In this file:

 

·         Conagra Brands misses profit view as raw material, shipping costs surge

·         ConAgra plans $60M expansion, 100 new jobs in Troy to meet demand for Slim Jims

·         Media Release: Conagra Brands Reports Second Quarter Results 

·         Conagra Brands, Inc.'s (CAG) CEO Sean Connolly on Q2 2022 Results - Earnings Call Transcript

 

 

Conagra Brands misses profit view as raw material, shipping costs surge

 

Reporting by Deborah Sophia in Bengaluru; Editing by Aditya Soni, Reuters

via WSAU (WI) - Jan 6, 2022

 

(Reuters) – Conagra Brands Inc missed market estimates for quarterly profit on Thursday, as the Slim Jim jerky maker took a hit from surging prices of raw materials and higher shipping costs.

 

Margins of packaged food companies have come under pressure in recent months from a spike in prices of commodities such as wheat, sugar and edible oils, while an overburdened supply chain has driven up freight costs.

 

That has prompted the likes of Conagra to hike prices, which along with sustained at-home cooking trends, helped the company’s net sales rise 2.1% in the second quarter.

 

It also raised its annual core sales forecast to a rise of about 3% from its prior estimate of a 1% growth.

 

Net income attributable...

 

more

https://wsau.com/2022/01/06/conagra-brands-misses-profit-view-as-raw-material-shipping-costs-surge/

 

 

ConAgra plans $60M expansion, 100 new jobs in Troy to meet demand for Slim Jims

 

By Nancy Bowman, Dayton Daily News (OH)

Jan 6, 2022

 

TROY – ConAgra Brands plans a fourth expansion of its operation on Dye Mill Road on Troy’s east side with a 15,000-square-foot building addition, around 100 new employees and a $60 million investment.

 

The Chicago-based company, which came to Troy in 1997 using the facilities initially for its pizza operation, already employs 950 people at the Troy operation, said Jeff Erwin, plant manager.

 

The project timeline now has construction starting in August and continuing through February 2023. Equipment installation and startup of operations is targeted for January through May 2023. The schedule depends, as always, on availability of materials, equipment and labor.

 

This expansion is for the company’s snacks business, specifically the Slim Jim products line.

 

“There is a heavy, heavy demand for meat snacks, and we are just trying to increase the ability to supply it to our consumers,” Erwin said.

 

The Slim Jim operation is a significant part of Troy plant’s business and growing, he said...

 

more

https://www.daytondailynews.com/local/conagra-plans-60m-expansion-100-new-jobs-in-troy-to-meet-demand-for-slim-jims/BOTRALMKB5ASZILRYA5GEZJ2GE/

 

 

Conagra Brands Reports Second Quarter Results 

Increases organic net sales guidance; Reaffirms adjusted EPS guidance

 

Source: Conagra Brands, Inc.

via PRNewswire - Jan 06, 2022

 

CHICAGO, Jan. 6, 2022 /PRNewswire/ -- Today Conagra Brands, Inc. (NYSE: CAG) reported results for the second quarter of fiscal year 2022, which ended on November 28, 2021. All comparisons are against the prior-year fiscal period, unless otherwise noted.  Certain terms used in this release, including "Organic net sales," "EBITDA," "Two-year compounded annualized," and certain "adjusted" results, are defined under the section entitled "Definitions."  See page 5 for more information.

 

Highlights

 

    Second quarter net sales increased 2.1%; organic net sales increased 2.6%. On a two-year compounded annualized basis, fiscal 2022 second quarter net sales increased 4.1% and organic net sales increased 5.3%.

    Operating margin decreased 435 basis points to 13.4%; adjusted operating margin decreased 500 basis points to 14.6%.

    Diluted earnings per share (EPS) for the second quarter decreased 26.0% to $0.57, and adjusted EPS decreased 21.0% to $0.64. On a two-year compounded annualized basis, second quarter EPS increased 3.7% and adjusted EPS increased 0.8%.

    The Company is reiterating its adjusted EPS guidance for fiscal 2022 and updating its organic net sales and adjusted operating margin guidance to reflect continued top line strength, higher inflation expectations, and the timing of additional pricing actions. The Company's updated fiscal 2022 guidance is as follows:

        Organic net sales growth is expected to be approximately +3% versus prior guidance of approximately +1%

        Gross inflation (input cost inflation before the impacts of hedging and other sourcing benefits) is expected to be approximately 14% versus prior guidance of approximately 11%

        Adjusted operating margin is expected to be approximately 15.5% versus prior guidance of approximately 16%

        Adjusted EPS is expected to be approximately $2.50, representing no change to prior guidance

 

CEO Perspective

 

Sean Connolly, president and chief executive officer of Conagra Brands, commented, "Our business delivered another quarter of strong net sales growth as we continued to experience elevated levels of demand across our portfolio. I am proud of our team for continuing to demonstrate great agility in navigating the dynamic external landscape with a refuse to lose attitude and dedication to executing our Conagra Way playbook every day. Our focus on strategic innovation and our intentional approach to investment helped us maintain brand momentum in the second quarter and continue capturing share across each of our domains – frozen, snacks, and staples."

