ConAgra

ConAgra rose prices while benefiting from poorer workers and work-from-home

ConAgra CEO said the company was benefitting from “inflation-driven pricing actions and lower-than-expected elasticities.” “Sean Connolly — President and Chief Executive Officer: Thanks, Brian. Good morning, everyone and thank you for joining our second quarter fiscal 2022 earnings call. Today, Dave and I will discuss our results for the quarter, our updated outlook for the remainder of the year and why we believe that Conagra continues to be well positioned for the future. I’d like to start by giving you some context for the quarter. First, as you all know, the external environment has continued to be highly dynamic. But our team remained extremely agile in the quarter and executed the Conagra Way playbook. We navigated the ongoing complexity and delivered strong net sales growth anchored in elevated consumer demand that continued to exceed our ability to supply, inflation-driven pricing actions and lower-than-expected elasticities. While our net sales exceeded our expectations, margin pressure in the second quarter was also higher than expected driven by three key factors.” (Conagra Brands, Inc Q2 2022 Earnings Call, 1/6/2022)

ConAgra predicted further price increases in the first half of 2022. “Sean Connolly — President and Chief Executive Officer: Now, let’s turn to the path ahead. You can see on Slide 17 we currently expect gross inflation to be approximately 14% for fiscal 2022 compared to the approximately 11% we anticipated at the time of our first quarter call. This is a large increase and we’re taking actions to offset the increase while still investing in the long-term health of our business. To help manage our increasing inflation, we’re taking incremental pricing actions, including list price increases and modified merchandising plans. Many of these actions have already been announced to our customers. As a reminder, there is a lag in timing between the impact of inflation and our ability to execute pricing adjustments based on that inflation. As a result, the incremental price increases will go into effect in the second half of the year with the most significant impact during the fourth quarter. While it’s easy to get caught up in the quarter-to-quarter impact of inflation and pricing, it’s important to keep focused on the big picture.” (Conagra Brands, Inc Q2 2022 Earnings Call, 1/6/2022)

ConAgra’s CEO said “Millennial and Gen Z consumers are earlier in their careers and earning less than the older generations of working-age people…bodes well for food-at-home trends.” “Sean Connolly — President and Chief Executive Officer: First, let’s talk about the near term. As you can see in the chart on the left, Millennial and Gen Z consumers are earlier in their careers and earning less than the older generations of working-age people. This is natural, but it bodes well for food-at-home trends in the shorter term. We believe that even as foodservice bounces back, younger consumers will be value conscious in their food choices. Fewer younger consumers are expected to achieve the financial success of the generations before them. The data on the right suggests that Millennials are more likely to earn less than their parents. We believe this means that these savvy consumers will look to stretch their food dollars further even as they age. The data also shows that younger consumers are already eating more at home. Compared to the population as a whole, Gen Z and Millennials have decreased restaurant visits more and sourced a larger percentage of their meals at home. As these younger consumers have made the shift to at-home eating, the data shows that they’re finding comfort in the quality, reliability and familiarity that national brands provide. We believe this makes a lot of sense. National brands provide value while replicating many of the on-trend flavors and modern food attributes that consumers are used to experiencing in away-from-home dining.” (Conagra Brands, Inc Q2 2022 Earnings Call, 1/6/2022)

ConAgra saw a long term benefit from a shift from away-from-home eating because food away-from-home remained much more expensive than food-at-home. “Sean Connolly — President and Chief Executive Officer: When consumers make trades like away-from-home to in-home eating, trust is paramount. In short, national brands, particularly modernized brands like those in our portfolio, deliver on this trust imperative and that’s because they offer superior relative value versus other food options. As consumers seek to stretch their household balance sheets in the face of broad-based inflation, one of the single largest levers available to them is the reduction in spending on food away from home as food-away-from-home prices are typically over three and a half times more expensive than food-at-home prices. This trade will likely become even more important for consumers as food-away-from-home prices have already increased faster than at-home prices in calendar 2021 and they are expected to increase at nearly twice the rate as at-home prices in calendar year 2022Our aggressive modernization of the Conagra portfolio over the past several years has put us in a strong position to capitalize on these structural shifts. Our portfolio has shown its competitive advantage with excellent trial, depth of repeat and share gain performance. Overall, we believe Conagra is well positioned to leverage these shifts to create meaningful value for shareholders.” (Conagra Brands, Inc Q2 2022 Earnings Call, 1/6/2022)

ConAgra’s CEO said it did not control list prices used by retailers, but noted they usually passed ConAgra’s price increases onto their customers. “Sean Connolly — President and Chief Executive Officer: Well, I would just say that I think the pricing is getting through. We have certainly been very upfront with our customers about the true cost inflation we are experiencing and what we believe is the justified action or in this case, actions — consecutive actions to take price. And different — we don’t control what customers do with the price they put on the shelf. But I’d say, on average, they tend to pass it through pretty close to the way we pass it through to them. There may be some that take a small margin grab, equally there may be some that compress because they want to gain market share. So it tends to come out in awash and it tends to be pretty much in lockstep. But what I would say is keep following the scanner data, because we anticipate that the pricing actions that we take are going to show up in that scanner data. It’s unfolded thus far, Jon, pretty consistently with what we expected.” (Conagra Brands, Inc Q2 2022 Earnings Call, 1/6/2022)

ConAgra’s CEO claimed its price increases were much lower than those of food-away-from-home and said the company was benefitting from the transition to work from home. “Sean Connolly — President and Chief Executive Officer: And then as we wrap pricing, that’s when you start to see meaningful margin expansion. In terms of sales, Dave, I know you got some comments here for Rob. But I — Rob, one thing I want to keep coming back to here is, the calculus on how the consumer determines value. Historically, it might be widget A versus widget B side-by-side on the shelf and if you see a $0.20 increase, it translates to meaningful elasticity. That’s not the comparator today. The comparator today is we are selling a product that might have been $2.69 and it might go up to $2.89 or something like that versus the alternative is to go away-from-home where prices have increased even faster and it’s $14.50. We are clearly a superior value proposition versus that and that is what the consumer is seeing. And part of that is being aided by the fact that they are working at home. A lot of these consumers are working at home now. They are not working in the office. So there’s more structural stuff at play here than you would typically see and that’s why we believe we have seen very little elasticity. We have seen some, but much lower than historical to-date and we don’t see a whole lot of reasons that’s going to change materially going forward.” (Conagra Brands, Inc Q2 2022 Earnings Call, 1/6/2022)