US food group Conagra Brands saw its share price fall by as much as 10% yesterday (2 October) after it reported disappointing financial results.
The company’s Q1, fiscal 2025 sales were hit by consumers trading down from brands to cheaper private-label alternatives.
The Slim Jim snacks and Healthy Choice frozen meals brand owner also suffered a hit to its quarterly profits of around $10m from “temporary manufacturing disruptions” in its Hebrew National hot dog business.
Conagra’s share price ended the day down 8.1% at $30.08, understood to be its biggest one-day drop since June 2019.
Commenting in a post-results call with analysts after releasing results, which showed quarterly net sales down 3.8% year-on year at $2.79bn, CEO Sean Connolly said: “One of the things that we've seen, when we mentioned the consumer is challenged, is there is still value-seeking behaviour happening.”
And, in relation to its foodservice segment, which saw net sales slump by 7.8% to $267m, he added: “I think in the simplest sense, as people seek value, you do see trade downs. And one of the obvious trade downs you see is within away-from-home eating and the types of restaurants people eat at, more toward value types of restaurants, and then from away-from-home into the grocery store.”
In relation to the unspecified manufacturing disruptions at Hebrew National, Connolly said: “Having a Hebrew National issue in grilling season is kind of like getting a flat tire on the way to your wedding.”
Conagra said a 3.5% decrease in group organic net sales was driven by a 1.9% negative impact from price/mix, largely driven by the company's strategic investments in the quarter, and a 1.6% decrease in volume.
Despite a disappointing set of results, which also saw adjusted EBITDA decrease year-on-year by 13.8% to $528m, Conagra is expecting the situation to improve and has reaffirmed its outlook for net sales of up 1.5% to flat in fiscal 2025, compared to fiscal 2024.
Connolly said in his prepared remarks that this reflects “confidence in the underlying momentum of our business".
He also gave some insight on M&A. Conagra acquired Fatty brand meat snacks owner Sweetwood Smoke & Co. in August.
“When it comes to acquisitions, we're really not talking more than bolt-ons, and you saw that with Fatty in this quarter. And as for divestitures, if it's a slower growth asset or not a strategic fit, it's a candidate to go if an exit would generate a number at or above intrinsic value," Connolly explained.
Commenting on Conagra’s results and the subsequent slump in its share price, Robert Moskow, an analyst with TD Cowen, said: “The 8% pullback in Conagra stock is probably an overreaction given that the majority of the Q1 earnings per share miss related to the sell-side under-estimating the slope of the profit rebound management expects in FY-25.
“That said, the slope looks rather steep to us after factoring in stubbornly weak category trends and heightened trade investments in Q2.”
