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Conagra Brands has said a lack of product innovation at Pinnacle Foods, the fellow US manufacturer it acquired earlier this year, contributed to its disappointing second-quarter results.

Shares in Conagra fell by around 16% on Thursday (20 December) – hitting its lowest intra-day level in more than three years at one point – after it reported weaker-than-expected second-quarter revenues and forecasted lower-than-expected full-year earnings.

Conagra’s revenues of US$2.38bn for the quarter to 25 November were up on the $2.17bn generated in the corresponding period a year earlier – but came in below expectations of US$2.41bn.

In a post-results call with analysts, Conagra president and chief executive officer Sean Connolly partly blamed the results on the performance of Birds Eye and Duncan Hines brands owner Pinnacle Foods, the local peer which it bought October (after a deal announced in June) for $10.9bn. Conagra’s second quarter included 31 days of Pinnacle’s results. 

Connolly told analysts that, while he remains excited about the opportunities presented by the combined portfolio, there have been issues linked to Pinnacle’s strategy that have recently emerged.

“We successfully closed the transaction faster than originally expected. And frankly, I’m glad we’ve taken the reins. We’ve all seen the weak scanner data on key Pinnacle brands over the past several months, and the 31 days of results we’re reporting today aren’t where they need to be,” he said.

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“We need to bring our executional capabilities to the Pinnacle business now. We’ve spent eight weeks since close going deep on the Pinnacle business. We now have a clear understanding of the source of the weakness in the business and we’ve started to take action.”

Connolly added: “Near-term issues do exist in the Pinnacle business, but they are fixable and we are the right team to fix them. Conagra has the capabilities to put Pinnacle’s brands back on-track and deliver for its customers and consumers and shareholders.”

He said Pinnacle has suffered of late from a lack of innovation and poor execution.

“Birds Eye, Duncan Hines and Wishbone have all suffered sales and distribution losses this past year and this weakness accounts for the vast majority of Pinnacles current challenges,” he said.

“So what happened? Simply put, innovation and execution came up short. And when that happens, in my experience, a virtue-led cycle can sometimes emerge and that appears to be the case with respect to Pinnacle’s leadership brand.”

Asked by an analyst why such failings were not spotted at the due-diligence stage before its acquisition was completed, Connolly said: “Our passion for this business did not lead us to overlook anything at all as already mentioned, there’s only so much you can’t see in public due diligence.” 

He added: “Pinnacle, it’s not a brand, it’s a diverse company of brands. And so there were obviously businesses that were up and businesses that were down…….Wish-Bone, as an example with the business, one of the businesses, that was beginning to show challenges. But as you can see in your own charts, a lot of what we’re talking about here has really accelerated very dramatically in the second half of this calendar year. So that’s pretty late in the equation.”

Meanwhile, Connolly admitted during the call with analysts that Conagra also needs to do more to boost its own chilled foods unit.

He said: “As one of the final pieces of the legacy Conagra portfolio to receive attention, our refrigerated products still appear on the shelf today largely the same way they did in the 90s, and it shows in the results. 

“However, there’s a slate of exciting innovations coming to refrigerated in 2019.”