Conagra Brands, Inc. (CAG) on Q2 2021 Results - Earnings Call Transcript
Operator: Good day, and welcome to the Conagra Brands Second Quarter Fiscal Year 2021 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I'd now like to turn the conference over to Brian Kearney from Investor Relations. Please go ahead. Brian Kearney: Good morning, everyone. Thanks for joining us. I'll remind you that we will be making some forward-looking statements today. While we are making those statements in good faith, we do not have any guarantee about the results we will achieve. Descriptions of the risk factors are included in the documents we filed with the SEC. Sean Connolly: Thanks, Brian. Good morning, everyone. Happy New Year, and thank you for joining our second quarter fiscal 2021 earnings call. Today, Dave and I will discuss our strong second quarter results as well as our perspective on how Conagra is positioned to continue to succeed in both the current environment and beyond. So let's get started. I'm very pleased with our strong results for the second quarter. Our business continued to perform well both in the absolute and relative to peers. Our success to date in fiscal 2021 is not only a testament to our team's ability to adapt to the current environment, but a reflection of the work we've done to transform our business over the past five-plus years. Our ongoing execution of the Conagra Way playbook perpetually reshaping our portfolio and capabilities for better growth and better margins has enabled us to rise to the occasion during the COVID-19 pandemic, and that has positioned the business to excel in the future. During the second quarter, we continue to build on our momentum and our Q2 results exceeded our expectations across the board. We had strong, broad-based sales growth. Our margin expansion is ahead of schedule, and I'm proud to announce that we reached our deleveraging target earlier than originally planned. In keeping with our Conagra Way playbook, we continue to optimize the business for long-term value creation during the quarter. We made targeted investments in both production capacity and marketing support to drive the physical and mental availability of our products. We also remained committed to sculpting our portfolio through smart divestments with the agreement shortly after the second quarter closed to sell Peter Pan peanut butter. Peter Pan is a very good business, but it's not an investment priority for Conagra given our other portfolio priorities. Finally, we are reaffirming our fiscal 2022 guidance for all metrics. And none of this would be possible without our exceptional team, particularly our frontline workers. So before we dive into the details of the quarter, I want to recognize everyone responsible for the continued extraordinary work of our supply chain. I'm extremely proud of the thousands of hardworking Conagra team members whose dedication has enabled our industry-leading performance. We remain focused on keeping employees safe, while meeting the needs of our communities, customers and consumers. And I'd like to thank everyone at Conagra for making this possible. Dave Marberger: Thank you, Sean. Good morning, everyone. Today, I'll walk through the details of our second quarter fiscal 2021 performance and our Q3 outlook before we move to the Q&A portion of the call. I'll start by calling out a few performance highlights from the quarter, which are captured on slide 22. As Sean mentioned, outstanding execution by our teams across the company enabled us to exceed expectations for net sales, margin, profitability, and deleveraging during the second quarter, while we continued to invest in the business. Reported and organic net sales for the quarter were up 6.2% and 8.1%, respectively, versus the same period a year ago. We continued our strong margin performance from Q1 as Q2 adjusted gross margin increased 139 basis points to 29.9%. Adjusted operating margin increased 250 basis points to 19.6%. Adjusted EBITDA increased 16.7% to $712 million in the quarter. And our adjusted diluted EPS grew 28.6% to $0.81 for the second quarter. Slide 23 breaks out the drivers of our 6.2% second quarter net sales growth. As you can see, the 8.1% increase in organic net sales was primarily driven by a 6.6% increase in volume related to the growth of at home food consumption. The favorable impact of price mix, which was evenly driven by favorable sales mix and less trade merchandising also contributed to our growth. The strong organic net sales growth was partially offset by the impacts of foreign exchange, and a 1.7% net decrease associated with divestitures. The Peter Pan peanut butter business is still part of Conagra brands and thus included in our organic results. We expect the sale of Peter Pan to be completed in Q3, at which point it will be removed from organic net sales growth. I will discuss the estimated impact of this divestiture shortly. Operator: Thank you. We will now begin the question-and-answer session. The first question today comes from Andrew Lazar of Barclays. Please go ahead. AndrewLazar: Good morning, everybody, and Happy New Year. Sean Connolly: Happy New Year, Andrew. Dave Marberger: Good morning. Andrew Lazar: Great. Thank you. I guess, today, Conagra reaffirmed the fiscal 2022 financial goals and those have obviously been a key milestone for the company ever since