Conagra earnings miss expectations, sending stock tumbling
- Conagra's first-quarter earnings missed Wall Street expectations, results the company blamed on a "challenging inflationary environment," according to a company release. The parent company of Angie's Boomchikapop and Orville Redenbacher's reported net income of $178.2 million for the period, which rose from $152.5 million in the year-ago period. Company shares dropped 7.1% in premarket trading.
- Net sales rose 1.7% to $1.83 billion, missing analysts' sales estimates of $1.85 billion. Grocery and snack sales jumped 3.4% to $771 million, coming below analysts' estimates of $782 million. Refrigerated and frozen sales rose 3.2% to $635 million, missing expectations of $637 million.
- CEO Sean Connolly was upbeat about the future in the release. "Conagra is well positioned to build upon our tremendous platform and accelerate the next wave of change with the addition of Pinnacle Foods," he wrote. "We now expect the transaction to close by the end of October 2018. We look forward to executing our proven approach to innovation and brand-building to enhance their portfolio of leading brands and drive long-term shareholder value."
Though Conagra's Q1 results missed Wall Street expectations across the board, the Chicago manufacturer's recent $10.9 billion purchase of Pinnacle Foods still poses significant growth potential. Conagra also said that costs incurred from its string of acquisitions and divestitures have weighed on profits.
The maker of Reddi-wip and Healthy Choice has found success in its frozen and refrigerated segment, which has driven organic sales growth in the last five quarters. The deal with Pinnacle brings more frozen items — like Birds Eye frozen vegetables and Hungry Man meals — into its portfolio, giving it a competitive advantage over other big food companies struggling to grow their packaged products.
The move is part of Connolly's long-term vision for the company, which includes transforming the once agriculture-based firm into a formidable CPG titan. This transition began when he took the reins as CEO in 2015, selling the company's private brands, spinning off its Lamb Weston frozen potato business and acquiring on-trend products such as ready-to-eat popcorn brand Angie's Boomchickapop.
Following the popcorn company deal, Connolly said Conagra would continue to seek out similar acquisitions.
"In order to grow, we have to modernize, innovate and renovate our portfolio, and that is exactly what we are doing," he said during an earnings call. "The $250 million transaction builds on our efforts to refresh our portfolio and accelerate growth through modernizing acquisitions."
Part of that refresh has included overhauling power brands such as Healthy Choice, Banquet and Marie Callendar's to better cater to increasingly health-conscious consumers with value adds such as high protein levels.
In Thursday's earnings report, Conagra reported that the 3.2% sales increase in the refrigerated food segment was offset by the company's choice to discontinue lower-performing businesses. As a result, sales in its foodservice segment fell 6.9% to $234 million in the quarter, missing analyst estimates of $246 million.
Overall, the disappointing results of this quarter don't appear to be cause for concern, given the long-term returns that Conagra's purchase of Pinnacle — as well as its dedication to revamping its portfolio to better reflect consumer trends and capture millennial dollars — are likely to yield. Streamlining the company and targeting high-impact acquisitions has driven strong growth for the company in recent quarters, and once the dust settles on its Pinnacle deal, performance is likely to improve.
- Conagra Brands Conagra Brands Reports Solid First Quarter Results
- The Wall Street Journal Conagra Posts Lower-Than-Expected Sales
Follow Emma Liem on Twitter