Conagra Brands: Updates Fiscal 2020 Outlook

Chicago / IL. (cag) ConAgra Brands Inc. announced that it is revising its fiscal 2020 outlook as a result of softer than expected category performance during the company’s fiscal third quarter, which ends on February 23, 2020. Third quarter consumption declines have impacted a wide range of categories across the food industry, including categories in which Conagra Brands competes.

The Company now expects fiscal 2020 organic net sales growth to be flat to 0.5 percent. Adjusted operating margin is now expected to be 15.8 percent to 16.2 percent. The Company expects adjusted diluted earnings per share from continuing operations of USD 2.00 to USD 2.07.

Sean Connolly, president and chief executive officer of Conagra Brands, commented, «Consumption softness in the quarter first emerged in the foodservice industry, with holiday restaurant traffic weaker than last year. Softness pivoted to retail in January and impacted numerous categories across food, including several in which we compete. While we planned for tougher year-over-year comparable results in the third quarter, we did not plan for this level of category softness. Accordingly, we are updating our fiscal 2020 outlook.»

Connolly continued, «Despite the unplanned third quarter consumption downturn, we remain encouraged by the health of our brands and the traction we have made on our fiscal 2020 innovation slate. We have gained share in many of our categories during the quarter and, based on our analysis, believe the recent consumption weakness is abating. We expect a resumption of year-over-year organic net sales growth in our fourth fiscal quarter.»

The Company remains committed to achieving its fiscal 2021 leverage goal. In addition, it is also committed to delivering on its fiscal 2022 targets, which have been updated for recent divestitures.

Connolly noted, «We remain confident in our brands, the proven Conagra Way playbook and the long runway of growth ahead. As such, we are reaffirming our commitment to achieving our fiscal 2021 deleveraging and delivering on our long-term fiscal 2022 targets.»

Updated Fiscal 2020 Outlook

Note that organic net sales growth continues to exclude the impact of fiscal 2020’s 53rd week. All other metrics continue to include the impact of the 53rd week. The Company’s updated guidance also reflects the impact of the divestiture of the Lender’s bagel business, which closed early in the third quarter.

Metric Prior Fiscal 2020 Guidance Updated Fiscal 2020 Guidance
Organic Net Sales Growth +1.0 percent to +1.5 percent Flat to +0.5 percent
Reported Net Sales Growth +12.4 percent to +12.9 percent +10.0 percent to +10.5 percent
Adjusted Op. Margin 16.2 percent to 16.8 percent 15.8 percent to 16.2 percent
Adjusted Net Interest Expense Slightly below USD 505 million approximately USD 500 million
Adjusted Effective Tax Rate approximately 24 percent 23 percent to 24 percent
Average Diluted Shares approximately 488 million approximately 488 million
Adjusted Diluted EPS from Cont. Ops. USD 2.07 to USD 2.17 USD 2.00 to USD 2.07
Free Cash Flow Slightly below USD 1 billion approximately 950 million


Updated Fiscal 2022 Targets

Metric Updated Fiscal 2022 Targets
Organic Net Sales Growth (3-year CAGR ending FY-2022) +1 percent to +2 percent (no change)
FY-2022 Adjusted Operating Margin 18 percent to 19 percent (no change)
FY-2022 Adjusted Diluted EPS from Cont. Ops. USD 2.66 to USD 2.76 (reduced USD 0.02 for recent divestitures)
Free Cash Flow Conversion ( percent of Adjusted Net Income; 3-year Average Ending FY-2022) 95 percent+ (no change)

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 these forward-looking non-GAAP financial measures impracticable.