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Shares of Conagra Brands Inc. rocketed on heavy volume Thursday, toward the biggest one-day gain since the 1980s, after the parent of consumer-goods brands Birds Eye, Healthy Choice, Slim Jim and Duncan Hines, beat sales expectations for the first time in six quarters.
The company reported before the open fiscal second-quarter net income that rose to $260.5 million, or 53 cents a share, from $131.6 million, or 31 cents a share. Excluding nonrecurring items, adjusted earnings per share of 63 cents beat the FactSet consensus of 57 cents.
Net sales increased 18.3% to $2.82 billion, above the FactSet consensus of $2.80 billion, with all four business segments showing growth. That snapped a streak of five quarters in which Conagra missed sales expectations, according to FactSet data.
“We maintained our strong momentum in frozen and snacks,” Chief Executive Sean Connolly said in a statement. “We also made good progress on our large grocery brands, Hunt’s and Chef Boyardee, both of which made sequential improvements.”
The stock CAG, +15.87% zoomed up over 16% in afternoon trading toward a 13-month high. Trading volume spiked to about 24 million shares, compared with the full-day average of about 3.6 million shares.
That put the stock on track for the best one-day performance since it shot up 51.5% on Nov. 5, 1984.
On the post-earnings conference call with analysts, CEO Connolly said results were boosted by strong consumer response to its “on-trend innovation” slate of products, such as its plant-based protein, vegetable-based carb replacements and frozen roasted and shredded vegetables, as well as snacking products.
The innovation slate includes Gardein’s “Ultimate Plant-Based Burger,” Healthy Choice “Power Bowls,” P.F. Chang’s ramen, Birds Eye “OvenRoasters” and “Shredded” offerings, Fanta “Snack Pack” and Slim Jim “Fire Fries,” as well as new “modernized” packaging for Duncan Hines cake mixes.
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And Connolly said other “on-trend” products it was launching include spiralized vegetables, keto-friendly cakes, co-branded Oreo cake cups and Healthy Choice “Power Dressing” salad dressings.
Analyst Arun Sundaram at CFRA reiterated the buy rating on Conagra’s stock, while lifting the price target to $40 from $38, saying margins are expected to expand as trade investments wind down and as the company’s executes its “value-over-volume” strategy.
“Overall, it was a great quarter for [Conagra] and the future only looks brighter from here, barring any unexpected roadblocks, which we’ve unfortunately seen from time to time,” Sundaram wrote in a note to clients.
Separately, Conagra updated its fiscal 2020 guidance ranges, primarily to reflect the divestiture of its DSD snacks business and the exit of its private-label peanut butter business. The company now expects net sales growth of 13.5% to 14.0%, up from previous guidance of 12.4% to 12.9%, and lifted the adjusted EPS guidance to $2.08 to $2.18 from $2.07 to $2.17.
Conagra also raised its free cash flow outlook to approximately $1 billion from “slightly below” $1 billion, while affirming its adjusted operating margin guidance of 16.2% to 16.8%.
Conagra’s stock has soared 59% year to date, while the SPDR Consumer Staples Select Sector exchange-traded fund XLP, +0.57% has climbed 25% and the S&P 500 index SPX, +0.44% has advanced 28%.
