Once the dust settles from the separation, Conagra Brands will stand as a company with approximately $8 billion in annual sales. The new iteration will feature four business units, with Grocery & Snacks making up 41 percent of sales, Refrigerated & Frozen (35 percent), Foodservice (14 percent) and International (10 percent). Branded products will represent 91 percent of sales, hence the emphasis on the second part of the new name.
|Sean Connolly, president and CEO of Conagra Brands|
“You’ve known about ConAgra for a long time,” said Sean Connolly, president and CEO, on Oct. 18 during a meeting with financial analysts to outline the company’s business plan post separation. “This is a different animal, and there is potential here, and we are going to be able to unlock it because we are a pure play for the first time.
“This is a totally new era. We are not the ag business that we started as 100 years ago, or almost 100 years ago. We are certainly not the global conglomerate that we’ve been for decades. For the first time in our history, we will be a branded CPG pure play largely focused in North America, and we are incredibly excited about what that means and the focus that will bring.”
To clarify the Conagra Brands mission, Connolly focused on trends that have occurred in consumer packaged goods. He noted scale was once a source of competitive advantage that allowed the largest companies to attract the best talent.
“And if you are truly objective about it, underpinning this dynamic in a lot of cases was a culture that was very bureaucratic, internally-focused and political. And if you think about talent and the goal of winning the war for talent, it’s awfully hard to attract or retain the best talent in the industry with that dynamic.”
Future success for the company involves “breaking from some bad habits,” Connolly said. Most notably, Conagra’s management is shifting its focus from volume to value creation; moving from what he called undisciplined innovation efforts to a more disciplined innovation program; and replacing “erratic” advertising and promotion efforts to focused and consistent advertising and promotion.
“ … Those legacy practices did us no favors,” Connolly said. “Not only did it train our consumer base to wait for a deal to buy on a deep discount, but it also contributed to margins that meaningfully lag our peers. In other words, a lot of this margin gap is self-inflicted and we can do something about that because as our practices change, our margins can improve and you are already seeing that.”
Value creation will involve broadening the market for many of the company’s brands. Hunt’s tomato, Connolly said, is adding on-trend attributes like now being made with raw materials that are not genetically modified.
Going forward, Conagra’s management team will have five priorities — portfolio segmentation so the company may allocate resources properly; the development of insights that translate into brand-building and innovation; aggressive LEAN execution; integrated margin management; and mergers and acquisitions.
Priorities for the company in fiscal 2017 will involve transforming the Banquet brand.
Conagra also is undergoing a period of stock-keeping unit (SKU) rationalization, because “we have a long tail of SKUs that add up to a small amount of our volume and we are letting some of that business go,” Connolly said.
On mergers and acquisitions, Connolly said the company will put them in two buckets: modernizing acquisitions, which tend to be smaller bolt-on efforts, and synergistic acquisitions, which tend to be larger.
He added that the company is not opposed to divestitures for businesses that don’t fit the new Conagra model; that might have a more limited coherence with the company’s objectives.
Once the spin-off with Lamb Weston is complete, Connolly said the company will focus on improving top-line trends while continuing to expand margins.
“So when you put it all together, it adds up to a fairly robust financial algorithm. What you should expect from us in terms of our growth CAGR is 1 percent to 2 percent through 2020, and as you think about gross margin, we are looking to chip away at about 60 basis points per year, and that will translate to an operating profit CAGR of 4 percent to 5 percent. We will buy back shares and when you put all that together, that will translate to an eps CAGR of about 10 percent. (It) all adds up to a total shareholder return in the ballpark of 12 percent, clearly a compelling place to put your money.”