Chicago / IL. (cag) ConAgra Brands Inc. reported results for the fourth quarter and fiscal year 2023, which ended on May 28. All comparisons are against the prior-year period, unless otherwise noted. Highlights:
- Fourth quarter:
- Reported and organic net sales increased 2.2 percent
- Operating margin decreased 544 basis points in the quarter to 1.9 percent; adjusted operating margin decreased 39 basis points to 14.6 percent
- Diluted earnings per share (EPS) for the fourth quarter decreased 75.8 percent to USD 0.08, and adjusted EPS decreased 4.6 percent to USD 0.62
- Full year fiscal 2023:
- Net sales increased 6.4 percent; organic net sales increased 6.6 percent
- Operating margin decreased 291 basis points to 8.8 percent; adjusted operating margin increased 125 basis points to 15.6 percent
- Diluted EPS for fiscal 2023 decreased 22.8 percent to USD 1.42, and adjusted EPS increased 17.4 percent to USD 2.77
- The Company is providing fiscal 2024 guidance to reflect:
- Organic net sales growth of approximately 1 percent compared to fiscal 2023
- Adjusted operating margin between 16 percent and 16.5 percent
- Adjusted EPS between USD 2.70 and USD 2.75
- The Board of Directors has authorized a 6 percent increase to the Company’s annualized dividend rate, beginning with the dividend payable on August 31, 2023, reflecting continued confidence in the strength of the business.
CEO Perspective
President ansd CEO Sean Connolly: «Our business delivered strong results in fiscal 2023, as we successfully delivered on our priorities to execute inflation-justified pricing, drive gross margin recovery, and reduce net leverage while investing to maintain the strength of our brands. These efforts, and the continued implementation of our playbook, have our brands well-positioned following the volatility of the past few years. Looking ahead, we anticipate transitioning toward a more normalized operating environment in fiscal 2024 – with easing inflationary pressures and improved supply chain operations – and remain committed to our long-term financial algorithm.»
Total Company Fourth Quarter Results
In the quarter, reported and organic net sales increased 2.2 percent to USD 3.0 billion. The 2.2 percent increase was driven by a 9.9 percent improvement in price/mix, which was partially offset by a 7.7 percent decrease in volume. Price/mix was driven by the company’s inflation-driven pricing actions and favorable brand mix. The volume decrease was primarily driven by the elasticity impact from inflation-driven pricing actions and shortages from supply chain disruptions.
Gross profit increased 9.8 percent to USD 783 million in the quarter, and adjusted gross profit increased 11.0 percent to USD 803 million. Fourth quarter gross profit benefited from higher organic net sales and productivity, which more than offset the negative impacts of cost of goods sold inflation (including unfavorable commodity positions) and unfavorable operating leverage. Gross margin increased 183 basis points to 26.3 percent in the quarter, and adjusted gross margin increased 216 basis points to 27.0 percent.
Selling, general, and administrative expense (SG+A), which includes advertising and promotional expense (A+P), increased 45.5 percent to USD 726 million in the quarter primarily due to USD 345 million of brand impairment charges. Adjusted SG+A, which excludes A+P, increased 24.3 percent to USD 301 million driven by incremental supply chain and technology investments along with increased incentive compensation compared to the prior year quarter.
A+P for the quarter increased 49.7 percent to USD 69 million, driven primarily by increases in modern marketing and customer investments along with wrapping strategic reductions in the prior year period.
Net interest expense was USD 108 million in the quarter. Compared to the prior-year period, net interest expense increased 12.2 percent or USD 12 million, primarily due to a higher weighted average interest rate on outstanding debt.
The average diluted share count in the quarter was 480 million shares.
In the quarter, net income attributable to Conagra Brands decreased 76.4 percent to USD 37 million, or USD 0.08 per diluted share. Adjusted net income attributable to Conagra Brands decreased 5.1 percent to USD 299 million, or USD 0.62 per diluted share. The decrease was driven primarily by the increase in SG+A.
