Conagra Brands reports fourth-quarter and full fiscal year 2022 results

Conagra Brands Inc. reported results for the fourth quarter and full fiscal year 2022, which ended on May 29, 2022.

Highlights

Fourth quarter:

Net sales increased 6.2% and organic net sales increased 6.8%.
Operating margin decreased 310 basis points to 7.4%; adjusted operating margin increased 96 basis points to 15.0%.
Diluted earnings per share from continuing operations (EPS) for the fourth quarter declined 48.4% to $0.33 and adjusted EPS increased 20.4% to $0.65.

Full year fiscal 2022:

Net sales increased 3.1% and organic net sales increased 3.8%. On a two-year compounded annualized basis, fiscal 2022 net sales increased 2.1% and organic net sales increased 4.4%.
2022 net sales increased 2.1% and organic net sales increased 4.4%.
Operating margin decreased 421 basis points to 11.7%; adjusted operating margin decreased 312 basis points to 14.4%.
EPS for fiscal 2022 declined 30.8% to $1.84; adjusted EPS declined 10.6% to $2.36. On a two-year compounded annualized basis, FY22 EPS increased 3.5% and adjusted EPS increased 1.7%.

The company is providing fiscal 2023 guidance to reflect:

Organic net sales growth of 4% to 5% compared to fiscal 2022
Adjusted operating margin of approximately 15%
Adjusted EPS growth of 1% to 5% compared to fiscal 2022

Sean Connolly, president and chief executive officer of Conagra Brands, stated in the announcement, "Throughout fiscal 2022 our team took decisive actions to offset inflation and invest in our business. I'm pleased that our brands continued to resonate with consumers, and we continued to grow share."

He continued, "I was also pleased to see margin improvement materialize in the fourth quarter in Grocery & Snacks and Foodservice. This represents an important inflection that we expect will extend to our Refrigerated & Frozen and International businesses as fiscal 2023 progresses."

Total company fourth-quarter results

In the quarter, net sales increased 6.2% to $2.9 billion. The increase in net sales primarily reflects:

A 0.5% decrease from the sale of the Egg Beaters business (the Sold Business);
A 0.1% decrease from the impact of foreign exchange;
A 6.8% increase in organic net sales.

The 6.8% increase in organic net sales was driven by a 13.2% improvement in price/mix, which was partially offset by a 6.4% decrease in volume. Price/mix was driven by the company's inflation-driven pricing actions that were reflected in the marketplace throughout the quarter and favorable brand mix. The volume decrease was primarily a result of the elasticity impact from inflation-driven pricing actions.

Gross profit decreased 1.1% to $713 million in the quarter and adjusted gross profit increased 0.3% to $723 million. Gross profit in the quarter benefited from higher organic net sales, supply chain realized productivity, lower COVID-19 pandemic-related expenses, and cost synergies associated with the Pinnacle Foods acquisition. These benefits, however, were not enough to offset the impacts of cost of goods sold inflation of 17.3% and the lost profit from the Sold Business. Gross margin decreased 183 basis points to 24.5% in the quarter and adjusted gross margin decreased 147 basis points to 24.9%.

Selling, general, and administrative expense (SG&A), which includes advertising and promotion expense (A&P), increased 14.7% to $499 million in the quarter primarily due to brand impairment charges. Adjusted SG&A, which excludes A&P, decreased 7.8% to $242 million driven by decreased incentive and deferred compensation.

A&P for the quarter decreased 38.7% to $46 million, driven primarily by lapping increased investment in the prior year period.

Net interest expense was $96 million in the quarter, a decrease of 2.1% or $2 million compared to the prior-year period.

The average diluted share count was flat compared to the prior-year period at 482 million shares.

In the quarter, net income attributable to Conagra Brands decreased 48.6% to $159 million, or $0.33 per diluted share. Adjusted net income attributable to Conagra Brands increased 20.6% to $314 million, or $0.65 per diluted share in the quarter, driven primarily by an increase in operating profit and a strong performance from the company's Ardent Mills joint venture.

Adjusted EBITDA, which includes equity method investment earnings and pension and postretirement non-service income, increased 13.5% to $591 million in the quarter, primarily driven by an increase in adjusted operating profit and a strong performance from the company's Ardent Mills joint venture.

