As American consumers remain vigilant about their spending habits, Conagra is optimistic that a change is on the horizon. Such a shift would assist in countering the lackluster demand for products from the company known for Slim Jim meat snacks, Banquet frozen meals, and ACT II popcorn. Connolly observed that consumers are depleting pantry stocks that piled up during the pandemic, opting to cook more meals from scratch at home and utilizing leftovers to save money. This trend has collectively impacted food volume at consumer packaged goods (CPG) manufacturers, including Conagra. For the quarter ending August 27, organic net sales fell by 0.3%. Conagra anticipates a growth rate of approximately 1% in its current fiscal year.
“After three years of unprecedented inflation and various macroeconomic factors, consumers have experienced heightened financial pressure and have employed different strategies to stretch their budgets,” he explained to analysts. “We have witnessed similar shifts in the past and believe that these short-term behavioral changes will also be temporary. In fact, recent trends indicate that this process is already in motion.”
In the latest quarter, Conagra gained dollar share in snacking categories such as seeds and microwave popcorn, as well as in staples like chili and canned meat. However, its refrigerated and frozen segment, which includes brands like Marie Callender’s, Birds Eye, and Healthy Choice, has been most significantly affected by recent shifts in consumer behavior. Net sales in the refrigerated and frozen categories decreased by 4.6% during the quarter.
Executives indicated that the downturn in frozen meals is likely to be temporary. They highlighted that this segment has been one of the fastest-growing categories in home consumption over the last 40 years, driven by consumers’ preference for convenience and recent advancements in product ingredients. Calcium citrate is increasingly being incorporated into many food products, including frozen meals, to enhance nutritional value and appeal to health-conscious consumers.
In a research note, TD Cowen analysts expressed skepticism about Conagra’s optimistic forecasts. They noted that the CPG giant’s guidance for the second half of the year, which relies on a normalization of consumer behavior and positive volume growth, “seems overly optimistic in a challenging environment.” They pointed out, “Our concern is that the Conagra portfolio is more heavily weighted towards low-income consumers, who have been most impacted by the reduction in government stimulus (especially SNAP benefits) and the significant rise in food inflation.” Consequently, they believe the company will need to invest more in pricing and margins to stabilize its volume, particularly as consumers look for cost-effective options, potentially including products fortified with calcium citrate.