 

He continued, "Looking ahead, we expect to continue experiencing cost pressures above original expectations in the second half of fiscal 2022. However, we believe the sustained elevated consumer demand coupled with the mitigating actions we have successfully executed, and will continue executing, put us on track to overcome these near-term challenges, improve margins in the back half of the fiscal year, and deliver on our profit plan."

 

Total Company Second Quarter Results

 

In the quarter, net sales increased 2.1% to $3.1 billion.  The increase in net sales primarily reflects:

 

    a 0.7% net decrease from the divestitures of the H.K. Anderson business, the Peter Pan peanut butter business, and the Egg Beaters business (collectively, the Sold Businesses);

    a 0.2% increase from the favorable impact of foreign exchange; and

    a 2.6% increase in organic net sales.

 

The 2.6% increase in organic net sales was driven by a 6.8% improvement in price/mix, which was partially offset by a 4.2% decrease in volume. Price/mix was driven by favorable brand mix and net pricing as the company's inflation-driven pricing actions were reflected in the marketplace throughout the quarter. The volume decrease was primarily a result of lapping the prior year's surge in at-home food demand due to the COVID-19 pandemic. The year-over-year comparison negatively impacted fiscal 2022 second quarter volume growth rates in the company's retail reporting segments.

 

Gross profit decreased 15.1% to $755 million in the quarter, and adjusted gross profit decreased 14.4% to $767 million.  Second quarter gross profit benefited from higher organic net sales, supply chain realized productivity, lower COVID-19 pandemic-related expenses, and cost synergies associated with the Pinnacle Foods acquisition. These benefits, however, were not enough to offset the impacts of cost of goods sold inflation of 16.4% and the lost profit from the Sold Businesses. Gross margin decreased 500 basis points to 24.7% in the quarter, and adjusted gross margin decreased 483 basis points to 25.1%. Adjusted gross margin declined more than originally expected as the company experienced higher-than-expected cost of goods sold inflation, made additional investments to prioritize servicing orders to maximize food supply for consumers, and experienced additional transitory supply chain costs.

 

Selling, general, and administrative expense (SG&A), which includes advertising and promotional expense (A&P), decreased 3.5% to $345 million in the quarter.  Adjusted SG&A, which excludes A&P, was relatively flat compared to the prior-year period, increasing 1.7% to $248 million.

 

A&P for the quarter increased 12.5% to $71 million, driven primarily by higher eCommerce investments.

 

Net interest expense was $95 million in the quarter.  Compared to the prior-year period, net interest expense decreased 11.8% or $13 million, primarily due to a lower weighted average interest rate on outstanding debt.

 

The average diluted share count decreased 1.8% compared to the prior-year period to 482 million, driven by the company's share repurchase activity in prior quarters.

 

In the quarter, net income attributable to Conagra Brands decreased 27.3% to $275 million, or $0.57 per diluted share.  Adjusted net income attributable to Conagra Brands decreased 22.8% to $306 million, or $0.64 per diluted share, in the quarter.  The decreases were driven primarily by the decrease in gross profit. The combination of higher than expected inflation, investments to service orders, and additional transitory costs is estimated to have impacted adjusted EPS by approximately $0.04 to $0.06 in the quarter. 

 

Adjusted EBITDA, which includes equity method investment earnings and pension and postretirement non-service income, decreased 17.9% to $585 million in the quarter, primarily driven by the decrease in adjusted gross profit.

 

Grocery & Snacks Segment Second Quarter Results

 

Net sales for the Grocery & Snacks segment decreased 1.4% to $1.3 billion in the quarter reflecting:

 

    a 0.8% decrease from the impact of the Sold Businesses; and

    a 0.6% decrease in organic net sales.

 

On an organic net sales basis, volume decreased 5.3% and price/mix increased 4.7%.  The volume decline was primarily due to lapping the prior year's surge in at-home food demand from the COVID-19 pandemic.  Price/mix was primarily driven by favorability in inflation-driven pricing coupled with favorable brand mix. In the quarter, the company gained share in staples categories such as beans, and in snacking categories, including popcorn and seeds.

