Despite a relatively strong set of FQ1 numbers, I am concerned about the Conagra (NYSE:CAG) outlook on several fronts. Firstly, there will be some tough comparisons ahead as consumers eventually regain mobility, and the food at home tailwind fades. Secondly, I see the company’s low level of advertising reinvestment is negative for the future earnings outlook, especially with competitors stepping up investments in longer-term brand equity. At the current multiple, I don’t think CAG shares offer much in the way of long-term value.

Strong FQ1 Results Benefit from Packaged Food Tailwinds

CAG posted a better-than-expected set of FQ1 results, with EPS of $0.70 on the back of better-than-expected organic sales (+15.0%), significant gross margin expansion of c. 244 bps, and opex leverage.

Source: Conagra FQ1 Presentation Slides

The key to the quarter was continued demand for packaged foods through the pandemic, with retailer inventory restocking also providing a c. 600 bps benefit. The latter was reflected in Grocery & Snacks and Refrigerated & Frozen organic sales growth, which accelerated to +20.7% and 19.0%, respectively. Pricing trends also benefited from lower promotional activity in the quarter. On the other hand, foodservice trends remained under pressure, with organic sales down 20.3% due to lower away-from-home consumption.

Source: Conagra FQ1 Presentation Slides

While these are certainly very strong numbers, I do question the sustainability going forward. As both US retail segments were helped by a sizeable trade load that likely implies some front-loaded demand, I expect to see this reverse in the upcoming quarter. Additionally, top-line growth was also boosted by c. 70 bps from non-recurring trade accruals, implying a lower underlying growth trajectory.

Dissecting the Bottom-Line Strength

The bottom-line performance was also very commendable – gross margins reached 30.7%, above expectations on better volume leverage, and the trade spend accrual benefit. Meanwhile,

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Starbucks boosted its dividend 10%, to 45 cents a share. Here, a Starbucks employee in Arlington, Va., earlier this year.


ANDREW CABALLERO-REYNOLDS/AFP/Getty Images


Starbucks

and

Conagra Brands

declared dividend increases this past week, adding a little sweetener to their stocks.

Starbucks (ticker: SBUX) declared a quarterly dividend of 45 cents a share, up nearly 10% from 41 cents.

The company’s CEO, Kevin Johnson, said in a statement that the increase reflects “confidence in the strength of our recovery and the robustness of our long-term growth model.”

The stock, which has a flattish return year to date, was recently yielding 1.9%. Its return trails the S&P 500’s result of about 5.6% year to date.

Conagra Brands (CAG), a consumer packaged food company, plans to boost its quarterly disbursement to 27.5 cents a share, or $1.10 on an annualized basis. That’s a 29% increase from 21.25 cents currently.

The company makes and sells a variety of products, including Hunt’s ketchup, Slim Jim snacks, and Reddi Wip toppings.

The stock, which yields 2.4%, has a year-to-date return of 6.2%, dividends included.

The week prior, aerospace and defense company

Lockheed Martin

(LMT) said it will raise its quarterly dividend to $2.60 a share from $2.40. That’s an 8% boost.

The stock, which is flat this year, including dividends, yields 2.7%.

Write to Lawrence C. Strauss at [email protected]

Source Article

(RTTNews) – While reporting financial results for the first quarter of fiscal 2021 on Thursday, Conagra Brands, Inc. (CAG) provided only its adjusted earnings and organic net sales growth guidance for the second quarter of fiscal 2021.

The company is still not initiating annual outlook, as is usual, as the impact of the COVID-19 pandemic on its full year fiscal 2021 consolidated results is uncertain.

The Company continues to expect demand in retail to remain elevated and demand in foodservice to remain challenged versus historical norms. However, the degree and timing of changes in retail and foodservice demand levels are difficult to predict with enough certainty to provide a full-year outlook at this time.

For the second quarter, the company expects adjusted earnings in a range of $0.70 to $0.74 per share and organic net sales growth of 6 to 8 percent.

On average, analysts polled by Thomson Reuters expect the company to report earnings of $0.71 per share on revenue growth of 4.0 percent to $2.93 billion for the quarter. Analysts’ estimates typically exclude special items.

The company said it continues to see a significant increase in demand in its retail segments and also continues to see reduced demand in its Foodservice segment when compared to pre-COVID-19 demand levels. COVID-19-related costs have also continued to impact the business.

Looking ahead to the long-term algorithm, the company continues to project adjusted earnings for fiscal 2022 in the range of $2.66 to $2.76 per share and organic net sales growth at a 3-year CAGR ending fiscal 2022 of 1 to 2 percent. It also remains committed to achieving its leverage target of 3.5x to 3.6x by the end of fiscal 2021.

Additionally, the Company’s board of directors also approved a 29 percent higher quarterly dividend payment of $0.275 per share of