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Conagra Brands, Inc. CAG is benefiting from efforts to boost frozen and snacks categories. Moreover, the company’s strategic acquisitions along with solid innovations are working well. Apart from this, it has been witnessing rising demand amid pandemic-led increased at-home consumption trends.
We note that burgeoning demand amid the pandemic bolstered Conagra’s third-quarter fiscal 2021 results, with the top and the bottom line increasing year over year as well as beating the consensus mark. Further, organic sales increased 9.7% on higher volumes and favorable price/mix. Volumes were aided by elevated at-home consumption amid the coronavirus pandemic, which in turn boosted Conagra’s retail business. Impressively, the Zacks Consensus Estimate for fiscal 2021 sales and earnings reflect year-over-year growth of 1.1% and 15.4%, respectively.
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What Else is Driving Conagra’s Growth?
Conagra acquired Pinnacle Foods in October 2018. The combination of the two companies is appropriate, given the increasing demand for frozen foods and snacks. The consolidation of these food companies helped to create a robust portfolio of leading, iconic and on-trend brands. Further, the move is aiding to ramp up innovation and exploit the long-term benefits in the frozen foods space. During its third-quarter earnings call, management noted that it generated total synergies of $270 million from Pinnacle Foods’ buyout, year to date. The company stated that it expects synergies worth $305 million (excluding pandemic-led costs) by the end of fiscal 2022.
Conagra has been strongly committed toward undertaking innovation, which is yielding. Even amid the pandemic, the company has been focused on carrying out innovation for its customers as well as consumers. In fact, the company witnessed favorable consumer and customer response for its new products during fiscal third quarter. Management, in its last earnings call, highlighted that its innovation performance exceeded the 15% target in the past two fiscal years and the last 52 weeks. Moreover, the company is beginning to see solid customer acceptance for its fiscal 2022 innovation.
Well, Conagra is focused on boosting the Frozen and Snacks businesses. In fiscal third-quarter, the company’s retail sales gained from growth in snacks, frozen and staples sales. During the quarter, total Conagra Frozen retail sales increased 12% year over year. Also, the metric increased on a sequential basis on the back of growth across leading brands and categories. We note that the company’s Frozen category has picked up more pace in the current situation, with the pandemic compelling people to work from home and eat at home.
During the third quarter, the company’s Grocery & Snacks business sales gained 10.8%. The company’s snacks business continued to gain from higher volumes stemming from rising at-home consumption. The company witnessed impressive growth across popcorn, sweet treats and meat snacks in the quarter. Management expects at-home eating trends to stay high for a while and is well positioned to tap opportunities related to it. Conagra is on track with a range of innovation and brand-building efforts for exploring growth prospects in its frozen and snacks businesses.
While coronavirus-led increased at-home trends have boosted Conagra’s retail business, the same has been dealing a blow to its Foodservice segment for a while now. Incidentally, quarterly sales in the segment declined 17.2% year over year. Apart from this, costs associated with COVID-19, input cost inflation as well as increased transportation costs put pressure on the company’s performance in fiscal third-quarter. Nevertheless, the aforementioned upsides are likely to help this Zacks Rank #3 (Hold) company stay afloat amid such hurdles.
Shares of Conagra have gained 3% in the past six months compared with the industry’s growth of 10.3%.
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