ConAgra: ‘Value Over Volume’ Strategy Drives Q3 Growth, 2023 Guidance Raised

ConAgra Brands says its strategy towards improving margins is working as the company raised full year 2023 guidance in its Q3 earnings report this morning.

The Chicago-based conglomerate updated its organic net sales guidance for the fiscal year from 7% to 7.5% and adjusted operating margin from 15.5% to 15.6%, following a second consecutive quarter of gross margin recovery. Speaking on an earnings call, ConAgra president and CEO Sean Connelly said the company deployed a “value over volume” strategy that emphasized “inflation-justified pricing, supply chain improvements and the pruning of low margin volume,” which helped fuel growth in the quarter.

“Our top-line posted solid growth as we demonstrated strong pricing execution with modest elasticities,” said president and CEO Sean Connelly in a statement. “Additionally, our productivity and service level improvement allowed us to continue to make meaningful progress on our adjusted gross margin and adjusted operating margin recovery, despite more impactful supply chain disruptions than anticipated.”

Organic net sales in Q3 were up 6.1% to $3.09 billion while adjusted operating margin increased by 321 basis points to 16.9%.

Broken down by category, ConAgra’s Grocery & Snacks segment was up 3.7% to $1.2 billion in the quarter, as price/mix was up 13.7% – offsetting a volume decline of -10%. In particular, meat snacks (+6%), microwave popcorn (+10.6%), seeds (+22.6%) and staple categories (+7%) like refried beans and Asian sauces saw the strongest performance.

Refrigerated & Frozen products grew 5.6% to $1.3 billion, with a 15.4% price/mix raise offsetting a -9.8% volume drop. ConAgra gained market share in categories such as frozen sides, plant-based protein, desserts (+5.5%), single-serve meals (+6%) and frozen breakfast sausage (+19.9%), the company stated.

“This recovery therefore means you should continue to expect a relentless stream of provocative innovation and brand building support as we go forward,” Connelly said. “Fortunately our brand strength and innovation pipeline position us well to maintain solid growth and healthy gross margins going forward.”

Meanwhile, ConAgra grew international sales by 7.7% to $260 million while its foodservice business was up 17.3% to $275 million in the third quarter.

As part of the “Value Over Volume” strategy, Connelly said the company eliminated low-margin promotions such as 10 for $10 deals on value-tier vegetables and canned products such as Chef Boyardee and Hunt’s Tomatoes.

Despite the strong performance, Connelly said that manufacturing disruptions lead to out of stocks in certain categories, including canned pastas, beans and meats. In the frozen segment, a fire on the company’s fish frying line led to out-of-stocks during the Lent season. While the disruption impacted volume sales in the quarter, Connelly said the “root causes have been largely resolved and we expect volumes to rebound sequentially from here.”

“Importantly, when you take the noise out of the short term view and compare our growth versus the stable baseline of three years ago, you see our performance has been strong on both the top and bottom lines,” he said.