CHICAGO — In what many have deemed a dismal environment for the packaged food industry, Sean M. Connolly of Conagra Brands, Inc. sees a clear path forward: “In order to grow, we have to modernize, innovate and renovate our portfolio, and that is exactly what we are doing.”
The recent acquisition of Angie’s Boomchickapop ready-to-eat popcorn fits within that strategy, the president and chief executive officer of Chicago-based Conagra said during a Sept. 28 earnings call.
|Sean Connolly, president and c.e.o. of Conagra Brands|
“The $250 million transaction builds on our efforts to refresh our portfolio and accelerate growth through modernizing acquisitions,” Mr. Connolly said. “It also provides an important beachhead in the growing ready-to-eat popcorn category. The Angie’s team has built a tremendous business, which is on track to generate approximately $100 million in net sales by the end of calendar year 2017, which is when we expect to close the transaction.
“The positive energy that the brand conveys, along with the bold flavors and whole grain goodness of the product, are squarely on trend with today’s consumer tastes. Given these characteristics, we think the brand is highly extendable.”
Looking ahead, Mr. Connolly said the company will continue its two-pronged approach to mergers and acquisitions with a focus on both smaller, “modernizing” and larger, synergistic transactions.
Meanwhile, margin expansion remains a core pursuit at Conagra, he said.
“While we’ve made tremendous progress, our work is not done,” Mr. Connolly said. “We still have a lot of opportunity in front of us, and we will continue to chip away at margin opportunities and strengthen our innovation programs in order to improve our growth prospects.”
Net income attributable to Conagra Brands in the first quarter ended Aug. 27 totaled $152.5 million, equal to 37c per share on the common stock, which was down from $186.2 million, or 42c, in the prior-year period. Net sales of $1,804.2 million were down 4.8% from $1,895.6 million.
Top-line growth was impeded by increased slotting fees to support recent product launches, Mr. Connolly said.
“It’s important to keep in mind that because we had minimal new innovation a year ago, we had atypically low slotting investments in our base period,” he noted. “In the first quarter of this year, we recommitted to innovation, and the associated infusion of slotting back into the P.&L. served as a transitory headwind to our margin expansion…
“Going forward, the incremental slotting related to new innovation will become part of the base and not have the same magnitude of impact as we continue to roll out new products.”
New products introduced in the recent quarter reflect Conagra’s interest in bringing new consumers, particularly younger, higher-income shoppers, to the portfolio by reinvigorating brands such as Healthy Choice, Banquet and Marie Callender’s with on-trend flavors and ingredients.
“While we started rebuilding our innovation slate with our primary focus on our frozen business, you can expect to see us apply the same level of rigor and discipline across our portfolio as we go forward,” Mr. Connolly said. “In addition to modernizing our existing brands, we’ve added new, on-trend brands to our portfolio. This includes Frontera, where we recently applied our expertise in frozen to extend the brand into single-serve meals; and Wicked Kitchen, which is a millennial-focused brand we built with wickedly bold flavors and highly innovative packaging.”
In the snacks segment, the integration of Thanasi Foods is on track, he said. Conagra acquired the maker of Duke’s branded meat snacks and Bigs sunflower seeds earlier this year.
“The encouraging performance of these brands illustrates the value of contemporizing our portfolio through both acquisitions and in-house development to extend into faster-growing, more premium segments,” Mr. Connolly said.
In Conagra Brands’ portfolio, both iconic legacy brands and start-up brands play a role, he said.“But in terms of what pays the bills, it's iconic brands that have modern food attributes,” he said. “That’s where you drive velocity. And that frozen section in a customers’ operation is a true meritocracy business, and you have to ultimately drive velocity in order to perform, and we’re seeing that with the iconic brands that we've renovated.”