Conagra Beats Earnings Expectations, But Faces Persistent U.S. Sales Decline


Conagra's stock rises on better-than-expected earnings, despite sales volume concerns and mixed segment performance.

By Bill Bullington

4/4, 09:09 EDT
ConAgra Brands, Inc.

Key Takeaway

  • Conagra Brands Inc. beats fiscal Q3 earnings expectations with grocery and snacks growth, but faces persistent U.S. sales volume decline.
  • Mixed segment performance shows modest growth in groceries offset by significant drops in refrigerated/frozen sales and a 1% foodservice decline.
  • Despite challenges, Conagra adjusts full-year margin outlook to 15.8%, with stock up 1.4% YTD, trailing the broader market's gains.

Marginal Gains Amidst Challenges

Conagra Brands Inc., a notable player in the food brands industry, recently reported fiscal third-quarter earnings that surpassed expectations, primarily driven by its grocery and snacks business and effective cost-cutting measures. However, a deeper dive into the company's financial health reveals underlying challenges that could dampen investor enthusiasm in the longer term.

Sales Volume Concerns Persist

Despite the initial surge in Conagra's stock price, following the earnings announcement, the company continues to grapple with declining sales volumes in the U.S. market. This persistent issue, although showing signs of deceleration, underscores a fundamental weakness in consumer demand for Conagra's products. Chief Executive Sean Connolly highlighted improvements in volume trends, particularly in the frozen segment, as a result of targeted investments. Yet, the overall decline in net income from $341.7 million in the previous year to $308.6 million raises questions about the sustainability of these improvements.

Mixed Segment Performance

The earnings report painted a mixed picture of Conagra's business segments. While the grocery and snacks segment showed a modest growth of 3.4%, this was offset by a significant 8.1% drop in refrigerated and frozen sales. The decline in volume across these segments, despite being an improvement from previous quarters, indicates a challenging market environment for Conagra. The company's efforts to boost gross margins through cost savings initiatives are commendable, but the reliance on pricing and mix adjustments to offset volume decreases may not be a viable long-term strategy.

International and Foodservice Segments

Conagra's international sales exhibited a positive uptick, growing by 4.6%, which could be seen as a silver lining. However, the foodservice sales decline of 1% reflects the ongoing struggles in this segment, potentially exacerbated by the global pandemic's lingering effects on the foodservice industry. These mixed results across different segments highlight the complexity of Conagra's market challenges.

Forward-Looking Statements

The company's slight adjustment of its full-year adjusted operating margin outlook to 15.8% from 15.6%, along with the affirmation of its adjusted EPS guidance range, may offer some reassurance to investors. Nonetheless, the stock's modest year-to-date gain of 1.4%, compared to the broader market's performance, suggests that investor sentiment remains cautious. The Consumer Staples Select Sector SPDR ETF's gain of 3.5% and the S&P 500's advance of 9.3% further illustrate the relative underperformance of Conagra's stock.