Conagra profit plunges 41% as it begins integration of Pinnacle
- Conagra Brands' sales during its second quarter rose 9.7% to $2.38 billion, below the $2.41 billion predicted by FactSet, but an increase from $2.17 billion a year earlier. Profit plunged 41% to $132 million. The Chicago company said hurricanes in the quarter lowered volumes in its legacy business by 2.2 percentage points.
- The maker of Birds Eye, Banquet, Slim Jim and Angie's Boomchickapop said the quarter ended Nov. 25 and included 31 days from the recently purchased Pinnacle Brands. Sales in the segment, which totaled $259 million, were below expectations due to weak performance across a range of significant brands, as well as the impact of a Duncan Hines product recall.
- "While we have identified challenges, they are clearly executional, not structural, in nature. We are aggressively applying Conagra's proven brand-building and innovation playbook to restore share growth," Sean Connolly, president and chief executive officer of Conagra Brands, said in a statement. "While this work will take time, we have done this before and remain confident in our ability to enhance Pinnacle's portfolio of leading brands and drive long-term shareholder value."
Conagra doled out $10.9 billion to purchase Pinnacle Brands earlier this year, betting that the hot growth in frozen foods wouldn't lose steam. While it's only been a short time, Connolly said Conagra is undergoing "an intense diagnostic to clarify both the challenges and opportunities within the Pinnacle portfolio."
So far, the company has found challenges that Connolly said can be fixed. Pinnacle struggled during the period with performance challenges across some "significant brands" as it lost shelf space to competitors, as well as a Duncan Hines product recall. The market will be closely watching to see how Conagra handles the integration of the frozen foods maker and whether it can follow through on its promise of making improvements to the recent addition. Struggles integrating Pinnacle would not bode well for the company's sizable investment, particularly if excitement for frozen starts to slow.
In an interview earlier this year, Connolly told Food Dive the Pinnacle deal not only expanded its reach into frozen but into "new zip codes," as he calls them, by giving the Chicago-based company a meaningful presence in the meatless trend with Gardein; gluten-free with Glutino and Udi's; and clean label and organic with EVOL. These should help the company grow and remain in tune with some of the hot trends sweeping the food space, but the real success for Conagra will come in growing its core frozen and refrigerated and snacking segments.
The company said Pinnacle's gross profit, improvements in its supply chain productivity and improved pricing in its legacy Conagra business helped offset higher transportation and input costs and increases in retailer marketing. It's evident that Conagra is spending more to remain competitive and deal with outside pressures like shipping, and it is turning to price hikes to help with those expenses. As consumers turn to healthier and better-for-you fare, a growing number of other food companies, such as Kellogg and General Mills, have turned to higher prices.
During the quarter, Conagra said its refrigerated and frozen as well as its grocery and snacks segments continued to gain share as they benefited from innovation and accelerating consumption trends. Still, net sales for the grocery and snacks segment were relatively flat at $900 million in the quarter, with organic net sales declining 1.9%. In refrigerated and frozen, net sales rose 1.7% to $771 million in the quarter, and organic net sales grew 0.5%.
Conagra said volume rose 0.5% as it benefited from innovation across the portfolio — including in Banquet, Healthy Choice, Marie Callender's, P.F. Chang's and Frontera. This more than offset declines in net sales for some refrigerated businesses. Frozen single serve meals continued to perform strong, growing 11.3% from the prior year.
Conagra has successfully integrated Duke’s meat snacks, Bigs sunflower seeds, Angie's Boomchickapop and Frontera Foods after purchasing them. It will need to do the same with Pinnacle by innovating through new offerings and improved packaging — admittedly a much bigger lift across roughly two dozen brands.
For Conagra, focusing much of its attention on integrating Pinnacle is the right move, but at the same time it can't lose sight of its core legacy operations. Larger food manufacturers are losing ground to more nimble upstarts and brands that can better respond to changing consumer tastes. Conagra and other CPGs have to keep moving aggressively so they don't fall further behind.
- Conagra Brands Conagra Brands Reports Second Quarter Results
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