Vending

Conagra Brands reports higher fiscal Q4 as COVID-19 boosts at-home eating

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June 30, 2020

Conagra Brands Inc. reported better-than-expected earnings during the fiscal fourth quarter, driven by double digit growth in the company's three retail segments, as the COVID-19 pandemic helped fuel strong e-commerce sales as consumers hunkered down inside the home.

Adjusted earnings more than doubled to $368 million, or 75 cents a share in the quarter, ended May 31, beating Wall Street estimates.

"Our business clearly benefited from increased at-home eating in the fourth quarter, as the elevated retail demand outweighed the reduced foodservice demand," Sean Connolly, president and CEO, said in the quarterly earnings report. "In retail, many consumers tried our modernized products for the first time and then returned for more. While we are optimistic about the long-term implications of recent consumer behavior shifts, given COVID-19 uncertainties, we are only providing guidance for the first quarter of fiscal 2021. We intend to provide an update on our fiscal 2021 outlook next quarter.

Fiscal 2020 net sales increased 15.9%, and organic net sales increased 5.6%.

Earnings per share for fiscal 2020 grew 12.4% to $1.72, and adjusted EPS grew 13.4% to $2.28.

The company provided guidance for first quarter fiscal 2021 of organic net sales growth in the range of 10% to 13%, adjusted operating margin in the range of 17.0% to 17.5%, and adjusted EPS in the range of $0.54 to $0.59.

A 21.5% increase in organic net sales during the quarter was driven by a 21.0% increase in volume and a favorable price/mix impact of 0.5%. The volume increase was primarily driven by consumers increasing their at-home food consumption as a result of the COVID-19 pandemic, which benefitted the company's retail businesses and negatively impacted the foodservice segment.

The company reported solid growth in frozen food sales, with strong sales of frozen vegetables as Birds Eye maintaing the top share position in the category, according to a transcript of the quarterly call with analysts. Snacks showed 20% year-over-year growth, despite softness at convenience stores.

Gross profit increased 30.3% to $923 million in the quarter, and adjusted gross profit increased 31.1% to $929 million. The increases were primarily driven by the increased sales volume. Additionally, supply chain realized productivity, the impact of the 53rd week, favorable price/mix, and cost synergies associated with the Pinnacle Foods acquisition were partially offset by higher input costs as well as pandemic-related costs.

Pandemic-related costs included investments in employee safety protocols, bonuses paid to supply chain employees and costs necessary to meet elevated levels of demand.

For the full fiscal year, gross profit increased 15.7% to $3.07 billion. Adjusted gross profit increased 14.3% to $3.11 billion primarily driven by the inclusion of Pinnacle's gross profit, organic net sales growth, supply chain realized productivity, cost synergies associated with the Pinnacle Foods acquisition, and the inclusion of the 53rd week. These benefits were partially offset by higher input costs, a reduction in profit associated with the sold businesses, pandemic-related costs, and the impact of foreign exchange.

The impact that the COVID-19 pandemic will have on the company's fiscal 2021 consolidated results remains uncertain. The company does expect retail and foodservice demand levels to trend toward historical norms as the fiscal year progresses. However, the degree and timing of changes in retail and foodservice demand levels are difficult to predict with enough certainty to provide a full-year outlook at this time.

To date in the first quarter, the company has continued to see a significant increase in demand in its retail business. The company has also continued to see reduced demand for its foodservice products when compared to pre-COVID-19 pandemic demand levels. COVID-19 related costs have also continued to impact the business.

Based on these factors, the company is providing first quarter fiscal 2021 guidance of organic net sales growth of 10% to 13%; adjusted operating margin of 17.0% to 17.5% and adjusted EPS of $0.54 to $0.59.

For an update on how the coronavirus has affected the convenience services industry, click here.