CHICAGO — Net income for Conagra Brands, Inc. rose 66% during the second quarter of fiscal 2020 ended Nov. 24 to $260.5 million, equal to 53c per share on the common stock. The increased profit was attributed to the addition of Pinnacle Foods’ operating profit, the benefits of cost synergies from the acquisition of Pinnacle Foods and an increase in organic net sales.
Sales for the quarter rose 18% to $2,820.8 million.
“During the second quarter, we made solid progress across our business,” said Sean M. Connolly, president and chief executive officer of Conagra Brands. “We delivered organic net sales growth in each of our reporting segments as we continue to implement the Conagra way to profitable growth.”
Organic sales rose 1.6% during the quarter and Mr. Connolly said the company is on track to meet its fiscal 2020 guidance range of 1% to 1.5%.
“Innovation takes time to build awareness, trial and repeat purchases,” he said. “The products we introduced in fiscal year ‘19 are performing even better in the first half of fiscal ‘20 as consumers continue to respond well to our on-trend innovation slate. And building on this success … the new products we launched in the first half of this year are already outperforming fiscal ‘19’s new innovation through two quarters.”
Sales for the Refrigerated and Frozen food segment increased 28.8% to $1.2 billion in the quarter, with the acquisition of Pinnacle Foods adding 28.1% of the net sales growth and the divestiture of the Gelit business subtracting 1.7%. Organic net sales increased 2.4%. On an organic net sales basis, volume increased 0.5% and price/mix increased 1.9%.
“We’ve been securing an increased share of shelf in recent quarters,” Mr. Connolly said. “As a result, we’re winning in market and benefiting from an increased share of sales. We’ve been gaining this share by actively partnering with our retail customers to drive profitable growth. These gains have come from introducing new innovations as well as increasing ‘phasings’ and velocities on core items. The result has been stronger growth and market share.”
Single-serve meals continued to lead the business unit through the second quarter, according to the company. The Healthy Choice, Marie Callender’s and Banquet brands have been performing well, and Mr. Connolly said the former Pinnacle Foods brands Evol, Udi’s and Hungry-Man are accelerating.
“One of the legacy Pinnacle brands that we’ve prioritized over the last 12 months is Birds Eye,” Mr. Connolly said. “As expected, sales and distribution on Birds Eye declined as we removed lower-performing s.k.u.s (stock-keeping units) from the market. Now the brand’s distribution trend is starting to bend behind new innovation launches.”
The Birds Eye brand is expected to grow in the second half of the year as Conagra Brands grows the vegetable-based carb replacements introduced earlier this year, and launches spiralized vegetable applications later during the fiscal year.
Sales in Conagra’s Grocery and Snacks business unit rose 14.2% to $1.1 billion in the quarter, with the acquisition of Pinnacle adding 16.9% of the net sales growth and the divestiture of the Wesson oil and D.S.D. snacks businesses subtracting 3.6%. Organic net sales increased 0.9%. On an organic net sales basis, volume increased 2.1% during the quarter, and price/mix decreased 1.2%.
Conagra management also said it expects synergies from the Pinnacle Foods acquisition to exceed expectations for the year. The company realized $42 million of cost synergies during the second quarter of fiscal 2020 and bringing the total to $112 million since the close of the acquisition.
“Today, we are increasing our synergy capture expectation for fiscal ‘20 from approximately $160 million to approximately $180 million,” said David S. Marberger, chief financial officer. “And we are updating our total synergy target from approximately $285 million to approximately $305 million through fiscal ‘22.
“The $20 million of additional synergy is primarily driven by favorable S.G.&A., A&P and trade efficiency. We made the strategic decision to reinvest the additional $20 million back into the business this fiscal year. We have a long list of sales-driving investment opportunities available to us: improved product quality and packaging, further retailer and distribution investments to support the long-term growth of our brands, and consumer-facing advertising.”
The company reaffirmed its fiscal 2020 guidance and Mr. Marberger said Conagra Brands expects second-half results to show stronger organic net sales growth than in the first half due to the timing of the impacts of new innovation in the Frozen & Snacks business, improved trends in key grocery brands as well as the impact of easier year-over-year comparisons.