the Pinnacle deal. And with fiscal 2022 really at this point rapidly approaching as well as all the uncertainty around operating in the current environment. I guess, Sean, can you - I mean, what can you offer to sort of assure investors that Conagra can not only reach its fiscal 2022 targets, but I guess more importantly, do it in a way that enables the company to deliver sustainable growth thereafter. As that's a question that I know I've been getting quite a bit these days. And as part of that I saw A&P was up in the quarter. And you mentioned that we should expect that to continue into the fiscal third quarter. Is that a pattern of -- is that pattern of summary investment one that we should expect more of moving forward? So those are kind of combined? And then I just got a follow-up for Dave. SeanConnolly: Okay. Well, there's a lot in that one. So good questions. Let me try to unpack each piece of that. Yes, of course, we can provide that assurance. We believe that what we are experiencing right now is the acceleration of product trial that in normal times would take years and hundreds of millions of dollars. Now as for what's going to sustain it through 022 and beyond, in a nutshell, it is our people and our playbook. Now, I spoke about our people in my prepared remarks. But let me remind investors about our playbook, particularly with respect to brand building. We have spent years curating and optimizing our approach to brand building, and we believe that is one of the most progressive and effective approaches in our space. The goal, obviously, brand building is to create a powerful connection between our consumers and our brands. And in the simplest sense in our eyes to do that, you have to meet people where they are with modernized products and packages, and then you communicate information that is relevant and meaningful to them and this is really the heart of our approach. So first, we meet people where they are. And you can ask yourself, well, where are they these days? Well, these days, it's often, a, on their devices seeking entertainment or information, or b, shopping in bricks-and-mortar or online. But it's also important to understand where they're not. And increasingly, we're seeing that they're not tethered to a television, that is broadcasting mass market advertising. When I was five years old, that was the place you would find a consumer, and you could communicate the information you had to share. But obviously, if that were our approach today and it were so monolithic, we wouldn't be finding a lot of consumers, especially not a lot of young consumers, who we are very, very focused on because there are a significant sustainable demographic tailwinds there that I've spoken about before. So instead, we reach our consumers in a diversity of locales from online to in store to on TV to on radio and more. And then with respect to communicating the information that's relevant and meaningful to them; it starts as you’ve all heard me talk many times with a very modernized product and package design, and then a succinct provocative message around the appealing product benefit. That's our playbook. It works and it will continue to work. And it's why our growth rates, our innovation performance, our trial, our repeat, our depth of repeat metrics are often outpacing our competitors. So, in the simplest sense, what we are asserting here is that modern high-quality products with great online and in store presence, supported by provocative and targeted messaging, will beat outdated lower-quality products with weak online or in store presence, but lots of broadcast media every single time. And then lastly, last part of your question, our total brand investment already is, it has been at a strong level and it remains strong. But yes, it is variable. And in any given quarter, we can flex it based on the circumstance of the quarter. So recall when supply was constrained, we dialed back. When supply is ample and we see good ROI opportunities, we can flex it up. And by the way, we can flex it above or below the line, as you've seen. But overall, I would say the level is in a good place. And I think the strong results that you're seeing not just in the absolute, but relative to competition shows that. AndrewLazar: Great. Thank you for that. And then, Dave, just quick follow-up. Can you walk us through, again, how the operating margin goes from where it landed in fiscal Q2 to your forecast for Q3? As you mentioned, it represents a pretty substantial sequential step down and is that purely just the marketing aspect or are there other factors we need to take into account there and maybe it's commodity or commodities which have spiked a bit and things of that nature? DaveMarberger: Yes, Andrew, let me try to break that down. First, as I mentioned in my remarks, the normal cadence of operating margin from the second quarter to the third quarter always shows a step down as we exit the holiday season and lose some of the operating leverage from the lower overall sales dollars. Second, when you look at Q3 operating margin a year ago, there were some benefits from reduced incentive comp accrual and SG&A a year ago in Q3. Third, inflation for the third quarter is now estimated to be around 3.5%, whereas in Q2, it was around 2.8%, 2.9%. And then lastly, as we just discussed, we are accelerating our A&P investment