Conagra seeks acquisitions, considers divesting low growth businesses amid sales slump
Yet, company executives say they are optimistic Conagra can hit its fiscal year goals, even with sales down year-over-year and recovering volumes still stuck in the negative in several categories. Their optimism may be due in part to the company’s portfolio reshaping efforts, that has it hunting for acquisitions and considering divestitures of lagging businesses.
In the company’s first quarter, reported yesterday, net sales fell 3.5% to $2.79 billion – missing expectations of $2.84 billion – due in part to strategic decisions, but also the unexpected temporary closure of its Hebrew National hot dog plant in the middle of the grilling season.
“While we were able to fully resume plant operations, the temporary manufacturing pause resulted in lost sales. Revenue for the Hebrew National brand was down 47% in Q1. We estimated that this equated to a 60 basis point reduction in total volume and a 90 basis point reduction in total organic net sales during the first quarter,” CEO Sean Connolly said yesterday in prepared comments ahead of Conagra’s first quarter earnings call with investors and analysts.
“The loss was particularly apparent within refrigerated and frozen, where we estimated that it accounted for a 150 basis point reduction in volume and a 210 basis point reduction in organic net sales for the segment,” he added.
Net sales for the refrigerated and frozen segment were down 5.7% to $1.08 billion in the quarter over the same time last year, but it was still one of the few segments where volume grew – eking out a 0.1% increase.
For comparison, the company’s grocery and snacks business suffered a 1.8% decline in volume, which dragged down net sales 1.9% to $1.18 billion compared to a year ago, and foodservice volume fell a whopping 11.1% while net sales dropped 7.9% to $267 million in the quarter from a year ago.
The news sent the company’s stock tumbling from $32.65 on Tuesday evening before the results were revealed to $30.18 by Wednesday morning before bottoming out at $28.48 mid-morning and recovering slightly to $30.17 by 8 pm yesterday.
While these numbers – and their effect – are grim for Conagra, leadership tried to reassure investors that the impact of the Hebrew National will be isolated to the first quarter, and that the Q1 results were in-line or above internal plans for most metrics, except organic net sales.
“As a result, we remain on track to deliver our fiscal ’25 guidance,” Connolly said. The company expects organic net sales compared to fiscal 2024 to be come in between negative 1.5% to flat for the year and for the adjusted earnings per share to be between $2.60 and $2.65.
Conagra resumes portfolio reshaping initiatives
The company’s confidence hinges in part on its portfolio reshaping, which Connolly said the company is “excited to resume” with the recent acquisition of FATTY Smoked Meat Sticks and the sale of its Indian joint venture Agro Tech Foods Limited.
FATTY Smoked Meat Sticks complements Conagra’s portfolio, including Slim Jim and Duke’s “to form a trifecta smokehouse, which will allow us to capitalize on high growth, protein-focused snacking behaviors,” Connolly said.
“Conagra is a leader in the meat snacks category with significant scale. But within meat snacks, Conagra is the leader in meat sticks, a high-margin business that is growing faster than all other snacking categories, as demand for more convenient, healthy and affordable experiences continues to attract new buyers,” he said.
He added that Conagra is “excited to resume our historical practice of active portfolio reshaping with both inbound and outbound activities.”
In recent years, the company has been more focused on debt paydown, but after improving debt and cash flow, “we are in a strong position to resume active portfolio reshaping and, importantly, still meet our long-term 3x net leverage target through a combination of bolt-on acquisitions and divestitures of low growth business,” Connolly explained.
