Conagra Brands: Reports First Quarter 2024 Results

Chicago / IL. (cag) ConAgra Brands Inc. reported results for Q1 of fiscal year 2024, which ended on August 27, 2023. All comparisons are against the prior-year fiscal period, unless otherwise noted. Highlights:

First quarter net sales were flat to the prior year; organic net sales decreased 0.3 percent
Operating margin in the quarter was 16.8 percent representing a 1,757 basis point increase over the prior year quarter. Adjusted operating margin was 16.7 percent representing a 297 basis point increase over the prior year quarter
Diluted earnings per share (EPS) for the first quarter was USD 0.67 compared to a diluted loss per share of USD 0.16 in the prior year quarter. Adjusted EPS was USD 0.66, representing a 15.8 percent increase over the prior year quarter
The company is reaffirming its fiscal 2024 guidance reflecting:
- Organic net sales growth of approximately 1.0 percent compared to fiscal 2023
- Adjusted operating margin between 16.0 percent and 16.5 percent
- Adjusted EPS between USD 2.70 and USD 2.75

CEO Perspective

Sean Connolly, president and chief executive officer of Conagra Brands, commented, «I am proud of our team for delivering another quarter of strong margin recovery and EPS growth despite facing industry-wide macro dynamics that have affected consumer purchasing behavior and elongated the volume recovery period. We will continue to focus on executing our Conagra Way playbook as we make targeted and disciplined investments throughout the remainder of the year to drive the top-line. We are reaffirming our guidance for fiscal 2024, reflecting confidence in our plans, people and agility as we continue to navigate a shifting consumer environment.»

Total Company First Quarter Results

In the quarter, net sales were USD 2.9 billion reflecting:

a 0.3 percent increase from the favorable impact of foreign exchange; and
a 0.3 percent decrease in organic net sales.

The 0.3 percent decrease in organic net sales was driven by a 6.6 percent decrease in volume largely due to industry-wide slowdown in consumption and recent consumer behavior shifts, partially offset by a 6.3 percent improvement in price/mix.

Gross profit increased 14.3 percent to USD 823 million in the quarter, and adjusted gross profit increased 10.9 percent to USD 801 million. First quarter gross profit increased primarily as a result of inflation-driven pricing that was implemented in fiscal 2023 and productivity, which more than offset the negative impacts of cost of goods sold inflation, unfavorable operating leverage, and lower organic net sales. Gross margin increased 354 basis points to 28.3 percent in the quarter, and adjusted gross margin increased 272 basis points to 27.6 percent.

Selling, general, and administrative expense (SG+A), which includes advertising and promotional expense (A+P), decreased 54.9 percent to USD 334 million in the quarter due primarily to the goodwill and brand impairments that occurred in the prior year quarter. Adjusted SG+A, which excludes A+P, decreased 1.5 percent to USD 258 million driven by lower incentive compensation compared to the prior year quarter.

A+P for the quarter decreased 5.3 percent to USD 59 million, driven primarily by timing of modern marketing initiatives.

Net interest expense was USD 106 million in the quarter. Compared to the prior-year period, net interest expense increased 9.2 percent or USD 9 million, primarily due to a higher weighted average interest rate on outstanding debt.

The average diluted share count in the quarter was 480 million shares.

In the quarter, net income attributable to Conagra Brands was USD 320 million, or USD 0.67 per diluted share compared to a net loss of USD 0.16 per diluted share in the prior year quarter. Adjusted net income attributable to Conagra Brands increased 15.0 percent to USD 316 million, or USD 0.66 per diluted share. The increase was driven primarily by the increase in gross profit and decrease in SG+A, as previously discussed.

Adjusted Ebitda, which includes equity method investment earnings and pension and postretirement non-service expense (income), increased 12.1 percent to USD 613 million in the quarter, primarily driven by the increase in adjusted gross profit.

20231006-CONAGRA-Q1-2024 Source: Conagra Brands

Grocery + Snacks Segment First Quarter Results

Reported and organic net sales for the Grocery + Snacks segment increased 1.2 percent to USD 1.2 billion in the quarter driven by a price/mix increase of 5.6 percent, partially offset by a volume decrease of 4.4 percent from industry-wide consumption trends. In the quarter, the company gained dollar share in snacking categories including seeds and microwave popcorn, and some staples categories including chili and canned meat.

Operating profit for the segment increased 3.3 percent to USD 259 million in the quarter. Adjusted operating profit increased 3.8 percent to USD 264 million as higher organic net sales and productivity more than offset the negative impacts of cost of goods sold inflation, unfavorable operating leverage, and higher A+P and SG+A.