in the third quarter to support increased e-commerce marketing that we started in Q2. So we expect double-digit increase in A&P in the third quarter versus a year ago. So they're really the factors. And with that, that we still, with our guidance, we're implying a 30 to 80 basis point improvement in operating margin in the third quarter. Andrew Lazar: Great. Thanks very much, everybody. A - Dave Marberger: Thank you. Operator: Next question comes from Ken Goldman of JPMorgan. Please go ahead. Sean Connolly: Hello? Operator: Apologies. It looks like David Palmer is the next question. Please go ahead. DavidPalmer: Thanks. A bit of a follow-up to Andrew's question. You mentioned in slides that Conagra is investing behind and executing the Conagra Way and you mentioned five years. So I'm wondering if you could maybe give us that five-year snapshot about where Conagra has shifted its investment in ways that is less obvious, because I think everybody sees advertising spending since it is broken out. Perhaps give us a feeling about what has worked best and what you think you might want to be adjusting going forward? And I have a quick follow-up. SeanConnolly: Yes, sure. Hi, David, Happy New Year. If you go back five years, the company five, five-and-a-half years ago didn't look anything like it looks today, right? We were a global conglomerate. We were struggling in the world of private label. We were trying to be a lot of things to a lot of people. Today, we are a focused pure play, largely North American company and we play in three spaces, Frozen; we play in snacks, and it's a very unique snack business with a lot of neglected coats, as we call it; and we play in staples, and that's pretty much the portfolio. And over the last five years, the heavy lift was in the early days where we had to tackle value over volume. And that was painful, but necessary to go through to purge out low-quality volume and establish a new foundation. But it put us in a position to then layer on outstanding innovation on a much stronger base. And we started, as you know, with frozen. And we have what we believe is the leading frozen portfolio in North America that has been growing incredibly robustly. It is a centerpiece of our investment and our innovation effort and that will continue, because we are in the early innings of frozen success. And as I pointed out in CAGNY last year, when you look at the demographic tailwinds we have from millennials, as they form households and they - we know they're already big users of frozen. But then when they form households, have their first child and then additional children; the per capita consumption of those households goes up and up and up again. So that's frozen. Our snacks business; we really rebased that a couple of years ago, and we said we're going to stand up a snack company, we run it like a snack company. And the performance there has just been outstanding. It's been both organic, and it's been through M&A. And we think that playbook will continue. It's a high growth, high margin business. And we've got extremely strong relative market shares in that space. So that will also continue and that remains the other probably our second priority in terms of investment. And again, these investments come below the line and above the line. It's all about the combination of physical and available mental, mental availability and meeting people where they are as I just pointed out, but the third piece is one of the more interesting pieces during and post pandemic which is our staples portfolio. That's a third of our retail business in staples, which historically was a cash manage for cash type of business. But these products here are not. There are a lot of products that are not fundamentally different from what you might see some of our peer companies like a McCormick where spices or utilities in the cooking process no differently than a can of RO*TEL or ham cooking spray is a utility in the cooking process. And to some degree those products go as cooking goes and what's happening right now is cooking is in a very, very good place, not just because of the older generations who always been more established in terms of cooking behavior, but the fact that these younger households have learned to kind of be comfortable in their own homes, have explored their corner and built their culinary skills out and are absolutely enamored with recipes and cooking right now. So a lot of our staple products; be in products like Hunt's tomato, RO*TEL, our salsa business, our dressing businesses, these are businesses that are playing a meaningful role during the pandemic. And we believe because of some of these demographic tailwinds will continue at an elevated level post pandemic. So very strong up forward looking performance in frozen, and snacks. And more optimism in terms of the growth potential out of staples than probably pre pandemic is how I would put it. Dave, do you want to add anything to that? DaveMarberger: Yes, the only thing I would say that really sits on top of all that is the investments we've made in supporting e-commerce capability, right? If you look at investments in the supply chain, kind of our view, our approach to modern marketing, retail investments, analytics, all of that capability we invest in early on, which we're now seeing the benefits of that is with COVID, and the