- Outlook Adjustments Annual sales and margin guidance maintained despite $30M Ardent shortfall, translating to ~$0.05 EPS impact.
- Sales Momentum Organic net sales growth expected in H2, with Q3-Q4 balance; Q3 margins pressured by >3% A&P spend and inventory absorption.
- Cost Dynamics Chicken inflation favorability offset by rising beef/pork costs; <50% tariff exposure on tinplate with no rate changes.
- Margin Recovery Gross margin to trend toward historical levels via productivity, pricing, and supply chain resilience by 2024.
- Strategic Moves $100M+ impairment charge taken due to stock price decline; debt reduction focus, with no active M&A pursuit but selective value-creating opportunities considered.
Operational Performance
The company has seen some favorability in chicken inflation but expects increased costs in beef and pork. Tariff timing has also provided some favorability, although over 50% of its tariff exposure is on tinplate, where there has been no change to tariff levels. Conagra Brands has not seen shoppers waiting to buy more on promotion, unlike some other food companies, and has kept pricing steady in some categories to drive volume growth.
Growth Prospects
Conagra Brands expects good momentum in frozen and snacks, with a strong marketing plan in place. The company is also working on Project Catalyst, a reengineering of core business processes using technology to drive more efficiency and effectiveness. With a strong lineup of new products and a good balance of value and premium offerings, the company feels good about its innovation performance.
Margin Expansion
The company expects to claw its way back up to historical gross margin levels, driven by productivity, inflation relief, supply chain resiliency investments, and pricing actions. The company aims to achieve at least the same level of performance as the previous year, if not grow, during the seasonal period, which includes promotions and inventory builds.
Outlook and Valuation
Analysts estimate next year's revenue growth at -3.8%. Given the current valuation metrics, including a P/S Ratio of 0.6 and a Dividend Yield of 8.07%, the stock appears to be attractive. The company's focus on debt reduction and its history of M&A are also positive factors. However, the wide EPS outlook range and the impairment charge taken in the quarter due to a sustained decline in its stock price and market cap are concerns that need to be monitored.