Conagra Brands shifts focus toward expansion

by Keith Nunes
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 Conagra
The company plans to introduce new products by the end of the fiscal year.
 

CHICAGO — Since taking over as the president and CEO of Conagra Brands, Inc., Sean Connolly has been consistent about his plan to eliminate ineffective promotion strategies and stock-keeping units (SKUs) and capitalize on the company’s higher margin brands. To offset the impact of the promotion and SKU realignment the company has adopted an aggressive cost savings program. Now it appears Conagra is set to shift from the focus on portfolio renovation to expansion.

“You have previously heard me discuss the importance of our portfolio management principles and how they continue to guide our actions,” Connolly said March 23 during a conference call with securities analysts to discuss the company’s third-quarter results. “Specifically, we have moved from a focus on volume at any cost to a focus on value creation, from a reliance on trade driven push tools to a reliance on stronger brands and, in turn, consumer pull.”

For the third quarter ended Feb. 26, Conagra net income totaled $180 million, equal to $0.42 per share on the common stock and a decline of 13 percent compared to the previous year when the company earned $206 million, equal to $0.46 per share.

Sales for the year fell 10 percent to $1,981 million compared with $2,199 million the previous year.

“As compared to Q3 of last year, we have driven 180 basis points of adjusted gross margin improvement behind our pricing and trade promotion discipline and strong supply chain productivity as well as some input costs favorability and the impact of divestitures,” Connolly said.

To gain momentum during the fourth quarter of fiscal 2017 and into fiscal 2018, Conagra Brands has an aggressive innovation push planned.

“In fiscal 2018, we will take the next step in migrating the (Healthy Choice) brand upmarket through the introduction of a new range of products that we are calling Power Bowls,” said Darren Serrao, chief growth officer. “These new Power Bowls reflect more contemporary food values and pack more ingredient diversity and density into each meal.

“We’ve combined antibiotic-free animal proteins, ancient grains, vegetables and dark, leafy greens, with pulses and seeds in a variety of delicious and bold flavors, all of which is served up in a bowl made from plant-based fibers. Our customers have responded very positively to this and we are looking forward to the launch this summer.”

Company executives are also planning on expanding the Banquet line of convenient meals with the introduction of Mega Meals and Mega Bowls.

 “Mega Meals are larger than the classic Banquet meals with substantially more protein and Mega Bowls adds contemporary, fast casual restaurant style options like Buffalo chicken mac and cheese and chicken fajita bowls,” Serrao said. “Although we continue to modernize and ‘premiumize’ Banquet, we continue to maintain Banquet’s role as a value meal within the category.”

Late last year Conagra Brands acquired the Frontera, Red Fork and Salpica brands. During the first quarter of fiscal 2018 the company plans to expand Frontera into the frozen meals category with the introduction of single-serve meals and multi-serve skillet meals.

“Conagra Brands continues to make progress executing our strategic plan,” said Dave Marberger, CFO. “We are upgrading our volume base. Gross margins are expanding and our SG&A cost-reduction program is progressing well.

“Our balance sheet is strong and gives us the flexibility to evaluate acquisition opportunities to drive share owner value, and our updated outlook for fiscal year 2017 continues to support the progress we have made year-to-date.”

Connolly added, “The upshot of all this is that our top line is pretty close to what we anticipated with perhaps a bit more challenging recent environment across the industry tied to some of the transitory dynamics that have been discussed,” he said. “But, the bottom line is, we are making very good progress overhauling this company for better margins and stronger brands going forward and we will continue to look for progressive improvement on the top line.”

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