Conagra Brands (NYSE:CAG) Demonstrates Resilience Amidst Challenging Conditions

Published on September 24, 2024 | Ticker: CAG

Conagra Brands, Inc. (NYSE:CAG), a leading packaged food company, demonstrated its ability to navigate a difficult consumer environment, delivering solid progress in fiscal year 2024 despite headwinds. The company's robust brand portfolio, operational efficiency, and strategic initiatives positioned it for potential growth opportunities, even as it faced ongoing market dynamics and competitive pressures.

Financials

In fiscal year 2024, Conagra reported annual net income of $347.2 million and annual revenue of $12,050.9 million. The company's annual operating cash flow reached $2,015.6 million, while its annual free cash flow stood at $1,627.5 million. These financial results demonstrated Conagra's ability to generate strong cash flows and maintain a solid financial position.

Quarterly Performance

During the fourth quarter of fiscal 2024, Conagra saw positive impacts from its investments to maximize consumer engagement with its brands. This resulted in sequential volume improvement in the company's domestic retail business. Conagra also reported strengthened market share, particularly in the frozen and snacks categories, where its volume progress was most meaningful.

Margin Expansion

Despite the challenging consumer environment, Conagra managed to report full-year adjusted gross margin expansion of 58 basis points and adjusted operating margin expansion of 34 basis points over the prior year period. This was supported by the company's successful cost savings initiatives and strong supply chain productivity, which helped offset the impact of input cost inflation and strategic trade investments.

Business Overview

Conagra's business in fiscal year 2024 was substantially larger and more profitable than it was pre-COVID, reflecting the company's efforts to deploy its playbook focused on investing in its brands to sustain its share of mind and share of wallet with consumers. This strategy enabled Conagra to deliver strong performance across key metrics, including net sales, operating margins, and adjusted earnings per share (EPS).

Volume Recovery

The company's resilience was particularly evident in the steady volume recovery it achieved in its domestic retail business. Conagra saw strong improvement in volume consumption trends in its key domains of snacks and frozen, with approximately 80% of its brands in these categories holding or gaining volume share during fiscal 2024.

Frozen Food Business

Conagra's frozen food business was a standout, with the company's investments enabling it to drive steady improvement throughout fiscal 2024. In the fourth quarter, the company's frozen single-serve meals business returned to volume growth, significantly outpacing the category and reaching record share levels.

Snacks Business

The company's snacks business also saw strong momentum in the fourth quarter, with its on-trend snacking brands spanning advantaged subcategories like meat snacks, popcorn, and seeds performing well. This was largely due to the rise of protein and fiber-centric snacking, which enabled Conagra to cater to evolving consumer preferences.

Staples Domain

In the staples domain, Conagra saw an overall improvement in volume sales in the second half of fiscal 2024, driven by brand-building investments and the resolution of supply chain disruptions in chili and canned meat. As the company enters fiscal 2025, it plans to make further prudent investments to stimulate broader volume recovery in this segment.

Innovation Efforts

Conagra's innovation efforts continued to resonate with consumers, with the expansion of its Birds Eye brand to include culinary-inspired products, the launch of Banquet Mega chicken filets and Healthy Choice modern dinners, and the nationwide availability of Wendy's Chili in grocery stores all contributing to the company's success.

Outlook

Looking ahead to fiscal 2025, Conagra expects the consumer environment to remain challenged, but anticipates a gradual transition toward a more normalized operating environment as consumers adapt to new reference prices. The company has guided to an organic net sales range of -1.5% to flat compared to fiscal 2024, an adjusted operating margin of approximately 15.6% to 15.8%, and adjusted EPS of approximately $2.60 to $2.65.

Cost Savings and Productivity

Conagra's focus on cost savings and productivity initiatives, which are expected to reach 4% of cost of goods sold, will help offset projected inflation and further enhance the company's competitive position. Additionally, the company's steady progress in reducing its net leverage ratio, from more than 5.5 times to less than 3.4 times over the past five years, has strengthened its balance sheet and financial flexibility.

Conclusion

Despite the challenges faced in the industry, Conagra's robust brand portfolio, operational efficiency, and strategic initiatives have positioned the company for potential growth opportunities. As the company navigates the evolving consumer landscape, its ability to adapt and deliver consistent performance reinforces its status as a leading player in the packaged food industry.

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