Conagra Brands Inc. reported results for the first quarter of fiscal year 2023, which ended on August 28, 2022.
Highlights
- First quarter net sales increased 9.5%; organic net sales increased 9.7%.
- Operating margin in the quarter was (0.7%); adjusted operating margin was 13.7%.
- Diluted loss per share for the first quarter was $0.16, and adjusted earnings per share (EPS) was $0.57.
- First quarter operating margin, net income, and diluted EPS were impacted by non-cash goodwill and intangible asset impairment charges, primarily driven by an increased discount rate.
The company is reaffirming its fiscal 2023 guidance reflecting:
- 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, commented in the announcement, "The strength of our brands and continued execution of the Conagra Way playbook resulted in strong sales and adjusted operating profit during the first quarter. We continued to deliver improved service and productivity as we navigate ongoing inflationary pressures and industry-wide supply chain challenges. Our strong start to fiscal 2023 reaffirms our confidence in our outlook for the balance of the fiscal year as we remain focused on generating value for our shareholders."
Total company first-quarter results
In the quarter, net sales increased 9.5% to $2.9 billion. The increase in net sales primarily reflects:
- A 0.2% decrease from the unfavorable impact of foreign exchange; and
- A 9.7% increase in organic net sales.
The 9.7% increase in organic net sales was driven by a 14.3% improvement in price/mix, which was partially offset by a 4.6% decrease in volume. Price/mix was driven by the company's inflation-driven pricing actions that were reflected in the marketplace throughout the quarter. The volume decrease was primarily a result of the elasticity impact from inflation-driven pricing actions; however, the elasticity impact was favorable to expectations.
Gross profit increased 7.0% to $720 million in the quarter, and adjusted gross profit increased 7.1% to $723 million. First quarter gross profit benefited from higher organic net sales and supply chain realized productivity which more than offset the negative impacts of cost of goods sold inflation of 15%, unfavorable operating leverage, and continued elevated supply chain operating costs. Gross margin decreased 58 basis points to 24.8% in the quarter, and adjusted gross margin decreased 54 basis points to 24.9%.
The average diluted share count in the quarter was 481 million shares. During the first quarter, the Company repurchased approximately 1.4 million shares of its common stock for approximately $50 million.
In the quarter, net loss attributable to Conagra Brands was $78 million, or $0.16 per diluted share. Adjusted net income attributable to Conagra Brands increased 14.2% to $275 million, or $0.57 per diluted share. The increase was driven primarily by the increase in gross 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 9.1% to $547 million in the quarter, primarily driven by the increase in adjusted gross profit and a strong performance from the company's Ardent Mills joint venture, slightly offset by lower pension income.
Grocery & Snacks segment first-quarter results
Reported and organic net sales for the Grocery & Snacks segment increased 10.5% to $1.2 billion in the quarter.
In the quarter, price/mix increased 16.6% and volume decreased 6.1%. Price/mix was 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 snacking categories including meat snacks and microwave popcorn, and staples categories including syrup and Asian sauces and marinades.
Operating profit for the segment increased 16.0% to $250 million in the quarter. Adjusted operating profit increased 15.4% to $254 million as higher organic net sales and supply chain realized productivity more than offset the negative impacts of cost of goods sold inflation, continued elevated supply chain operating costs, unfavorable operating leverage, and increased SG&A.
Refrigerated & Frozen segment first-quarter results
Reported and organic net sales for the Refrigerated & Frozen segment increased 9.6% to $1.2 billion in the quarter.
In the quarter, price mix increased 12.1% and volume decreased 2.5%. The price/mix increase was driven by favorability in inflation-driven pricing. The volume decline was primarily due to the elasticity impact from inflation-driven pricing. In the quarter, the company gained share in categories such as frozen single serve meals, plant-based protein, and frozen breakfast.
Operating loss for the segment was $216 million in the quarter primarily driven by the impairment charges discussed in further detail below. Adjusted operating profit increased 8.0% to $176 million as higher organic net sales and supply chain realized productivity more than offset the negative impacts of cost of goods sold inflation, continued elevated supply chain operating costs, increased SG&A, and unfavorable operating leverage.
Foodservice segment first-quarter results
Reported and organic net sales for the Foodservice segment increased 14.6% to $275 million in the quarter.
In the quarter, price/mix increased 18.8% and volume decreased 4.2%. The price/mix increase was driven by favorability in inflation-driven pricing. The volume decline was primarily due to the elasticity impact from inflation-driven pricing actions.
Operating profit for the segment decreased 94.1% to $1 million and adjusted operating profit increased 5.5% to $22 million in the quarter as the benefits of higher organic net sales and supply chain realized productivity more than offset the impacts of cost of goods sold inflation, elevated supply chain operating costs, and unfavorable operating leverage.
