Why Conagra Brands Stock Plummeted Today

Even with its purchase of Pinnacle complete, the packaged-foods leader left the market hungry for more.

Steve Symington
Steve Symington
Dec 20, 2018 at 4:06PM
Consumer Goods

What happened

Shares of Conagra Brands (NYSE:CAG) fell 17.2% on Thursday after the packaged-foods company wrapped up mixed fiscal second-quarter 2019 results relative to expectations. More specifically, Conagra's net sales climbed 9.7% year over year, to $2.384 billion.

But that growth mostly was driven by acquisitions -- notably including its $11 billion purchase of Pinnacle Foods in late October, which more than offset a 1.6% decline in organic sales (excluding the sale of its production facility in Trenton Missouri). On the bottom line, that translated to a 21.8% increase in adjusted earnings per share from continuing operations, to $0.67. Analysts, on average, were modeling lower earnings of $0.55 per share on higher revenue of $2.41 billion.

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So what

Within Conagra's top line, the refrigerated and frozen segment delivered net sales growth of 1.7%, to $771 million, including organic net sales growth of 0.5%. The grocery and snacks segment saw sales remain roughly flat at $900 million, including a 1.9% decline in organic sales.

Foodservice segment revenue declined 16.5%, to $246 million, largely due to the Trenton-facility sale and the effect of hurricanes in the same year-ago period. Finally, international sales fell 5.4%, to $208 million, hurt by unfavorable foreign-exchange rates and the sale of Conagra's Canadian Del Monte business.

Conagra CEO Sean Connolly stated:

For the Legacy Conagra Brands business, our second-quarter results reflect continued momentum. Net sales were largely in line with our expectations. Our Refrigerated and Frozen and Grocery and Snacks segments continued to gain share with consistent, accelerating consumption trends behind strong innovation, particularly in our frozen and snacks and sweet treats businesses.


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Now what

Conagra reaffirmed its outlook for reported sales from its legacy businesses to climb in the range of 0.5% to 1.5% this year, including organic net sales growth of 1% to 2%. Including contributions from Pinnacle, Conagra's sales will climb 22% to 23% when all is said and done in fiscal 2019, which should translate to adjusted earnings per share of $2.03 to $2.08. However, most analysts were already modeling full fiscal-year earnings (including Pinnacle) of $2.11 per share on revenue near the high end of Conagra's target range.

In the end, given Conagra's mixed quarter and underwhelming forward outlook, it's no surprise to see the stock pulling back strongly today.