Conagra Brands (CAG) 4th quarter 2021 earnings report review
Category: Conagra Brands (CAG)
Date: 15 July 2021 Stock price of Conagra Brands (CAG): $33.89 Market Capital of Conagra Brands: $16.3 billion We take a look at the 2nd quarter 2021 earnings report of Conagra Brands (CAG) one of North America's leading branded food companies. The company's portfolio is evolving to satisfy people's changing food preferences. Conagra's iconic brand includes names such as Birds Eye®, Marie Callender's®, Banquet®, Healthy Choice®, Slim Jim®. The group reported revenues of $2.995 billion and net income of $378 million
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Sean Connolly, president and chief executive officer of Conagra Brands, commented - I am very proud of how the entire Conagra Brands team responded to fiscal 2021's dynamic environment. Our strong results – both in the absolute and relative to competition – reflect the team's dedication to executing the Conagra Way each day"
More About Conagra Brands
Conagra Brands, Inc. (NYSE: CAG), headquartered in Chicago, is one of North America's leading branded food companies. Guided by an entrepreneurial spirit, Conagra Brands combines a rich heritage of making great food with a sharpened focus on innovation. The company's portfolio is evolving to satisfy people's changing food preferences. Conagra's iconic brands, such as Birds Eye®, Marie Callender's®, Banquet®, Healthy Choice®, Slim Jim®, Reddi-wip®, and Vlasic®, as well as emerging brands, including Angie's® BOOMCHICKAPOP®, Duke's®, Earth Balance®, Gardein®, and Frontera®, offer choices for every occasion
Overview of Conagra Brands 4th quarter 2021 earnings report
- Fourth quarter:
- Net sales decreased 16.7%, and organic net sales decreased 10.1% driven by lapping the prior year's significant surge in at-home food consumption at the onset of the COVID-19 pandemic. On a two-year compounded annualized basis, fiscal 2021 fourth quarter net sales increased 2.4% and organic net sales increased 4.5%.
- Operating margin decreased 143 basis points to 10.5%; adjusted operating margin decreased 311 basis points to 14.0%.
- Diluted earnings per share from continuing operations (EPS) for the fourth quarter grew 56.1% to $0.64, and adjusted EPS declined 28.0% to $0.54. On a two-year compounded annualized basis, fourth quarter EPS increased 56.9% and adjusted EPS increased 22.5%.
- The Company divested the Egg Beaters business at quarter's end.
- The Company achieved its leverage target of 3.5x to 3.6x and ended the year at 3.6x.
- The Company is revising its Fiscal 2022 guidance to reflect increased inflation since the fiscal third quarter. This impact will be particularly felt in the first half of fiscal 2022, as remediation measures – including pricing – lag the timing of realized cost inflation. The Company now expects fiscal 2022 results as follows:
- Organic net sales growth of approximately flat compared to fiscal 2021
- Adjusted operating margin of approximately 16%
- Adjusted EPS of approximately $2.50
- Adjusted EPS in the second half of the fiscal year is expected to be in-line with what was assumed for the second half of fiscal 2022 in the Company's prior fiscal 2022 guidance.
- The Board of Directors has authorized a 14% increase to the Company's annualized dividend rate, beginning with the dividend payable on September 2, 2021, reflecting continued confidence in the strength of the business.
Conagra Brands management commentary on their 4th quarter 2021 earnings report
CEO Perspective
Sean Connolly, president and chief executive officer of Conagra Brands, commented, "I am very proud of how the entire Conagra Brands team responded to fiscal 2021's dynamic environment. Our strong results – both in the absolute and relative to competition – reflect the team's dedication to executing the Conagra Way each day. We successfully responded to the heightened consumer demand while continuing to invest in the long-term health of the business. Our business remains very strong, and we believe we are well-positioned to continue to win with consumers."
He continued, "As the fourth quarter unfolded, input cost inflation accelerated and we now expect fiscal 2022 input cost inflation to be materially higher than we anticipated at the end of fiscal Q3. In response, we have further enhanced the aggressive and comprehensive action plan already being executed, which includes broad-based pricing. While we are pleased with the initial results, there will be a lag between the time we are hit with higher costs and when we realize the benefits of our actions. The impact of this lag is expected to be most acute in the first half of fiscal 2022. We anticipate second-half adjusted EPS to be in line with what we previously assumed within our prior fiscal 2022 guidance. The underlying strength of our business and our continued investments to further support our brands gives me confidence that we have a long runway of growth and shareholder value creation ahead of us. This confidence is underscored by our Board of Directors' decision to increase our annual dividend by 14% after increasing it 29% last fiscal year. We look forward to discussing our longer-term outlook at an investor meeting in the spring of 2022."
Sean Connolly, president and chief executive officer of Conagra Brands, commented, "I am very proud of how the entire Conagra Brands team responded to fiscal 2021's dynamic environment. Our strong results – both in the absolute and relative to competition – reflect the team's dedication to executing the Conagra Way each day. We successfully responded to the heightened consumer demand while continuing to invest in the long-term health of the business. Our business remains very strong, and we believe we are well-positioned to continue to win with consumers."
He continued, "As the fourth quarter unfolded, input cost inflation accelerated and we now expect fiscal 2022 input cost inflation to be materially higher than we anticipated at the end of fiscal Q3. In response, we have further enhanced the aggressive and comprehensive action plan already being executed, which includes broad-based pricing. While we are pleased with the initial results, there will be a lag between the time we are hit with higher costs and when we realize the benefits of our actions. The impact of this lag is expected to be most acute in the first half of fiscal 2022. We anticipate second-half adjusted EPS to be in line with what we previously assumed within our prior fiscal 2022 guidance. The underlying strength of our business and our continued investments to further support our brands gives me confidence that we have a long runway of growth and shareholder value creation ahead of us. This confidence is underscored by our Board of Directors' decision to increase our annual dividend by 14% after increasing it 29% last fiscal year. We look forward to discussing our longer-term outlook at an investor meeting in the spring of 2022."