acceleration of e-commerce. So I would add that really applies to everything, both legacy and innovation, volume. SeanConnolly: Your question, David and Andrew's question for obviously a lot of this. And obviously, the key question on investors' minds right now, it has a lot to do with this stickiness thing. One of the things I shared last quarter that I might point into our investors' attention back to was a slide that showed that after the previous recession in 2008, we saw a permanently elevated level of at home eating occasions. And what was more interesting about the first six months of this pandemic is the level of elevation we saw this year, or this past year, it was twice what we saw in 2008. And that was just a -- this is in a very short period of time. So there is previous evidence of stickiness, post the adversity and I think this time we see not just this similar level of stickiness occurring, but a higher level. Operator: The next question is from Ken Goldman of JP Morgan. KenGoldman: Hi, can you hear me this time? Hey, guys, thanks so much for your patience. Sorry about that. Two questions for me. Number one, wanted to ask about the organic top line guidance for the third quarter? You'll be lapping the air pocket that you talked about last year, you have a much easier comparison in the third quarter versus the second quarter, which are guiding to a deceleration in organic sales growth from 8.1% to that range of 6.8%. Again, I'm just -- I guess I'm just curious can you walk us through some of the factors that are maybe leading to that slowdown? And again, it's a pretty steep slope in a two year basis. So just curious what some of those headwinds might be? Dave Marberger: Yes, Ken, this is Dave. So overall, when we look at Q3, we look at it very similar to Q2. So we expect shipments to be roughly in line with consumption. There's some clip that takes there, the third quarter can be a time where you see some retailers reduce inventory levels historically. But we have such strong demand right now that, we are seeing orders that are strong because we're replenishing to be able to have the right stocks to support the demand. So there's a lot of dynamics going on in this third quarter that we haven't seen in prior third quarter. So our planning posture is we feel good about our consumption call, it will be very similar to what we saw in Q2. And we believe that shipments are going to roughly be in line with that. There's going to be some puts and takes between, the different segments, but that's our planning part to right now, just given all the dynamics that are going on in Q3. Sean, anything you want to add that? Sean Connolly: No. I think that summarizes. Ken Goldman: Okay, thank you for that. And then I want to ask a quick follow up, Sean, you have been more, one of the more confident CEOs in our space, when it comes to that stickiness of demand after the crisis is over. I think you gave some very compelling reasons today, why that stickiness will be there. But if that's sustainable growth is already here. Can you talk about and I guess this is for Dave, too. How should you think or how should we think about your desire to kind of grow CapEx over the next couple of years to support that heightened demand? You talked about free cash flow, that wasn't changed. I'm just wondering if there's a chance that as you see demand, perhaps being sticky that your plants will need a little more expansion to kind of support what's out there in the consumer world. Sean Connolly: Yes, well, we're already doing that, Ken. And if I could use Slim Jim as an example, yes. And first of all, let me just say, you're 100%, right. When we think about ROIC, when we deploy our capital against organic growth opportunities, we see oftentimes some of the very best returns. And we have done that. So on Slim Jim, as an example, we've dramatically increased the size of the plant, a year or so ago, and that business has performed so well. And utilizing that capacity, we're on the precipice of doing that again. And so those types of capital investments are clearly on our radar and are our priorities for us. But we have other capital allocation options as well. And that is all part of our balanced approach to capital allocation. Dave, you want to pick up on that a little bit? Dave Marberger: Yes, just to give you some examples, so if you look at the first half, our CapEx spending is up over 50%. Right? So we're investing in CapEx now, some of the big drivers there, there's a lot of things, we have two big network optimization projects, one in grocery; one in a refrigerated frozen, that drives strong ROI and continues to help drive our margins. And then we have a big investment in Birds Eye to build capacity for the long term. So As Sean said we'd look at a capital allocation on a balance basis. But we feel really good about the investment opportunities we have in CapEx. And so it's a good situation, because we have a lot of good things to invest in. Ken Goldman: Just to be 100% clear, the free cash flow guidance that you have out there, that includes what you think will be necessary for CapEx to support the increased demand that's out there. Dave Marberger: That's correct. Yes. And you'll see in our Q that we file our estimate for the year for CapEx and that reflects that. Operator: The next question today comes from Chris