Conagra Brands, Inc. CAG has been quite treat for investors, credits to strategic investments as well as sustained growth in frozen and snacks businesses. Further, the company’s foothold in the food space is likely to gain strength from the planned Pinnacle Foods PF acquisition. Let’s take a closer look at these aspects keeping this Zacks Rank #2 (Buy) company cheerful.
Strategic Buyouts Strengthen Portfolio
To develop an effective and yielding portfolio, management has been making prudent acquisitions. For instance, the Sandwich Bros.’ buyout (completed in February 2018) is expected to fortify the company’s frozen business in the quarters ahead. Similarly, strategic acquisition of Angie's Artisan Treats, LLC (completed in October 2017) is likely to strengthen the company’s snacking business.
Management is also optimistic regarding the buyout of Pinnacle Foods, expected to be concluded by the end of 2018. The combined giant is likely to be the second largest player in the frozen foods space with a robust portfolio of leading, iconic and on-trend brands. This will accelerate innovation and exploit the long-term benefits, especially in the frozen foods space. Coming to numbers, Conagra Brands anticipates to generate annual run-rate cost synergies of roughly $215 million, by the end of fiscal 2022. Also, Conagra Brands expects this deal to augment fiscal 2020 bottom-line growth by low-single digits, while adjusted EPS growth in fiscal 2022 is expected to receive a high single-digit boost from this consolidation. Clearly, this union deems fit, especially at a time when demand for the frozen foods and snacks category is perking up.
While Conagra Brands bolsters its portfolio through well-chalked acquisitions, it has been exiting less-profitable business areas to utilize resources efficiently. This is evident from the divestiture of Del Monte processed fruit and vegetable business to Bonduelle Group in July 2018. Prior to this, the company exited private label brands and non-key businesses including Spicetec and JM Swank in 2016.
Prudent Strategies to Ensure Volume Growth
Conagra’s unique value-over-volume strategy ensures that volume performance is not driven by price discounts but by stronger innovation as well as new merchandising, distribution and consumer trail-related investments. For instance, latest investments to strengthen frozen business are likely to boost sales of Refrigerated & Frozen segment going forward. Also, brand renovation initiatives to reinforce snacks business are expected to improve the Grocery & Snacks segment’s near-term sales. The company’s value-over-volume strategy along with efforts to undertake innovations to modernize iconic brands helped it witness impressive underlying sales growth in fiscal 2018, also keeping it well placed for the future.
Wrapping Up
We are impressed with Conagra Brands’ sturdy policies that have been aiding robust growth in the retail and domestic units. Moreover, continued strength in Refrigerated & Frozen as well as the Grocery & Snacks segments has been driving management to indulge in strategic investments, ensuring sustained growth. Moreover, we expect such upsides to cushion soft foodservice sales. Further, well-channelized marketing investments are expected to generate higher returns and counter input cost inflation. That said, management is confident about its fiscal 2019 performance, wherein it expects strong growth in net sales and profit. Well, these upsides have raised investors' optimism, as the company's shares gained 14.4% in a year, against the industry's decline of 0.6%.
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United Natural Foods, Inc. UNFI, with a Zacks Rank #2, delivered an average positive earnings surprise of 13.2% in the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Chefs' Warehouse, Inc CHEF, with long-term earnings per share growth rate of 22%, also carries a Zacks Rank #2.
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