Conagra Brands, Inc. (NYSE:CAG) Q3 2023 Earnings Call Transcript

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Dave Marberger: Yes, Andrew. As we said in CAGNY, we expected a 50 basis point impact on Q3, and that’s exactly what it did. It impacted us 50 basis points on sales, lost sales. We also had additional impact of around $8 million in kind of fees and just cost to bring the product back. That actually hits net sales and gross margin. So it’s really both of those pieces. That did hit in Q3. Just to finish that point, I did say that, that would fully recover in Q4. One thing that has changed is we’re really ramping up the replenishment on the shelf. So, we’re not going to see that full replenishment of the 50 basis points we lost in Q3 come back in Q4. That’s going to drift into the beginning of fiscal ’24.

Operator: Thank you. And our next question comes from Ken Goldman at JPMorgan. Please go ahead.

Ken Goldman: I just wanted to ask a little bit about the guidance for the top line, just trimmed at the top end very slightly, not a huge deal, but just trying to get a little bit deeper into the reasons behind that. Is it mainly just the manufacturing issues that you had? Or are there other factors that we should think about as we look at that?

Sean Connolly: Ken, I’ll make a quick comment, and I’ll turn it over to Dave. The manufacturing friction that we’ve run into, this is part of the reason why we’ve had a conservative outlook all year long is these things keep popping up. And for us, it happens to be fully isolated around cans. And whether it’s Vienna Sausage or other things, it’s a quality issue that we’ve had to deal with, getting cans where we need it to be a frankly, you’ve seen a those kind of issues pop up across the industry, in large part, tied to labor where you’re dealing with a lot of inexperienced labor in companies and their suppliers that lead to these quality issues that sometimes you find before you produce the product, sometimes you find them after you produce the product.

So that impacted Q3 and it will drift a little bit into Q4. The good news is we’ve gotten to the root cause of those things, and we’ve got them contained. So now we just got to get the remnant out of our system, so to speak. But again, that means the setup going forward as we do that, I think, is a positive and should become a tailwind. Dave, do you want to add anything?

Dave Marberger: Yes. I mean, Sean hit it. Just to give you a little bit more specifics, as I just mentioned on the previous question, we do not expect now to see the bounce back from the Armour recall in Q4, that is going to drift into next year. That was 50 basis points that impacted Q3. And then category, Sean talked about, chilies, beans and then the impact of the frozen fish. These dynamics, we’re working through that. It’s improving, but we’re still on allocation in some of those specific categories and actually SKUs. And so that is impacting Q4 as well on the top line. If you just think about it this way, if you look at the previous guidance, which was 7% to 8% for the full year, that implies a midpoint for Q4 of about 5.8% with the revised guidance for the year, that implies a midpoint of about 4.8%. So, that’s about a 100 basis points of a decline in the Armour and then these other allocation issues with the brands I just mentioned are pretty much why.

Ken Goldman: Okay. And then for my follow-up, you trimmed your CapEx outlook. You’re hardly the only company to be doing that these days. I understand — I think I understand the reasons why. I’m just curious, Dave, you mentioned it’s more of a timing issue. I’m curious how delayed are those projects in general? And is it fair to say that nothing really throws your supply chain optimization plan off course? Or is there anything in there that’s delayed as well?

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