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ConAgra (CAG) Beats Q2 Earnings, Reaffirms FY17 Guidance

North American food company, Conagra Brands, Inc.CAG reported better-than-expected second-quarter fiscal 2017 (ended Nov 27, 2016) results.

Over the last 60 days, shares of the Zacks Rank #5 (Strong Sell) stock recorded an average negative return of 18.16% - as against the 0.44% positive return provided by the Zacks categorized Food-Miscellaneous Preparation/Diversified industry.

In order to become a high-performing flexible company, Conagra successfully divested its Lamb Weston business in Nov 2016. However, at present, profit-making prospects of the company, post spin-off, are not clear to the market.

Quarter Specifics

In the fiscal second quarter, Conagra's quarterly earnings from continuing operations, adjusted for items impacting comparability, came in at 49 cents, above the Zacks Consensus Estimate of 45 cents. The bottom line also comfortably surpassed the year-ago tally by 25.6%. The upside was driven by lesser cost of sales, lower selling, general and administrative expenses and reduced interest expense, as a result of lesser debt burden.

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Revenues

Conagra generated net revenue of $2,088.4 million in the reported quarter, down 11.5% year over year. The year-over-year decline was stemmed by lower volumes accrued due to the company's initiatives to create an improved quality revenue base. The company's divestitures and unfavorable foreign currency translation lowered sales by roughly 5.5%.

The top line also missed the Zacks Consensus Estimate of $2,107 million.

Segmental Break-Up

Effective fiscal 2017, ConAgra is reporting results in five reporting segments:

Grocery & Snacks: The segment's quarterly sales were $854 million, down 6% year over year.

Refrigerated & Frozen: Quarterly revenues declined 11% year over year to $740 million.

International: Sales of the segment were $211 million, down 5% year over year.

Foodservice: The segment's quarterly revenues were $283 million, down 1% year over year.

Commercial: The company did not generate sales from this segment during the quarter.

Other Financial Fundamentals

Conagra's cost of goods sold decreased 14.8% year over year to $1,440.9 million. Selling, general and administrative (SG&A) expenses declined 13.5% year over year to $417.9 million. Interest expenses plunged 31.7% to $54.1 million due to lower debt levels.

Adjusted gross profit expanded 250 basis points to 31.1% during the quarter. The upside was driven by input cost favorability, increased supply productivity and better price/mix.

Conagra exited the fiscal second quarter with cash and cash equivalents of $1,442.5 million, higher than $798.1 million recorded at the end of fiscal 2016. Senior long-term debt (excluding current portion) was $3,018.4 million, down from $4,685.5 million as of May 29, 2016.

In the first half of fiscal 2017, Conagra generated net cash of $542.2 million from its operating activities, up from $352.1 million recorded in the year-ago period. Capital spent on additions of property, plant and equipment totaled $118.3 million, up 7.2% year over year.

In the first half of fiscal 2017, the company paid dividends worth $219.4 million compared with $215 million paid in the year-ago period.

Outlook

For fiscal 2017, Conagra projects adjusted earnings within the range $1.65-$1.70 per share. Net sales are expected to decline in the band of 4-5% (eliminating the divestiture impacts). The estimated range for adjusted gross profit margin is 30.4-30.6% and adjusted operating margin is 15.3-15.5%.

Stocks to Consider

Better-ranked stocks in the industry include Dean Foods Company DF , Francesca's Holdings Corporation FRAN and Ollie's Bargain Outlet Holdings, Inc. OLLI . All the three stocks currently flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Dean Foods Company has an average positive earnings surprise of 5.44% for the last four quarters.

Francesca's Holdings Corporation's positive earnings surprise is 26.55% for the trailing four quarters.

Ollie's Bargain Outlet Holdings, Inc.'s positive earnings surprise is 17.64% for the last four quarters.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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