ConAgra Brands' Volumes In Focus: Analyst Cautions Investments May Be Throttled Back

Stifel analyst Matthew E. Smith reiterated the Hold rating on ConAgra Brands, Inc. CAG, lowering the price target to $29 from $36.

ConAgra reported its 1Q earnings with a strong profit performance but weaker-than-expected sales growth, including an organic sales decline.

The company reported Q1 FY24 sales of $2.90 billion, flat Y/Y, missing the consensus of $2.95 billion.

Smith remains more cautious, given the consumer environment and industry-wide volume trends. 

CAG expects A&P and trade spending, including promotional activity, to pick up. 

The analyst writes that he will watch the impact on sales closely. If volume trends do not continue to improve, the earnings guidance may be at risk, or investments may be throttled back. Either way, the analyst views volumes as the key watch out. 

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Following the results, the analyst lowered organic sales estimate to +0.5% versus the +1% previously estimated, with volume down 2%.

On the positive side, Smith expects the rate of volume decline to improve to -4.5% in the second quarter (-6.5% in 1Q24).

The analyst sees volume growth in the second half related to the impacts of normalizing consumer behavior, increased promotion/A&P investments, and easy comparisons against product recalls, items on allocation, and a cyber-incident. 

The analyst does not see the likelihood of ConAgra pursuing acquisitions, given its debt load and its elevated net debt/EBITDA ratio.

According to the analyst, the base business performance will be key to the shares' performance in the coming months.

Price Action: CAG shares are trading higher by 1.88% to $26.49 on the last check Friday.