Conagra gets sales boost from new products, hurricanes
Conagra's net income jumped 83% to $223.5 million in its second quarter, compared to $122.1 million from the same period last year. Revenue rose 4% to $2.17 billion, topping analyst estimates. Grocery and snack sales were $900 million, a 6% increase. Refrigerated and frozen sales jumped 2% to $758 million, the company said.
"Better than expected top-line performance through the second quarter is enabling us to invest more in our U.S. retail business to enhance distribution, merchandising, and consumer trial of our brands — especially where we have new renovation or innovation," Sean Connolly, Conagra president and CEO, in a statement. "Accordingly, we are updating our fiscal 2018 organic net sales and EPS guidance to near the high end of their respective ranges."
Conagra also announced Thursday that it is acquiring Sandwich Bros. of Wisconsin from Kangaroo Brands, Inc. The family-owned company makes frozen flatbread pocket sandwiches containing beef, chicken, sausage and cheese. The purchase price was not disclosed, although Conagra said Sandwich Bros. had approximately $60 million in net sales for the year ended in November. The deal is expected to close early next year.
Conagra's latest financial report is a positive turnaround from the first quarter, when the Chicago-based company posted an 18% drop in earnings. With growth increases in all four operating segments, Conagra's strategy to reformulate frozen operations and expand its portfolio through acquisitions seems to be bearing fruit. The company estimated that hurricanes increased second-quarter sales by approximately 2.2% as consumers stocked up on frozen foods.
Andrew Lazar, a Barclays senior packaged food analyst, said Thursday in a note to clients that "... we see today’s results as further evidence that fundamentals continue to move in the right direction."
Conagra has focused its M&A approach on the snack sector, as seen by its recent acquisition of Angie’s Boomchickapop and its earlier purchase of Thanasi Foods, which makes Duke’s meat snacks and Big Seeds. In September 2016, Conagra acquired Frontera Foods, a manufacturer of salsas and sauces. The brands were added to the company’s snacks portfolio that already included Slim Jim meat snacks, Chef Boyardee and David Seeds.
These steps have helped transform Conagra into a more modern and innovative food company. It’s incorporating on-trend flavors and ingredients to reinvigorate some of its iconic brands. Big labels such as Healthy Choice, Banquet and Marie Callender’s, which drive company volume, have gotten a makeover. The purchase of Sandwich Bros., a Wisconsin-based producer of frozen sandwiches with about $60 million in annual sales, will add frozen breakfast and entree flatbread sandwiches to the mix and further strengthen Conagra's position in the category.
"Adding the Sandwich Bros. business to our portfolio is another step in Conagra Brands' ongoing work to accelerate growth," said Connolly said in a statement. "This acquisition will bring Conagra unique capabilities and expertise within the frozen handheld category, which we look forward to leveraging for further growth and extension into additional Conagra brands."
Snacking is popular with millennials and members of Generation Z. A study form the NPD Group found almost a quarter of all snack food eating now occurs during main meals. The purchase of trendy companies focused on proteins and snacks made with better-for-you ingredients and innovative flavor profiles is likely to continue as food companies — including Conagra — work to position themselves in an increasingly competitive food landscape.
Last year, the company spun off its $6.9 billion Lamb Weston frozen potato business and this summer sold its Wesson oil brand to J.M. Smucker for $285 million. It also has unloaded its private label business.
"One year after becoming a pure-play, branded food company, Conagra is growing again," Connolly said.
He said Conagra must modernize, innovate and renovate its portfolio in order to grow, and he's been busy translating that sentiment into action. But the food industry is rapidly changing as consumers flock to clean labels and snack more, so Conagra and other food giants have no time to ease up.
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