Adjusted Ebitda, which includes equity method investment earnings and pension and postretirement non-service income, increased 0.6 percent to USD 594 million in the quarter, primarily driven by the increase in adjusted gross profit, offset by higher SG+A and lower pension income.
Total Company Fiscal 2023 Results
For the full fiscal year, net sales increased 6.4 percent to USD 12.3 billion. The growth in net sales primarily reflects:
- a 0.2 percent decrease from the impact of foreign exchange; and
- a 6.6 percent increase in organic net sales.
For the full fiscal year, gross profit increased 15.0 percent to USD 3.3 billion and adjusted gross profit increased 16.1 percent to USD 3.3 billion as the benefits from higher organic net sales and productivity more than offset the negative impacts from cost of goods sold inflation (including unfavorable commodity positions), unfavorable operating leverage, and elevated supply chain operating costs. Gross margin increased 198 basis points to 26.6 percent and adjusted gross margin increased 226 basis points to 27.1 percent. For the full fiscal year, EPS decreased 22.8 percent to USD 1.42 and adjusted EPS increased 17.4 percent to USD 2.77, driven by an increase in adjusted operating profit. For the full fiscal year, the Company generated USD 995 million in net cash flows from operating activities and USD 633 million of free cash flow.
Grocery + Snacks Segment Fourth Quarter Results
Reported and organic net sales for the Grocery + Snacks segment increased 3.6 percent to USD 1.2 billion in the quarter. In the quarter, price/mix increased 9.1 percent and volume decreased 5.5 percent. Price/mix was driven by favorability in inflation-driven pricing. The volume decrease was primarily driven by the elasticity impact from inflation-driven pricing actions and shortages from supply chain disruptions. In the quarter, the company gained share in snacking categories including meat snacks and seeds, and some staples categories including canned pasta and Asian sauces and marinades. Operating profit for the segment decreased 4.5 percent to USD 156 million in the quarter. Adjusted operating profit decreased 8.1 percent to USD 235 million as the negative impacts of cost of goods sold inflation (including unfavorable commodity positions), unfavorable operating leverage, and increased A+P and SG+A more than offset the impacts from higher organic net sales and productivity.
Refrigerated + Frozen Segment Fourth Quarter Results
Reported and organic net sales for the Refrigerated + Frozen segment decreased 1.1 percent to USD 1.2 billion in the quarter. In the quarter, price mix increased 10.4 percent and volume decreased 11.5 percent. Price/mix was driven by favorability in inflation-driven pricing. The volume decrease was primarily driven by the elasticity impact from inflation-driven pricing actions and shortages from supply chain disruptions due to a third-party supplier shutdown. In the quarter, the company gained share in categories such as frozen sides, multi serve meals, and frozen breakfast sausage. Operating profit for the segment decreased to a USD 43 million loss in the quarter as a result of the brand impairment charges outlined above. Adjusted operating profit increased 17.7 percent to USD 218 million as higher organic net sales and productivity more than offset the negative impacts of cost of goods sold inflation (including unfavorable commodity positions), unfavorable operating leverage, and increased A+P and SG+A.
International Segment Fourth Quarter Results
Net sales for the International segment increased 8.6 percent to USD 251 million in the quarter reflecting:
- a 0.9 percent decrease from the unfavorable impact of foreign exchange; and
- a 9.5 percent increase in organic net sales.
On an organic net sales basis, price/mix increased 13.8 percent and volume decreased 4.3 percent. Price/mix was driven by inflation-driven pricing. The volume decrease was primarily a result of the elasticity impact from inflation-driven pricing actions. Operating profit for the segment increased 265.0 percent to USD 21 million in the quarter. Adjusted operating profit increased 70.7 percent to USD 34 million as the benefits from higher organic net sales and productivity were partially offset by the negative impact of cost of goods sold inflation (including unfavorable commodity positions) and increased A+P and SG+A.
