Conagra: Q4 Sales Slip While Volume Recovery Bolsters Results

Conagra Brands reported a 2.3% net sales decline as well as a 2.4% drop in organic net sales during the fourth quarter and similar results – 1.8% net sales decline and 2.1% organic net drop to $12 billion – for the full year during an earnings call this morning. While those results beat analysts’ expectations, the company’s quarterly revenue missed projections.

“Our business today is substantially larger and more profitable than it was pre-COVID, and we’ve reported strong performance across each of our KPIs despite volatile market conditions,” said president and CEO Sean Connolly during prepared remarks. “This reflects our efforts to deploy our playbook, which is focused on investing in our brands to sustain our share of mind and share of wallet with the consumer and drive profitable growth.”

The company’s adjusted gross margin grew by 58 basis points in Q4 while adjusted operating margin for the quarter was 14.8%; its full-year adjusted operating margin increased 34 basis points to 16.0%. According to Connolly, this full-year and quarter’s adjusted margin expansion has been driven by the success of its cost savings efforts and supply chain productivity. These actions allowed the company to meet its long-term target of 4% savings as a percentage of cost of goods sold with service levels also reaching 97%, a marked return to pre-COVID levels.

Earnings per share (EPS) also dropped both during the quarter and across the full year. Diluted loss per share was $1.18 during the quarter, primarily due to “non-cash goodwill and brand impairment charges,” while adjusted EPS came in at $0.61. For the full year, diluted EPS dropped 49.3% to $0.72 and adjusted EPS fell 3.6% to $2.67.

But despite those results, Connolly asserted that Conagra’s portfolio is both maintaining and gaining market share. While its grocery and foodservice segments tracked volume declines, that was partially offset by strong volume growth across frozen and refrigerated, noting 80% of its brands in its frozen and snacks categories held or increased volume share.

“In Q4, we continued to see positive impact from our investments to maximize consumer engagement with our brands,” said Connolly. “This again resulted in sequential volume improvement in our domestic retail business. We also saw strengthened share, particularly in frozen and snacks where our volume progress has been most meaningful.

The company is working to right its grocery segment through investments and innovation, noted CFO David Marberger. Earlier this month, Conagra released a slate of over 50 new innovations rolling out this year and expanding some of its legacy brands, like Chef Boyardee, into new aisles like the freezer.

In response to a shareholder question, Connolly emphasized that those innovation investments have been a key part of its strategy to rebuild volumes.

“The volume decline in [frozen] is virtually gone over the course of three periods and that did not happen by accident. After Q1, we made some – I’ll call it, test investments in frozen to try to nudge the consumer along to see if it would work. And we got a great response to that in Q2. We expanded those investments in Q3. It was a combination of everything from advertising to merchandising to more support for our innovation, and it all had the desired effect.”

As it looks to FY25, Conagra estimates organic net sales will range between down 1.5% to flat compared to FY24. It anticipates adjusted operating margin to range from 15.6% to 15.8% and adjusted EPS of approximately $2.60 to $2.65.

Even though Conagra remains confident in its portfolio’s position, Connolly emphasized that rebuilding volume share will continue to be a “transition” throughout the upcoming fiscal year as it keeps working to bring volumes back into positive territory through increased consumer engagement.

“While we saw an overall improvement in [grocery] volume sales in the second half, we were wrapping supply chain disruptions in chili and canned meat, resulting in a 17.5% volume increase in Q4,” Connolly said. “We also saw brand building investments drive volume growth in certain previously challenged refrigerated products. As a result, as we enter fiscal ‘25, we’ll make further prudent investments to stimulate broader volume recovery in staples.”