Conagra Brands, Inc. CAG appears to be in a troubled spot. Over the past three months, the company has seen its shares tumble 12.5%, underperforming the industry’s decline of 10.8%. The consumer packaged goods giant has also lagged the broader Zacks Consumer Staples sector’s drop of 8.6% and the S&P 500’s growth of 3.4% in the same time frame.
CAG Price Performance vs. Industry, S&P 500 & Sector
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Closing the trading session at $25.82 on Friday, Conagra stock stands quite close to its 52-week low of $25.35 reached on Jan. 16, 2024. CAG is also trading below its 50- and 200-day moving averages, indicating potential weakness in the stock's momentum.
The recent decline raises a crucial question for investors: Is this a temporary setback for CAG, or does it signal deeper concerns? As the company works to navigate these headwinds, understanding its course and strategic priorities becomes important for those considering its long-term investment potential.
What’s Making Things Bitter for Conagra Stock?
Conagra is facing significant challenges, including inflation and softness in its Foodservice unit. Despite efforts to manage costs, inflation continues to erode profitability, as witnessed in the gross margin contraction in the second quarter of fiscal 2025.
Initially, the company had anticipated a peak in inflation during the fiscal second quarter, followed by relief in the second half. However, this relief has been delayed, with higher protein costs and input inflation expected to persist until fiscal 2026. For the fiscal second quarter, the cost of goods sold inflation was 3.8%, contributing to a 2.6% margin impact. The adjusted gross profit declined 2.3% to $842 million as a result of the cost of goods sold inflation and adverse operating leverage, and the adjusted gross margin contracted 52 basis points to 26.4%.
Conagra’s Foodservice unit has been under pressure, reflecting broader industry challenges. Reported sales in the segment declined 0.9% year over year to $292.2 million in the second quarter of fiscal 2025. Organic sales fell 1%. Though price/mix improved 2.9%, volumes declined 3.9% due to the ongoing effects of the previously unveiled lost business, along with the continued sluggishness in restaurant traffic, reflecting broader macroeconomic challenges and a slower-than-expected recovery in the out-of-home dining category. This limits Conagra’s ability to leverage growth opportunities in the foodservice channel.
Conagra’s presence in the global markets exposes it to volatile currency movements. The company’s International segment was affected by currency fluctuations, particularly the strengthening U.S. dollar relative to the Mexican peso, resulting in a 30-basis-point currency headwind to net sales in the second quarter. The company expects adverse currency movements to put pressure on its profitability in fiscal 2025.
Conagra Stock: Is More Trouble on the Horizon?
At its second-quarter fiscal 2025 earnings call, Conagra stated that consumer dynamics are shaped by ongoing inflation and shifting purchasing behaviors, with a notable shift toward value-seeking and affordability as consumers navigate economic strain. The company adjusted its view for the fiscal, reflecting the expectation that inflation relief will be realized in fiscal 2026 instead of the anticipated timeline.
In response, Conagra, like other manufacturers, has ramped up investments in advertising, promotions, and innovation to capture consumer attention, though the effectiveness of these efforts varies across categories and companies. For fiscal 2025, the adjusted operating margin is expected to be about 14.8% compared with the earlier range of 15.6%-15.8%. Management envisions fiscal 2025 adjusted earnings per share in the range of $2.45-$2.50 compared with the prior view of $2.60-$2.65 and the $2.67 recorded in fiscal 2024.
Reflecting the negative sentiment around CAG, the Zacks Consensus Estimate for the current and next fiscal year earnings per share has been revised downward over the past 30 days. This shift indicates a growing bearish outlook among analysts and highlights potential obstacles the company may face in meeting its profitability goals.
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Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
CAG Stock: Navigating the Road Ahead
Conagra’s strong brand positioning and strategic growth efforts provide a pathway to recovery and long-term success. However, the recent stock performance undeniably poses challenges for investors. While the focus on innovation and portfolio reshaping shows promise, persistent inflation and a dynamic consumer environment cannot be ignored for the near term. For now, it is prudent to approach the stock with caution. CAG currently carries a Zacks Rank #4 (Sell).
Some Solid Staple Bets
We have highlighted three better-ranked stocks from the Consumer Staples sector, namely United Natural Foods, Inc. UNFI, Freshpet FRPT and Tyson Foods TSN.
United Natural currently sports a Zacks Rank of 1 (Strong Buy). UNFI delivered a trailing four-quarter earnings surprise of 553.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The consensus estimate for United Natural’s current financial-year sales and earnings suggests growth of 0.3% and 442.9%, respectively, from the year-ago period’s reported figure.
Freshpet, a pet food company, presently sports a Zacks Rank #1. FRPT has a trailing four-quarter earnings surprise of 144.5%, on average.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings suggests growth of 27.2% and 228.6%, respectively, from the year-ago period’s reported figure.
Tyson Foods, a meat products behemoth, currently carries a Zacks Rank #2 (Buy). TSN delivered a trailing four-quarter average earnings surprise of around 57%.
The consensus estimate for Tyson Foods’ current fiscal-year sales and earnings indicates growth of about 2% and 13.6%, respectively, from the prior-year reported levels.
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