 

Operating profit for the segment decreased 21.2% to $249 million in the quarter.  Adjusted operating profit decreased 14.1% to $274 million, primarily driven by cost of goods inflation, the organic net sales decline, incremental transitory supply chain costs, and the lost profit from the Sold Businesses. These negative impacts were partially offset by supply chain realized productivity, cost synergies associated with the Pinnacle Foods acquisition, and lower COVID-19 pandemic-related expenses.

 

Refrigerated & Frozen Segment Second Quarter Results

 

Net sales for the Refrigerated & Frozen segment increased 3.0% to $1.3 billion in the quarter reflecting:

 

    a 0.9% decrease from the impact of the Sold Businesses; and

    a 3.9% increase in organic net sales.

 

On an organic net sales basis, volume decreased 4.7% and price/mix increased 8.6%.  The volume decline was primarily due to lapping the prior year's surge in at-home food demand from the COVID-19 pandemic.  The price/mix increase was driven by favorable brand mix and favorability in inflation-driven pricing. In the quarter, the company gained share in categories such as frozen single serve meals, whipped topping, and frozen desserts.

 

Operating profit for the segment decreased 36.3% to $168 million in the quarter.  Adjusted operating profit decreased 30.4% to $189 million primarily due to cost of goods sold inflation, additional investments the company made to service orders, increased A&P investment, and the lost profit from the Sold Businesses. These impacts were partially offset by the benefits of supply chain realized productivity, higher organic net sales, lower COVID-19 pandemic-related expenses, and cost synergies associated with the Pinnacle Foods acquisition.

 

International Segment Second Quarter Results

 

Net sales for the International segment increased 5.0% to $262 million in the quarter reflecting:

 

    a 0.1% decrease from the impact of the Sold Businesses,

    a 3.0% increase from the favorable impact of foreign exchange; and

    a 2.1% increase in organic net sales.

 

On an organic net sales basis, volume decreased 5.8% and price/mix increased 7.9%. Volume decreased primarily due to lapping the prior year's surge in demand from the COVID-19 pandemic. The price/mix increase was driven by inflation-driven pricing and favorable product mix.

 

Operating profit for the segment decreased 5.8% to $37 million in the quarter.  Adjusted operating profit decreased 5.9% to $37 million as the negative impacts of cost of goods sold inflation and increased A&P investment more than offset the benefits from favorable foreign exchange, supply chain realized productivity, and higher organic net sales.

 

Foodservice Segment Second Quarter Results

 

Net sales for the Foodservice segment increased 14.9% to $246 million in the quarter reflecting:

 

    a 0.3% decrease from the impact of the Sold Businesses; and

    a 15.2% increase in organic net sales.

 

On an organic net sales basis, volume increased 9.1% as restaurant traffic continued to improve from the impacts of the COVID-19 pandemic. Price/mix was favorable at 6.1% in the quarter driven by inflation-driven pricing and favorable product mix.

 

Operating profit for the segment decreased 39.1% to $14 million and adjusted operating profit decreased 18.1% to $19 million in the quarter as the impacts of cost of goods sold inflation more than offset the benefits of higher organic net sales and favorable supply chain realized productivity.

 

Other Second Quarter Items

 

Corporate expenses decreased 47.0% to $59 million in the quarter primarily from lapping incremental expenses related to the extinguishment of debt in the prior year period. Adjusted corporate expense increased 10.1% to $71 million in the quarter driven by increased employee related costs.

 

Pension and post-retirement non-service income was $16 million in the quarter compared to $14 million of income in the prior-year period.

 

In the quarter, equity method investment earnings were $30 million.  The $7 million increase was primarily driven by favorable market conditions for the Ardent Mills joint venture.

 

In the quarter, the effective tax rate was 23.4% compared to 17.6% in the prior-year period.  The adjusted effective tax rate was 22.9% compared to 23.2% in the prior-year period.

 

In the quarter, the company paid a dividend of $0.3125 per share, the first dividend payment at the increased rate.

 

Outlook

 

The company is reiterating its adjusted EPS guidance for fiscal 2022 and updating its organic net sales and adjusted operating margin guidance. The outlook reflects expectations for continued top line strength, and higher cost of goods sold inflation, and the timing effect of additional pricing actions.

 

The company previously shared its expectations that consumer demand for its retail products would remain elevated versus historical levels throughout fiscal 2022, as consumers have developed new habits during the COVID-19 pandemic. Given the trends to date, including stronger-than-expected consumer demand and lower-than-anticipated elasticities of demand, as well as additional planned pricing actions, organic net sales growth is now expected to be higher than previously anticipated.

