Conagra Brands, a prominent player in the packaged food industry, recently reported fiscal first-quarter results that fell short of market expectations, leading to a reaction that some analysts are calling 'slightly overblown.' RBC Capital Markets highlighted these results on Thursday, suggesting that the market may not have fully considered the sequential volume progress the company achieved in crucial areas of its operations. Following the disclosure of their earnings, RBC adjusted its forecasts for the company, which is known for brands like Pam and Slim Jim, by lowering the revenue outlook for fiscal 2025 to $11.88 billion from a previous estimate of $11.97 billion.
Analysts now expect adjusted earnings per share (EPS) for the year to be $2.60, a decrease from the earlier expectation of $2.63. This reassessment comes after Conagra's announcement on Wednesday, detailing its performance for the three months ending August 25. The company's adjusted EPS climbed nearly 20% year-over-year to $0.53; however, revenue experienced a decline of 3.8%, settling at $2.79 billion. In the wake of these results, Conagra's shares dropped 2.4% on Thursday, adding to an 8.1% drop post-earnings on Wednesday.
Nik Modi, the Co-Head of Global Consumer and Retail Research at RBC, emphasized that the downward market reaction may have been disproportionate. He noted, 'While results don't get us overly excited, the noise from supply chain issues and foodservice weakness makes the print look optically worse.' Modi also pointed out that Conagra has actually seen sequential volume growth in key investment areas, including frozen foods and snacks. During the quarter, approximately 71% of Conagra's retail business either maintained or increased its volume share, which marks an improvement from 65% in the fiscal fourth quarter.
The results did, however, reflect production challenges that impacted Hebrew National brand hotdogs during their peak season, as well as a decline in foodservice volume. Conagra continues to project full-year adjusted EPS to fall between $2.60 and $2.65, while organic sales are anticipated to either decline by 1.5% or remain flat compared to the previous year.
The consensus from Capital IQ indicates expectations for normalized EPS at $2.58 and total revenue of $11.91 billion. In light of these developments, RBC has also downgraded its outlook for Conagra's fiscal 2025 organic sales, factoring in a minor year-over-year decline and noting that the underperformance in the first quarter is likely to exert additional pressure on growth prospects in a still challenging macroeconomic environment..