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Conagra Brands CEO on snacking from home, future of the food industry

Yahoo Finance’s Alexis Christoforous and Brian Sozzi speak with Conagra Brands CEO Sean Connolly about the company’s most recent quarter, and food trends amid COVID-19.

Video Transcript

ALEXIS CHRISTOFOROUS: If we learned anything from Conagra Brands' most recent quarter, it is that they eat-at-home trend isn't going away anytime soon. Let's discuss now with Conagra Brands CEO Sean Connolly. Sean, thanks for being with us. So for people who don't know, this is the company behind Hunt's tomato sauce, Vlasic pickles, Orville Redenbacher, Birds Eye frozen foods, the list goes on and on. Which Conagra Brands really outperformed last quarter?

SEAN CONNOLLY: Well, it's hard to specify any one. We had strength across the board in our frozen business, in our snacking business, and in our staples business. Genuinely, it's hard to find one that didn't perform.

Just about every brand in the portfolio has exceeded our expectations, and it's a sign that the consumer is really moving a lot of their eating occasions into the home. They're sustaining that. We don't think that's going to change anytime soon.

BRIAN SOZZI: Sean, let me tell you about my past few trips to Target. Things were going well for me late August, early September, everything was back in stock, paper goods, frozen foods, snacks, you name it. But the past two weeks, I've started to see a lot more out-of-stocks, not just in Target. I've seen it in Walmart. Do you think consumers are restocking their shelves because of the COVID-19 pandemic, somewhat like we saw back in March?

SEAN CONNOLLY: Not to that extreme. In the last couple of weeks, we saw an uptick in eating occasions at home. We shared that data in our earnings call last week. But it's been a modest uptick versus what is a pretty strong baseline. So we're-- some thought there would be more deceleration right now.

We're actually seeing real sustained strength in terms of at-home eating. And of course, you know, we don't know if there's another wave of this thing around the corner, and will that dial up demand even more? Our focus in this environment is on supply, because with elevated demand sustaining itself the way it is, the real key is keeping the plants running, keeping our people in the plants healthy, and they're doing a fantastic, job really providing an essential service.

ALEXIS CHRISTOFOROUS: You know, last quarter you saw organic sales up 21%. I think organic sales for your frozen and refrigerated foods up 19%. But you know, you can't rest on your laurels, right? So how-- how is Conagra going to continue to innovate? What areas are you focusing on here in the near term, Sean?

SEAN CONNOLLY: Well, innovation is really kind of the centerpiece of what we do around here. And one of the things a lot of people expected in this pandemic is that our innovation into the marketplace would slow as people focused more on volume optimization on older SKUs. Certainly, that's been the case in a couple of categories.

But I can tell you the demand from our customers for innovation has not slowed. Our innovation slate this year is actually our strongest innovation slate yet. It's been accepted broadly by our customers. And most important, it's turning incredibly with our consumers in terms of trial and repeat. And that, again, spans everything from our frozen business to our snacks business and even our staples business.

But I would say our primary focus has been on frozen and snacks, where we have really driven an incredible amount of growth over the last several years. Frozen, we've driven virtually all of the growth in the frozen single-serve meal space with our innovation, and that continues. We still have room to go.

BRIAN SOZZI: Talk to us, Sean, about those inventory levels. How low are they? And are we-- are consumers at risk going to stores, Walmart, Target, grocery stores, and seeing out-of-stocks again?

SEAN CONNOLLY: Well, there's always that type of risk when you've got sustained elevated demand like this. But the way I would describe it is if you think back to March, April, there was just this incredible panic stock-up, where you saw just an incredible spike of consumers buying everything off the shelves and stocking their pantries and their freezers. Then things got to a more normal rate where people were eating down their inventory and replenishing it on the go. And we've kind of stayed in that mode.

So you know, there will be some out-of-stocks. It will be category specific, because not every category has the same amount of available capacity. But what really strains the system is if that demand side of it spikes up again, because that's when you'll see people potentially restocking their pantries at a higher level. And of course, there's-- we still haven't caught up to normal inventory levels from the first time that the inventories became diminished.

We saw in our fourth quarter of last year, our last fiscal inventories got super lean. We saw the beginning of the replenishing of that inventory level this-- this quarter, which is our first fiscal quarter. But we're not all the way there yet. And for us to do it, we're going to continue to run our plants pretty much around the clock trying to rebuild those inventories.

BRIAN SOZZI: Sean, still challenging times for many households across the country. Are you seeing anything in your data that would suggest that their financial positions are improving slightly?

SEAN CONNOLLY: Well, what's really interesting in our space is the consumer has always had a relationship with their home, but the level of commitment in that relationship has come up quite a bit. We've seen that during the pandemic our consumers have invested in their homes in everything from exercise equipment to improved kitchen equipment to new furniture. It indicates that they're planning on spending more time in their home for the foreseeable future. They've been taking some of their cash flow and improving their home environment, and we believe they're going to want to get a return on that investment and that they'll continue to spend quite a bit of time at home with a higher level of commitment in that relationship going forward.

ALEXIS CHRISTOFOROUS: You know, Sean, during especially at the height of the pandemic, we saw a lot of food inflation, not pointing to Conagra specifically, but sort of across the industry. Do you see-- do you see a return to that? Might we see, if there are supply chain issues, a spike in prices on store shelves?

SEAN CONNOLLY: It really depends upon the commodity. Our inflation had been running about 3%, so not extreme. And sometimes, you know, when we have inflation on a particular commodity, we will try to take what we call inflation-justified pricing because the cost to us has come up.

Also, one of the things you've seen that has contributed to that pricing-- the appearance of a pricing increase is less promotion. Deep discount promotion in a lot of the food space has really been put on hold because that can just exacerbate an out-of-stock or a low inventory situation. So it doesn't make sense to create further financial incentives to move more volume when you're struggling to keep up with demand to begin with.