Conagra Brands, Inc. (NYSE :CAG ) reported results for the first quarter of fiscal year 2019, which ended on August 26, 2018. All comparisons are against the prior year fiscal period, unless otherwise noted.
- In the quarter, net sales grew 1.7%, and organic net sales1 excluding the sale of the Trenton, Missouri production facility (Trenton) grew 1.2%, with growth in all four operating segments.
- The Refrigerated & Frozen segment continued its momentum, with 3.2% net sales growth and organic net sales growth of 1.4%. The segment has delivered organic net sales growth for five consecutive quarters.
- Grocery & Snacks reported another quarter of organic net sales growth, led by the snacks businesses.
- Adjusted operating margin was above the guidance range.
- Diluted earnings per share (EPS) from continuing operations increased 25.0% from $0.36 to $0.45 in the quarter, and adjusted diluted EPS from continuing operations grew 2.2% from $0.46 to $0.47, in-line with the Company's previously-provided guidance range.
- The Company reaffirms its full year fiscal 2019 standalone guidance for all previously-provided metrics.
CEO Perspective
Sean Connolly, president and chief executive officer of Conagra Brands, commented, "Fiscal 2019 is off to a good start despite a continued, challenging inflationary environment. Our first quarter results were largely in-line with expectations as we delivered net sales growth in all four operating segments behind a strong innovation slate. We also earned increased distribution, particularly in our frozen business. We continue to stay focused on supporting our brands with robust marketing programs, including increased retailer investments, to drive brand saliency, enhanced distribution, and consumer trial of our products."
He continued, "Conagra is well positioned to build upon our tremendous platform and accelerate the next wave of change with the addition of Pinnacle Foods. We now expect the transaction to close by the end of October 2018. We look forward to executing our proven approach to innovation and brand-building to enhance their portfolio of leading brands and drive long-term shareholder value."
Total Company First Quarter Results
In the quarter, net sales increased 1.7%. The recent acquisitions of Angie's BOOMCHICKAPOP and Sandwich Bros. of Wisconsin added 200 basis points to the net sales growth rate. The sales of the Trenton, Missouri production facility and the Canadian Del Monte business reduced the net sales growth rate by 120 basis points. Organic net sales excluding Trenton increased 1.2%, with all four operating segments showing growth. Volume was approximately flat as growth in the Refrigerated & Frozen, Grocery & Snacks, and International segments was offset by the impact of continued value over volume actions in the Foodservice segment. Price/mix was favorable by 1.2% as improved pricing and mix offset increased retailer investments to drive brand saliency, enhanced distribution, and consumer trial.
In the quarter, gross profit and adjusted gross profit decreased 0.7% and 0.6%, respectively. Supply chain realized productivity, favorable price/mix and the profit contribution from recent acquisitions were more than offset by higher transportation and input costs as well as the previously-mentioned increases in retailer investments.
In the quarter, selling, general, and administrative (SG&A) expenses decreased 0.9%. As expected, adjusted SG&A expenses increased 9.7% behind higher stock-based compensation expense due to a higher stock price compared to the prior-year period, increased spending on certain planned projects, and planned decreases in transition service agreement income.
In the quarter, diluted EPS from continuing operations grew 25.0%, and adjusted diluted EPS from continuing operations grew 2.2%. The growth was primarily driven by a lower tax rate and a lower share count, which more than offset higher adjusted SG&A expenses, lower pension and postretirement non-service income, and lower equity method investment earnings.
Grocery & Snacks Segment First Quarter Results
Net sales for the Grocery & Snacks segment increased 3.4% to $771 million in the quarter, and organic net sales grew 0.1% as the acquisition of Angie's BOOMCHICKAPOP added 330 basis points to the net sales growth rate. Volume grew 0.1% as strong growth in snacks businesses, such as Slim Jim, Duke's, Orville Redenbacher's, and Act II, as well as strong performance in Chef Boyardee, more than offset declines in certain non-core grocery brands. Price/mix was flat to the prior-year period as favorable pricing and mix were offset by the continued shift from advertising and promotion (A&P) investments to retailer investments to drive brand saliency, enhanced distribution, and consumer trial.
Operating profit for the segment increased 1.5% to $179 million. Adjusted operating profit decreased 2.1% as higher transportation and input costs and higher SG&A expenses more than offset higher net sales, the profit contribution of acquisitions, and supply chain realized productivity.
Refrigerated & Frozen Segment First Quarter Results
Net sales for the Refrigerated & Frozen segment increased 3.2% to $635 million in the quarter, and organic net sales grew 1.4% as the acquisition of Sandwich Bros. of Wisconsin added 180 basis points to the net sales growth rate. Volume grew 0.5% as innovation launches, such as Banquet Mega Bowls and Mega Meals, Healthy Choice Power Bowls, Marie Callender's bowls, P.F. Chang's Home Menu bowls and skillets, Odom's Tennessee Pride sandwiches and Reddi-wip Non-Dairy whipped topping, more than offset declines in certain refrigerated businesses. Price/mix increased 0.9% as improved pricing and mix were partially offset by increases in retailer investments to drive brand saliency, enhanced distribution, and consumer trial.
Operating profit decreased 6.4% in the quarter, and adjusted operating profit decreased 6.3% as higher net sales and supply chain realized productivity were more than offset by higher input costs and transportation expenses.
