CHICAGO – Conagra Brands faced several difficult issues during fiscal 2019. Competitive pressures combined with manufacturing issues for some of its brands and a weak performance by its Ardent Mills joint venture all combined to challenge the company. In a word, Sean M. Connolly, chairman and chief executive officer, called the performance “disappointing.”
Net income for the year ended May 26 fell 16% to $678.3 million, equal to $1.53 on the common stock, which compared with $808.4 million, or $2 per share, in fiscal 2018.
Fiscal 2019 sales rose 20% to $9,538.4 million, primarily driven by the acquisition of Pinnacle Foods.
“Fiscal 2019 was a year of remarkable transition,” Mr. Connolly said June 27 during a conference call with financial analysts. “We did a major deal that required more attention than originally anticipated, but I’m pleased to report that we continue to make progress stabilizing the Pinnacle business.”
Mr. Connolly said many of the headwinds occurred during the fourth quarter.
“(Fourth quarter) organic net sales growth in the legacy Conagra business missed our guidance by 240 basis points, which equates to about $43 million,” he said. “The unexpected items that drove this shortfall included negative impacts of intensified promotional competition in our Hunt's, Chef Boyardee and Marie Callender's businesses. This drove about three-quarters of our sales miss this quarter. We view this as a transitory renting of market share that happens from time to time. We are not going to let these near-term events disrupt our disciplined approach to brand building.”
Mr. Connolly added that Conagra Brands experienced some unexpected manufacturing and co-packer-related challenges during the quarter that impacted results. He did not go into details, but the brands affected included P.F. Chang’s, Duke’s and Peter Pan.
“These issues were one-off in nature and have been addressed,” he said.
Ardent Mills’ profit eroded during the quarter due to lower-than-anticipated wheat prices and reduced volatility in the wheat markets, according to the company.
On a positive note, Mr. Connolly said of fiscal 2019 that Conagra advanced its innovation agenda, did see continued traction in frozen meals and snacks, and made the Pinnacle acquisition.
“So, despite the speed bump, we are clearly still advancing our playbook,” he said. “And that's why, in terms of fiscal '20, we feel very good about the top-line drivers we have in place. We're very confident that we will all like what we see.”
In fiscal 2020, the company expects net sales growth to be between 13.5% and 14%, and organic sales growth to be in the range of 1% to 1.5%. The company expects its fiscal 2020 earnings per share to be in the range of $2.08 to $2.18.
During the conference call, Mr. Connolly gave an update on the integration of Pinnacle foods. Fourth-quarter sales for the business were $757 million, which came in at the high-end range of Conagra’s guidance.
“I’m very happy to report that the big three brands — Birds Eye, Wish-Bone and Duncan Hines — all (made) progress toward stabilization in Q4,” he said. “We’ve begun to implement our value-over-volume playbook with the Pinnacle portfolio, and overall, we feel good about our progress just seven months after closing this major strategic acquisition.
“As expected, the implementation of our value-over-volume approach resulted in short-term sale declines as we pruned the low-performing s.k.u.s (stock-keeping units) to clear the decks for our new innovations. The good news is that the products in the market are performing well. We're building a stronger base on which to layer new innovations coming to the market later this year.”