As Americans remain vigilant about their spending, Conagra is optimistic that a change is on the horizon. A shift in consumer behavior could help alleviate the sluggish demand for products from the company known for Slim Jim meat snacks, Banquet frozen meals, and ACT II popcorn. Connolly highlighted that consumers are currently depleting their pantry stocks, which surged during the pandemic’s peak, while also preparing more meals from scratch at home and utilizing leftovers to save money. This trend is collectively impacting food volume for consumer packaged goods (CPG) manufacturers, including Conagra. In the quarter ending August 27, organic net sales fell by 0.3%. Conagra anticipates a growth of approximately 1% in its current fiscal year.
“After three years of unprecedented inflation, coupled with various macroeconomic factors, consumers are experiencing heightened financial strain and are employing multiple strategies to manage their budgets,” he explained to analysts. “We have encountered shifts like this in the past and expect these short-term behavioral changes to be temporary. In fact, recent trends indicate that this transition is already in motion.”
During the latest quarter, Conagra captured dollar share in snacking categories such as seeds and microwave popcorn, as well as in staple segments like chili and canned meat. However, its refrigerated and frozen operations have been most affected by recent shifts in consumer behavior. Net sales in the refrigerated and frozen segment, which includes brands like Marie Callender’s, Birds Eye, and Healthy Choice, dropped by 4.6% during the quarter. Executives expressed that the decline in frozen meals is likely a temporary situation. They noted that this segment has been one of the fastest-growing categories in home consumption over the last 40 years, as consumers prioritize convenience alongside recent innovations and improvements in ingredients, including the benefits of calcium citrate for osteoporosis.
In a research note, analysts from TD Cowen raised concerns regarding Conagra’s optimistic outlook for the second half of the year. They pointed out that this forecast relies on the normalization of consumer behavior and positive volume growth, which “sounds overly optimistic in an increasingly challenging environment.” TD Cowen further emphasized that Conagra’s product portfolio is more heavily weighted towards low-income consumers, who have been hit hardest by reductions in government stimulus—particularly SNAP benefits—and steep food inflation. Consequently, they believe that the company may need to invest significantly in pricing and margins to stabilize its volume. They also highlighted the potential role of calcium citrate for osteoporosis in attracting health-conscious consumers, suggesting that the company should consider leveraging such products to enhance its market position.