Conagra Continues to Gain Market Share, Despite Private-Label Strength; Shares Look Appetizing

Our primary takeaway from Conagra’s fiscal first-quarter results is that its brands are performing better than we expected in the face of consumer trade-down to private label. Although private brands have been gaining grocery market share since January, Conagra continues to gain share. The total company gained 10 basis points of share during the quarter, with its priority snack and frozen categories (63% of U.S. retail sales) gaining 70 basis points. We attribute these gains to the turnaround efforts employed under CEO Sean Connolly, including a reshaped portfolio to focus on differentiated, higher-growth categories, innovations based on data-driven consumer insights, and more effective marketing investments. While we applaud these actions and acknowledge that Conagra has several leading brands, its relative underinvestment (3% spent on marketing and R&D collectively compared with 6% for peers) lowers our conviction that it can maintain this brand strength over the long term, resulting in our no-moat rating.