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Conagra (CAG) Benefits From Foodservice Recovery & Online Sales

Conagra (CAG) is gaining from recovery in the foodservice channel, growth in online sales and efforts to boost portfolio. However, input cost inflation is a concern.

This story originally appeared on Zacks

From shifting demand conditions and growth in e-commerce to ups and downs in outdoor dining, food companies encountered numerous changes in the pandemic. Thanks to vaccinations, food consumption and buying habits are normalizing now that restrictions have eased. Renowned food company Conagra Brands, Inc. CAG is gaining from recovery in the foodservice channel as individuals are spending more time outdoors. It is also been riding on growth in online sales and prudent efforts to boost portfolio, including innovations and buyouts. Such upsides have kept the company afloat amid tough year-over-year comparisons, divestitures and inflationary trends for key product inputs. Let’s delve deeper.

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Foodservice on Recovery Track

Conagra is seeing recovery in the Foodservice business, as restaurant traffic is increasing with pandemic-led restrictions being lifted and higher outdoor movement. In first-quarter fiscal 2022, Foodservice segment sales moved up 20.9% year on year to $239.8 million, owing to a rise in organic sales. Notably, organic sales increased 21.7% and volumes were up 20.1%. Price/mix inched up 1.6%. The segment saw favorable comparisons with the last year’s drab Foodservice sales — caused by the initial pandemic impact. With a persistent rise in outdoor dining trends, the Foodservice business looks well placed.

E-commerce Gains Sheen

Consumers’ inclination toward online ordering reached a new high during the pandemic. This factor has propelled several food companies to strengthen online capabilities. Conagra’s e-commerce investments have been yielding favorable results. In first-quarter fiscal 2022, the company continued to register growth in the e-commerce business, amounting to nearly $1 billion. E-commerce sales represent about 9% of the company’s total retail sales.

Pricing Gains & Efforts to Boost Product Offerings

Conagra’s efficient pricing initiatives have been an upside. In the first quarter, price/mix improved 1.6% and aided organic sales growth. Favorable price/mix was mainly the result of positive net pricing and brand mix. The company’s prudent pricing actions will likely support the bottom line in the forthcoming periods.

Speaking of boosting portfolio strength, Conagra’s acquisition of Pinnacle Foods helped it create a robust portfolio of leading, iconic and on-trend brands. The move is ramping up innovation and is facilitating the company to exploit the long-term benefits in the frozen foods space. Management has been boosting some of Pinnacle Foods’ business banners, especially the Gardein brand, which holds a solid position in the plant-based meat-alternatives food space. Cost synergies from Pinnacle Foods’ buyout have been supporting gross-margin performance. Conagra had stated that it expects to achieve $305 million worth of synergies (less pandemic-led costs) by the end of fiscal 2022.

Conagra is committed toward undertaking innovation, which is the key to the company’s success. Despite the pandemic, the company continued to focus on innovations. Management highlighted that innovation across the portfolio was a success during first-quarter fiscal 2022. Prudent innovations have been helping the company to modernize the portfolio and meet consumers’ changing needs. Some of the company’s new products have been top-performing in most categories, including snacks, sweet treats, frozen vegetables and frozen meals. 

Wrapping Up

Conagra’s sales volume is being affected by tough comparisons with the year-ago period’s initial spike in at-home food demand. Volumes in most of the company’s segments were hurt by tough comparisons with the year-ago period’s initial demand surge. The divestitures of the H.K. Anderson business, the Peter Pan peanut butter business and the Egg Beaters businesses affected the top line. Moreover, the company has been grappling with cost inflation. Although management is focused on pricing and saving efforts to combat inflation, the timing and gains from these initiatives are likely to be more skewed toward the second half of fiscal 2022.

We expect the aforementioned upsides to continue driving Conagra and help it overcome the prevailing challenges. We expect the company to continue maintaining a strong footing in the food space.

Efforts Undertaken by Other Food Companies

United Natural Foods, Inc. UNFI is a leading distributor of natural, organic and specialty food and non-food products. The company gaining from solid growth in e-commerce. Many of its independent channels and a great proportion of Chains channel currently provide e-commerce solutions to customers. UNFI is undertaking endeavors to improve the e-commerce platform, strengthen delivery offerings and enhance data analytics and merchandising ideas. United Natural Foods launched the Community Marketplace — a business-to-business digital e-commerce solution designed for emerging brands.

United Natural Foods is on track to undertake growth initiatives like boosting brands, professional services and fresh offerings. Management is making progress with strategies like deepening penetration with existing customers, introducing owned brands to new customers as well as channels and undertaking customer-friendly innovations. UNFI is also undertaking various acquisitions over the years to expand the distribution network and customer base.

The Hain Celestial Group, Inc. HAIN has been gaining from growth in the Get Bigger brands, backed by strong household penetration. The category has also been gaining from increased buying rate and velocity compared with the pre-pandemic levels. Hain Celestial’s well-chalked innovations and acquisitions along with marketing and assortment-optimization efforts have been yielding.  HAIN is also on track with boosting automation capabilities in plants to lower costs, optimize infrastructure, redesign engineered products and optimize pricing. It has also been executing its simplified pricing model.

Hain Celestial is progressing well with its transformation strategy to deliver sustainable profits. The strategy is aimed at simplifying portfolio, identifying additional areas of productivity savings and enhancing margins. HAIN is also progressing with its efforts to rationalize SKU’s, thereby eliminate SKUs based on lower sales volumes or weak margins.

The well-known chocolate products, candy and snacks manufacturer, Mondelez International, Inc. MDLZ, is enjoying elevated demand. The company has been witnessing robust demand in developed markets, while performance in the emerging markets continues to improve. Efficient pricing strategies and higher volumes have been favoring Mondelez’s organic revenues. MDLZ is also benefiting from the recovery in World Travel Retail and the gum and candy categories.

Mondelez’s focus on brand building through innovation and lucrative acquisitions along with cost savings bodes well. MDLZ is simplifying operations by reducing the number of low-turn SKUs from the portfolio. The company is progressing with its restructuring program — the Simplify to Grow Program.

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