Conagra Brands Inc.’s stock took another knock on Wednesday as two Wall Street analysts dropped their bullish calls in the wake of the packaged foods company’s warning that a’substantial increase’ in inflation over the previous three months will eat into profit this year by more than $250 million. The stock fell as much as 2.0 percent to an intraday low of $33.30 before recovering 0.3 percent to settle at a six-month low.
The stock CAG, -0.26 percent fell 5.4 percent on Tuesday after the business, whose brands include Slim Jim, Duncan Hines, Birds Eye, Vlasic, and Healthy Choice, posted better-than-expected fiscal fourth-quarter results but warned of a full-year profit shortfall due to inflation. Conagra was downgraded to hold by Stifel Nicolaus on Wednesday, after being a buy since at least late 2017, and his stock price target was lowered to $35 from $39. In a note to clients, Growe said, “[W]e envision the shares remaining in a holding pattern as the company executes its pricing objectives and sees the lag in pricing in connection to high inflation.” On the company’s post-earnings conference call with investors, Conagra Chief Financial Officer David Marberger stated the company’s inflation estimate had surged to 6% in April 2021, up from 3% two years ago. According to a FactSet transcript, Marberger added, “And as all of you know, inflation has continued to grow rapidly since April.” “Inflation is expected to be around 9% in fiscal 2022,” says the report. He estimates that the increase in inflation predictions from three months ago will cost around $255 million more in the coming year. Not to be missed: Dinner: eggs and pancakes How one family of seven is dealing with rising food prices in the United States. Conagra’s stock has down 6.5 percent year to date, while the SPDR Consumer Staples Select Sector exchange-traded fund XLP, +0.89 percent has gained 4.7 percent and the S&P 500 index SPX, +0.12 percent has risen 16.5 percent.
MarketWatch, FactSet
The grim inflation forecast comes as recent government statistics revealed that both wholesale and retail price indexes rose at the quickest rates in more than a decade in June. Meanwhile, Federal Reserve Chairman Jerome Powell maintained his position that inflation is only temporary and will begin to moderate in the coming months. See the Economic Report and The Fed sections for further information. Also check out: ‘I’m concerned about inflation,’ says Larry Fink of BlackRock, who adds that it’s unlikely to be ‘temporary.’ While Conagra CEO Sean Connolly said the company has been “hustling” to counterbalance the fast surge in inflation by adopting price hikes, he added that “mechanically, there is a genuine lag effect” between when pricing changes can ameliorate the detrimental impact of increasing expenses. Connolly stated, “This temporal mismatch is projected to be particularly detrimental in H1 and, more specifically, in Q1.” “As a result of the strain on our first-half margins, our full-year profit is impacted.” Bryan Spillane of Bank of America downgraded the stock to neutral from buy and decreased his price objective to $36 from $44. Conagra would face difficult comparisons with strong year-ago volume growth, which was bolstered by COVID-19 pandemic-induced eat-at-home trends, he said, as the business takes steps to control inflation and faces difficult comparisons with strong year-ago volume growth. Spillane observed, “Management is prudently managing the issue by maintaining its pressure on the consumer (promotion and new items).” “However, given this year’s inflation-related earnings gap, we believe the stock will remain range-bound until the market has a clearer understanding of FY23 sales and earnings growth prospects.”/n
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