Conagra Talks Price Increases, ‘Premiumizing’ Portfolio on Earnings Call

Lapping the pantry-loading sales surge of last spring, Conagra Brands net sales took a hit in the company’s Q4 and full fiscal year 2021 earnings report this week.

The company reported that Q4 net sales decreased 16.7% to $2.7 billion, with organic net sales down 10.1%. For the full year, net sales were up 1.2% to $11.2 billion, with organic net sales increasing 5.1%.

Net sales for its Grocery & Snacks business were down 26.4% for the quarter, while the company gained share in canned tomatoes, canned meat and snacks such as microwave popcorn and seeds. Net sales for the Refrigerated & Frozen segment decreased 12%. Still, frozen vegetables and frozen appetizers were able to gain share, driven by innovations including a co-branded Marie Callender and Gardein plant-based pot pie and efforts to “modernize and premiumize” Birds Eye with the launch of vegetable bakes and breaded vegetables, CEO Sean Connolly said. Despite overall year-over-year declines, frozen saw 13.5% growth and snacks 21% growth on a two-year basis, with staples also up 5.2%.

Conagra’s foodservice segment saw an uptick in sales in Q4, up 20.8% as restaurant traffic begins to return, while the company’s ecommerce sales also grew, now accounting for 8% of total retail sales.

Conagra also announced the sale of its Egg Beaters liquid egg business at the end of Q4 to an undisclosed buyer. The company was rumored to be selling the business alongside hot dog brand Hebrew National and sausage maker Odom’s Tennessee Pride in March, in order to focus on frozen food and snacks, according to reports in the Wall Street Journal. Conagra EVP and CFO David Marberger said the sale had a small impact on the company’s Q4 results, but expects it will affect its annualized net sales by $40 million.

“I am very proud of how the entire Conagra Brands team responded to fiscal 2021’s dynamic environment,” Connolly said. “Our strong results – both in the absolute and relative to competition – reflect the team’s dedication to executing the Conagra Way each day. We successfully responded to the heightened consumer demand while continuing to invest in the long-term health of the business.”

The company saw inflation in input costs in Q4, with higher costs across edible fats and oils, proteins, packaging and transportation contributing to expenses, Marberger said. While it originally reported an anticipated 6% inflation rate in its previous earnings call, Marberger said the company now expects rates of about 9%. He noted that the lowest margins are expected in Q1 of the fiscal year.

In response, Conagra has “enhanced” its “aggressive and comprehensive action plan,” which includes price increases that began in Q4, Connolly said. Conagra is among several CPG food and beverage companies turning to price increases to manage inflation across ingredients, labor and freight, with PepsiCo, General Mills and Campbell Soup Co. also recently announcing price hikes. As the company has been working to “premiumize” its portfolio over the last five years, Connolly noted that the price increases may ultimately be a “positive thing” for the company, leading to better margins over time.

“One of the interesting things about our company in this window we’re in right now is we still think our products’ price points have room to move north based on the quality that we offer and the modernization that we’ve put into our innovation,” he said. “And sometimes you need a catalyst to continue to get those price points really in sync with the value proposition that we’re offering.”

As part of its “premiumizing” strategy, the company plans to pursue growth particularly with new innovations in frozen and snacks, with its staples portfolio serving as a “reliable contributor,” Connolly said. Last month, the company announced a slew of new products across frozen, including keto-friendly Healthy Choice meals and Birds Eye Skillets, Stir Fry and Sheet Pan Meals. New Gardein products include Plant-Based Chick’n (filets, tenders and nuggets), veggie burgers, plant-based chili and Italian wedding soup.

“Overall, we’re confident that the investments we’re making in product innovations across our portfolio will produce strong ROIs,” Connolly said. “Ultimately, long-term brand health is dependent on the type of perpetual modernization that we’re committed to here at Conagra.”