Categories Analysis, Consumer

Conagra Brands (CAG): A few points to note about the food company’s Q1 performance

Conagra expects organic net sales to decline in the low single digits in the second quarter of 2024

Shares of Conagra Brands Inc. (NYSE: CAG) were up over 1% on Friday, a day after the company delivered mixed results for the first quarter of 2024. The stock has dropped 31% year-to-date. The branded foods manufacturer’s performance was impacted by a slowdown in consumption and shifts in consumer behavior. Conagra expects sales to decline again in the second quarter before picking up during the back half of the year. Here are a few points to note about the Q1 performance:

Mixed results

Conagra’s Q1 2024 net sales of $2.9 billion remained flat compared to the same period a year ago. On an organic basis, net sales dropped 0.3% due to a 6.6% decline in volume caused by an industry-wide slowdown in consumption and changes in consumer behavior. Net sales also fell short of expectations.

The company reported GAAP earnings of $0.67 per share in Q1 versus a loss of $0.16 per share in the year-ago quarter. Adjusted EPS rose nearly 16% year-over-year to $0.66 and surpassed analysts’ projections as well.

Challenging industry trends

Conagra’s top line performance in the quarter was impacted by an industry-wide slowdown in consumption. This slowdown will now lead to volumes taking longer than expected to recover. As mentioned on the company’s quarterly conference call, consumers dealing with financial pressures are adjusting their purchases in order to make their budgets work.

Along with reducing discretionary purchases, consumers are using up household inventory left over from the pandemic. Shoppers are turning to more hands-on food prep to save money rather than opting for convenient food products. They are also wasting less food and using up leftovers more. Conagra believes these near-term shifts in consumer behavior are temporary.

The company’s sales in staples remained flat in Q1 compared to the prior-year period while it grew unit share in categories like canned tomato and canned chili. The snacks category continued to see growth as demand for microwave popcorn and ready-to-eat pudding and gel remained healthy.

In Q1, Conagra’s Refrigerated & Frozen segment saw sales decline by nearly 5% due to a 10% drop in volume caused by the recent consumption trends. Sales in the Grocery & Snacks segment inched up by 1.2% in the quarter.

The International segment saw strong sales growth of over 11% helped by improved price/mix and volume growth. Volume growth is expected to continue in this segment for the rest of the year. Foodservice sales increased 5.2% helped by price/mix. This momentum is expected to continue through the year.

Outlook

Conagra expects organic net sales to decline in the low single digits in the second quarter of 2024. Volume declines are expected to improve versus the first quarter as inflation-driven pricing actions from FY2023 are wrapped. Gross and operating margins are expected to be down sequentially while adjusted EPS is expected to be approx. flat to Q1.

For the back half of the year, the company expects organic net sales growth in the low single digits, driven by year-over-year volume growth. Adjusted EPS in the second half of FY2024 is expected to be approx. flat to the same period in FY2023.

For FY2024, Conagra expects organic net sales to grow approx. 1% YoY. Adjusted EPS is estimated to range between $2.70-2.75. Adjusted operating margin is expected to be 16.0-16.5%.

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