Conagra Brands: Sales, Profits Slip Amid ‘Discrete’ Supply Chain Constraints

Against a backdrop of lagged shipments and “discrete” supply chain constraints, Conagra Brands posted net sales and gross profit declines during Q3, according to its quarterly earnings report released today.

“Consumer demand, and resulting consumption, remained strong, but we were unable to sufficiently service that demand, which disproportionately impacted our shipments,” said CEO Sean Connolly in a prepared statement.

In the quarter ending February 23, Conagra saw net sales drop 6.3% year-over-year to $2.84 billion, reflecting a 5.2% decrease in organic net sales driven by the negative impact of price/mix and a drop in volume. Gross profit declined 17.3% to $710 million as productivity was more than offset by lower sales, the negative impact of goods sold inflation and unfavorable operating leverage.

Even so, Connolly claims the Slim Jim and Marie Callender’s maker is “making solid progress in restoring inventory and improving customer service levels” and continues to monitor the “dynamic external environment while remaining focused on execution.” He also expressed confidence in consumption, which outpaced shipments by three points in the quarter.

The supply chain constraints impacted two of Conagra’s product platforms: frozen meals containing chicken and frozen vegetables. In Q3, organic net sales for its Refrigerated & Frozen business decreased 7.2% to $1.1 billion, though the company gained share in select categories like frozen desserts, frozen breakfast and refrigerated whipped toppings.

The Banquet and Birds Eye owner first addressed its difficulties in the frozen segment at the CAGNY Conference in February, citing “manufacturing challenges at the primary facility that prepares and cooks chicken used in frozen meals,” reported WATTPoultry. Specifically, chicken coming off the line had quality consistency issues.

Conagra’s corrective measures included temporarily halting production at the plant to “[fix] the root issue,” Connolly told analysts during this morning’s earnings call.

“We have a very robust process for allocating maintenance capital and making sure that all of our operations have the capital they need to keep running. In this case, we’re going through a full modernization of the plant and are estimating that will be done in August,” said Connolly.

In the Grocery & Snacks segment, net sales fell 3.2% to $1.2 billion, primarily driven by a decrease in price/mix tied to an increase in strategic investments. The company did, however, gain dollar share in microwave popcorn, hot cocoa, shelf-stable dinners, chili, canned tomatoes and seeds.

Additionally, Conagra has fully integrated the recently acquired FATTY Smoked Meat Sticks into its portfolio. Connolly said the brand has been getting “incredible resonance with our retail customers.”

“With respect to snacking, it’s a fascinating time because [the category] is enormous. Historically, a lot of that volume has been in chips, but there’s a movement afoot toward healthier and protein-dense snacking. Our business is highly concentrated in protein and fiber,” Connolly said during today’s call.

International segment sales fell 17.6% to $224 million, reflecting an 8.5% decrease from the unfavorable impact of foreign exchange. Meanwhile, Foodservice net sales decreased 6.1% to $256 million.

Overall, third-quarter operating margin was 8.4%, marking a 712-basis-point decrease from the comparable period. Adjusted operating margin was 12.7%.

Diluted EPS was $0.30, down 53.1% from a year ago, and adjusted EPS declined 26.1% to $0.51.

Despite Conagra’s weaker-than-expected Q3 performance, its fiscal 2025 guidance remains unchanged. The company expects organic net sales to decline approximately 2% compared to fiscal 2024 and adjusted EPS of approximately $2.35.

When asked about the impact of looming tariffs during the Q&A session, Connolly said that “things are moving around not only on a weekly or daily basis, but an hourly basis” and, for now, the company has to “see where the dust settles.”