Analyst Note| Rebecca Scheuneman, CFA |
No-moat Conagra realized 8% organic sales growth in its fiscal second quarter, as consumers continue to eat most meals at home. Sales leverage and synergies from the Pinnacle deal drove a 250-basis-point bump in operating margins to 19.6%. We view this growth as largely temporary, as we expect consumers will return to eating about half of meals outside the home later in calendar 2021 when vaccines become broadly available, in line with historical levels. However, we think sustained benefits from the pandemic are available to food producers that can create products that appeal to consumers, leading to permanent share gains. We think Conagra fits the bill, fueled by its strategy that calls for disciplined portfolio management, assigning clear roles to each brand, and effectively backing the winners. We think the pandemic, which resulted in a large-scale (essentially free) trialing program, accelerates the benefits that Conagra will experience from its efforts.