Growe of Stifel. Chris Growe: Hi, good morning. I just had a question for you. And when I look at the divisions, and this is in relation to my expectations, you had really strong leverage in the refrigerated and frozen division, and then less leveraged and says that way in the snacks and grocery division. And that was a little different than what I expected for the quarter. I just want to understand maybe the nuances between those two divisions, and I guess the degree to which you're using third parties, for example, for manufacturing, that could be limiting the margin expansion say the grocery and snacks division, as an example. Dave Marberger: Yes, Chris, so when you look at this quarter, grocery and snacks was really hit harder in two areas relative to refrigerated and frozen. One, more of the COVID related costs hit grocery and snacks. So our COVID costs include additional transportation costs, all that kind of PPE stuff, commands that we use, so more of that hit grocery and snacks in the quarter. And then secondly, inflation, more of our overall inflation for the quarter hits the grocery and snacks business relative to refrigerated and frozen. So there are really two of the drivers when you look at the two segments side by side. Chris Growe: Okay, thank you. And then just a bit of a follow on in terms of your input costs, you also call our transportation costs as incremental costs for them. And you mentioned before, Dave, that input costs are up in sound like that upper 2s maybe 3% type range, they're going to be higher in Q3. When you give that figure is that incorporating COVID related costs as well? Is that the kind of the total cost basket? And if so, I'm just curious if that's the right number kind of 3.5% all in for the third quarter. Dave Marberger: You'll see on our bridge, the COVID related costs are separate than inflation. So we'll look at, our commodities and packaging, inflation transportation that's separate than COVID. The COVID things are just specific costs relate that we're incurring because of the COVID environment. So yes, that for this quarter, inflation was 2.9%. That translates to the 200 basis point headwind in operating margin you see on the bridge, but then you'll see another bridge item which is 100 basis point headwinds that's COVID related costs, so we break those out separately. So yes, I said for Q3, we expect that inflation number to be more around 3.5% versus the 2.9% that we saw in Q2. Chris Growe: Okay, so therefore, a little heavier hit the gross margin in the third quarter. I see that in the bridge. So thank you. Sean Connolly: Yes, that's included. That's part of our Q3 operating margin guide. Operator: The next question is from Bryan Spillane of Bank of America. Bryan Spillane: Hey, good morning and Happy New Year, guys. So the question is just around inflation, we've seen some increases in the last month or two in some of the agricultural commodities, and certainly freight, energy, just the overall even economists, macro views seem to be pointing towards more inflation. So I guess two questions related to that; one, how are we hedged? Or how should we be thinking about inflation and managing it as we move into fiscal 2022? And maybe what's contemplated in the 2022 targets that you reaffirm this morning? And then, Sean, I guess, second to that is just given how the retail environment changed a bit, is there anything different in terms of the way that you might approach inflation and pricing with retailers today than maybe would have been the case pre-COVID? Dave Marberger: Yes. So why don't I? Why not I start with that, so yes, we are seeing inflation, from a procurement perspective, our procurement department is very experienced, and we're looking at every area, from every commodity, and we're taking positions where we feel like there are opportunities to do that. So that's really part of our ongoing kind of process. So, at this point, obviously, we're looking at fiscal 2021. But we'll even have positions that go into fiscal 2022. So that's all part of our internal process that we always have. The key part of this and then I'll pass it to Sean is, and we've talked about this at Investor Day, that we manage margins to offset inflation in a lot of different areas. And so, we look at, obviously, we have our productivity programs and supply chain, we have our margin and accretive innovation, our pricing, trade optimization, our mix, and then the way we can sculpt margin through M&A. And so we're obviously looking at all those levers, and then more recently, obviously, with Pinnacle in the synergies that we're getting out of that. That's helping drive margin plus the fixed overhead absorption we're getting from the higher volumes from COVID. So that all comes into play as we think about margin from a macro level. Sean, anything to -- Sean Connolly: Yes, no, I think just reemphasizing integrated margin management is a capability we put in place a number of years ago, it is multi faceted, it is how we offset inflation, the only thing that I would point out that potentially different Bryan, or emphasis is different. Post COVID is brand mix, specifically, the staples business, which is stronger today. And these cooking utilities that we expected may remain a bit stronger because of these millennials cooking at home, those tend to be extremely relatively strong