Is Conagra in Trouble After Updated 2020 Guidance?

Conagra Brands Inc. (NYSE: CAG) shares slumped on Tuesday after the firm announced that it would be revising its outlook for fiscal 2020. Ultimately, this was the result of softer than expected category performance during Conagra’s fiscal third quarter, which ends on February 23.

The third-quarter consumption declines have affected a wide range of categories across the food industry, including categories in which Conagra Brands compete.

The company now expects fiscal 2020 organic net sales growth to be flat to 0.5%. The adjusted operating margin is now expected to be in the range of 14.8% to 16.2%. Looking at the bottom line, Conagra forecasts earnings per share (EPS) in the range of $2.00 to $2.07.

Note that the previous guidance for 2020 had organic net sales growth in the range of 1.0% to 1.5%, adjusted operating margin of 16.2% to 16.8% and EPS of $2.07 to $2.17.

Analysts are calling for $2.09 in EPS and $10.67 billion in revenue for fiscal 2020. The past fiscal year reportedly had $2.01 in EPS and $9.54 billion in revenue.

Sean Connolly, president and CEO of Conagra, commented:

Consumption softness in the quarter first emerged in the foodservice industry, with holiday restaurant traffic weaker than last year. Softness pivoted to retail in January and impacted numerous categories across food, including several in which we compete. While we planned for tougher year-over-year comparable results in the third quarter, we did not plan for this level of category softness. Accordingly, we are updating our fiscal 2020 outlook.

Connolly added:

Despite the unplanned third quarter consumption downturn, we remain encouraged by the health of our brands and the traction we have made on our fiscal 2020 innovation slate. We have gained share in many of our categories during the quarter and, based on our analysis, believe the recent consumption weakness is abating. We expect a resumption of year-over-year organic net sales growth in our fourth fiscal quarter.

Conagra Brands stock traded down about 7% at $30.43 on Tuesday, in a 52-week range of $22.15 to $35.59. The consensus price target is $34.06.

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