Conagra Brands Inc (NYSE:CAG) stock fell 0.78% (As on July 10, 11:16:58 AM UTC-4, Source: Google Finance) after Jefferies downgraded the company to Hold from Buy with a price target of $38, down from $46. The company reports fiscal Q4 results on July 13 and U.S. tracked channel data for the quarter shows sales decelerated to up 4% with volumes down 6.5%, while trends worsened in June (+0.3% sales / (~8%) volume), according to the analysts. They note that CAG’s volume performance is “now amongst the most challenged in large-cap food,” adding that while it owns one the most diverse portfolios, it “could limit brand support focus.” The analyst fear margin expansion alone may not be enough to generate NT incremental investor appetite, as volumes remain in focus.

For fiscal 2023, organic net sales growth is expected to be 7% to 7.5% compared to fiscal 2022, Adjusted operating margin is expected to be between 15.5% and 15.6%, Adjusted EPS is expected to be between $2.70 and $2.75, representing growth of 14% to 17% compared to fiscal 2022, Net Leverage Ratio of approximately 3.65x, Capital expenditures of approximately $370M, Interest expense of approximately $410M, Adjusted effective tax rate of approximately 24% and Pension income of approximately $25M.

Moreover, the adjusted gross profit increased 23.9% to $869 million in the third quarter. Third quarter gross profit benefited from higher organic net sales and productivity, which more than offset the negative impacts of cost of goods sold inflation (including unfavorable commodity positions) and unfavorable operating leverage. Gross margin increased 325 basis points to 27.2% in the quarter, and adjusted gross margin increased 409 basis points to 28.1%. Adjusted net income attributable to Conagra Brands increased 31.3% to $366 million, or $0.76 per diluted share. The increase was driven primarily by the increase in gross profit. Adjusted EBITDA, which includes equity method investment earnings and pension and postretirement non-service income, increased 21.1% to $669 million in the quarter, primarily driven by the increase in adjusted gross profit, slightly offset by lower pension income.

Further, the company’s reported and organic net sales for the Grocery & Snacks segment increased 3.7% to $1.2 billion in the quarter. Adjusted operating profit increased 8.0% to $257 million as higher organic net sales and productivity more than offset the negative impacts of cost of goods sold inflation (including unfavorable commodity positions), continued elevated supply chain costs, and increased A&P and SG&A.