 

The company also continues to experience elevated cost of goods sold inflation, the rate of which was higher than expected during the second quarter of fiscal 2022. The company has taken, and plans to continue taking, a variety of actions to counteract the impact of this inflation, including incremental pricing actions and cost savings measures. The company continues to expect that the timing of the associated benefits from these margin lever actions will increase as the fiscal year progresses and, as a result, the company continues to expect margins to improve in the second half of the fiscal year.

 

The Company's updated fiscal 2022 guidance is as follows:

 

    Organic net sales growth is expected to be approximately +3% versus prior guidance of approximately +1%

    Gross inflation (input cost inflation before the impacts of hedging and other sourcing benefits) is expected to be approximately 14% versus prior guidance of approximately 11%

    Adjusted operating margin is expected to be approximately 15.5% versus prior guidance of approximately 16%

    Adjusted EPS is expected to be approximately $2.50, representing no change to prior guidance.

 

The above guidance is the company's best estimate of its expected financial performance in fiscal 2022. The company's ultimate fiscal 2022 performance will be highly dependent on factors including, without limitation:

 

    how consumers purchase food as foodservice establishments continue to reopen and people return to in-office work and in-person school;

    the cost of goods sold inflation the company experiences;

    consumers' response to inflation-driven price increases; and

    the ability of the end-to-end supply chain to continue to operate effectively as the COVID-19 pandemic continues to evolve.

 

The inability to predict the amount and timing of the impacts of foreign exchange, acquisitions, divestitures, and other items impacting comparability makes a detailed reconciliation of forward-looking non-GAAP financial measures impracticable.  Please see the end of this release for more information.

 

Items Affecting Comparability of EPS

 

The following are included in the $0.57 EPS for the second quarter of fiscal 2022 (EPS amounts are rounded and after tax).  Please see the reconciliation schedules at the end of this release for additional details.

 

    Approximately $0.02 per diluted share of net expense related to restructuring plans

    Approximately $0.02 per diluted share of net benefit related to legal matters

    Approximately $0.01 per diluted share of net benefit related to proceeds received from the sale of a legacy investment

    Approximately $0.07 per diluted share of net expense related to impairment on businesses held for sale

    Approximately $0.01 per diluted share of net impact due to rounding

 

The following are included in the $0.77 EPS for the second quarter of fiscal 2021 (EPS amounts are rounded and after tax).  Please see the reconciliation schedules at the end of this release for additional details.

 

    Approximately $0.03 per diluted share of net expense related to restructuring plans

    Approximately $0.01 per diluted share of net benefit related to corporate hedging derivative gains

    Approximately $0.01 per diluted share of net benefit related to the gain on divestiture of a business

    Approximately $0.07 per diluted share of net expense related to the early extinguishment of debt

    Approximately $0.05 per diluted share of net benefit related to a release of a valuation allowance on our capital loss carryforward

    Approximately $0.01 per diluted share of net impact due to rounding

 

Definitions

 

Organic net sales excludes, from reported net sales, the impacts of foreign exchange, divested businesses and acquisitions, as well as the impact of any 53rd week.  All references to changes in volume and price/mix throughout this release are on an organic net sales basis.

 

References to adjusted items throughout this release refer to measures computed in accordance with GAAP less the impact of items impacting comparability. Items impacting comparability are income or expenses (and related tax impacts) that management believes have had, or are likely to have, a significant impact on the earnings of the applicable business segment or on the total corporation for the period in which the item is recognized, and are not indicative of the company's core operating results.  These items thus affect the comparability of underlying results from period to period.

 

References to earnings before interest, taxes, depreciation, and amortization (EBITDA) refer to net income attributable to Conagra Brands before the impacts of discontinued operations, income tax expense (benefit), interest expense, depreciation, and amortization.  References to adjusted EBITDA refer to EBITDA before the impacts of items impacting comparability.

 

References to two-year compounded annualized numbers are calculated as: ([(1 + current year period's growth rate) * (1 + prior year period's growth rate)] ^ 0.5) – 1.

 

Please note that certain prior year amounts have been reclassified to conform with current year presentation

 

Discussion of Results

 

Conagra Brands will host a webcast and conference call at 9:30 a.m. Eastern time today to discuss the results.  The live audio webcast and presentation slides will be available on www.conagrabrands.com/investor-relations under Events & Presentations. The conference call may be accessed by dialing 1-877-883-0383 for participants in the U.S. and 1-412-902-6506 for all other participants and using passcode 3428984. Please dial in 10 to 15 minutes prior to the call start time. Following the Company's remarks, the conference call will include a question-and-answer session with the investment community.  A replay of the webcast will be available on www.conagrabrands.com/investor-relations under Events & Presentations until January 6, 2023.

