Food

Conagra Brands CEO sees early signs of improvement in consumer buying habits

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Dive Brief:

  • Conagra Brands CEO Sean Connolly said product volumes in the food space are “showing the first signs of improved performance” after consumers curtailed purchasing many branded items in order to stretch their dollars. Connolly forecast a more optimistic second half in revenue and sales for Conagra due to what he forecast as a “more typical” shopper behavior.
  • Still, the food executive said the timetable for volume recovery has been “elongated across the industry due to near-term consumer behavior changes.” During Conagra’s first quarter, volumes declined 6.6%, while average selling prices/product mix rose by 6.3%. Net sales totaled $2.9 billion, narrowly trailing analysts estimates.
  • Consumers have been looking for ways to save money at the same time that CPG companies, dealing with higher commodity, shipping and other costs, have passed many of their higher expenses on to consumers — often through multiple rounds of price increases.

Dive Insight:

As Americans continue to closely watch their spending, Conagra is hopeful things are about to change. A shift would help offset sluggish demand for products made by the maker of Slim Jim meat snacks, Banquet frozen meals and ACT II popcorn.

Connolly noted consumers are working through pantry inventories that grew during the height of the pandemic,  cooking more meals at home from scratch and eating more leftovers to save money. All this is collectively weighing on food volume at CPG food manufacturers, including Conagra. During the quarter ending August 27, organic net sales dipped 0.3%. Conagra forecast growth of about 1% in its current fiscal year.

“After three years of unprecedented inflation, along with other macro dynamics, consumers have felt increased financial pressure and used a variety of strategies to stretch their balance sheets,” he told analysts. “We’ve seen shifts like this before and expect these near-term changes in behavior to also be temporary. In fact, recent trends suggest this is already underway.”

During the most recent quarter, Conagra gained dollar share in snacking categories, including seeds and microwave popcorn, as well as in staples segments, such as chili and canned meat.

However, its refrigerated and frozen operation has been the most impacted by recent consumer behavior shifts. Net sales in refrigerated and frozen, which includes brands such as Marie Callender’s, Birds Eye and Healthy Choice, were down 4.6% in the quarter.

Executives noted that the softness in frozen meals is likely temporary. They pointed out that the segment has been one of the fastest-growing categories in-home consumption during the past 40 years as consumers gravitate toward its convenience as well as recent innovations and improvements in ingredients.

In a research note, TD Cowen analysts questioned Conagra’s rosy outlook. It said the CPG giant’s second-half guidance, which depends on consumer behavior normalizing and positive volume growth, “sounds optimistic in an increasingly challenging environment.”

Our concern is that the Conagra portfolio indexes more heavily than its peers to low-income consumers who have felt the most pain from declining government stimulus (especially SNAP benefits) and sharply rising food inflation,” TD Cowen noted. “As a result, we think the company will need to make a bigger investment in price and margins to get its volume to stabilize.”

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