Analyst Note| Rebecca Scheuneman, CFA |
Our high-level takeaway from no-moat Conagra’s fiscal 2022 third quarter is that despite a difficult environment, the firm is managing the variables under its control well. Specifically, Conagra has improved its innovation process to develop on-trend products more effectively, resulting in an 80-basis-point increase in its market share in the last two years. That said, factors outside of its control continue to cause headwinds. Inflation has continued to accelerate, resulting in the need for another round of price increases (on top of the 10% already employed), to be put in place in the first fiscal quarter. While elasticities were rather resilient through the third quarter (ended Feb. 27), as gasoline prices rose in March, consumers began migrating to private brands across grocery, which is likely to pressure Conagra’s volumes going forward. Although Conagra has sold several businesses with high private brand exposure, we estimate that 40% of its U.S. retail sales still stem from categories in which private label has a significant presence (down from 50%).