Shares in Conagra Brands fell in New York yesterday (11 July) after the US group forecast its underlying sales could decline again in the company’s new financial year.
The Healthy Choice meals maker saw its organic net sales decrease 2.1% in the year to 26 May.
Alongside the publication of Conagra’s full-year results, the group forecast its organic net sales in its new financial year would be, at best, flat, or, at worst, down 1.5%.
Analysts at investment bank Bernstein described Conagra’s guidance for the year ahead as “poor”.
Fourth-quarter net sales declined 2.3% to $2.9bn. On an organic basis, net sales dropped 2.4%, with volumes 1.8% lower. Conagra said the latest fall in its quarterly volumes was “primarily due to continued lower consumption trends”.
Speaking to analysts after Conagra posted its numbers, CEO Sean Connolly said the company had seen signs of improvement in its sales volumes during the fourth quarter.
“I was particularly pleased to see volume consumption growth in Q4 in our snacks business, in our largest frozen business, which is frozen meals, in our refrigerated business, and in our international business, all of those posted positive volume growth in the quarter,” Connolly said.
Conagra reports its results across four divisions: a combined grocery and snacks unit; a joint refrigerated and frozen business; foodservice; and international.
Fourth-quarter volumes from grocery and snacks were down 3.1%. The refrigerated and frozen division saw volumes declined 4.1%, while foodservice volumes slid 5.7%. Volumes from the international unit were up 2.6%.
“We have seen three straight quarters of volume trend improvement in our businesses. And, in this most recent quarter, we saw snacks volume consumption that was positive. Our frozen meals consumption grew, our refrigerated business volume consumption grew, our international business grew,” Connolly said.
“Grocery has a couple of businesses, that will get more support in fiscal '25, but those investments are baked into our plans.”
Conagra’s guidance for its 2025 financial year also included a forecast for its “adjusted” operating margin to be between 15.6% and 15.8%. It is also predicting its “adjusted” EPS will come in between $2.60 and $2.65.
“FY2025 guidance for sales, EBIT margins, and EPS were all below consensus expectations,” Bernstein analyst Alexia Howard wrote in a note to clients. “Next year’s guidance was worse than expected on all fronts … including another year of negative organic sales growth, below that of peers such as General Mills who recently gave FY25 organic sales growth guidance in the flat to positive range and a change in tone from last quarter when management called out a potential improvement in volumes as it began lapping SNAP benefits.”
SNAP benefits are those given to low-income families in the US to support their grocery spending.
On the call with analysts, JP Morgan’s Ken Goldman described Conagra’s outlook as “prudent” and asked the company’s management for further details on how they had constructed the guidance.
Connolly said: “It’s prudent in that it recognises that consumer adaptation is a process and it’s not an event. And, therefore, it embeds some conservativism around consumer buying behaviour but also some flexibility for us to continue investing behind volume growth, which, by the way, as we’ve said from the beginning, is our top priority in terms of nurturing the long-term health of the business.
“Given the slope of our volume trends for the last three quarters, we think the outlook is a prudent outlook. We had no desire to try to be heroic with our guide for fiscal ‘25. I think if you really just digest the progress we’ve made on these discrete businesses where we placed investment, I think you can only conclude that it's a prudent play.”
Conagra made a fourth-quarter net loss of $567.3m, compared to a profit of $37.5m a year earlier. The company booked goodwill and impairment charges across two divisions: grocery and snacks, plus refrigerated and frozen.
In the full year, Conagra's reported net sales were down 1.8% to $12.05bn. On an organic basis, net sales dropped 2.4%. The group’s net income declined 49.2% to $347.2m.
The Vlasic pickles maker saw its share price close down 1.49% at $28.38 at the end of trading in New York.
