Release Date: December 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Conagra Brands Inc (CAG, Financial) reported that their shipments and consumption tracked closely, indicating stable inventory levels with customers.
- The company has seen consistent growth in their frozen and snack business, with investments in these areas showing positive returns.
- Conagra Brands Inc (CAG) is experiencing strong brand performance and industry-leading share performance, particularly in frozen and snacks.
- The company is focused on maintaining top-line momentum, which has been effective in driving growth.
- Conagra Brands Inc (CAG) has a balanced approach to capital allocation, with a focus on achieving a long-term leverage target by fiscal 2026.
Negative Points
- Conagra Brands Inc (CAG) is facing incremental inflation and foreign exchange pressures, impacting their earnings per share expectations.
- The company's leverage ratio forecast has increased due to a reduction in profit expectations.
- Operating margins are expected to be lowest in the third quarter, influenced by higher inflation and increased investment in innovation.
- There is a small benefit from hurricane impacts in the quarter, but it is not material to overall results.
- Conagra Brands Inc (CAG) is experiencing challenges in offsetting higher costs due to consumer price sensitivity, particularly in categories like cocoa and protein.
Q & A Highlights
Q: Sean, we saw a gap between scanner and Conagra shipments during the quarter. Did the Thanksgiving timing change impact volume, and will it reverse in the third quarter?
A: Sean Connolly, CEO: Our Q2 shipments were up 1%, and consumption was up 0.6%, tracking closely. Our inventory levels with customers were even with a year ago, so there was no Thanksgiving timing effect for us.
Q: You mentioned incremental inflation and FX affecting EPS. Is incremental investment part of this dynamic?
A: Sean Connolly, CEO: Our strategy to invest in growth started in Q2 last year and is built into this fiscal year's plan. These investments are working, with consistent growth over five quarters. We shifted some funds from Q2 to Q3 but are satisfied with our top-line momentum.
Q: Can you expand on your leverage targets and free cash flow conversion?
A: David Marberger, CFO: Our leverage ratio forecast is now 3.4 times due to profit takedown. Free cash flow conversion is above 100% due to net income adjustments. We're focused on working capital improvements and aim to reach a 3 times leverage target by fiscal '26.
Q: What are the key drivers for the expected Q4 operating margin inflection?
A: David Marberger, CFO: We expect sequential volume improvement in Q3, with some trade and innovation investments impacting margins. Inflation will be higher in Q3 than Q4, contributing to the margin dynamics.
Q: How is the competitive environment in frozen, and how might it impact your volume improvement?
A: Sean Connolly, CEO: Frozen is a strong space, and we've been leading innovation. Our products and market share are strong, and we plan to continue driving growth in this category.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
