Conagra Brands Inc.’s stock rose 2.6% Wednesday after the parent of food brands Birds Eye, Slim Jim and Reddi-wip posted better-than-expected earnings for its fiscal third quarter and raised guidance for the year.
The company
CAG,
posted net income of $341.7 million, or 71 cents a share, for the quarter to Feb. 26, up from $218.4 million, or 45 cents a share, in the year-earlier period. Adjusted per-share earnings came to 76 cents, well ahead of the 64-cent FactSet consensus.
Sales climbed 5.9% to $3.087 billion, also ahead of the $3.081 billion FactSet consensus. Sales rose across all four segments of grocery and snacks, refrigerated and frozen, international, and food service.
“Our top-line posted solid growth as we demonstrated strong pricing execution with modest elasticities,” CEO Sean Connolly said in a statement.
The company’s operating margin improved by 355 basis points to 15.9%, and Connolly told analysts on the company’s earnings call that was a key priority heading into fiscal 2023, following the inflationary environment and impact of COVID in the last two years.
“To facilitate that margin recovery, our executional focus has been on inflation-justified pricing, supply chain improvements and the pruning of low-margin volume, a strategy we have successfully deployed before and referred to as value over volume,” he said, according to a FactSet transcript.
That allowed the company to rebuild inventories to meet customer demand, although some manufacturing snafus left it out of stock in certain categories. Those included canned meats and sides, specifically canned pasta, canned beans and canned chili, which are part of Conagra’s grocery portfolio.
In the frozen business, a fire on the fish-frying line, as reported in the second-quarter 10-Q filing with the Securities and Exchange Commission, hurt fish stock, although the issue has been resolved, he said.
The company gained market share in snacks, including meat snacks and microwave popcorn, along with staples such as refried beans, Asian sauces and marinades.
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In frozen food, it gained share in plant-based protein, breakfast sausage and sides. Food service enjoyed a continued recovery from pandemic lows with sales up 18.5%, while volume eased by 1.2%.
Shoggi Ezeizat, an analyst at research firm Third Bridge, said Conagra’s line of value and premium brands offers a cushion against some of the headwinds facing the overall consumer packaged goods sector.
“Conagra’s frozen food range continues to gain market share as consumers trade down from dining out,” he said in emailed comments that are based on interviews with executives in the industry.
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“Conagra has made significant efforts to mimic popular restaurant offerings within its frozen selections. Snacking is another bright spot and Conagra is likely to gain further market share in meat bites and microwave popcorn. Slim Jim’s use of memes to gain popularity in social media is a huge success,” he said.
The company raised its fiscal 2023 guidance and now expects adjusted earnings per share of $2.70 to $2.75, ahead of the FactSet consensus of $2.68. It expects its adjusted operating margin to range from 15.5% to 15.6%, compared with prior guidance of 15.3% to 15.6%.
The stock has gained 13% in the last 12 months, while the S&P 500
SPX,
has fallen 9%.
Also read: Hormel Foods stock slides 4.7% after sales were hurt by weakness in turkey business
This post was originally published on Market Watch
