarter under review as well. We note that the Egg Beaters liquid egg business mainly formed part of the company’s Refrigerated & Frozen segment.



On the positive side, Conagra is seeing a recovery in its Foodservice business, as restaurant traffic is picking up with the pandemic-led curbs being lifted and people moving out. In fourth-quarter fiscal 2021, Foodservice segment sales advanced 20.8% to $232.8 million, thanks to a rise in organic sales. Organic sales surged 31%, with volumes up 30.2%, backed by the recovering restaurant traffic. The segment saw favorable comparisons with last year’s drab Foodservice sales due to the initial pandemic impact. With things opening up and more people getting out, the Foodservice business looks well placed. Conagra’s e-commerce investments have also been yielding favorable results.



Additionally, Conagra expects the demand for its retail products to remain high in fiscal 2022, compared with historical levels, as consumers have cultivated new habits during the pandemic. The company has been on track with a range of innovation and brand-building efforts for exploring growth prospects in its frozen and snacks businesses.

What the Zacks Model Unveils

Our proven model predicts an earnings beat for Conagra Brands this time around. The combination of a positive Earnings ESP, and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.



Conagra Brands currently carries a Zacks Rank #2 and has an Earnings ESP of +0.69%.

Other Stocks With Favorable Combinations

Here are some other companies you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this season.



Hershey HSY has an Earnings ESP of +3.82% and carries a Zacks Rank #3, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.



Kellogg K has an Earnings ESP of +2.51% and currently holds a Zacks Rank #3.



The Coca-Cola Company KO has an Earnings ESP of +0.99% and carries a Zacks Rank #3, currently.



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