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Shares of Conagra Brands Inc. (NYSE: CAG ) rose more than 3% on Wednesday after the company reported better-than-expected earnings results for the third quarter of 2023 and raised its guidance for the full year. Here are the key takeaways from the earnings report:
The results beat expectations
In the third quarter of 2023, Conagra’s net sales rose nearly 6% year over year to $3.1 billion, beating estimates. Organic net sales increased by 6.1%. Top-line growth was driven by price increases introduced to address inflation, but was partially offset by volume declines caused by the elasticity impact of price increases as well as supply chain disruptions.
Net income increased 56% to $342 million, or $0.71 per share, compared to last year. Adjusted EPS rose 31% YoY to $0.76, beating projections. Underlying growth was driven primarily by an increase in gross profit.
Recovery margin
In Q3, gross profit rose 20% YoY to $839 million, helped by organic sales growth and productivity, which more than offset the negative impact of cost of goods sold inflation. Gross margin increased 325 basis points to 27.2% while adjusted gross margin increased 409 basis points to 28.1%.
Category performance
Conagra recorded sales growth in all segments during the third quarter. Net sales, on a reported and organic basis, increased 3.7% and 5.6% for the Grocery & Snacks and Chilled & Frozen segments, respectively. Sales growth was driven by price increases but offset by volume declines.
In the Grocery & Snacks segment, the company is gaining share in snacking categories like microwave popcorn and some staples categories like Asian sauces and marinades. In Refrigerated & Frozen, Conagra is gaining share in categories like plant-based protein and frozen breakfast sausage.
Net sales in the International segment increased 7.7% as reported and 9.5% organically in Q3. Net sales in the Foodservice division increased 17% on a reported and organic basis. The division also benefited from price increases but volumes declined during the quarter.
Outlook rose
Based on continued business momentum, Conagra raised its adjusted EPS guidance for the full year 2023 and narrowed its range for organic sales growth and adjusted operating margin. The company now expects organic sales growth to be in the range of 7-7.5% versus the previous range of 7-8%.
Adjusted EPS will now be between $2.70-2.75, which represents growth of 14-17% compared to FY2022. The previous range for EPS was $2.60-2.70. Adjusted operating margin is now expected to be 15.5-15.6% compared to the previous range of 15.3-15.6%.
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