Conagra(US:CAG)2022-10-06 16:42Financial Data and Key Metrics Changes - Conagra reported organic net sales of over $2.9 billion, a 9.7% increase year-over-year [7] - Adjusted operating margin was 13.7%, slightly down from the previous year due to supply chain inefficiencies [7] - Adjusted earnings per share (EPS) increased by 14% to $0.57 compared to the prior year [7][16] Business Line Data and Key Metrics Changes - Retail sales grew by almost 9% year-over-year and over 24% compared to three years ago [8] - Frozen segment sales increased by 8% year-over-year and 27% over three years, driven by plant-based proteins and single-serve meals [9] - Snacks segment retail sales rose by 13% year-over-year and 36% over three years, with microwave popcorn sales increasing by over 20% [9] - Grocery and Snacks segments achieved net sales growth of 10.5% and 9.6% respectively [18] Market Data and Key Metrics Changes - The company gained market share in frozen and snacks domains, with increases of 0.8 and 1.5 percentage points respectively [8] - Private label products have increased their dollar share in certain categories, but Conagra's exposure remains limited [11] Company Strategy and Development Direction - Conagra aims to strengthen its balance sheet while investing in business and returning cash to shareholders [7] - The company is focused on productivity initiatives and maintaining operating margin targets despite supply chain challenges [14][15] - Continued investments in brand-building and strategic pricing actions are planned to offset inflation [24][25] Management's Comments on Operating Environment and Future Outlook - Management expects the operating environment to remain dynamic, with inflation pressures persisting but moderating in certain areas [15][24] - The company is confident in achieving fiscal '23 guidance, supported by strong brand performance and productivity initiatives [25] - Supply chain improvements are ongoing, but some operational challenges are expected to continue [14][41] Other Important Information - The company reported a net leverage ratio of 3.9 times, down from 4 times at the end of fiscal '22 [22] - Capital expenditures decreased to $125 million, while free cash flow increased significantly [23] - The company reaffirmed its fiscal '23 guidance across all metrics [23] Q&A Session Summary Question: Changes in volume trends and retailer reactions to new pricing - Management noted stable net elasticities, indicating a positive response to pricing actions despite some anticipated volume weakness due to broader pricing [26][28] Question: Expectations for gross margin recovery - Management expects sequential improvement in gross margins, with the highest inflation impact already seen in Q1 [29][31] Question: Outlook on cost inflation and key drivers - Management remains cautiously optimistic about cost inflation, noting some initial relief in commodity prices but acknowledging ongoing volatility [33][35] Question: Impact of supply chain challenges on gross margin - Management indicated that operational challenges have impacted productivity, but improvements are expected as supply chain conditions normalize [72][75] Question: Promotional activity and its relationship with service levels - Management stated that promotional activity is currently low but may increase selectively as service levels improve [42][43]