Conagra Declares Stock Float on Eve of Pinnacle Add-on

Conagra Brands announced on October 9 that it is offering to sell, subject to market and other conditions, 16,312,057 shares of its common stock priced at $32.25 each through an underwritten public offering. JANA Partners LLC is purchasing 5,673,759 shares in the offering, which is expected to close on October 12.

VoilaSlctsMnglnBeefThe Chicago, Illinois-headquartered packaged foods company also intends to grant underwriters an option, exercisable for 30 days after the date of the final prospectus supplement, to purchase up to 1,631,206 shares at the public offering price less an underwriting discount.

Net proceeds, which are expected to amount to $612 million if the underwriters exercise options in full, will be used to finance, in part, its pending $8.2 billion acquisition of Parsippany, New Jersey-based Pinnacle Foods Inc., whose major frozen food brands include Birds Eye vegetables and Voila! Selects skillet meals, and Hungry Man ready meals and Gardein meat-free dishes.

Q1 Sales Rise 1.7%

The stock offering declaration was made less than two weeks after Conagra reported weaker than expected receipts in the first quarter of fiscal 2019, despite a boost from recent acquisitions. Net sales increased by 1.7% to top $1.834 billion during the 13-week period that ended on August 26.

President and CEO Sean Connolly put a positive spin on the results, noting the operating margin was slightly above expectations, despite a continued challenging inflationary environment. Volume was essentially flat with growth in Refrigerated & Frozen, Grocery & Snacks and International segments offset by expected volume declines in the Foodservice segment.

A higher gross profit margin was achieved in Q1, however, as greater supply chain productivity and higher prices counterbalanced some of the hikes in transportation and ingredient costs. The company posted earnings of $178.2 million, up approximately 17% from the comparable period a year before. Earnings advanced 25% to 45-cents a share on an adjusted basis, a bit shy of the 49-cent forecast made by analysts.

Frozen Shines Brightly

Conagra frozen products“We delivered net sales growth in all four operating segments behind a strong innovation slate,” said Connolly. “We also earned increased distribution, particularly in our frozen business, and continue to stay focused on supporting our brands with robust marketing programs, including increased retailer investments, to drive brand saliency, enhanced distribution, and consumer trial of our products."

He continued: "Conagra is well positioned to build upon our tremendous platform and accelerate the next wave of change with the addition of Pinnacle Foods. We now expect the transaction to close by the end of October, and look forward to executing our proven approach to innovation and brand-building to enhance their portfolio of leading brands and drive long-term shareholder value."

Net sales for the Refrigerated & Frozen segment increased 3.2% to $635 million in the quarter, and organic net sales advanced 1.4% as the acquisition of Sandwich Bros. of Wisconsin added 180 basis points to the net sales growth rate. Volume grew 0.5% as innovation launches, such as Banquet Mega Bowls and Mega Meals, Healthy Choice Power Bowls, Marie Callender's bowls, P.F. Chang's Home Menu bowls and skillets, Odom's Tennessee Pride sandwiches and Reddi-wip Non-Dairy whipped topping, more than offset declines in certain refrigerated businesses. Price/mix increased 0.9% as improved pricing and mix were partially offset by increases in retailer investments to drive brand saliency, enhanced distribution, and consumer trial.

Sean ConnollyPresident and CEO Sean Connolly “We believe we still have a lot of room to grow in Frozen, Connolly told stock market analysts during a recent earnings call. “As our distribution performance continues to improve, we expect dollar sales growth to continue to follow suit.”

The chief executive officer continued: “The result of our efforts in Frozen could not be clearer. Our single-serve meals are the fastest growing, both in terms of retail sales and total points of distribution. While we're pleased with the progress in our Frozen portfolio, we're not resting on what we've accomplished to date. We continue to see years of runway in Frozen and expect the space to benefit from long-term demographic tailwinds. Conagra is in a tremendous position to capitalize on this opportunity, especially with the pending acquisition of Pinnacle Foods and their strong portfolio of frozen brands.”

Grocery & Snacks Top Earner

Net sales for the Grocery & Snacks segment increased 3.4% to $771 million in the quarter, and organic net sales grew 0.1% as the acquisition of Angie's Boomchickapop popcorn added 330 basis points to the net sales growth rate.

Net sales for the International segment rose 1.5% to $194 million in Q1, and organic net sales increased 6.3%. Volume advanced 4.4% driven by snacks businesses in Canada and Mexico, and price/mix improved 1.9% behind improved pricing. The impact of foreign exchange unfavorably impacted the net sales growth rate by approximately 320 basis points.

Net sales for the Foodservice segment decreased 6.9% to $234 million in the quarter. Organic net receipts excluding sales from a food processing facility in Trenton, Missouri, which was sold at the beginning of fiscal 2019, increased 0.1%. The impact of the Trenton sale was a reduction in the net sales growth rate by approximately 700 basis points.