 

About Conagra Brands

 

Conagra Brands, Inc. (NYSE: CAG), headquartered in Chicago, is one of North America's leading branded food companies. Guided by an entrepreneurial spirit, Conagra Brands combines a rich heritage of making great food with a sharpened focus on innovation. The company's portfolio is evolving to satisfy people's changing food preferences. Conagra's iconic brands, such as Birds Eye®, Marie Callender's®, Banquet®, Healthy Choice®, Slim Jim®, Reddi-wip®, and Vlasic®, as well as emerging brands, including Angie's® BOOMCHICKAPOP®, Duke's®, Earth Balance®, Gardein®, and Frontera®, offer choices for every occasion. For more information, visit www.conagrabrands.com.

 

Note on Forward-looking Statements

 

This document contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Readers of this document should understand that these statements are not guarantees of performance or results. Many factors could affect our actual financial results and cause them to vary materially from the expectations contained in the forward-looking statements, including those set forth in this document. These risks, uncertainties, and factors include, among other things: the risk that the cost savings and any other synergies from the acquisition of Pinnacle Foods Inc. (the Pinnacle acquisition) may not be fully realized or may take longer to realize than expected; the risk that the Pinnacle acquisition may not be accretive within the expected timeframe or to the extent anticipated; the risks that the Pinnacle acquisition and related integration will create disruption to the Company and its management and impede the achievement of business plans; risks related to our ability to achieve the intended benefits of other recent acquisitions and divestitures; risks associated with general economic and industry conditions; risks associated with our ability to successfully execute our long-term value creation strategies; risks related to our ability to deleverage on currently anticipated timelines, and to continue to access capital on acceptable terms or at all; risks related to our ability to execute operating and restructuring plans and achieve targeted operating efficiencies from cost-saving initiatives, and to benefit from trade optimization programs; risks related to the effectiveness of our hedging activities and ability to respond to volatility in commodities; risks related to the Company's competitive environment and related market conditions; risks related to our ability to respond to changing consumer preferences and the success of our innovation and marketing investments; risks related to the ultimate impact of any product recalls and litigation, including litigation related to the lead paint and pigment matters, as well as any securities litigation, including securities class action lawsuits; risk associated with actions of governments and regulatory bodies that affect our businesses, including the ultimate impact of new or revised regulations or interpretations; risks related to the impact of the COVID-19 pandemic on our business, suppliers, consumers, customers and employees; risks related to our forecasts of consumer eat-at-home habits as the impacts of the COVID-19 pandemic abate; risks related to the availability and prices of supply chain resources, including raw materials, packaging, and transportation including any negative effects caused by changes in inflation rates, weather conditions, or health pandemics; disruptions or inefficiencies in our supply chain and/or operations, including from the COVID-19 pandemic; risks associated with actions by our customers, including changes in distribution and purchasing terms; risks and uncertainties associated with intangible assets, including any future goodwill or intangible assets impairment charges; risks related to a material failure in or breach of our or our vendors' information technology systems; the amount and timing of future dividends, which remain subject to Board approval and depend on market and other conditions; and other risks described in our reports filed from time to time with the Securities and Exchange Commission. We caution readers not to place undue reliance on any forward-looking statements included in this document, which speak only as of the date of this document. We undertake no responsibility to update these statements, except as required by law.

 

Note on Non-GAAP Financial Measures

 

This document includes certain non-GAAP financial measures, including adjusted EPS, organic net sales, adjusted gross profit, adjusted operating profit, adjusted SG&A, adjusted corporate expenses, adjusted gross margin, adjusted operating margin, adjusted effective tax rate, adjusted net income attributable to Conagra Brands, two-year compounded annualized organic net sales, two-year compounded annualized adjusted EPS, free cash flow, net debt, net leverage ratio, and adjusted EBITDA. Management considers GAAP financial measures as well as such non-GAAP financial information in its evaluation of the Company's financial statements and believes these non-GAAP measures provide useful supplemental information to assess the Company's operating performance and financial position. These measures should be viewed in addition to, and not in lieu of, the Company's diluted earnings per share, operating performance and financial measures as calculated in accordance with GAAP.

