Conagra’s 1Q18 Sales Beat Estimates despite Falling Year-over-Year
Sales versus estimate
Conagra Brands’ (CAG) fiscal 1Q18 sales of $1.8 billion came in ahead of analysts’ estimate but fell 4.8% YoY (year-over-year). Meanwhile, organic sales fell 3.0%, reflecting lower volumes and planned brand divestitures. However, management noted sequential improvement in its organic sales as the rate of decline subsided when compared to a 5.5% fall in fiscal 2017. Notably, Conagra has surpassed analysts’ sales expectations in the past two consecutive quarters.
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Factors impacting Conagra’s top line
Conagra’s top line was negatively impacted by lower volumes, reflecting declining demand due to the consumer shift from packaged foods to fresh and healthy foods. Meanwhile, the company’s focus on portfolio optimization through the divestiture of low-margin businesses further remained a drag.
Also, the company’s increased investments in slotting fees to support the launch of new products adversely impacted the net sales growth rate. However, improved price and mix benefitted the sales growth rate by 2.3%, while the acquisition of Frontera, BIGS, and Duke’s brands contributed about 1.7% to sales growth.
In comparison, most of the company’s packaged food manufacturing peers are also witnessing lower sales. The slowdown in demand in North America is affecting the sales. During fiscal 1Q18, General Mills’ (GIS) top line fell 4.0% YoY. Meanwhile, Campbell Soup (CPB), Kellogg (K), Kraft Heinz (KHC), and J.M. Smucker (SJM) also reported a YoY decline in sales in the past several quarters.
Management stood by its guidance
Conagra expects to benefit from innovation-led new product launches in fiscal 2018. Plus, the company’s recently acquired brands are also projected to help its sales. However, lower demand, brand divestitures, and increased slotting investments are likely to offset these positives.
The company reaffirmed its earlier guidance and projects net and organic sales to remain flat or fall as much as 2% in fiscal 2018.