Conagra beats profit estimate as higher prices offset soft demand

Oct 5 (Reuters) – Conagra Brands (CAG.N) on Thursday reported quarterly profit above Wall Street estimates, as prices hikes and easing cost pressures helped offset slowing demand for the Slim Jim beef jerky maker’s products, sending its shares higher.

Shares of the packaged food maker recouped pre-market losses to rise as much as 2% after company executives forecast “meaningful top-line progress” for the second half of the year.

Conagra, which grappled for months with elevated costs in labor and raw materials, raised its product prices multiple times over the last several quarters.

While price hikes helped gross margins climb 354 basis points to 28.3% in the first quarter, the company’s volumes were affected as customers adopted a more cautious stance over spending on pricier branded food items.

“After three years of unprecedented inflation … consumers have felt increased financial pressure and used a variety of strategies to stretch their balance sheet,” CEO Sean Connolly said, adding that the timetable for volume recovery has been elongated.

Conagra missed estimates for quarterly sales and also maintained its tepid annual sales and profit forecast.

Consumers have been “actively reducing remnant household inventory from the pandemic”, Connolly noted.

In the reported period, the Act II microwave popcorn owner saw its sales volumes drop 6.6%, while average selling prices rose by 6.3%.

“Conagra is really betting on a strong second half of the year, and that may not happen,” CFRA Research’s Arun Sundaram said, adding there is a risk of a forecast cut at some point in the year.

The company earned 66 cents per share, above estimates of 60 cents, while its net sales of $2.90 billion missed analysts’ expectations of $2.95 billion, according to LSEG data.

Peer General Mills (GIS.N) also narrowly topped profit estimates in September on higher prices, but its volumes took a hit as consumers turned cautious.

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