Dive Brief:
- ConAgra Foods reported a 9.5% dip in fourth-quarter net sales to $2.83 billion Thursday, attributed in part to one less week in the comparable year-ago period. That was a steeper decline than the $2.89 billion analysts had expected.
- The company was also hurt by slowing demand for its consumer brands. The segment posted a 12% decrease in quarterly revenue, with about 7 points attributed to the shorter quarter, along with a 5.7% decline in commercial foods.
- ConAgra reported $117.6 million, or $0.27 per share, in fourth-quarter net income attributable to the company, compared to $209.2 million, or $0.48, per share last year. Adjusted earnings were $0.52 per share, in line with analysts' forecasts.
Dive Insight:
While the quarterly report may have included declines in key financial areas, ConAgra CEO Sean Connolly described the 2016 fiscal year as demonstrating "tremendous accomplishment and progress" in which the company "reshaped the portfolio, strengthened the balance sheet, and transformed our culture."
The positive outlook will be important going forward, as ConAgra has an uphill battle ahead. Lacking "power brands," as a Technomic exec said last year, ConAgra is not always as familiar to consumers as its competitors are. The company said in November that 26 of its nearly 50 brands were either leading or the runner-up in their categories.
Now that ConAgra has shed its private-label brands and a number of other smaller units, such as Spicetec and JM Swank, and is spinning off — or as rumor has it, potentially selling — Lamb Weston, the company can better focus on its consumer brands portfolio. And with steep cost-cutting measures, including massive job cuts, to free up capital and expand margins, ConAgra may finally have the funds to invest in growth for these brands.
But analysts, such as Deutsche Bank, are concerned about ConAgra's future. In a recent note, the firm expressed "doubts around long-term strength of the company's brands. Many questions remain as to future capital structure and whether a Lamb Weston spin vs. sale will occur."
In his own recent note, J.P. Morgan analyst Ken Goldman said that ConAgra has room for more cost-cutting and to add further value. This could include additional layoffs and plant consolidation, cutting more annual expenses, or selling its stake in the Ardent Mills joint venture. Goldman also proposed—and such speculation has arisen before—that ConAgra could potentially sell off some of its consumer brands that are underperforming or not positioned for steady growth.