Retail Stock Trading in Red: Conagra Brands Inc (NYSE: CAG)

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Conagra Brands Inc (NYSE:CAG) stock fell over 0.3% on 8th Jan (as of 12:55 pm GMT-5; Source: Google finance) after the company posted lower than expected earnings for the second quarter of FY 21 and forecast current-quarter organic sales growth of 6% to 8% on the back of the demand for frozen dinners, cake mixes and gourmet popcorns as consumers cook and snack more at home during the COVID-19 pandemic. The company’s profit came in at $378.9 million for the second quarter of FY 21 compared to $260.5 million, in last year’s second quarter.

Moreover, the grocery and snack segment delivered strong organic net sales growth of 15.3% in the quarter. The segments’ net sales growth outpaced its growth in consumption as retailers continued to rebuild inventories. The refrigerated and frozen segment posted organic net sales growth of 7.8%. This growth is a testament to our continued modernization and innovation efforts and reflects the increasingly important role refrigerated and frozen products play in meeting the evolving needs of today’s consumers. For the international segment, the quarterly organic net sales grew 9.1%. This segment experienced particularly strong growth in both Canada and Mexico. However, this quarter, the food service segment reported a 21.4% organic net sales decline, mainly due to a volume decrease of 25.3% due to less restaurant traffic as a result of COVID-19.

CAG in the second quarter of FY 21 has reported the adjusted earnings per share of 81 cents, beating the analysts’ estimates for the adjusted earnings per share of 73 cents, according to figures compiled by Thomson Reuters. The company had reported the adjusted revenue growth of 6.2 percent to $3 billion in the second quarter of FY 21, which is in line with the analysts’ estimates for revenue of $3 billion. Organic sales, which strips out currency and M&A effects, grew 8.1%, which is slower than the 15.1% growth it saw in the previous quarter, when retailers placed more orders ahead of the holiday season. The increase in organic net sales was primarily driven by a 6.6% increase in volume related to the growth of at-home food consumption. The adjusted gross margin increased 139 basis points to 29.9%. Adjusted operating margins increased 250 basis points to 19.6%. Adjusted EBITDA rose 16.7% to $712 million in the quarter.

Additionally, the company closed the Pinnacle Foods acquisition during the second quarter of fiscal ’19. The company had captured an incremental $27 million in savings during the most recent quarter bringing total cumulative synergies to $246 million. The company has now reduced total gross debt by $2.3 billion resulting in net debt of $9.2 billion.

In addition, the company is selling the Peter Pan business for approximately $102 million and the expected annualized impact of the divestiture is a reduction of approximately $110 million of net sales and $0.03 of adjusted EPS.

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