- Conagra Brands posted lower sales but higher margins in its third quarter, according to the company's earnings report. When compared to a year prior, net sales decreased 9.9%. Without counting the brands the company divested — which include Spicetec Flavors and Seasonings and JM Swank — and adjusting for exchange rates, sales were down by 4.8%.
- Gross margins were 31.3%, almost 3% higher than the year prior. This came largely from supply chain savings, lower overhead costs, adjusting prices and divestments.
- Sales were down in both the grocery and snacks segment — which fell 5% — and the refrigerated and frozen segment — down 6%. The product with the largest drop was Egg Beaters, which saw higher sales figures a year ago because of avian flu. However, profits are up in both segments, with grocery and snacks posting a 31.6% increase in profit and refrigerated and frozen showing a 10.4% increase.
Conagra has been working hard internally to boost its margins. It's spent the last year divesting businesses that did not bring it the margins it wanted. It also spun off frozen potato giant Lamb Weston. Corporate expenses are down by nearly a third, from $152 million to $105 million, and advertising costs also fell slightly. It also has increased prices, enabling the company to sell less but make more. In its earnings report, Sean Connolly, Conagra's president and CEO, praised the company's progress in "reshaping our portfolio, capabilities and culture."
The problems facing Conagra are a common problem among large food and beverage companies as more consumers flock to fresher food items and away from packaged foods perceived as being less healthy. General Mills on Tuesday posted disappointing earnings, its seventh straight decline in sales, as it experienced double-digit declines in the U.S. Meals & Baking division and its U.S. Yogurt operating unit.
The question now is how Conagra will grow its sales again. Connolly also said in the statement that Conagra is "excited about our innovation lineup, which we expect to begin hitting stores this summer."
These product launches have not been announced. However, Conagra's acquisitions have been moving toward the trendy, purchasing premium Mexican brand Frontera Foods in September. Just days ago, the company announced it was acquiring Thanasi Food, which makes Duke's meat snacks and Bigs nuts and seeds.
Protein, ethnic flavors and snacking are some of today's top trends. Per capita consumption of meat snacks — the kind Conagra produces with its Slim Jim brand and will add to with Duke's — is up 14% since 2012, according to NPD Group statistics.
Meanwhile, before it was picked up by Conagra, Frontera Foods was reputed to have posted double-digit growth. That's likely to keep on growing, especially since Packaged Facts forecast U.S. sales of Hispanic foods and beverages to hit $11 billion this year. The company also will likely focus more on boosting its snack sales. According to a study from Datassential, 94% of people say they had at least one snack yesterday — though most had four to five.
Egg Beaters may again see a spike in sales and demand as well. Bird flu has been reported in several commercial flocks. While the virus has not yet impacted egg production, the risk is there.
Markets responded to Conagra's earnings report with cautious optimism. The stock was up about 0.4% in mid-morning trading to $40.61.