margins for us. So that is, that's good brands mix for us. And that's just, that's fortunate that piece of the portfolio, and these younger consumers engaging in cooking habits, and really liking our number one brands in that space, that's a positive overall in terms of integrated margin management. Bryan Spillane: And, Sean, can you remind us just in a period where there's just more general inflation across all parts of the economy, so it's not just agricultural, but if we're going to go into a position a situation where, with all the government spending, there's just going to be just more general inflation, which we haven't experienced in a really long time. Typically, that's an environment that makes it a lot easier for the industry to cover inflation. Is that right? Sean Connolly: Well, within the six traditional levers that we lean on to kind of offset any kind of margin compression, the one that you really poking at there are pricing, and the way the language we use internally is inflation justified pricing. Our view is always that if inflation justifies it, we will seek to take prices. And that's kind of always been our approach. It's never a joyous walk in the park, as you all know, but it is something that principally we as manufacturers have to do because we need to continue to make these investments in our innovation, so that we can keep these categories growing and keep the retailers happy, and it's difficult to do that if inflation comes in, you cannot take inflation justify prices. Operator: The next question comes from Jason English with Goldman Sachs. Jason English: Hey, good morning, folks. Happy New Year and congrats on a strong quarter. I wanted to -- I want to come back first to Bryan's question. As part of his question he asked you what was embedded, what inflation assumptions embedding your fiscal 2022 guidance. I didn't hear the answer to that. Can you provide us that answer? Dave Marberger: Yes, we're not giving specifics on fiscal 2022 as it relates to inflation right now, Jason, but we reaffirm fiscal 2022. So you can assume that we're looking at different ranges of outcomes for inflation, but we're not disclosing it at this point. Jason English: Okay, understood. And Dave, you mentioned one lever is to sculpt margin through M&A. Can you go a little bit deeper on what you mean by that? And also talk about your M&A appetite now that you have effectively hit your leverage target much faster than expected. Does that open up more apertures? Is there appetite there back in the market pursuing acquisitions? Sean Connolly: Yes, Jason, it's Sean. Let me just take it from the top in terms of kind of our philosophy on M&A. Obviously, we've been very active in the last five years with inbound stuff and outbound stuff. And when we do that both ways it is, we do consider not, we consider it as we're reshaping the portfolio for better growth and better margins. And so items that come in, brands that come in, not only need to be strategic, but ideally will help us in terms of our forward looking growth rates and margins. Similarly, items that we divest; sometimes can be things that have been a chronic drag on growth rates or margin. So by effectively managing kind of both the inbound and the outbound, remain close, so to speak, the remaining company going forward should look better. That's the ideal situation in terms of growth prospects and margin. And we've got, obviously, we've been active doing that, we'll continue to be active, we just announced the divestiture of Peter Pan, we've got this capital loss carry forward that we're well aware of, we talked about every day. And our principle there is pretty simple, which is if something, is not a fit for us, and somebody else wants to make an offer for an asset that is above what we see as intrinsic value, then, we're all we're all ears on that kind of thing. Similarly, on inbound stuff, we're just now getting to the point where, we're feeling our focus has been about delevering. Let's not, let's be very clear on that. It's been ever since the Pinnacle acquisition, we've been 100% focused on delevering, we're now headed that cadence. So we can start to see our way toward other uses of capital going forward, they can be shared buybacks, they can be bolt-on acquisitions. They just have to make sense. Or could be investing in a business as Ken pointed out in our own CapEx. So that's all that's fair game. Dave, do you want to add anything to that? Dave Marberger: No, you got it. Operator: Our next question comes from Rob Dickerson of Jefferies. Rob Dickerson: Great, thanks so much. So I just want to focus a little bit on the fiscal 2022 targets, obviously, as you said, we should see the margin targets coming in ahead of plan, leverage targets is coming in ahead of plan. But then we're also all kind of talking about the inflationary effects, potentially this year, and then sound like you think you can hold on some of the pricing benefits you've already received. But then we have to combine that with some or let's say less, fixed costs leverage, as we think about next year. So it seems like kind of what's implied in all of it is, our targets are changing, but the targets that we have are still slightly below where we've come in the first half of this year. So it sounds like just kind of where you sit now, your visibility, all things considered, you