Demand for frozen food products at supermarkets and grocery stores in the USA continues to heat up Conagra Brands’ sales results and reflect positively in quarterly reports, as evidenced by Q1 figures recently posted by the Chicago, Illinois-headquartered company. The latest numbers show that the refrigerated and frozen segment generated 3.2% net sales growth to $635 million, and an organic net sales gain of 1.4%, as the acquisition of Sandwich Bros. of Wisconsin added 180 basis points to the net sales growth rate.
Refrigerated and frozen net sales and organic net sales surged 51% and 1.5%, respectively, with organic growth in both volume and price mix.
“Fiscal 2019 is off to a good start despite a continued, challenging inflationary environment,” said CEO Sean Connolly. “We earned increased distribution, particularly in our frozen business.”
Volume grew 0.5% as innovation launches such as Banquet Mega Bowls and Mega Meals, Healthy Choice Power Bowls, Marie Callender’s bowls, P.F. Chang’s Home Menu bowls and skillets, Odom’s Tennessee Pride sandwiches and Reddi-wip Non-Dairy whipped topping more than offset declines in certain refrigerated businesses. Price/mix increased 0.9% as improved pricing and mix were partially offset by increases in retailer investments to drive brand saliency, enhanced distribution, and consumer trial.
However, operating profit decreased 6.4% in the quarter, and adjusted operating profit decreased 6.3% as higher net sales and supply chain realized productivity were more than offset by higher input costs and transportation expenses.
During a conference call with investors and stock analysts on September 26, Connolly noted that Conagra is highly focused on executing its playbook on the Birds Eye frozen vegetable brand as well as Duncan Hines. “We’re confident that they will continue to stabilize and are on track for profitable growth,” he remarked.
The chief executive officer was pleased to report “terrific momentum” in the company’s frozen and snacks businesses.
“We continued our momentum in the legacy Conagra frozen portfolio throughout the first quarter, with retail sales growing 2.5%. In addition, our legacy frozen meals business continued to outperform our peers in Q1. In fact, it has become the industry leader in the frozen category. Our legacy Conagra frozen meals business now has the number one position in share of total retail sales and gained share of category dollars in Q1,” said Connolly.
CEO Sean Connolly
Meanwhile, a better than anticipated performance from the Gardein meat-free products brand is expected within the Foodservice segment, which will start to be included in the company’s organic numbers during the second quarter. In retail, Gardein is positioned to gain prominence in both frozen and refrigerated segments.
Replying to a question from Steve Strycula, an analyst at UBS Investment Bank, Connolly went into some detail about dynamics and velocity impacting the frozen retail sector.
“There’s a lot going on right now in frozen. Dynamic times,” stated the chief executive officer. “We’ve got shelf sets being kind of reshuffled at major customers. A big part of that is to accommodate this whole higher holding capacity on high velocity items to support the click and collect business, which by the way, is not just a customer priority – it’s our priority. Our sales look better when we’ve got more holding power on high velocity items. So, a lot of dynamics going on.
“Within that, in space constrained spaces, you may and likely will see TPDs coming down. And I think this is important because sometimes TPDs are assumed as a proxy of real estate, and it is not an accurate proxy of real estate, where actually single-serve meals is growing in real estate. So, a lot of this is happening right now as we speak.”