CHICAGO – Conagra Brands Inc. adjusted the outlook for fiscal 2017 after reporting declines in net income and net sales for the third quarter.
The company now expects adjusted diluted earnings per share to be at or slightly above the high-end of the $1.65 to $1.70 range. Net sales (excluding the impacts of divestitures and foreign exchange) are expected to be at or slightly below the low-end of the range of down 4 percent to 5 percent. The company expects adjusted gross margin to be within range of 30.4 percent to 30.6 percent, while adjusted operating margin is expected to be slightly above the range of 15.3 percent to 15.5 percent.
“Now that we have completed the third quarter, we are updating our full year guidance to reflect the beneficial timing of certain costs and the softer near-term macro environment,” Sean Connolly, president and CEO, said in a statement. “We expect to deliver adjusted diluted EPS at or slightly above the high-end of our range with net sales (excluding the impacts of divestitures and foreign exchange) at or slightly below the low-end of our range.”
For the third quarter ended Feb. 26, 2017, diluted earnings per share from continuing operations surged to $0.41 from $0.16. Conagra attributed the result to lower selling, general, and administrative (SG&A) expenses associated with cost savings programs, in addition to lower interest expense as a result of debt reduction along with improved profitability in Ardent Mills. Results partially were offset by volume declines and the impact of the divestitures of the Spicetec Flavors and Seasonings and JM Swank businesses.
Net income attributable to Conagra Brands declined 12.2 percent to $179.7 million, or $0.41 per diluted share, compared with $204.6 million, or $0.46 per diluted share reported in the year-ago quarter.
Net sales for the quarter were $1,981.2 million, down 9.9 percent from $2,199.3 million reported in the third quarter of 2016.
On a segment basis, net sales in Grocery & Snack declined 5 percent to $850 million on a 5 percent decline in volumes due to “…a reduction in promotional intensity and the planned exit of certain lower-performing products,” the company said. Operating profit for the segment increased 32 percent, while adjusted operating profit increased 8 percent on continued margin expansion in the quarter.
In the Refrigerated & Frozen business, net sales eased 6 percent to $666 million. Volume also declined 6 percent.
“Price/mix was flat compared to the prior-year period as improvements in pricing and trade promotion practices across much of the portfolio were completely offset by reduced prices in select deflationary categories and unfavorable mix,” Conagra explained. “Net sales growth was also negatively affected by a transitory increase in Egg Beaters’ volume in the prior-year period associated with the avian flu outbreak. The company’s egg supply was unaffected by last year's avian flu outbreak, resulting in incremental sales for the brand.”
Operating profit for the segment increased 10 percent, and adjusted operating profit increased 5 percent.
Net sales in the company’s International segment decreased 3 percent to $205 million. A 2 percent decrease in foreign exchange and a 4 percent decrease in volume more than offset a 3 percent increase in price/mix, the company said. Operating profit advanced 10 percent, and adjusted operating profit increased 7 percent on higher price/mix and lower SG&A expenses.
The Foodservice segment reported net sales of $260 million, a 3 percent decline compared to a year-ago, the company said. Volume decreased 6 percent while price/mix increased 3 percent, driven by the impact of exiting a non-core business in the prior-year period.
Operating profit for the segment was flat compared to the year-ago quarter, reflecting general stability in the business, the company said.