Conagra Faces Rare Earnings Miss Amid Manufacturing Disruption

Consumer packaged goods giant Conagra (CAG, Financial) is facing significant backlash today after missing earnings expectations due to a larger-than-expected year-over-year sales decline in Q1. Known for brands like Slim Jim and Vlasic, Conagra had warned that FY25 would be a transitional year, but the company hasn’t missed top and bottom-line estimates since Q3 2020, making today’s results particularly surprising.

• What happened?
  • Conagra experienced a manufacturing disruption, halting production at its Hebrew National hotdog plant during peak grilling season. Although operations have resumed, Hebrew National saw a 47% drop in sales year-over-year. This issue reduced consolidated volumes by 60 basis points and total organic sales by 90 basis points.
  • The Refrigerated and Frozen segment was hit harder, losing an estimated 150 basis points in volumes and 210 basis points in organic net sales.
• Earnings and sales fell by 19.7% and 3.8% year-over-year, respectively. Organic net sales, excluding FX impacts, divested businesses, and M&A, declined by 3.5%. Volumes decreased by 1.6% year-over-year, marking Conagra’s 14th consecutive quarter of volume decline.
• Despite these setbacks, there were some positives. Even with the Hebrew National impact, volumes improved sequentially from the previous two quarters’ 1.8% decline. Conagra also saw year-over-year volume growth in its frozen and snacks categories. Management noted that staples volumes should continue to improve as the company exits Q1, with around 71% of Conagra’s portfolio holding or gaining volume share in Q1.

Amid inflationary pressures and a strained consumer base, Conagra’s manufacturing disruption is a significant setback. However, the company expects Q1 to be an outlier, with most of the impact from the plant disruption confined to this quarter. Management reiterated its FY25 guidance, including adjusted EPS of $2.60-2.65 and organic sales growth from negative 1.5% to flat year-over-year.

Investors remain concerned that the lingering macroeconomic headwinds might prevent Conagra from recovering the shortfall in the remaining quarters, leading to significant profit-taking today. Conagra had seen a rise of over 16% from July lows leading into its Q1 report.