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Conagra Brands Inc CAG

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Conagra's Strong Sales Growth May Not Last After Pandemic, but We Think Market Share Gains Will

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.

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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. Popular center-of-store brands include Duncan Hines, Hunt’s, Slim Jim, Vlasic, Orville Redenbacher's, and Chef Boyardee. While the majority of revenue is sold into the U.S. retail channel, we estimate about 8% of fiscal 2020 sales were to the food-service channel, down from 10% if fiscal 2019 due to the pandemic.

222 W. Merchandise Mart Plaza, Suite 1300
Chicago, IL, 60654
T +1 312 549-5000
Sector Consumer Defensive
Industry Packaged Foods
Most Recent Earnings Nov 30, 2020
Fiscal Year End May 31, 2021
Stock Type High Yield
Employees 16,500