(Reuters) - Conagra Brands Inc’s (CAG.N) on Thursday missed Wall Street estimates for quarterly earnings and sales as low prices and aggressive store promotions by rival food makers ate into demand for Marie Callender’s, Hunt’s and Chef Boyardee products.
Chicago-based Conagra’s shares fell 12% to $25.44, the stock’s worst day in six months.
The U.S. consumer goods industry has struggled with soaring commodity and freight costs for more than a year. Forced to raise prices, Conagra and its peers have lost market share to low-priced private label brands at Walmart (WMT.N), Kroger (KR.N) and Amazon.com (AMZN.O).
Conagra told Reuters it expected another inflationary year, driven by increased costs for raw materials such as pork amid African swine fever outbreaks. The company raised prices for Hunt’s canned tomatoes last year after tariffs and strong global demand drove steel costs up by double-digits.
“By the end of the quarter, price gaps were simply too wide for consumers to ignore and we lost volume,” Conagra Chief Executive Sean Connolly said, noting that quarterly results were below expectations.
Sales in Conagra’s refrigerated and frozen business, previously a bright spot for the company, declined 0.6% to $687 million due in part to lower demand and a P.F. Chang’s recall.
“Conagra’s growth momentum in the frozen category appears to have started to taper off,” Bernstein analyst Alexia Howard said. “This seems to have coincided with Kraft Heinz’s (KHC.O) heavy promotion in frozen products.”
Conagra beefed up its portfolio of frozen food with its acquisition of Pinnacle Foods in 2018, adding healthy products from meat-alternative brand Gardein and Birds Eye.
“It might take longer than we thought for Conagra to normalize as management adjusts its business to the Pinnacle acquisition and fixes its shorter-term issues,” Edward Jones analyst John Boylan said.
Conagra said it was also hit hard towards the end of the quarter by manufacturing challenges at its P.F. Chang’s, Dukes and Peter Pan brands. The company’s sales were weakened further by the divestment of its Wesson oil business and the impact of foreign exchange.
With the sale of its frozen Italian-food brand Gelit, Conagra expects current-year adjusted profit of $2.08-$2.18 per share, largely below estimates of $2.16, according to IBES data from Refinitiv.
Net sales rose 32.9% to $2.61 billion, mostly because of the acquisition of Pinnacle Foods, but missed expectations of $2.66 billion. Excluding items, the company earned 36 cents per share, short of the average analyst estimate of 41 cents.
Net sales in the company’s grocery and snacks business - its biggest after Pinnacle and home to brands such as Slim Jim and Peter Pan - fell 7.1%.
(Graphic: Conagra's Grocery & Snacks Sales Fall in Fiscal '19 link: tmsnrt.rs/2Ydket0)
For an interactive graphic, click: tmsnrt.rs/2Lkq7kF
Reporting by Aishwarya Venugopal in Bengaluru and Richa Naidu in Chicago; Editing by Sriraj Kalluvila and Nick Zieminski