Conagra (CAG) To Benefit From Acquisitions In Q2 Earnings

Conagra Brands, Inc. (NYSE:CAG) is scheduled to release second-quarter fiscal 2019 results on Dec 20. We note that the company’s bottom-line missed the Zacks Consensus Estimate in the first quarter by almost 4.1%. Nevertheless, considering the trailing four-quarter performance, earnings surpassed estimates by an average of 6.7%. Let’s see what’s in store for the company this time.

Buyouts & Volume-Boosting Strategies

Conagra is focused on enhancing competency by reshaping portfolio through meaningful takeovers. In sync with this, the company tries to acquire high margin generating businesses and divesting the less profitable ones. Notably, strategic acquisitions like Angie’s Artisan Treats and Sandwich Bros are fueling operations and are likely to be significant growth drivers.

Moreover, Conagra’s recent buyout of Pinnacle Foods is expected to be a prudent move in driving sales. The consolidation of these food companies is likely to create a robust portfolio of leading, iconic and on-trend brands, which will help the combined entity accelerate innovation and exploit long-term benefits in the frozen foods space.

Along with strategic buyouts, Conagra focuses on boosting performance on unique value-over-volume strategy. Under this routine, the company ensures that robust volume performance is not driven by price discounts but by stronger innovation as well as new merchandising and distribution efforts.

Factors Likely to Pose as Hurdles

Higher transportation and input costs as well as greater retailer investments are weighing on Conagra’s profitability. Moreover, the company anticipates input cost inflation to be 3.0-3.2% in fiscal 2019, primarily stemming from hikes in transportation and packaging categories as well as in some commodities. In fact, packaging inflation estimates also include expected impacts from tariffs. Notably, many other food companies like General Mills (NYSE:GIS) , TreeHouse Foods (NYSE:THS) and Campbell Soup (NYSE:CPB) are battling input cost inflation.

Additionally, the Foodservice segment has been dismal for a while, thanks to soft volumes. Further, management expects Foodservice sales to stay under pressure in the second quarter, due to tough year-over-year comparisons stemming from hurricanes.

Conagra Brands Inc. Price, Consensus and EPS Surprise

Conagra Brands Inc. Price, Consensus and EPS Surprise | Conagra Brands Inc. Quote

Estimates Unveil a Positive Picture

We expect that the well-chalked strategies will offset the aforementioned hurdles and enable the company to deliver strong performance in the impending quarter. Markedly, the Zacks Consensus Estimate for sales is pegged at $2,370 million, reflecting a rise of almost 9% from the year-ago quarter’s reported figure. Further, the consensus mark for earnings has moved up by a notch in the past seven days to 58 cents, which shows a 5.5% jump from 55 cents recorded in the year-ago quarter.

What Does the Zacks Model Unveil?

Our proven model doesn’t show that Conagra is likely to beat bottom-line estimates in the to-be-reported quarter. For this to happen, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Though Conagra carries a Zacks Rank #3, its Earnings ESP of -5.22% makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

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