The giant Conagra Brands, Inc. (NYSE: CAG) of consumer packaged foods recovered in its fiscal profit for the third quarter of 2022. However, the company lowered its expectations, mainly due to increased inflationary pressures. The company faced higher-than-expected cost pressure, which came at the expense of margins. However, it has implemented inflation-driven price action that will be seen in the fiscal first quarter of 2023 as consumer demand still remains very strong. Keep in mind that the price increases passed on to consumers will still take time to reach the finish line. Higher inflation impacts the strongest business units, including meat, snacks and frozen foods. Cost pressure in logistics and freight also affected margins. These are temporary effects that the company should see tempered as the US Federal Reserve continues its seven rate hikes in 2022 in a bid to move it closer to its 2% inflation target. Cautious investors looking to get ahead of the margin improvement from price and interest rate hikes can look to opportunistic pullback levels in Conagra ahead of the release of Q1 2023 fiscal results.Contributor of Depositphotos.com/Depositphotos.com – MarketBeat
Q3 Fiscal 2022 Profit Release
On April 7, 2022, Conagra released its fiscal results for the third quarter of 2022 for the quarter ended February 2022. The company reported adjusted earnings per share (EPS) of $0.58 excluding one-time items that meet consensus analyst estimates. for a $0.58. Revenues grew 5.1% year-over-year (YOY) to $2.91 billion, better than analysts’ estimates of $2.84 billion. Net sales grew by 5.1%. Organic net sales increased 6% year-over-year. Operating margins decreased by 387 basis points to 12.3%. Conagra CEO Sean Connolly noted, “We experienced higher-than-expected cost pressures as the third quarter progressed and expect these pressures to continue into the fourth quarter, particularly in certain frozen, refrigerated and snack foods businesses. In response, we have taken steps to We will begin to see the benefits of these actions in the first quarter of fiscal 2023. Consumer demand has remained strong so far despite our price actions, but there will be a lag between the timing of inflation ramping up and the benefits of our mitigation measures.”
Conagra gave downward guidance for the fiscal full-year 2022 EPS of approximately $2.35 versus $2.43, based on previous guidance of $2.50. Organic net sales growth for the full year 2022 is expected to be approximately 4%, compared to previous expectations of 3%.
Takeaway for conference calls
CEO Sean Connolly noted that the company met its expectations in fiscal Q3 and remains committed to the Conagra Way playbook in creating superior products that create eternal connections between consumers and its brands. The company gained market share in key categories on a 1 to 2 year basis. He pointed out: “And it’s important to note that in response to the inflation-driven pricing that has been applied in the market so far, the elasticities have favored historical patterns, even more than we expected. Unit demand remains strong as consumers continue to recognize the superior relative value our portfolio offers.” He reflected on how inflation rose higher than expected over the quarter, triggering price hikes that deter strong consumer demand. Although margins were squeezed in the third quarter, the measures taken were appropriate for the long term. The company expects inflationary pressures to continue into the fourth quarter, amounting to an additional $100 million, up 26% from two years ago. Inputs such as dairy and protein are more difficult to offset because the meat trade depends on them. The deep-frozen is even more complicated because it requires specialist, temperature-controlled transport. CEO Connolly stated, “But as we started to see this latest wave of inflation coming, we took action on pricing, just like we’ve done all year. These new price changes take effect in the first quarter of fiscal ’23 and are very focused on frozen and protein snacks.”
CAG Opportunistic Pullback Levels
Using the gun charts on the weekly and daily time frames provides an accurate picture of the landscape for CAG stocks. The weekly gun chart peaked near the Fibonacci (fib) level of $35.88. The downtrend of the weekly gun chart came to a halt on the earnings jump as the 5-period moving average (MA) is flat at $32.66 and the weekly 200-period MA overlaps at $32.65 and the 15-period MA overlaps at $34.27 and the 50-period MA overlaps at $34.34. Weekly stochastics are halted on the 40 band to either cross over or activate a mini inverse pup. The weekly market structure low (MSL) buy was triggered on the breakout to $32.24. The weekly upper Bollinger Bands (BBs) overlap the $38.14 fib level. The daily gun chart is in an uptrend that appears to have peaked at the earnings release as the 5-period MA stalls at $34.30 followed by the 50-period MA at $33.89 and the MA with 200 periods at $33.62. The 15-period daily MA rises to $33.36 while the stochastic falls towards the 80-band test. Needless to say, there is a cluster of supports and resistances in the $34.35 to $32.65 price range. Cautious investors can look for opportunistic pullback levels on the $33.62 200-period daily MA, $32.24 weekly MSL trigger, $31.30 fib, $30.03 fib, $29.48, $28, 92 fib and the $27.06 fib level. Upward trajectories range from the $38.14 fib level to the $45.36 fib level.
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