Tuesday, October 6, 2020

Well here’s one firm living high on the hog: Conagra Brands ($CAG), which just reported solid quarterly results because people are still stuck eating at home. That sort of thing tends to help one of the largest food businesses around.

Conagra manufactures brands including Slim Jim, Healthy Choice, Duncan Hines, and Reddi Whip. Its largest customers include supermarket retailers Walmart ($WMT) and Kroger ($KR) which account for roughly 33 and 11 percent of sales, respectively.

So what do the numbers tell us? That people are eating — and eating enough to keep Conagra in a strong position, even with all the coronavirus uncertainty otherwise whipping around the economy.

First we looked at Conagra’s segment disclosures, which show a 12 percent increase in quarterly sales from the year-ago period. See Figure 1, below.

Every operating division saw better numbers this year than last, with the exception of foodservice — but that’s the division that sells to restaurants, catering services, and similar commercial customers, so one would expect that division to decline. The rest look good.

OK, that’s clear enough, but one impressive quarter does not a trend make. So we used the Multi-Company database page to study Conagra’s quarterly sales from the start of 2019 through Q3 2020 and compare them year over year. See Figure 2, below.

We can see a definite pop in sales from the second quarter of this year that continued to Conagra’s most recent quarter, which ended on Aug. 30. The pattern makes sense; everyone panicked in the spring and stocked up on food ahead of the corona-pocalypse; and then continued to buy more food over the summer as life reached a semi-stable state. Which still included vast numbers of us eating at home.

Will Conagra’s Q4 2020 show a similar trend? Circle back to the data in three months and see what you find.

But wait! Isn’t it also true that while revenue might be going up, costs are also rising? That’s definitely a thing for many firms. So what’s the scoop for Conagra?

We jumped over to the Interactive Disclosures page and pulled up Conagra’s Management Discussion & Analysis. As one would expect, the firm had a section devoted to pandemic concerns. There, we found this paragraph disclosing both the good and the bad about coronavirus and the company:

During the first quarter of fiscal 2021, our operating margins saw improvement largely due to favorable fixed cost leverage, reduced travel expenses, and lower trade promotional activity on certain brands. That benefit was partially offset by several factors including higher transportation and warehousing costs, temporary plant closures, employee safety and sanitation costs, and employee compensation costs, which accounted for an estimated $34 million of incremental costs in the first quarter.

So there you have it. Yes, the pandemic is pushing Conagra’s costs upward, but revenue is rising even higher. There are worse sandwiches life might force you to eat.


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