Conagra Brands posted a volume-led decline in first-quarter organic net sales on Wednesday, with high inflation and price-sensitive consumers hampering new CEO John Brase's efforts to turn around the packaged foods company, reported Reuters.
The Slim Jim meat sticks maker, whose shares slumped more than 5.5% to an over three-month low, reaffirmed its fiscal 2027 guidance for an organic net sales decline of 1% to 3% from a year earlier, although first-quarter profit and sales beat Wall Street estimates, according to LSEG data.
"You definitely have a pressured consumer," Brase told Reuters. "There's no doubt about it."
Conagra had halved its annual dividend in July and said it was reviewing its non-core assets, with Brase, who took over in June, stating that brands that were not playing a great strategic role could be divested and others added.
Persistent inflation — especially in gas prices — and higher borrowing costs have pressured household budgets, prompting consumers to trade down to cheaper private-label alternatives, while the rapid adoption of GLP-1 weight-loss drugs is forcing packaged food makers to reformulate products to meet demand for healthier food.
The company expects full-year volume declines in the mid-single digits "factoring in greater-than-historical volume elasticities, particularly within our frozen business," CFO Dave Marberger said in pre-recorded remarks.
Pricing and product mix contributed 1% to total organic net sales in the first quarter, with volumes down 2.1%, Conagra said.
The drop in sales volumes, inflation pressures and unfavorable operating leverage led to a 3.9% drop in adjusted gross profit to $619 million during the quarter, a fall that was slightly offset by $4 million in tariff refunds.
Marberger said that inflation has accelerated around transportation, because "our freight costs have been going up significantly." Prices for animal proteins — particularly chicken, beef and pork — have been more favorable, he added.
Quarterly net sales in the refrigerated and frozen segment fell 2.1% from a year earlier, while volumes decreased 1% and prices fell 1.5%.
"The core challenge remains unchanged: six consecutive years of volume declines, a portfolio that management acknowledges is too large and too complex, and a consumer environment that is unforgiving of pricing missteps," said RBC analysts in a note.
The company's total quarterly net sales came in at $2.60 billion, narrowly beating estimates of $2.59 billion.
Quarterly adjusted earnings per share stood at 41 cents, compared with analysts' estimates of 28 cents.
Click here to see more...