Release Date: October 02, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Conagra Brands Inc (NYSE:CAG) reported strong performance in its snack business, particularly in the permissible snack space, focusing on protein- and fiber-rich snacks.

• The company has seen a pivot back to convenience foods, benefiting its frozen food segment, which has been a growth engine for over 40 years.

• Conagra Brands Inc (NYSE:CAG) is actively reshaping its portfolio for better growth and margins, with a focus on divesting slower growth assets and acquiring faster-growing businesses.

• The company has maintained strong cash flow and balance sheet progress, allowing for more focus on portfolio reshaping while targeting a leverage ratio of 3.0 times.

• Conagra Brands Inc (NYSE:CAG) has seen impressive market share gains, particularly in the frozen and snacks domains, driven by innovation and strategic investments.

Negative Points

• The Hebrew National disruption during the grilling season negatively impacted sales, with a loss of $27 million in sales and $11 million in lost profit.

• Conagra Brands Inc (NYSE:CAG) experienced higher-than-expected inflation, particularly in beef and sweeteners, impacting overall costs.

• The company's organic sales growth was below expectations, with sequential improvement but still not meeting Street estimates.

• There is a discrepancy between IRI and Nielsen data regarding meat snacks sales, with Nielsen showing a different picture than the company's presentation.

• Conagra Brands Inc (NYSE:CAG) expects price/mix to be negative for the full year, with higher trade merchandising in the second quarter impacting margins.

Q & A Highlights

• Warning! GuruFocus has detected 7 Warning Sign with CAG.

Q: Your commentary on snacking is more positive than other snack makers. What gives you this advantage? A: Sean Connolly, CEO: Our snack business is focused on permissible snacks rich in protein and fiber, avoiding the chip space. There's a pivot toward healthier snacks, and our meat sticks are the fastest-growing subspace. We're excited to add Fatty to our mix for a premium product.

Q: What are your data showing about frozen food trends, especially with scratch cooking picking up? A: Sean Connolly, CEO: Scratch cooking behavior seems to be running its course, with a pivot back to convenience. Frozen food remains a growth engine due to its convenience and affordability, and we're capitalizing on this consumer shift.

Q: Can you elaborate on your portfolio reshaping strategy and its impact on growth and value creation? A: Sean Connolly, CEO: Our strategy involves investing in current businesses, acquiring faster-growing ones, and divesting slower-growth assets. With strong cash flow and balance sheet progress, we're focusing more on reshaping while maintaining our leverage target.

Q: How do you view the competitive environment in the meat stick category, and how does the new Fatty addition fit in? A: Sean Connolly, CEO: The meat stick category is poised for growth, with a shift toward protein snacks. Fatty complements Slim Jim by targeting an older demographic with a premium product, enhancing our portfolio in this fast-growing space.

Q: What are your expectations for price/mix and promotional activity in the coming quarters? A: David Marberger, CFO: We expect volume improvement each quarter, with price/mix being negative for the full year but moderating. Q2 will have higher trade merchandising due to seasonal dynamics, but it's aligned with our sales expectations.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.