Total company fiscal 2022 results

For the full fiscal year, net sales increased 3.1% to $11.5 billion. The growth in net sales primarily reflects:

A 0.8% net decrease from the sale of the H.K. Anderson business, the Peter Pan peanut butter business, and the Egg Beaters business (collectively, the Sold Businesses); and
A 0.1% increase from the favorable impact of foreign exchange
A 3.8% increase in organic net sales.

For the full fiscal year, gross profit decreased 10.7% to $2.8 billion and adjusted gross profit decreased 10.5% to $2.9 billion. The benefits from supply chain realized productivity, higher organic net sales, lower COVID-19 pandemic-related expenses, and cost synergies associated with the Pinnacle Foods acquisition were not enough to offset the impacts from cost of goods sold inflation of 16.4%, the lost profit from the Sold Businesses, and elevated supply chain operating costs. Gross margin decreased 382 basis points to 24.6% and adjusted gross margin decreased 378 basis points to 24.8%.

For the full fiscal year, EPS decreased 30.8% to $1.84 and adjusted EPS decreased 10.6% to $2.36, driven by a decrease in adjusted operating profit.

For the full fiscal year, the company generated $1.2 billion in net cash flows from operating activities and $713 million of free cash flow.

Grocery & Snacks segment fourth-quarter results

Reported and organic net sales for the Grocery & Snacks segment increased 7.2% to $1.2 billion in the quarter.

In the quarter, price/mix increased 14.4% and volume decreased 7.2%. Price/mix was primarily driven by favorability in inflation-driven pricing coupled with favorable brand mix. The volume decline was primarily due to the elasticity impact from inflation-driven pricing actions. In the quarter, the company gained share in staples categories such as syrup and refried beans, and snacking categories including microwave popcorn and meat snacks.

Operating profit for the segment decreased 19.9% to $163 million in the quarter. Adjusted operating profit increased 17.0% to $255 million, as the negative impact of cost of goods sold inflation was more than offset by higher organic net sales, supply chain realized productivity, lower COVID-19 pandemic related expenses, lower A&P investment, and cost synergies associated with the Pinnacle Foods acquisition.

Refrigerated & Frozen segment fourth-quarter results

Net sales for the Refrigerated & Frozen segment increased 3.4% to $1.2 billion in the quarter reflecting:

A 0.9% decrease from the impact of the Sold Business; and
A 4.3% increase in organic net sales

On an organic net sales basis, price/mix increased 12.4% and volume decreased 8.1%. Price/mix was primarily driven by favorability in inflation-driven pricing coupled with favorable brand mix. The volume decline was primarily due to the elasticity impact from inflation-driven pricing actions. In the quarter, the company gained share in categories such as frozen single serve meals, frozen meat substitutes, and frozen desserts.

Operating profit for the segment decreased 34.4% to $77 million in the quarter. Adjusted operating profit decreased 6.4% to $185 million as the benefits of higher organic net sales, supply chain realized productivity, lower A&P investment, decreased COVID-19 related expenses, and cost synergies associated with the Pinnacle Foods acquisition were more than offset by cost of goods sold inflation and lost profit from the segment's Sold Business.

Foodservice segment fourth-quarter results

Net sales for the Foodservice segment increased 21.5% to $287 million in the quarter reflecting:

A 0.1% decrease from the impact of the Sold Business; and
A 21.6% increase in organic net sales.

On an organic net sales basis, volume increased 4.5% as restaurant traffic continued to improve from the impacts of the COVID-19 pandemic, partially offset by the elasticity impact from inflation-driven pricing actions. Price/mix was favorable 17.1% in the quarter, primarily driven by inflation-driven pricing and favorable product mix.

Operating profit for the segment increased 13.2% to $22 million in the quarter. Adjusted operating profit increased 53.0% to $29 million as the benefits of higher organic net sales and supply chain realized productivity more than offset the impact of cost of goods sold inflation.

Outlook

The company expects cost of goods sold inflation to continue into fiscal 2023 and has communicated additional pricing increases that will take effect in the second quarter of FY23. Guidance anticipates gross inflation (input cost inflation before the impacts of hedging and other sourcing benefits) in low-teen levels. Guidance also assumes volume elasticities increase from fiscal 2022 levels but remain below historical levels. The company does not expect the elevated performance that its joint venture, Ardent Mills, delivered in the back half of fiscal 2022 to continue throughout fiscal 2023.

The company is providing the following guidance for fiscal 2023: