Image Source: ConAgra
By Brian Nelson, CFA
On April 4, ConAgra Brands (CAG) reported decent third quarter fiscal 2024 results, with revenue coming in-line with expectations and the company’s bottom line numbers beating out the consensus estimate. Net sales fell 1.7% from the prior-year period, while organic net sales declined 2%. Its weak organic net sales were driven by both a negative impact from price/mix and lower volumes.
ConAgra’s adjusted gross profit margin increased 52 basis points in the quarter as higher productivity more than offset inflationary pressures, but higher advertising and promotional spending weighed on performance. The company’s operating margin faced some headwinds in the period, falling 49 basis points on an adjusted basis, to 16.4%. Adjusted diluted earnings per share in the quarter fell 9.2%, to $0.69.
In the company’s Grocery & Snacks segment, the firm experienced strong pricing power, with price/mix increasing 4.2%, which was only partially offset by volume declines of 0.8%. Management noted that it gained dollar share in several categories including chili, pudding, microwave popcorn, seeds, and canned meat. Adjusted operating profit in the category increased 16.5%.
Its Refrigerated & Frozen segment, however, experienced considerable weakness, with adjusted operating profit falling more than 25% in the quarter, as ConAgra experienced headwinds with both price/mix and volumes in the segment. Adjusted operating profit increased more than 16% in its International segment thanks in part to strength in its Mexico business. Its Foodservice business showcased a 40%+ increase in adjusted operating profit.
Management had the following to say about the quarter:
Our Q3 results demonstrate steady progress stemming from strong execution. Volume trends in our domestic retail business continued to improve as targeted investments, particularly in frozen, generated strong lifts and unit share gains. Outstanding progress on our cost savings initiatives allowed us to support strategic investments in our brands while sustaining margin recovery. We also continued to deliver substantial improvements in free cash flow enabling us to meaningfully reduce our net leverage ratio over the first three quarters of 2024. Our long-term focus remains on executing our strategic priorities and generating value for our shareholders.
The company ended its fiscal third quarter with ~$8.7 billion in total debt and $78.5 million in cash and cash equivalents, so ConAgra operates with a hefty net debt load, but the company continues to deleverage (total debt was ~$9.3 billion at the end of its fiscal third quarter last year). Its net-debt to adjusted EBITDA was 3.44x at the end of the quarter, in-line with its guidance for the fiscal year. Looking ahead to all of fiscal 2024, ConAgra expects net sales to fall 1%-2% and adjusted earnings per share to come in the range of $2.60-$2.65, the midpoint higher than the consensus forecast at the time.
ESG Considerations
Conagra has a 50+ page Citizenship Report that walks through a plethora of ESG considerations. The company is dedicated to good and safe food, responsible sourcing, lessening its impact on the climate, while building stronger communities. Roughly 85% of its solid waste produced at its facilities is diverted to other beneficial uses, while the company has donated more than 30 million pounds of food, the equivalent of more than 25 million meals for food banks. The company’s Code of Conduct for its suppliers “specifies that (it) will not source certain commodities from areas designated as high risk for deforestation.”
As it relates to animal welfare, “ConAgra strives to partner with suppliers who share (its) values and agree to standards consistent with (its) Animal Welfare Position Statement.” Its science-based climate change goals include reducing absolute Scope 1 and 2 greenhouse gas emissions by 25% by 2030. The company is also making strides with diversity and inclusion, but it still has more work to do in this area. Less than 40% of the board is female or people of color, and just 36% of employees at the management level are female.
Concluding Thoughts
ConAgra’s third-quarter fiscal 2024 results were decent, with the company showcasing strong free cash flow generation and further debt reduction. Year-to-date free cash flow at ConAgra totaled ~$1.2 billion versus $436 million during the same period a year ago. Cash dividends paid were $492 million over the same time, so ConAgra is doing a good job covering its dividend obligations with traditional free cash flow. We view this as a distinct positive for a company yielding ~4.8% at the time of this writing and think ConAgra is a consideration for investors seeking free-cash-flow covered yields and strong ESG initiatives.
———-
Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, RSP, SCHG, QQQ, QQQM, and VOO. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
Valuentum members have access to our 16-page stock reports, Valuentum Buying Index ratings, Dividend Cushion ratios, fair value estimates and ranges, dividend reports and more. Not a member? Subscribe today. The first 14 days are free.