“Obviously, I don’t love it when we put up a great quarter, and the stock drops.”. Conagra’s CEO Sean Connolly said in an interview with CNBC that he is focused on maximizing long-term value versus the daily movement of prices, referring to his company’s recent downturn in stock price.
Conagra Brands Inc.(CAG), is a packaged food company that produces different varieties of products. The company makes and sells products under separate brands that can be availed in a food service establishment.
According to Connolly, Conagra had an ‘excellent’ quarter with a 6% rise in net sales due to the increased demand from the public that is caused by the restrictions brought out by the pandemic. “We have a broad base strength and excellent fundamentals. Our consumers have discovered the massive innovation infusion we’ve launched over the past few years and they’re coming back again and again. But food stocks have not been up even when posting strong numbers. The market is clearly demonstrating a bit of a ‘wait and see’ attitude towards food stocks right now”. Sean Connolly also stated that they are not just looking at the absolute strength but also at their company’s relative strength. For him, the relative strength is a ‘critical leading indicator’ that can signal investors which company will emerge stronger.
“We’ve been transforming our portfolio for 5 years now. It has been a massive innovation overall”. He stated, the thing they’re experiencing with the pandemic is that consumers are now discovering that the frozen food they consume today is outstanding. “It’s essentially fresh food that is frozen but it’s on call and ready when they are and it’s a great value. Excellent food, excellent value and they’re buying it again and again,”.
He said that they are seeing similar dynamics in the food industry today with the 2008 market crash. The CEO noted that the last time they’ve seen this significant microenvironment eating occasion was last 2008. “When we saw the pandemic hit, we saw a larger shift at home eating occasions and we see no reason why some of that won’t sustain because basically, the way to think about it is, we believe we are experiencing an acceleration of product trial that in normal time, would take years and hundreds of millions of dollars.”. Accordingly, they have a portfolio that has been pleasing their consumers to come back and buy again.
“In our company, we’re often focused on how do we generate more demand, and in the past 9 months, our focus is how do we generate more supply. In some cases, it haven’t made sense to invest in marketing because we are simply out of capacity and our supply was constrained because the demand was so elevated”. Sean Connolly also mentioned that they’ve built back some of their capacity. He said that their inventory levels are strong, and their marketing investments have been opportunistic. “Our frozen business is growing strongly overall– because there’s a lifetime value to the consumers that we capture today and even the repeat rates were putting up.”.
“Moms and Dads everywhere are seeing their sons and daughters learn how to bake and their cooking up in the kitchen with a product like Duncan Hines. That is the example of the kind of product that you see growth in when consumers go into more of a ‘nesting’ mode”. Sean Connolly said that people are looking for simple meals to eat and that their products are meeting that need right now.
Conagra shares trade a forward P/E of 14 and yield 3.2%. Its revenues have also been growing steadily over the last few years. It looks like a very attractive dividend stock for conservative investors.