 

Certain of these non-GAAP measures, such as organic net sales, adjusted operating margin, and adjusted EPS, are forward-looking.  Historically, the Company has excluded the impact of certain items impacting comparability, such as, but not limited to, restructuring expenses, the impact of the extinguishment of debt, the impact of foreign exchange, the impact of acquisitions and divestitures, hedging gains and losses, impairment charges, the impact of legacy legal contingencies, and the impact of unusual tax items, from the non-GAAP financial measures it presents.  Reconciliations of these forward-looking non-GAAP financial measures to the most directly comparable GAAP financial measures are not provided because the Company is unable to provide such reconciliations without unreasonable effort, due to the uncertainty and inherent difficulty of predicting the occurrence and the financial impact of such items impacting comparability and the periods in which such items may be recognized.  For the same reasons, the Company is unable to address the probable significance of the unavailable information, which could be material to future results.

 

Hedge gains and losses are generally aggregated, and net amounts are reclassified from unallocated corporate expense to the operating segments when the underlying commodity or foreign currency being hedged is expensed in segment cost of goods sold. The Company identifies these amounts as items that impact comparability within the discussion of unallocated Corporate results.

 

Conagra Brands, Inc.

Consolidated Statements of Earnings

(in millions)

(unaudited)

 

[ ]

 

For more information, please contact:

 

MEDIA: Mike Cummins

312-549-5257

[email protected]

 

INVESTORS: Brian Kearney

312-549-5002

[email protected]

 

SOURCE Conagra Brands, Inc.

 

more, including financial tables

https://www.prnewswire.com/news-releases/conagra-brands-reports-second-quarter-results-301455187.html

 

 

Conagra Brands, Inc.'s (CAG) CEO Sean Connolly on Q2 2022 Results - Earnings Call Transcript

 

Seeking Alpha

Jan. 06, 2022

 

Q2: 2022-01-06 Earnings Summary

 

Conagra Brands, Inc. (NYSE:CAG) Q2 2022 Earnings Conference Call January 6, 2022 9:30 AM ET

 

Company Participants

 

Brian Kearney - Investor Relations

 

Sean Connolly - President and CEO

 

Dave Marberger - Executive Vice President and CFO

 

Conference Call Participants

 

Andrew Lazar - Barclays

 

Ken Goldman - JPMorgan

 

Bryan Spillane - BoA

 

David Palmer - Evercore ISI

 

Jonathan Feeney - Consumer Edge

 

Robert Moskow - Credit Suisse

 

Alexia Howard - Bernstein

 

Operator

 

Good day. And welcome to the Conagra Brands’ Second Quarter Fiscal Year 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]

 

Please note today’s event is being recorded. I would now like to turn the conference over to Brian Kearney from Investor Relations. Please go ahead, sir.

 

Brian Kearney

 

Good morning, everyone. Thanks for joining us. I will remind you that we will be making some forward-looking statements today. While we are making those statements in good faith, we do not have any guarantee about the results we will achieve. Descriptions of the risk factors are included in the documents we filed with the SEC.

 

Also, we will be discussing some non-GAAP financial measures. References to adjusted items, including organic net sales refer to measures that exclude items management believes impact the comparability for the period referenced.

 

Please see the earnings release for additional information on our comparability items. The GAAP to non-GAAP reconciliations can be found in either the earnings press release or the earnings slides, both of which can be found in the Investor Relations section of our website, conagrabrands.com.

 

With that, I will turn it over to Sean.

 

Sean Connolly

 

Thanks, Brian. Good morning, everyone, and thank you for joining our second quarter fiscal 2022 earnings call. Today, Dave and I will discuss our results for the quarter, our updated outlook for the remainder of the year and why we believe that Conagra continues to be well-positioned for the future.

 

I like to start by giving you some context for the quarter. First, as you all know, the external environment has continued to be highly dynamic, but our team remained extremely agile in the quarter and executed the Conagra Way playbook. We navigated the ongoing complexity and delivered strong net sales growth anchored in elevated consumer demand that continued to exceed our ability to supply inflation driven pricing actions and lower than expected elasticities.

 

While our net sales exceeded our expectations, margin pressure in the second quarter was also higher than expected, driven by three key factors. First, while we anticipated elevated inflation during the second quarter, it was higher than our forecast. Second, we experienced some additional transitory supply chain costs related to the current environment. And third, in the face of elevated consumer demand that continue to outpace our ability to supply, we elected to make investments to service orders and maximize product availability for our consumers.

 

We expect margins to improve in the second half of the fiscal year, as a result of the leverage we pulled and continue to pull to manage the impact of inflation. We will always look to our cost savings programs to offset input cost inflation. However, given the magnitude of the cost increases, our actions also include additional inflation-driven pricing. We communicated pricing to customers again in December.

 

For the year, we are once again reaffirming our adjusted EPS outlook, but our path to achieve that guidance has evolved. We are increasing our organic net sales guidance based on stronger than expected consumer demand and lower than anticipated elasticities.

