People are buying more TV dinners and frozen vegetables, by this account

By Tomi Kilgore

Conagra beats quarterly profit and sales expectations, amid strength in its grocery and snacks business

Shares of Conagra Brands Inc. surged Thursday, after the food brands company beat fiscal third-quarter earnings expectations, fueled by record market-share performance in the frozen single-serve meals category.

And while sales volume in the U.S. was still down, it continued to improve as increased investments in merchandising have been paying off, especially in frozen foods.

The stock (CAG) jumped 5.8% toward an eight-month high in afternoon trading. The stock was also headed for the biggest one-day gain since it ran up 6.8% on March 26, 2020, and the best post-earnings performance since it shot up 15.9% on Dec. 19, 2019.

"Volume trends in our domestic retail business continued to improve as targeted investments, particularly in frozen, generated strong lifts and unit share gains," said Chief Executive Sean Connolly.

He said frozen single-serve meals achieved record market share of 51.2% during the third quarter, an improvement from 50.8% in the second quarter and from 49.5% in the same period a year ago.

The strongest performances from its largest brands, such as Healthy Choice, Banquet, P.F. Chang's Home Menu and Marie Calendars.

For frozen vegetables, Connolly said that it had previously seen value-conscious consumers trading down, first from fresh vegetables to frozen vegetables, then from frozen to canned vegetables, "despite the obvious quality trade-offs." But following new advertising in the Birds Eye brand, Connolly said he's seeing a "come back" in frozen veggies.

Regarding results for the quarter to Feb. 25, net income fell to $308.6 million or 64 cents a share, from $341.7 million, or 71 cents a share, in the same period a year ago.

Excluding nonrecurring items, adjusted earnings per share of 69 cents beat the FactSet consensus of 65 cents.

Sales declined 1.7% to $3.03 billion, but topped the FactSet consensus of $3.01 billion to snap a three-quarter streak of misses.

Gross margin improved 1.14 percentage points to 28.3%, as costs of goods sold fell 3.3% - nearly double the decline in sales.

Among the company's business segments, grocery and snacks sales grew 3.4% to $1.3 billion, as pricing and mix increased 4.2% while volume decreased 0.8%. But volume marked an improvement from the 3.7% decline in the second quarter and the 4.4% drop in the first quarter.

Refrigerated and frozen sales dropped 8.1% to $1.2 billion, as the 3.3% drop in volume matched the decline of the previous quarter but was much better than the 10.5% fall in the first quarter.

Elsewhere, foodservice sales declined 1% to $273 million while international sales rose 4.6% to $272 million.

Looking ahead, the company nudged its full-year adjusted operating margin outlook to 15.8% from 15.6% and affirmed its adjusted EPS guidance range of between $2.60 and $2.65.

The stock has tacked on 7.3% year to date, while the Consumer Staples Select Sector SPDR ETF (XLP) has gained 3.7% and the S&P 500 has advanced 9.9%.

-Tomi Kilgore

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04-04-24 1406ET

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