Conagra (CAG, Financial) reported Q4 earnings that surpassed expectations, but its in-line revenue and cautious FY25 guidance caused concern. The company, known for brands like Slim Jim and Vlasic, warned that consumers would likely face challenges in the coming year as they adjust to a more normalized operating environment. Despite a return to normalcy being positive, Conagra expects turbulence as consumers adapt to new reference prices, suggesting that inflation's cumulative effects will persist, with prices remaining high. For FY25, Conagra forecasted adjusted EPS of $2.60-2.65 and organic net sales growth ranging from negative 1.5% to flat.
Management has been encouraging consumers to accept new price points and the updated value of its products, acknowledging that this transition will take time. Although disinflation has begun, the impact of past inflation on daily life remains significant; incomes need time to catch up, and the psychological effects are not easily erased.
Nonetheless, Conagra is optimistic about its positioning in the grocery and snacking industry, as demonstrated by several positive aspects from Q4:
- Conagra achieved another bottom-line beat in Q4 with adjusted EPS of $0.61. Revenue, however, declined for the third consecutive quarter, down 2.3% year-over-year to $2.91 billion. The Grocery & Snacks and Foodservice segments saw net sales declines of 2.1% and 3.9%, respectively. High elasticity in Grocery & Snacks led consumers to reduce basket sizes or trade down, while reduced restaurant traffic impacted Foodservice volumes, which fell by over 10% year-over-year.
- Despite these challenges, Conagra expanded profitability in these lagging segments, mitigating the bottom-line impact of lower revenue and volumes. Management also noted that the company gained unit share in snacking categories, outperforming several competitors and strengthening its foundation for future growth when economic conditions improve.
- The Refrigerated and Frozen segment saw a modest volume increase of 0.9%, improving from the previous quarter, even with a 4.7% drop in prices. These metrics reflect Conagra's brand-building investments aimed at maximizing consumer engagement and recapturing market share after a challenging period. International sales also grew, with volumes up 4.1%, driven by strong performance in Mexico and global exports.
Conagra is aware of the inflationary pressures on consumers and is investing in its brands to support a return to positive volumes without significantly compromising margins. The company projects FY25 adjusted operating margins of 15.6-15.8%, close to the 16.0% posted in FY24. While FY25 may be a transitional year without substantial financial gains, it is a step toward recovery, indicating that the worst of Conagra's challenges may be behind it.
