Today Conagra Brands, Inc. (NYSE: CAG) reported results for the second quarter of fiscal year 2019, which ended on November 25, 2018. The Company completed the acquisition of Pinnacle Foods Inc. (Pinnacle) on October 26, 2018; these second quarter results include the impact of 31 days of Pinnacle ownership. All comparisons for Legacy Conagra results are against the prior-year fiscal period, unless otherwise noted. Certain terms used in this release, including "organic net sales," "retail sales," "Legacy Conagra," and certain "adjusted" results, are defined on page 6 of this release under the section entitled "Definitions."
Highlights
- As noted above, the Company completed the acquisition of Pinnacle on October 26, 2018.
- In the quarter, net sales grew 9.7%, driven primarily by the Pinnacle acquisition. Organic net sales excluding the sale of the Trenton, Missouri production facility (Trenton), decreased 1.6%. The Company estimates that 220 basis points of the decline in organic net sales growth is attributable to the impact of hurricanes in the prior-year period.
- The Refrigerated & Frozen segment continued its momentum in the second quarter, with net sales growth of 1.7% and organic net sales growth of 0.5%. The Legacy Conagra frozen business continued to deliver solid growth behind innovation-driven gains in distribution.
- Second quarter adjusted operating margin for Legacy Conagra was above the previously-provided second quarter guidance range and adjusted operating profit showed strong double-digit growth.
- Diluted earnings per share (EPS) from continuing operations decreased from $0.54 to $0.32 in the quarter, and adjusted diluted EPS from continuing operations grew 21.8% from $0.55 to $0.67. On a Legacy Conagra basis, adjusted diluted EPS for the quarter was above the Company's previously-provided second quarter guidance range.
- Informed by eight weeks of Pinnacle ownership, the Company expects to exceed the $215 million Pinnacle-related cost synergy target.
- The Company will host an Investor Day on April 10, 2019 in Chicago, Illinois where it will share more information on the Pinnacle synergy opportunities and the Company's long-term algorithm.
CEO Perspective
Sean Connolly, president and chief executive officer of Conagra Brands, commented on both the Legacy Conagra results and the newly acquired Pinnacle business. "For the Legacy Conagra Brands business, our second quarter results reflect continued momentum. Net sales were largely in line with our expectations. Our Refrigerated & Frozen and Grocery & Snacks segments continued to gain share with consistent, accelerating consumption trends behind strong innovation, particularly in our frozen and snacks & sweet treats businesses. Accordingly, we are reaffirming our fiscal 2019 net sales and margin guidance for Legacy Conagra Brands."
He continued, "In the short time since completing the Pinnacle acquisition, our team has been working hard on a seamless integration and an intense diagnostic to clarify both the challenges and opportunities within the Pinnacle portfolio. While we have identified challenges, they are clearly executional, not structural, in nature. We are aggressively applying Conagra's proven brand-building and innovation playbook to restore share growth. While this work will take time, we have done this before and remain confident in our ability to enhance Pinnacle's portfolio of leading brands and drive long-term shareholder value. Additionally, we expect to over-deliver on our cost synergy target. While we are starting from a lower base in fiscal 2019, we expect to deliver strong EPS growth off that base and hit the fiscal 2022 EPS target that drove our original EPS accretion guidance for this transaction, and we remain committed to our previously-communicated leverage target. We look forward to providing a more comprehensive update at our Investor Day."