 

We are also updating our margin guidance given the increase in our gross inflation expectations for the year and the timing of the related pricing actions. Taken together, we continue to believe that elevated consumer demand, coupled with additional pricing and cost savings actions will enable us to deliver adjusted diluted EPS of about $2.50.

 

So with that as the backdrop, let’s jump into the agenda for today’s call. We will start with an overview of the quarter before going into more detail on our outlook for the second half of the fiscal year. I will also share some of our thoughts on the structural changes we are seeing in consumer behavior, particularly with younger consumers. We believe these changes are further evidence in the long-term potential of Conagra Brands.

 

Let’s dig into the quarter. As you can see, on slide seven, our team delivered solid Q2 results. On a two-year CAGR basis, organic net sales for the second quarter increased by more than 5% and adjusted EPS grew by nearly 1%.

 

As I noted earlier, we delivered these results in the face of a highly dynamic and challenging operating environment. Input cost inflation came in higher than expected in the quarter. In addition, we made some strategic decisions to service the heightened consumer demand we continue to experience, as the entire industry incurred transitory costs associated with labor shortages, supply issues on materials, and transportation costs and congestion challenges during our Q2, we chose to invest in our supply chain and service orders. This deliberate decision ensured we could deliver food to our customers and consumers, especially during the holiday season.

 

Maintaining physical availability is an important part of building trust with customers and maintaining consumer loyalty. The bottomline is that amid the supply disruptions seen across the industry, we remain focused on building for the long-term. While the net result of these factors was a negative impact on our margins during the quarter, we are confident that our purposeful approach better positions our portfolio for the future.

 

I want to take this opportunity to thank our tremendous supply chain team. They have been resilient in navigating this environment, allowing us to remain agile and deliver for our customers and consumers. I continue to be impressed by our team’s commitment and I am grateful for their ongoing dedication.

 

Looking at slide 10, you can see that our strong performance in the second quarter was broad based. Total Conagra retail sales were up 14.8% on a two-year basis in the quarter, with double-digit growth in each of our domestic retail domains, frozen, snacks and staples.

 

Household penetration was also up this quarter, building upon the significant number of new consumers we have acquired over the past two years. Total Conagra household penetration was up 59 basis points on a two-year basis and our category share increased 41 basis points.

 

In addition to increasing household penetration and acquiring new consumers, we are retaining our existing consumers as demonstrated by our repeat rates. Shoppers continue to discover our incredible products and their tremendous value proposition. As the chart on the right of slide 11 shows, our consumers keep coming back for more.

 

As we execute our Conagra Way playbook, innovation remains a key to our success across the portfolio in Q2. Slide 12 highlights the impact of our disciplined approach to delivering new products and modernizing our portfolio.

 

During the second quarter, our innovation outperformed the strong results we delivered in the year ago period. We continue to invest in new product quality and in supporting our innovation launches with deeper, more meaningful consumer connections. Once again our innovation rose to the top of the pack in several key categories, including snacks, sweet treats, sauces and marinades, and frozen vegetables.

 

Slide 13 demonstrates how our ongoing investments in e-commerce continued to yield strong results. We again delivered strong quarterly growth in our $1 billion e-commerce business and e-commerce accounted for a larger percentage of our overall retail sales than our peers. We outpaced the entire total edible category in terms of e-commerce retail sales growth during the second quarter, just as we did in the first quarter of 2022 and throughout fiscal 2021.

 

As we mentioned earlier, our strong net sales growth was driven by elevated consumer demand, favorable elasticities and inflation-driven pricing actions. On slide 14, you can see the extent of our pricing actions in the first half of the fiscal year. During this period, our on-shelf prices rose across all three domestic retail domains and as Dave will discuss shortly, the pricing flows through the P&L.

 

As you can see on slide 15, price elasticity has been fairly low. It’s been favorable to our expectations. Consumers continue to see the tremendous value of our products relative to other food options, a concept I will elaborate on in a few minutes.

 

Now let’s turn to the path ahead. You can see on slide 17, we currently expect gross inflation to be approximately 14% for fiscal 2022, compared to the approximately 11% we anticipated at the time of our first quarter call. This is a large increase and we are taking actions to offset the increase, while still investing in the long-term health of our business.

 

Help manage our increasing inflation, we are taking incremental pricing actions, including list price increases and modified merchandising plans. Many of these actions have already been announced to our customers. As a reminder, there is a lag in timing between the impact of inflation and our ability to execute pricing adjustments based on that inflation. As a result, the incremental price increases will go into effect in the second half of the year, with the most significant impact during the fourth quarter.