just pointed to this day of in terms of your kind of your sensitivity analysis, right? As you look forward next year, all things net it out, you say, yes, we might have to give some of this back; you might have to give some of that back. But kind of net-net relative to where we were last year, we feel just as good or maybe stronger, about hitting those margin targets, while at the same time we continue to see kind of sales revised upwards, so kind of net-net, what I'm asking is, like, why wouldn't not just the margin piece, and why wouldn't kind of the operating, profit dollars in fiscal 2022 to be higher than you even thought they would have been a year and a half ago. Lot in there, but --- Sean Connolly: Yes, so let me take a shot at that. Rob. So, obviously, starting at the top of this point to how we come out, post COVID and what the stickiness is obviously impacts the top line and that drives the sales dollars and then the gross profit, operating profit dollars, right. So but if you kind of step back and you look at this core and let me just take this Q2 and dissect it a little bit differently. So you can get an understanding of kind of what's happening in margin. If you look at we improved operating margin 250 basis points this quarter, and there's three buckets. Okay? The first bucket is improvement that we got, that's not going to stay with us. And that's 10 basis points of the 250. And what is that, that's all this COVID stuff, it's the COVID costs that are bad guy; it's the lower SG&A from Covid because we're not traveling, which is a good guy, it's favorable absorption across the P&L, which is a good guy, you net all that stuff together, that's 10 basis points of benefit we got this quarter, that's not going to return. The second bucket is what is going to recur. And that's our core productivity, that is our realized productivity from supply chain, that's our clinical synergies, and then that's inflation and business investments. For the quarter, the net benefit of that were 60 basis points, and those programs will continue to go. The third bucket is where we are still evaluating it in terms of the ongoing benefit is price mix. We had 180 basis points of price mix benefit in Q2. Now the majority of that was mix, and a lot of that's from volume. So there is a part of that that will not recur. But there's also a benefit from less merchandising and pricing in there. And some of that will recur, but we're not quantifying what amount of 180 will recur. So I say that way, because it's hard to look at some of these numbers sometimes and really understand what's ongoing versus what's not. So hopefully, that's a little helpful, kind of looking at this quarter and thinking how it could apply. But all that kind of goes into the mixture, obviously inflation, everything else we're looking at, as we run scenarios, to give us the confidence to reaffirm 2022. Rob Dickerson: Okay, got it, it's helpful. And then I just quickly coming back to the cash piece and cash allocation. The leverage targets ahead of schedule, ramped the dividend, impressively and then obviously a lot of talk around capacity and CapEx needs, but just kind of given valuation of the stock and seeing, maybe other companies in the space, and they'll continue to announce ongoing repurchase programs, and there's more activity in the space. Like why not be more proactive around buying your stock back. And that's all thanks. Sean Connolly: Yes, Rob, it's Sean. Obviously, buybacks have been part of our repertoire before, and undoubtedly, will be again, in any given window, it's all about the relative appeal of these capital allocation options, and obviously, stock price factors into that one that you raised. So obviously, this is a, it's clearly an option for us and one that we will weigh against our other options. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Brian Kearney for any closing remarks. Brian Kearney : Great, thank you. So as a reminder, this call has been recorded and will be archived on the web as detailed in our press release. That our team is available for any follow up discussions that anyone may have. Thank you for your interest in the Conagra. Operator: This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.CAG Ratings Summary
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Conagra Gains 5% After Q3 Beat
Conagra Brands (NYSE:CAG) shares rose by 5% intra-day today, following the announcement of fiscal Q3/24 results that exceeded market expectations.
The company announced earnings per share of $0.69, surpassing the predicted $0.64. Its quarterly revenue reached $3.03 billion, exceeding the forecast of $3.01 billion. Although the adjusted operating margin dipped slightly to 16.4% from the previous year's 16.9%, it was still higher than the expected 15.7%.
Looking forward, Conagra adjusted its full-year 2024 earnings per share guidance to a range of $2.60 to $2.65, compared to the analysts' predictions of $2.60. Furthermore, the company anticipates a 1-2% drop in organic net sales.
ConAgra Foods Reports Mixed Q1 Results
ConAgra Foods (NYSE:CAG) released its first-quarter results, and the numbers were a mixed bag. While the earnings per share (EPS) stood at $0.66, surpassing the anticipated $0.60 according to analysts, the company's quarterly revenue was $2.9 billion, slightly below the expected $2.96 billion.