Refrigerated + Frozen Segment First Quarter Results

Reported and organic net sales for the Refrigerated + Frozen segment decreased 4.6 percent to USD 1.2 billion in the quarter due to a volume decrease of 10.5 percent from industry-wide consumption trends, partially offset by a price mix increase of 5.9 percent. In the quarter, the company gained dollar share in categories such as frozen sides and frozen breakfast sausage.

Operating profit for the segment was USD 199 million in the quarter compared to a USD 216 million loss in the prior year quarter. Adjusted operating profit increased 14.7 percent to USD 201 million as productivity and lower A+P more than offset the negative impacts of lower organic net sales, unfavorable operating leverage, cost of goods sold inflation, and increased SG+A.

International Segment First Quarter Results

Net sales for the International segment increased 11.4 percent to USD 260 million in the quarter reflecting:

a 3.2 percent increase from the favorable impact of foreign exchange; and
an 8.2 percent increase in organic net sales.

On an organic net sales basis, price/mix increased 7.9 percent and volume increased 0.3 percent. Operating profit for the segment decreased 12.1 percent to USD 24 million in the quarter primarily due to certain non-cash restructuring charges. Adjusted operating profit increased 57.8 percent to USD 42 million as the benefits from higher organic net sales and productivity more than offset the negative impact of cost of goods sold inflation, unfavorable operating leverage, and higher SG+A.

Foodservice Segment First Quarter Results

Reported and organic net sales for the Foodservice segment increased 5.2 percent to USD 289 million in the quarter. Price/mix increased 10.3 percent and volume decreased 5.1 percent, primarily from the elasticity impact of the company’s inflation-driven pricing actions. Operating profit for the segment was USD 44 million compared to USD 1 million in the prior year quarter. Adjusted operating profit increased 87.5 percent to USD 41 million in the quarter as the benefits of higher organic net sales and productivity more than offset the impacts of cost of goods sold inflation and unfavorable operating leverage.

Other First Quarter Items

Corporate expenses decreased 56.0 percent to USD 37 million in the quarter and adjusted corporate expense decreased 20.1 percent to USD 64 million in the quarter driven primarily by lower incentive compensation compared to the prior year quarter. Pension and post-retirement non-service expense was USD 0 compared to USD 6 million of income in the prior-year period due primarily to higher interest costs. In the quarter, equity method investment earnings decreased 27.9 percent to USD 36 million as results from the company’s joint venture, Ardent Mills, reflected slightly lower volume trends in the milling industry. In the quarter, the effective tax rate was 23.5 percent compared to (22.8 percent) in the prior-year period. The adjusted effective tax rate was 23.6 percent compared to 22.9 percent in the prior-year period. In the quarter, the company paid a dividend of USD 0.33 per share.

Outlook

The company is reiterating its fiscal 2024 outlook and providing high-level drivers for the second quarter and back half of the year. For the second quarter, the company is expecting a low-single digit organic net sales decline as volume declines improve as inflation-driven pricing actions from fiscal 2023 are wrapped. We expect gross and operating margins to be below the first quarter due to incremental trade and A+P investment. For the back half of the year, the company is expecting low-single digit organic net sales growth driven by year-over-year volume growth, along with margins similar to Q2 as trade and A+P dollars remain elevated. The company’s fiscal 2024 guidance reflects:

Organic net sales growth is expected to be approximately 1.0 percent compared to fiscal 2023
Adjusted operating margin is expected to be between 16.0 percent and 16.5 percent
Adjusted EPS is expected to be between USD 2.70 and USD 2.75
Net Leverage Ratio of approximately 3.4x
Capital expenditures of approximately USD 500M
Interest expense of approximately USD 450M
Adjusted effective tax rate of approximately 24 percent
No pension income
Ardent Mills contribution of approximately USD 150M

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 USD 0.67 EPS for the first quarter of fiscal 2024 (EPS amounts are rounded and after tax). Please see the reconciliation schedules at the end of this release for additional details.

Approximately USD 0.04 per diluted share of net expense related to restructuring plans
Approximately USD 0.04 per diluted share of net benefit related to corporate hedging derivative gains
Approximately USD 0.01 per diluted share of net benefit related to rounding

The following are included in the (USD 0.16) EPS for the first quarter of fiscal 2023 (EPS amounts are rounded and after tax). Please see the reconciliation schedules at the end of this release for additional details.

Approximately USD 0.01 per diluted share of net expense related to restructuring plans
Approximately USD 0.04 per diluted share of net expense related to impairment of businesses previously held for sale
Approximately USD 0.68 per diluted share of net expense related to goodwill and brand impairment charges

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