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Conagra Brands Q1 Results Miss View; Stock Down

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Conagra Brands Inc. (CAG) reported profit for the first quarter of fiscal year 2019 that increased 16.8 percent from last year. Quarterly net sales grew 1.7%, and organic net sales, excluding the sale of the Trenton, Missouri production facility Trenton grew 1.2%, with growth in all four operating segments. Both adjusted earnings per share and revenue for the quarter missed analysts' expectations.

Conagra Brands expects adjusted earnings per share for the second-quarter to be below analysts' estimation. The company reaffirmed its standalone fiscal year 2019 guidance.

In the Thursday pre-market, CAG is trading at $33.40, down $2.66 or 7.38 percent.

Sean Connolly, president and chief executive officer of Conagra Brands, said, "Fiscal 2019 is off to a good start despite a continued, challenging inflationary environment. Our first quarter results were largely in-line with expectations as we delivered net sales growth in all four operating segments behind a strong innovation slate.."

Sean Connolly said, "Conagra is well positioned to build upon our tremendous platform and accelerate the next wave of change with the addition of Pinnacle Foods. We now expect the transaction to close by the end of October 2018."

The company provided standalone fiscal second quarter 2019 guidance. It projects adjusted earnings per share in the range of $0.57 to $0.60. Analysts expect earnings of $0.65 per share for the second-quarter.

Reported net sales growth for the second-quarter is expected to be approximately 40 basis points lower than the organic net sales growth rate, excluding Trenton. Organic net sales growth, excluding Trenton, is expected to be flat to slightly down versus the prior-year period. The year-over-year growth rate will be negatively impacted by prior-year benefit from last year's hurricanes, primarily in the Grocery & Snacks and Foodservice segments.

For fiscal year 2019, the company still expects net sales growth in the range of 0.5% to 1.5%; organic net sales growth, excluding Trenton, in the range of 1.0% to 2.0%. The company continues to assess alternatives for the Wesson oil business.

The company reported that its net income attributable to the company for the first-quarter rose 16.8 percent to $178.2 million from last year's $152.5 million, with earnings per share improving to $0.45 from $0.36 in the previous year.

Adjusted earnings per share from continuing operations grew 2.2% to $0.47 from $0.46 in the prior year, primarily driven by a lower tax rate and a lower share count, which more than offset higher adjusted SG&A expenses, lower pension and postretirement non-service income, and lower equity method investment earnings. Analysts polled by Thomson Reuters expected the company to report earnings of $0.49 per share for the first-quarter. Analysts' estimates typically exclude special items.

Net sales for the second-quarter grew 1.7 percent to $1.83 billion from $1.80 billion last year. Wall Street analysts had a consensus revenue estimate of $1.85 billion for the quarter.

The recent acquisitions of Angie's BOOMCHICKAPOP and Sandwich Bros. of Wisconsin added 200 basis points to the net sales growth rate. The sales of the Trenton, Missouri production facility and the Canadian Del Monte business reduced the net sales growth rate by 120 basis points.

Organic net sales excluding Trenton increased 1.2%, with all four operating segments showing growth. Volume was approximately flat as growth in the Refrigerated & Frozen, Grocery & Snacks, and International segments was offset by the impact of continued value over volume actions in the Foodservice segment. Price/mix was favorable by 1.2% as improved pricing and mix offset increased retailer investments to drive brand saliency, enhanced distribution, and consumer trial.

Net sales for the Grocery & Snacks segment increased 3.4% to $771 million in the quarter, and organic net sales grew 0.1% as the acquisition of Angie's BOOMCHICKAPOP added 330 basis points to the net sales growth rate.

Net sales for the Refrigerated & Frozen segment increased 3.2% to $635 million in the quarter, and organic net sales grew 1.4% as the acquisition of Sandwich Bros. of Wisconsin added 180 basis points to the net sales growth rate.

Net sales for the International segment increased 1.5% to $194 million in the quarter, and organic net sales increased 6.3%. Volume increased 4.4% driven by snacks businesses in Canada and Mexico, and price/mix improved 1.9% behind improved pricing.

Net sales for the Foodservice segment decreased 6.9% to $234 million in the quarter, and organic net sales excluding Trenton increased 0.1%. The impact of the Trenton sale was a reduction in the net sales growth rate by approximately 700 basis points.

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