Foodservice Segment Fourth Quarter Results
Reported and organic net sales for the Foodservice segment increased 5.5 percent to USD 303 million in the quarter. In the quarter, price/mix increased 9.3 percent and volume decreased 3.8 percent. Price/mix was driven by inflation-driven pricing. The volume decline was primarily a result of the elasticity impact from inflation-driven pricing actions. Operating profit for the segment increased 46.7 percent to USD 32 million and adjusted operating profit decreased 2.3 percent to USD 28 million in the quarter as the benefits of higher organic net sales and productivity were more than offset by the negative impacts of cost of goods sold inflation (including unfavorable commodity positions) and unfavorable operating leverage.
Other Fourth Quarter Items
Corporate expenses increased 103.5 percent to USD 108 million in the quarter and adjusted corporate expense increased 50.7 percent to USD 82 million in the quarter driven by incremental supply chain and technology investments along with increased incentive compensation compared to the prior year quarter. Pension and post-retirement non-service income was USD 6 million in the quarter compared to USD 19 million of income in the prior-year period. In the quarter, equity method investment earnings increased 32.8 percent to USD 63 million, driven by continued favorable market conditions for the Ardent Mills joint venture, and the venture’s effective management through recent volatility in the wheat markets. In the quarter, the effective tax rate was (102.0) percent compared to 14.4 percent in the prior-year period due primarily to a valuation allowance adjustment. The adjusted effective tax rate was 24.3 percent compared to 22.3 percent in the prior-year period. In the quarter, the company paid a dividend of USD 0.33 per share.
Dividend Update
Subsequent to quarter-end, the Company’s Board of Directors approved an increase of the annual dividend from USD 1.32 per share to USD 1.40 per share. The Company’s new quarterly dividend payment of USD 0.35 per share of Conagra common stock will be paid on August 31, 2023 to stockholders of record as of the close of business on July 31, 2023.
Outlook
The company is providing the following guidance for fiscal 2024:
- Organic net sales growth is expected to be approximately 1 percent compared to fiscal 2023
- Adjusted operating margin is expected to be between 16 percent and 16.5 percent
- Adjusted EPS is expected to be between USD 2.70 and USD 2.75
- Net Leverage Ratio of approximately 3.4x
- Capital expenditures of approximately USD 500M
- Interest expense of approximately USD 450M
- Adjusted effective tax rate of approximately 24 percent
- Contribution from the company’s joint venture, Ardent Mills, is expected to be approximately USD 150M
- Pension income of approximately USD 0
The company also expects cost of goods sold inflation to continue into fiscal 2024. Guidance anticipates net inflation (input cost inflation including the impacts of hedging and other sourcing benefits) to be roughly 3 percent. The inability to predict the amount and timing of the impacts of foreign exchange, acquisitions, divestitures, and other items impacting comparability makes a detailed reconciliation of forward-looking non-GAAP financial measures impracticable.
Items Affecting Comparability of EPS
The following are included in the USD 0.08 EPS for the fourth quarter of fiscal 2023 (EPS amounts are rounded and after tax).
- Approximately USD 0.01 per diluted share of net expense related to restructuring plans
- Approximately USD 0.55 per diluted share of net expense related brand impairment charges
- Approximately USD 0.01 per diluted share of net expense related to acquisitions and divestitures
- Approximately USD 0.02 per diluted share of net expense related to corporate hedging derivative losses
- Approximately USD 0.01 per diluted share of net expense related to legal matters
- Approximately USD 0.01 per diluted share of net expense related to a third-party vendor cybersecurity incident
- Approximately USD 0.06 per diluted share of net benefit related to valuation allowance adjustments
- Approximately USD 0.01 per diluted share of net benefit related to rounding
The following are included in the USD 0.33 EPS for the fourth quarter of fiscal 2022 (EPS amounts are rounded and after tax).
- Approximately USD 0.02 per diluted share of net expense related to restructuring plans
- Approximately USD 0.02 per diluted share of net expense due to fire related costs
- Approximately USD 0.33 per diluted share of net expense related to brand impairment charges
- Approximately USD 0.01 per diluted share of net benefit related to legal matters
- Approximately USD 0.01 per diluted share of net benefit related to environmental matters
- Approximately USD 0.03 per diluted share of net benefit related to unusual tax items
Please note that certain prior year amounts have been reclassified to conform with current year presentation.
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