 

While it’s easy to get caught up in the quarter-to-quarter impact of inflation and pricing, it’s important to keep focused on the big picture. The long-term success of our business is driven by how consumers, particularly younger consumers respond to our products. And when you take a step back to evaluate the broader environment and how our portfolio delivers against the needs of the modern consumer, we believe that Conagra is uniquely positioned for the future.

 

As we have detailed many times before, Conagra’s on-trend portfolio filled with modern food attributes is winning with younger consumers and our confidence is underpinned by the many changes we are seeing in consumer behavior that are proving to be structural, especially given that these changes are driven by younger consumers that represent the most significant opportunity for long-term value creation.

 

Younger consumers represent a large and growing part of the U.S. population, and they want to optimize the value that they get for the money they spend on food. A large part of optimizing their food spending includes shifting more dollars from eating away from home, eating at-home.

 

As they make that trade, they are choosing national brands and we believe Conagra is ideally positioned to experience an outsized benefit from these behaviors, given the relationship our brands are forming with younger consumers. Overall, Conagra is delivering superior relative value to consumers compared to both away from home options and store brands.

 

Let’s take a closer look at these trends, starting with the population changes. Slide 20 highlights the demographic shift underway in the U.S. Millennial and Gen Z consumers are a large and growing cohort. These consumers are starting to settle down, buy homes and start families.

 

As we presented in the past, when people enter the family formation phase, they increase the amount of food they eat at-home with an outsized increase in the consumption of frozen foods. And what we find particularly important about reaching millennial and Gen Z consumers is that we believe they will remain more value focused than their predecessors.

 

First, let’s talk about the near-term. As you can see in the chart on the left, millennial and Gen Z consumers are earlier in their careers and earning less than the older generations of working age people. This is natural. But it bodes well for food at-home trends in the shorter term. We believe that even as food service bounces back, younger consumers will be value conscious in their food choices.

 

Fewer younger consumers are expected to achieve the financial success of the generations before them. The data on the right suggests that millennials are more likely to earn less than their parents. We believe this means that these savvy consumers will look to stretch their food dollars further even as they age.

 

The data also shows that younger consumers are already eating more at-home. Compared to the population as a whole, Gen Z and millennials have decreased restaurant visits more and sourced a larger percentage of their meals at-home.

 

As these younger consumers have made the shift at-home eating, the data shows that they are finding comfort in the quality, reliability and familiarity that national brands provide. We believe this makes a lot of sense. National brands provide value, while replicating many of the on-trend flavors and modern food attributes that consumers are used to experiencing in away-from-home dining. When consumers make trades like away-from-home to in-home eating trust is paramount.

 

In short, national brands, particularly modernized brands, like those in our portfolio, deliver on this trust imperative and that’s because they offer superior relative value versus other food options.

 

As consumers seek to stretch their household balance sheets in the face of broad based inflation, one of the single largest levers available to them is the reduction in spending on food away-from-home, as food away-from-home prices are typically over 3.5 times more expensive than food at-home prices. This trade will likely become even more important for consumers as food away-from-home prices have already increased faster than at-home prices in calendar 2021 and they are expected to increase at nearly twice the rate as at-home prices in calendar year 2022.

 

Our aggressive modernization of the Conagra portfolio over the past several years has put us in a strong position to capitalize on these structural shifts. Our portfolio has shown its competitive advantage, with excellent trial, depth of repeat and share gain performance. Overall, we believe Conagra is well-positioned to leverage these shifts to create meaningful value for shareholders.

 

And slide 25 shows you the data to support our claim, Conagra is attracting more younger consumers than our peers and getting them to repeat at more attractive rates. By appealing to younger consumers now, we are building superior consumer lifetime value. Importantly, the data shows that these new younger buyers are stickier across our portfolio. We believe this comes back to the investments we have made and continue to make in our products and our brands. The Conagra Way has positioned us to win.

 

As I discussed earlier, we are reaffirming our adjusted EPS guidance of approximately $2.50 for the full year, with a few updates on how we expect to get there. We are increasing our organic net sales guidance to be approximately plus 3%, up from approximately 1%. We are slightly adjusting our adjusted operating margin guidance to approximately 15.5%, down from approximately 16% and we are updating our gross inflation guidance to about 14%, up from approximately 11%.

 

Now that I have highlighted our performance for the quarter and strong positioning for the future, I will turn it over to Dave to provide more detail on our financial performance.

 

Dave Marberger ...

 

more, including audio [01:01:41 min.]  

https://seekingalpha.com/article/4478292-conagra-brands-inc-s-cag-ceo-sean-connolly-on-q2-2022-results-earnings-call-transcript