Dividend Update
Subsequent to quarter-end, the Company's Board of Directors approved an increase of the annual dividend from $1.10 per share to $1.25 per share. The Company's new quarterly dividend payment of $0.3125 per share of Conagra common stock will be paid on September 2, 2021 to stockholders of record as of the close of business on August 3, 2021.
Outlook
Management expects that consumer demand for its retail products will remain elevated versus historical levels during fiscal 2022, as consumers have developed new habits during the COVID-19 pandemic. However, the Company has recently experienced elevated cost of goods sold inflation, the rate of which increased during the fourth quarter of fiscal 2021. While the Company has taken, and expects to continue taking, appropriate actions to pull on multiple margin levers to counteract the impact of this inflation, including pricing and cost savings actions, the timing of the margin lever benefits is expected to be weighted towards the second half and therefore not expected to fully offset the input cost headwinds within fiscal 2022. This timing lag is expected to most acute in the first quarter. Therefore, the first quarter is expected to be the lowest margin quarter of the fiscal year.
The Company is providing the following updated fiscal 2022 guidance:
The above guidance is the Company's best estimate of its expected financial performance in fiscal 2022. The Company's ultimate fiscal 2022 performance will be highly dependent on factors including:
Subsequent to quarter-end, the Company's Board of Directors approved an increase of the annual dividend from $1.10 per share to $1.25 per share. The Company's new quarterly dividend payment of $0.3125 per share of Conagra common stock will be paid on September 2, 2021 to stockholders of record as of the close of business on August 3, 2021.
Outlook
Management expects that consumer demand for its retail products will remain elevated versus historical levels during fiscal 2022, as consumers have developed new habits during the COVID-19 pandemic. However, the Company has recently experienced elevated cost of goods sold inflation, the rate of which increased during the fourth quarter of fiscal 2021. While the Company has taken, and expects to continue taking, appropriate actions to pull on multiple margin levers to counteract the impact of this inflation, including pricing and cost savings actions, the timing of the margin lever benefits is expected to be weighted towards the second half and therefore not expected to fully offset the input cost headwinds within fiscal 2022. This timing lag is expected to most acute in the first quarter. Therefore, the first quarter is expected to be the lowest margin quarter of the fiscal year.
The Company is providing the following updated fiscal 2022 guidance:
- Organic net sales growth is expected to be approximately flat compared to fiscal 2021
- Adjusted operating margin is expected to be approximately 16%
- Adjusted EPS is expected to be approximately $2.50
- Adjusted EPS in the second half of the fiscal year is expected to be in-line with what was assumed for the second half of fiscal 2022 in the Company's prior fiscal 2022 guidance.
The above guidance is the Company's best estimate of its expected financial performance in fiscal 2022. The Company's ultimate fiscal 2022 performance will be highly dependent on factors including:
- how consumers purchase food as foodservice establishments continue to reopen and people return to in-office work and in-person school;
- the cost of goods sold inflation the Company experiences;
- consumers' response to inflation-justified price increases; and
- the ability of the end-to-end supply chain to continue to operate effectively as the COVID-19 pandemic continues to evolve.
Conagra Brands (CAG) stock price chart over the last 5 years
The image below shows the stock price history of Conagra (CAG) over the last 5 years. And its not been a good time for Conagra stockholders with the stock declining by -24.3% over the last 5 years. Not the type of returns any investor would like to see.
The stock of Conagra is trading at closer to its 52 week low than it is to its 52 week high which is a clear indication that the short term sentiment and momentum of Conagra's stock is negative at this point.
The stock of Conagra is trading at closer to its 52 week low than it is to its 52 week high which is a clear indication that the short term sentiment and momentum of Conagra's stock is negative at this point.
Latest stock valuation of Conagra Brands
So what is Conagra stock worth based on their 4th quarter 2021 earnings report and the fiscal guidance provided by the group? Based on their earnings report our valuation model provides a target price (full value price) for Conagra at $41.70 a stock.
We therefore believe the stock of Conagra is undervalued at its current price of $33.89
We usually recommend long term fundamental or value investors look to enter a stock at least 10% below our target price (full value price), which in this case is $41.70 thus a good entry point into Conagra would be at $37.50 or below.
We expect the stock of Conagra to kick up from from current levels in coming weeks and months to levels closer to our target price (full value price), as their stock is price is undervalued. We forecast the stock price of Conagra (CAG) to be at $41.70 by year end
Since the stock of Conagra is trading at well below our suggested entry point we rate their stock as a buy
We therefore believe the stock of Conagra is undervalued at its current price of $33.89
We usually recommend long term fundamental or value investors look to enter a stock at least 10% below our target price (full value price), which in this case is $41.70 thus a good entry point into Conagra would be at $37.50 or below.
We expect the stock of Conagra to kick up from from current levels in coming weeks and months to levels closer to our target price (full value price), as their stock is price is undervalued. We forecast the stock price of Conagra (CAG) to be at $41.70 by year end
Since the stock of Conagra is trading at well below our suggested entry point we rate their stock as a buy
Next earnings release of Conagra Brands
It is expected that Conagra will release their 1st quarter 2022 earnings report in early October 2021
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