Conagra Brands, Inc. CAG delivered fourth-quarter fiscal 2024 results, wherein the bottom and top lines declined year over year and the latter missed the Zacks Consensus Estimate. The company continued to witness challenging industry trends, including a slowdown in consumption. Shares of the company lost more than 2% in the pre-market trading session on Jul 11.
However, Conagra's strategic investments in brands have proven effective, leading to volume improvements in its Domestic Retail business, especially in the key Frozen and Snacks categories. Furthermore, the company's supply chain productivity efforts supported the expansion of adjusted gross margins. Management anticipates a gradual easing of the difficult industry trends as consumers adapt and set new reference prices.
Quarter in Detail
Conagra's quarterly adjusted earnings per share came in at 61 cents, which beat the Zacks Consensus Estimate of 56 cents. The bottom line declined 1.6% year over year.
Conagra Brands Price, Consensus and EPS Surprise
Conagra Brands price-consensus-eps-surprise-chart | Conagra Brands Quote
The company generated net sales of $2,905.9 million, which declined 2.3% year over year and missed the Zacks Consensus Estimate of $2,939 million. The top line included a 0.1% positive impact of currency movements.
Organic net sales decreased 2.4% year over year due to a 1.8% drop in volumes, which stemmed from the continuation of the slowdown in consumption. Also, the price/mix had a 0.6% adverse impact on organic sales as a result of elevated strategic investments. Our model suggested an organic sales decline of 1.4% and a volume decline of 1.2% for the fourth quarter.
The adjusted gross profit remained flat year over year at $803 million. The adjusted gross margin improved 62 basis points (bps) to 27.6%. This was due to higher productivity, which more than offset the adverse impacts of lower organic net sales, cost of goods sold inflation and adverse operating leverage. We had expected the adjusted gross margin to expand 40 bps to 27.4%.
Adjusted SG&A expenses, excluding advertising and promotional costs, remained flat year over year at $300 million.
Adjusted EBITDA (including equity method investment earnings and the pension and post-retirement non-service income) came in at $577 million, down from the $594.2 million recorded in the year-ago period.
Segmental Details
Grocery & Snacks: Quarterly net sales in the segment came in at $1,174.7 million, down 2.1% year over year. Organic sales also fell 2.1% due to a 3.6% drop in volumes, while the price/mix rose 1.5%. During the quarter, CAG saw unit share gains in snacking categories like microwave popcorn and seeds, and some staple categories like chili and cooking sprays.
Refrigerated & Frozen: Net sales and organic sales declined 3.8% year over year to $1,173 million. Our model suggested a 4% decline in net sales and organic sales for the quarter under review. The price/mix fell 4.7%, with volumes up 0.9%. The company saw unit share gains in frozen sides, frozen single-serve meals and frozen vegetables.
International: Net sales advanced 6.4% year over year to $266.8 million, reflecting improved organic net sales (up 4.3%) and positive currency effects (2.1%). Organic sales growth was driven by the price/mix (which climbed 0.2%) and volumes (which rose 4.1% due to strength in Mexico and global exports business).
Foodservice: Reported and organic sales declined 3.9% year over year to $291.4 million. The price/mix improved 6.4%, whereas volumes declined 10.3% on account of the ongoing effects of previously unveiled lost business, along with the current sluggishness in restaurant traffic.
Other Updates
The company exited the quarter with cash and cash equivalents of $77.7 million, senior long-term debt (excluding current installments) of $7,492.6 million, and total stockholders' equity of $8,511.3 million.
In fiscal 2024, Conagra generated $2 billion as net cash flows from operating activities, with capital expenditures amounting to $388 million. The company generated a free cash flow of $1.6 billion in the fiscal year.
In fiscal 2024, Conagra paid dividends worth $659 million. Following the fourth-quarter end, management announced the continuation of its dividend rate of $1.40 per share. The company will pay a quarterly dividend of 35 cents per share on Aug 29, 2024, to shareholders of record as of Aug 1.
Guidance
For fiscal 2025, organic net sales growth is anticipated to be in the range of 1.5% decline to flat. The adjusted operating margin is expected to be between 15.6% and 15.8%.
Management envisions an adjusted EPS in the range of $2.60-$2.65 in fiscal 2025 compared with $2.67 recorded in fiscal 2024.
For fiscal 2025, the net leverage ratio is anticipated to be nearly 3.2X. Capital expenditure is likely to be $500 million, interest expenses are expected to be $415 million, and the adjusted effective tax rate is forecasted to be 23.5%.
Shares of the Zacks Rank #3 (Hold) company have lost 0.5% in the past six months compared with the industry's decline of 6.2%.
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