Grocery & Snacks net sales reached $1.20 billion, showing a modest 1.2% increase compared to the same period last year but falling just short of the estimated $1.21 billion. Meanwhile, Refrigerated & Frozen net sales came in at $1.15 billion, marking a 4.6% decline year-on-year and also missing the estimated $1.22 billion.
Regarding future prospects, ConAgra Foods projects that its full-year 2024 EPS will range from $2.70 to $2.75, which is slightly above the Street estimate of $2.71.
What to Expect From Conagra Brands’ Q3 Results on Wednesday?
RBC Capital analysts provided their perspective on Conagra Brands (NYSE:CAG) in anticipation of the Q3 earnings announcement on Wednesday. They mentioned that the company's demand patterns are stable but less dynamic, with reduced elasticities, which is comparable to other packaged food companies.
The analysts expect Q3 organic sales growth of 5.8% (vs. Street estimate of 6.9%) and EPS of $0.63 (vs. Street’s $0.64).
As a reminder, the company confirmed fiscal 2023 guidance in late February. Overall, the analysts expect another pricing-driven quarter with volumes remaining in focus given the company’s more muted trends in tracked channels but acknowledge some noise in tracked channels (coming off allocation and supply chain disruptions a year ago).
What to Expect From Conagra Brands’ Q3 Results on Wednesday?
RBC Capital analysts provided their perspective on Conagra Brands (NYSE:CAG) in anticipation of the Q3 earnings announcement on Wednesday. They mentioned that the company's demand patterns are stable but less dynamic, with reduced elasticities, which is comparable to other packaged food companies.
The analysts expect Q3 organic sales growth of 5.8% (vs. Street estimate of 6.9%) and EPS of $0.63 (vs. Street’s $0.64).
As a reminder, the company confirmed fiscal 2023 guidance in late February. Overall, the analysts expect another pricing-driven quarter with volumes remaining in focus given the company’s more muted trends in tracked channels but acknowledge some noise in tracked channels (coming off allocation and supply chain disruptions a year ago).
Conagra Brands' Upcoming Q2 Preview
RBC Capital analysts provided their outlook on Conagra Brands, Inc. (NYSE:CAG) ahead of the upcoming Q2 results on Jan 5. The analysts expect organic growth of 7.4%, in line with the Street estimate, and EPS of $0.65, compared to the Street estimate of $0.66.
The analysts expect another strong quarter for the company and expect first-half performance will be enough for it to be in a position to raise guidance.
The company continues to see strong demand with lower elasticities, similar to the rest of the packaged food space. The company’s sales are up 10.6% in IRI for the Nov quarter, up from 9% in Aug. Growth continues to be mainly pricing driven but volumes have remained consistent--down high-single-digits with pricing up high teens-low twenties.
Conagra Brands Q4 Earnings Preview
Deutsche Bank analysts provided a preview of Conagra Brands, Inc.(NYSE:CAG) upcoming Q4 earnings, expected to be reported on July 14.
According to the analysts, the backdrop is clouded by lingering inflation and worsening macroeconomic factors. However, the analysts noted that similar to other food peers, tracked channel consumption remains elevated at a 3-year CAGR of 5.7% (vs. 5.6% in Q3).
As such, the analysts believe the company should be positioned to at least achieve its implied organic growth guidance of approximately 7%.
The analysts kept their EPS estimate unchanged at $0.65, compared to the implied Q4 guidance of approximately $0.64 and Street estimate of $0.63.
Conagra Brands Reports Q3 Beat, How Will the Market React?
Conagra Brands, Inc. (NYSE:CAG) reported its Q3 results, with EPS of $0.58 coming in above the consensus estimate of $0.57. Revenue was $2.91 billion, compared to the consensus estimate of $2.84 billion.
Analysts at Deutsche Bank provided their views on the company following the earnings announcement. They expect the company's results (top-line beat, gross margin/OI miss) and reduced 2022 guidance to be met with modest disappointment—reinforcing concerns regarding the company's exposure to cost inflation, alongside potential skepticism with respect to its future pricing power and demand resiliency.
In other words, the analysts expect the market to focus more on the updated outlook for adjusted EPS of $2.35 (vs. $2.50 prior)—and thus on management's below-consensus outlook for Q4—and less on the company's "pro forma" estimate of $2.65.
