Tired of waiting for more of us to snap into a Slim Jim, sip some Swiss Miss, or spoon Hunt’s tomato paste into a saucepan, Conagra has been spending more on marketing to lure shoppers back from cheaper store brands. That merchandising, along with some price hikes and internal cost savings, helped the company stem losses in the quarter ending Feb. 25, it reported on April 4.
Sales of packaged and frozen foods have fallen in recent years as manufacturers raised prices, and analysts were expecting greater losses from the Chicago-based company. While organic net sales fell 2% in the quarter, nearly all of that due to lower volume, the drop would have been larger if Conagra hadn’t raised prices on some grocery products and snacks and increased merchandising to boost its unit share. Earnings per share fell 9.9% year over year, the company reported.
CFO Dave Marberger said the 3.4% annual increase in grocery and snack sales was due in part to passing on higher tomato costs to consumers, who kept buying despite the higher prices. CEO Sean Connolly said it would take more time for the full impact of Conagra's price hikes to show up in its margins.
Conagra has also been “claw[ing] back” gross margins, Connolly said, “after the initial compression from all the huge inflation we experienced a couple of years ago.” The cost of ingredients has increased for some vegetables, sweeteners, and starches, Marberger said. Manufacturing costs including labor and transportation have been "slightly higher," he said, but they've been manageable.
If inflation continues, Conagra leaders will have to gauge how many more price hikes consumers are willing to take until the company can start growing sales volume instead of just slowing its decline.
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