(Reuters) - Conagra Brands Inc (CAG.N) forecast full-year adjusted profit below Wall Street expectations and hinted underperformance of some of the brands it bought as part of its Pinnacle Foods acquisition was hurting business, sending shares down as much as 12 percent.
Conagra, which bought the frozen food maker in October for $8.1 billion, said lack of innovation and sub-par execution had stalled growth at Pinnacle’s Birds Eye, Wish-Bone and Duncan Hines brands, accounting for most of the newly acquired company’s current problems.
“There’s only so much you can see in public company diligence, particularly when you buy a competitor ... we could see it all now,” Chief Executive Sean Connolly said on a post-earnings call.
“The deterioration in the legacy Pinnacle business over the course of calendar year 2018 means we have some hard work to do.”
Connelly said that the said issues would see Pinnacle under-deliver on its own pre-deal close internal targets, resulting in roughly $3 billion in sales at the end of 2018, or about $160 million or 5 percent below its earlier target.
As a result, net sales at Conagra for the second quarter, that included a month’s contribution from Pinnacle came to $2.38 billion, but was below analysts’ average estimate of $2.41 billion, according to IBES data from Refinitiv.
Sales from the year-ago period were also challenging to beat because of hurricane-fueled demand for packaged food during the comparative quarter.
Organic sales in the grocery and snacks unit, which is Conagra’s biggest and makes Slim Jims and Duke’s meat snacks, declined 1.9 percent in the quarter, with volumes dropping 2.2 percent as some scheduled shipments were pushed into the next quarter.
Truckers have been in short supply across the United States this year, and many food companies have been hit with surging freight costs. The rising costs and waning demand for packaged food as consumers turn increasingly to healthy eating have further hurt Conagra.
The company cut its adjusted earnings profit for the year to $2.03-$2.08 per share, short of the $2.11 per share analysts were forecasting.
Conagra’s full-year forecast implies a very conservative outlook for Pinnacle by the management, Jefferies analyst Akshay Jagdale said in a note.
Net income attributable to the company fell about 40 percent to $131.6 million in the second quarter ended Nov. 25. However, excluding items, the company earned 67 cents per share, surpassing expectations of 55 cents.
Reporting by Aishwarya Venugopal in Bengaluru and Richa Naidu in Chicago; Editing by Shinjini Ganguli and Bernadette Baum