Dive Brief:
- Conagra Brands' profit surged 29% in its fourth quarter. The maker of Pam cooking sprays, Peter Pan peanut butter and Hebrew National hot dogs reduced promotions and sold off low-margin products, according to the company's earnings report.
- The company's net profit rose to $151.3 million during the quarter from $117.6 million a year earlier. Revenue declined 9.3% to $1.86 billion from $2.05 billion at the end of the previous fiscal year.
- "The aggressive actions we have taken to upgrade the quality of our revenue base, while focusing and modernizing our portfolio, have enabled us to improve our margins and jump-start innovation," Sean Connolly, president and chief executive officer of Conagra Brands, said in the report. "Guided by our portfolio management principles outlined at our investor day, we are producing solid results. We are confident in our ability to continue to build on this momentum and drive long-term shareholder value."
Dive Insight:
Food companies such as Conagra, General Mills and Kraft Heinz are under pressure with grocery chains like Walmart pushing for low prices for cash-strapped consumers, as well as the public's growing preference for fresher, healthier products at the expense of processed foods.
Conagra has spent much of the last few years overhauling its brands, highlighted by the $2.7 billion sale of Ralcorp, the spin off of its $6.9 billion Lamb Weston frozen potato business and the sale of its Wesson oil brand to J.M. Smucker. Earlier this month, Conagra attempted to buy Pinnacle Foods, which owns legacy brands such as Bird’s Eye and Vlasic pickles. The short-lived talks fell apart over price.
The company said Thursday it has been aggressively trimming back costly promotions, improving the productivity of its supply chain, jettisoning lower-margin businesses and improving its price mix. General and administrative expenses fell 43% in the period that ended May 28, while the cost of selling goods dipped 9.5%. Those efforts were reflected in Conagra's sharp rise in profits, despite the decline in overall revenue.
During the fourth quarter, net sales in the grocery and snacks segment, the company's largest division, decreased 3% to $749 million. Volume in the segment was down 2% because of a reduction in promotions and the planned discontinuation of certain lower-performing products.
Conagra's refrigerated and frozen division fell 5% to $640 million, with volume dropping 5%. The change reflected the company's efforts to upgrade the quality of its revenue base by optimizing pricing and improving trade promotion productivity, as well as the planned discontinuation of some lower-performing products.
Conagra has sold off low-margin brands such as Spicetec Flavors & Seasonings and JM Swank, while acquiring Duke's meat snacks and BIGS seeds brands. This allows the company to focus more of its attention on the fast-growing snack business popular with the on-the-go consumer.
As the recent attempt to buy Pinnacle shows, Conagra is not only improving its own operations, but looking for acquisitions that allow it to tap into changing consumer preferences and squeeze out cost overlaps by integrating the new company. With competitors like Nestle and Unilever under pressure to improve their operations or face outside pressure to do so, Conagra has shown it's not content to sit still. The actions by the company's CEO indicate there is no evidence of that changing anytime soon.