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Why Is ConAgra Foods (CAG) Down 1.5% Since the Last Earnings Report?

It has been about a month since the last earnings report for ConAgra Foods Inc.CAG . Shares have lost about 1.5% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Second-Quarter Fiscal 2017 Earnings

Conagra reported mixed second-quarter fiscal 2017 (ended Nov 27, 2016) results.

For first-quarter fiscal 2017 (ended Aug 28, 2016), Conagra Foods had reported mixed results.

Quarterly earnings from continuing operations, adjusted for items impacting comparability, came in at $0.49 per share, above the Zacks Consensus Estimate of $0.45. The bottom line also comfortably surpassed the year-ago tally by 25.6%.

Revenues: Conagra generated net revenue of $2,088.4 million in the reported quarter, down 11.5% year over year. The top line also missed the Zacks Consensus Estimate of $2,107 million.

Segmental Break-Up

Effective fiscal 2017(June, 2016 to May, 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 reported quarter.

Margins/Costs: 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.

Balance Sheet/Cash Flow: 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%.

How Have Estimates Been Moving Since Then?

Since the earnings release, investors have witnessed a downward trend for fresh estimates. There have been four revisions lower for the current quarter.

ConAgra Foods Inc. Price and Consensus

ConAgra Foods Inc. Price and Consensus | ConAgra Foods Inc. Quote

VGM Scores

At this time, ConAgra stock has a Growth score of 'C', though it is lagging significantly on the momentum front with an 'F'. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

Overall, stocks has an aggregte VGM score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

While estimates have been broadly trending downward for the stock, the magnitude of these revisions indicates a downward shift. However, as shares of ConAgra Foods carry a Zacks Rank #2 (Buy), we are looking for an above average return in the next few months.

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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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