Conagra Brands’ Stock (CAG) Moving Off Lows As Earnings Beat

Conagra Brands stock (NYSE: CAG) has moved off the lows to $18.65, up 2% this morning off the back of earnings. The stock had been hitting lows this week leading in, with some respite coming early on the print.

Analysts expected Conagra Brands to report earnings per share (EPS) of $0.33 for the upcoming quarter, a significant decline from $0.53 in the same period last year, reflecting pressure on profitability. Revenue is projected to come in at approximately $2.62 billion, representing a 6.41% year-over-year decline, as the company faces headwinds from softer consumer demand and tough year-ago comparisons.

Revenue came in at $2.63billion for a mild beat on expectations, whilst EPS of $0.39 came in 6 cents above the street. The FY26 view of $1.70-$1.85 in EPS is largely in line with expectations at the mid-point, with markets looking for $1.78.

Conagra has been grappling with a series of headwinds. Earlier this year, the company reduced its annual profit and operating margin forecasts, citing supply constraints, particularly affecting its frozen meals containing chicken and frozen vegetables.

Furthermore, unfavorable foreign exchange rates, driven by a stronger U.S. dollar, have dampened international sales. This led to a downward revision of the adjusted profit forecast to $2.35 per share, a notable drop from the initial range of $2.45 to $2.50.

The company's fourth-quarter results, released in July, further disappointed analysts, with earnings of $0.56 per share missing the Zacks Consensus Estimate of $0.59 per share. Despite these challenges, Conagra has maintained its quarterly dividend payment of $0.35 per share, reflecting an annualized dividend rate of $1.40 per share, providing some solace to shareholders.

Despite the predominantly negative outlook, a contrarian perspective suggests that Conagra may be undervalued at its current price. The market may be overreacting to short-term headwinds, while overlooking the company's underlying strengths and potential for long-term recovery. Conagra possesses a portfolio of well-established brands that still command significant consumer loyalty.

The company's efforts to streamline operations, reduce costs, and adapt to changing consumer preferences could ultimately lead to a turnaround. Furthermore, the dividend yield, while not exceptionally high, provides a steady stream of income for those willing to weather the current storm. The company's aggressive cost cutting measures could pay dividends (excuse the pun) if they can successfully reduce costs and streamline their operations.

Conagra's upcoming earnings report will be crucial in determining the company's trajectory. The markets will be keenly focused on management's commentary regarding the progress made in addressing supply chain issues, mitigating the impact of tariffs, and adapting to evolving consumer preferences.

The company's ability to deliver on its strategic initiatives will ultimately determine whether it can reverse the current bearish trend and restore market confidence. The market consensus for fiscal year 2025 EPS is in the range of $2.60 to $2.65, a number that may be revised when the company releases earnings.

The company's commitment to phasing out artificial colors from its food products, with a target of full implementation by the end of 2027, reflects a broader industry trend towards healthier and more sustainable food options. This initiative could enhance Conagra's brand image and attract health-conscious consumers, potentially offsetting some of the negative impacts from other challenges.