What to note when Conagra (CAG) reports Q2 results

Conagra Brands Inc. (NYSE: CAG) is scheduled to report second quarter 2020 earnings results on Thursday, December 19, before the market opens. Analysts have projected earnings of $0.57 per share on revenue of $2.8 billion.

The quarterly results are likely to benefit from strength in the portfolio as well as innovations within the snacks and frozen businesses. Last quarter, the topline benefited from the Pinnacle acquisition. The company previously said that the investments being made in the first half, particularly the second quarter, will drive strong second half performance.

During the quarter, Conagra completed the divestiture of its DSD model snacks business to Utz Quality Foods. The company had earlier said it estimated the deal to reduce sales by about $110 million and adjusted EPS by $0.02 annually post-closing. Updates on this transaction are worth watching. Higher input costs along with expenses related to growth investments are likely to weigh on margins.

In the first quarter of 2020, Conagra beat earnings estimates while sales fell short of expectations. Sales rose 30% to $2.39 billion while adjusted EPS dropped nearly 9% to $0.43.

Also read: Conagra Q1 2020 Earnings Call Transcript

For fiscal year 2020, Conagra expects adjusted EPS to be $2.08 to $2.18, reported net sales to grow between 13.5% and 14.0% and organic net sales growth of 1.0% to 1.5%.

The company expects stronger organic net sales growth and adjusted EPS growth in the back half of fiscal 2020 than the first half due to the timing of the impact of new innovation, strong first-half brand-building investments that peak in the second quarter, the planned pace of synergy capture, and the lapping of both higher interest expense and share count.

Shares of Conagra have gained 35% year-to-date. The stock was up 1.6% in afternoon hours on Monday.

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