Conagra Brands Reports Third Quarter Results

March 21, 2019

CHICAGO, March 21, 2019 /PRNewswire/ -- Today Conagra Brands, Inc. (NYSE: CAG) reported results for the third quarter of fiscal year 2019, which ended on February 24, 2019. All comparisons for Legacy Conagra results are against the prior-year fiscal period, unless otherwise noted.  Certain terms used in this release, including "organic net sales," "Legacy Conagra," "pro forma," "EBITDA," and certain "adjusted" results, are defined under the section entitled "Definitions."

  • Net sales grew 35.7%, driven primarily by the Pinnacle Foods acquisition.  Organic net sales excluding the sale of the Trenton, Missouri production facility (Trenton) increased 1.9%.
  • The Grocery & Snacks segment grew net sales by 2.9% behind continued strong performance in the Legacy Conagra snacks business.
  • The Refrigerated & Frozen segment continued its positive momentum in the third quarter, with net sales growth of 3.3% and organic net sales growth of 2.4%, driven by innovation.
  • Diluted earnings per share (EPS) from continuing operations was $0.50, and adjusted diluted EPS from continuing operations was $0.51 in the quarter.  Solid operating performance in Legacy Conagra continued.  Taxes, interest expense, and lower joint venture earnings associated with Legacy Conagra in the quarter, and the dilutive impacts of Pinnacle, reduced overall EPS.
  • The Company's integration of the Pinnacle business, which was acquired in October 2018, remains on track.  The Company realized approximately $12 million of cost synergies in the quarter and continues to expect to exceed its previously-announced $215 million cost synergy target.
  • As of today, the Company has reduced debt by $685 million since the end of the second quarter.
  • With approximately two months remaining in the fiscal year and the Wesson transaction complete, the Company has updated its fiscal year 2019 outlook, including reaffirming its guidance for adjusted diluted EPS from continuing operations.
  • The Company will host an Investor Day on April 10, 2019 in Chicago where it will share more information on the value creating opportunities ahead, including an update on its robust innovation slate, Pinnacle cost synergy opportunities, and the Company's long-term financial algorithm.

CEO Perspective

Sean Connolly, president and chief executive officer of Conagra Brands, commented, "Our Legacy Conagra business generated solid growth during the third quarter and delivered strong performance in our domestic retail segments.  We saw continued improvement in consumption trends and base sales velocity, and organic net sales grew nearly two percent during the quarter.  Our brand building and innovation actions over the past several years have resulted in strong growth in our frozen and snacks portfolios, and we remain focused on applying this disciplined approach across our portfolio."

He added, "The integration of Pinnacle Foods, and the reinvigoration of its innovation pipeline, remain squarely on-track. We are aggressively applying our proven 'Conagra Way' to address the executional challenges in the Birds Eye, Duncan Hines and Wish-Bone businesses.  While it will take some time to return these Pinnacle businesses to growth, we are confident that we have identified the issues and have the right action plans in place to improve the performance of these terrific brands.  We have tremendous confidence in the long-term value creation potential of Conagra Brands and look forward to providing a comprehensive update at our upcoming Investor Day on April 10."

Total Company Third Quarter Results

In the quarter, net sales increased 35.7%.  Reported net sales growth reflects:

  • A 34.3 percentage point net benefit from the acquisitions of Pinnacle Foods and Sandwich Bros. of Wisconsin, the divestiture of the Canadian Del Monte business, and the sale of Trenton;
  • A 0.5 percentage point decrease from foreign exchange; and
  • 1.9 percentage points of growth in organic net sales, excluding Trenton

The 1.9% growth in organic net sales, excluding Trenton, in the quarter was largely in line with expectations.  These results reflect a 1.2 percentage point increase in Legacy Conagra volume.   In addition, price/mix improved 0.7 percentage points in the Legacy Conagra business as favorable pricing and mix were partially offset by increased investments with retailers to drive brand saliency, enhanced distribution, and consumer trial.  The Company estimates the organic growth rate was reduced by 1.4 percentage points due to the increase in brand building investments with retailers, which was funded by reductions in certain lower-return advertising and promotion (A&P) investments.

Gross profit increased 25.6% to $752 million in the quarter.  Adjusted gross profit increased 30.5% to $781 million, or 28.9% of net sales.  The addition of Pinnacle's gross profit, together with supply chain realized productivity and improved price/mix in the Legacy Conagra business, more than offset higher transportation and input costs as well as the previously-mentioned brand building investments with retailers.  Pinnacle's gross margin performance in the quarter was dilutive to the Company's overall gross margin, and the shift from A&P expense to brand building investments with retailers reduced gross margin by approximately 100 basis points.

Selling, general, and administrative expenses (SG&A), which include A&P expense, decreased 5.1% to $334 million in the quarter.  Adjusted SG&A, which excludes A&P, increased 23.4% to $274 million, primarily as a result of the addition of expenses associated with the Pinnacle business, partially offset by lower incentive compensation expense due to a lower stock price compared to the prior-year period.

The Company's A&P expense decreased 13.9% to $67 million in the quarter as the Company continued to shift brand investments in the Legacy Conagra business from certain lower-return A&P marketing investments to brand building investments with retailers.

Net interest expense increased $91 million to $131 million in the quarter.  The increase was primarily driven by higher levels of debt outstanding compared to the prior-year period, which was largely a result of the net debt incurred in connection with the Pinnacle acquisition.

The average diluted share count of 487 million shares reflects an increase of 85 million shares versus the prior year period.  The increase was driven by the shares issued in connection with the Pinnacle acquisition, partially offset by share repurchases executed during fiscal 2018.

In the quarter, net income attributable to Conagra Brands was $242 million or $0.50 per diluted share.  Adjusted net income attributable to Conagra Brands was $251 million or $0.51 per diluted share in the third quarter, as compared to $245 million and $0.61, respectively, in the prior-year period.  The increase in adjusted net income attributable to Conagra Brands was driven by higher operating profit, which was partially offset by higher interest expense, a higher tax rate, and lower earnings in the Ardent Mills joint venture.  The decrease in adjusted diluted EPS from continuing operations was primarily driven by the previously-mentioned increase in share count.

Adjusted EBITDA, which includes equity method investment earnings and pension and postretirement non-service income, increased 35.9% to $554 million in the quarter, driven by the addition of Pinnacle's operating profit and growth in Legacy Conagra's operating profit.

See more of the report.


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