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Conagra Brands Inc CAG

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PREMIUM

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PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

Conagra’s Turnaround Efforts Reviving Brands; Investors Should Warm to This Frozen Food Player

Analyst Note

| Rebecca Scheuneman, CFA |

Over the past several years, Conagra has made many changes to improve its growth and profit margin profile, changes we think the market underappreciates. The firm significantly reshaped its portfolio toward faster growing categories and overhauled its innovation process to be based on behavioral data, which is more reliable than gathering insights via consumer responses from surveys and panels, a practice common in the industry today. Conagra also dramatically shifted its marketing investments toward more relevant and efficient digital formats and extracted significant costs from its operations. As a result, Conagra has swung from market share losses to modest gains, from declining sales to growth (even before the pandemic), and improved operating margins from 10.8% in 2015 to 16.5% in fiscal 2020. We think the pandemic likely accelerated its turnaround, as it resulted in four and a half years of incremental new buyers and saved the firm hundreds of millions in customer acquisition costs, per management. While we are impressed with these improvements, we think Conagra still falls short of a moat. We think it will be difficult for its brands to maintain their leadership positions given the firm’s relative underinvestment in marketing and innovation (4.2% and 0.6% of sales for Conagra, respectively, versus 5.3% and 1.3% for peers).

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Company Profile

Business Description

Conagra Brands is a packaged food company that operates predominantly in the United States (92% of revenue and 94% of profits). It has a significant presence in the freezer aisle, with brands such as Marie Callender’s, Healthy Choice, Banquet, and Birds Eye. Other popular brands include Duncan Hines, Hunt’s, Slim Jim, Vlasic, Orville Redenbacher's, Reddi-Wip, Wish-Bone and Chef Boyardee. While the majority of revenue is sold into the U.S. retail channel, 9% of fiscal 2020 sales were to the food-service channel, down from 11% in fiscal 2019 due to the pandemic.

Contact
222 W. Merchandise Mart Plaza, Suite 1300
Chicago, IL, 60654
T +1 312 549-5000
Sector Consumer Defensive
Industry Packaged Foods
Most Recent Earnings Feb 28, 2021
Fiscal Year End May 31, 2021
Stock Type Classic Growth
Employees 16,500

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