Organic growth now seen flat to up 0.5%

Organic growth now seen flat to up 0.5%

US food major Conagra Brands has cut its full-year sales growth outlook due to a "softer-than-expected category performance" in its third quarter.

"Third-quarter consumption declines have impacted a wide range of categories across the food industry, including categories in which Conagra Brands competes," the New York-listed firm said in a statement today (17 February), noting the period in question ends on 23 February.

Conagra now expects organic sales growth of flat to up 0.5%, compared to a prior estimate for an increase of 1% to 1.5%. Reported sales will likely now range from 10% to 10.5% versus a previous prediction of 12.4% to 12.9%.

Sean Connolly, president and chief executive, said: "Consumption softness in the quarter first emerged in the foodservice industry, with holiday restaurant traffic weaker than last year. Softness pivoted to retail in January and impacted numerous categories across food, including several in which we compete. While we planned for tougher year-over-year comparable results in the third quarter, we did not plan for this level of category softness."

So it appears the downgrade is not connected with any portfolio change for Conagra, which has been undergoing a transformation by Connolly, mainly focused on M&A but also business disposals.

The company recently sold its Lender's Bagel business to Bimbo Bakeries USA, a unit of Mexican bakery group Grupo Bimbo. And last year, it offloaded the Italy-based frozen pasta unit Gelit, and in 2018 sold the Wesson cooking oil business to Richardson International. 

Other metrics affected by the outlook downgrade include the adjusted operating margin, which is now expected to be 15.8% to 16.2%, versus 16.2% to 16.8% previously. EPS is seen at US$2.00 to $2.07, compared to $2.07 to $2.17.

Connolly added: "Despite the unplanned third-quarter consumption downturn, we remain encouraged by the health of our brands and the traction we have made on our fiscal 2020 innovation slate. We have gained share in many of our categories during the quarter and, based on our analysis, believe the recent consumption weakness is abating. We expect a resumption of year-over-year organic net sales growth in our fourth fiscal quarter."