He explained, in the fourth quarter, Conagra successfully “nudged” volume sales for snacks and frozen food “back toward positive territory,” with the volume for snacks up 0.4% in Q4 from a year ago, which is notably better than in Q3 when volumes fell 2.8% year-over-year. Within frozen, volume sales in the fourth quarter were down “only” 0.4% from the previous year, marking a steady improvement from a 3% year-over-year decline in Q3, a 5% drop in Q2 and a 7.8% drop in Q1 over the corresponding periods in the previous year.
“We have been nudging. The nudging is working, but it is a transition. It is a process and we have moved the needle meaningfully and that will continue to move positive, but it is a transition. It is not one of these events where we sprinkle a little money on the consumer and they forget that they ever experienced runaway inflation. It is a period of adjustment for us, that is clearly happening,” Connolly said.
Within frozen, where volume consumption is overall back to about flat, Connolly said Conagra saw the strongest improvements in single-serve meals, volume sales for which increased 1% year-over-year in Q4 compared to the industry average, which fell 2.1% in the same period. Volume share also increased 1.6% in the quarter from a year ago to capture 52% volume share of the category for single-serve meals.
Mastering merchandising with smaller, more frequent discounts & quality displays
Connolly attributed these gains in large part to strategic “quality display” and more frequent but less deep discounting.
“What you are seeing in frozen overall, and I called this out last year, is when we were at the peak of the inflationary period and people were having to make choices and trade-offs to make their household balance sheet work, they moved some of their purchases of convenience-oriented items toward more scratch cooking and they kept their leftovers and things like that,” he said.
But, he added, “the challenge with that is consumers do not really like planning for meals, they do not like preparing meals, they do not like cleaning up after meals. So, the need for convenience … is as strong as it has ever been … which is why the investments we have made in frozen to nudge consumers have materialized and we saw growth in our frozen single serve meal business in the quarter.”
Conagra saw similar results in key snacking brands, boosting the company’s volume sales 0.4% in the fourth quarter from a year ago compared to a drop of 1.5% in volume sales for the total snack segment in the same period.
“This is largely due to our on trend snacking brands that span advantaged snacking subspaces, like meat snacks, popcorn and seeds,” all of which are growing with the “rise of protein and fiber-centric snacking” and can “answer consumer demands for healthier on-trend snack options,” Connolly said.
In the quarter, the company reported a year-over-year volume sales increase of 1.3% in meat snack brands Slim Jim and Dukes, 2.1% across popcorn, including Orville Redenbacher’s, Boom Chicka Pop and Act II, and a whopping 11.4% increase in seed brands David and BiGS.
These gains are even more notable when compared to sliding snack volume of competitors, including PepsiCo, which reported earlier this week a 3% volume decline in its Frito-Lay business.
Innovations invite consumers back to frozen, snacks
Conagra’s gains in frozen and snacking also reflect innovations that resonated with consumers “in a big way,” Connolly said.
For example, the company expanded frozen brand Birds Eye to include “delicious, culinary inspired products that appeal to a younger, more affluent household,” he said. He added, “Consumers have also embraced our Banquet Mega chicken filets and Healthy Choice modern dinners, which cater to a greater variety of eating occasions.”
Overall, Conagra’s innovations drove retail sales to $1.5 billion in fiscal ’24 compared to $387 million in fiscal 2019.
Overall volumes decline, outlook falls short of analyst expectations
Conagra was not fully immune to consumers’ discontent with price hikes over the past year, and, like many of its peers, it saw overall volume declines, despite success in snacks and frozen.
In the fourth quarter, the company tracked an overall 1.8% decrease in volume, which it attributed “primarily … to continued lower consumption trends.”
Conagra’s staples were hit hard, with volume sales dropping 2.3% in Q4 from last year, which was even more significant than the 1.6% year-over-year drop in Q3, at which point the steady improvement the company had tracked since the first quarter reversed course.
While the company plans additional investments across its grocery business to try and replicate the success it is seeing in snacks and frozen, Connolly also cautioned that consumers likely will continue to hold back to help keep their budgets in check in 2025.
As such Conagra tempered its expectations for the coming year. It now expects organic net sales in the range of -1.5% to flat compared to fiscal ’24, and an earnings per share of $2.60 to $.26, which is below analysts' expectations of $2.70.
The company’s self-described “prudent” outlook does not diminish its gains in 2024 or the resiliency of its portfolio, according to Connolly.
He noted: “Our steady progress in 2024, despite a difficult consumer environment, demonstrates the underlying resiliency of our business, and this reinforces our confidence to drive further volume improvement and margin expansion in fiscal ’25.
