Conagra Brands, Inc. (CAG) continues to focus on transforming into a branded, pure-play consumer packaged goods food organization. The company is committed to expanding its food businesses, driven by innovation and organic growth, as well as through strategic acquisitions into adjacent categories. Conagra has also been actively streamlining its portfolio through divestitures.
In the latest development, Conagra announced the completion of its previously disclosed transaction to divest its 51.8% ownership stake in Agro Tech Foods Limited, an Indian-based food company. The sale, executed by one of Conagra’s subsidiaries, signifies a key strategic move to optimize its portfolio and enhance shareholder value. Agro Tech Foods was a majority-owned subsidiary consolidated within Conagra’s International segment. Following the sale, Agro Tech Foods’ results will no longer be consolidated in Conagra’s financial statements.
Conagra’s strategic focus extends beyond divestitures. The company emphasizes innovation as a cornerstone of its approach, investing in new product development to meet evolving consumer preferences. This strategy involves re-engaging consumers with existing products and introducing them to new innovations.
Conagra’s commitment to innovation is evident in its advertising investments in major brands like Birds Eye and Healthy Choice, showcasing its commitment to building and promoting these brands through innovative campaigns.
Conagra’s International business is showing solid momentum. Segment net sales increased by 6.4% year-over-year in the fourth quarter of fiscal 2024, driven by higher organic net sales and positive currency effects. Organic sales growth was fueled by volume increases of 4.1%, primarily attributed to strength in the Mexico and global export businesses.
Conagra is also experiencing success in key frozen and snacks categories, gaining market share. The strength in the frozen category is a testament to the effectiveness of its brands and the successful execution of its Conagra Way playbook.
Despite these positive developments, Conagra is not immune to the challenges facing the food industry. The company has been experiencing tough industry trends, including a slowdown in consumption. In the fourth quarter of fiscal 2024, volumes dropped by 1.8% year-over-year due to the continuation of the industry-wide consumption slowdown and changing consumer behavior.
Conagra is also grappling with cost inflation, although the trend has been moderating recently. The inflated cost of goods sold, soft organic sales, and adverse operating leverage negatively impacted the company’s adjusted gross margin in the fourth quarter. Conagra anticipates that cost of goods sold inflation will continue into the next fiscal year.
Conagra’s Foodservice unit has been facing pressure due to sluggish consumption trends, reflecting broader industry challenges. The segment’s organic sales declined by 3.9% year-over-year in the fourth quarter, highlighting the ongoing pressure on consumer demand and dining-out behavior.
Despite these challenges, Conagra’s stock has been performing well on the stock market. CAG stock has gained 8.2% over the past three months, outperforming the industry’s 3.1% growth. The company’s strategic moves to address operational challenges are contributing to this positive performance.
Potential investors should carefully consider the challenges Conagra faces, including volatile consumer behavior and cost inflation. However, the recent divestiture and Conagra’s commitment to innovation should contribute to maintaining the stock’s solid performance in the near term.
