Can Strategies To Boost Sales Help Conagra Pare Hurdles?

With rising costs and stiff competition weighing on the performance of most food companies, few players like Conagra Brands, Inc. (NYSE:CAG) are relying on efficient strategies to ensure profitability and stay afloat. Let’s take a closer look.

Value Over Volume Strategy & Other Efforts

Conagra is focused on boosting the top line on the back of its unique value-over-volume strategy. Under this regime, the company ensures that volume performance is not driven by price discounts but by stronger innovation as well as new merchandising, distribution and consumer trail-related investments. For instance, new investments to strengthen frozen business are likely boost sales in the Refrigerated & Frozen segment going forward. Meanwhile, brand renovation initiatives executed to reinforce the snacks business are likely to improve the Grocery & Snacks segment’s near-term sales. The company’s value-over-volume strategy along with efforts to undertake innovations to modernize brands are yielding, evident from top-line growth witnessed in the second quarter of fiscal 2019.

Moreover, the company is striving toward strengthening business through well-chalked acquisitions. On this front, Conagra completed the acquisition of Pinnacle Foods in October 2018.The consolidation of these food companies is likely to create a robust portfolio of leading, iconic and on-trend brands, which will help the combined entity to ramp up innovation and exploit long-term benefits in the frozen foods space. Markedly, including the impacts from Pinnacle Foods’ acquisition, Conagra anticipates net sales to grow 22-23% in fiscal 2019.

In previous instances, the company acquired Angie's Artisan Treats, LLC, which is strengthening the snacking business. The buyout of Sandwich Bros is also boosting the frozen business. In fact, contributions from Angie's BOOMCHICKAPOP and the Sandwich Bros. buyout drove the company’s second-quarter sales growth by about 200 basis points.

Additionally, the company is striving toward boosting performance in the Legacy Conagra business, which reflects the company’s efforts to strengthen ROI. In fact, the company expects net sales in the Legacy business to increase 0.5-1.5% in fiscal 2019.

Can Efforts Help Tide Over Hurdles?

Conagra is battling escalated input costs like many other Food-Miscellaneous industry players including Campbell Soup (NYSE:CPB) , Lamb Weston (NYSE:LW) and General Mills (NYSE:GIS) . During the second quarter, Conagra witnessed input cost inflation of nearly 2.9%. Notably, it saw a rise in transportation and warehousing expenses. Higher costs of packaging and certain ingredients weighed on gross margin in the said period. Well, the company anticipates input cost inflation to be 3.0-3.2% in fiscal 2019, which is a threat to margins. Apart from this, sales in the Foodservice segment are witnessing year-over-year declines for four straight quarters due to soft volumes. Thanks to such headwinds, Conagra’s shares have lost almost 28% in the past three months.

Nevertheless, we believe that this Zacks Rank #3 (Hold) company’s strategic buyouts and investments in profitable business areas will continue boosting sales. This is expected to provide some respite from the aforementioned headwinds.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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