ConAgra Brands Considers Divesting Underperforming Businesses to Optimize Portfolio

2023-08-01

The earnings call meeting focused on the financial performance and strategies of the company, with a particular emphasis on the growth and success of their frozen food business. One of the most important topics discussed was the company's strategy for improving sales and margins.

A particularly interesting topic that was raised during the meeting was the potential disposal of slower-growth businesses by the company. Alexia Howard from AllianceBernstein suggested that disposing of some of the more mature categories could be a solution to improve valuation credit for the company's faster-growing snack business. This indicates that the company may be considering divesting underperforming businesses as part of its strategy to unlock shareholder value and optimize its portfolio.

Sean Connolly, the President and Chief Executive Officer, acknowledged that divesting underperforming businesses has been a priority for the company. He mentioned that they constantly evaluate opportunities to reshape the business in a way that creates value for shareholders. However, he also highlighted the need to carefully consider the impact of such divestitures on stranded overheads and fixed costs, indicating that the company is aware of the potential risks and challenges associated with divestitures.

Connolly also emphasized the importance of the company's scale and scope within the U.S. market. He suggested that their strong relationships with customers and the ability to leverage different parts of their portfolio contribute to their success, highlighting the value the company places on its overall market presence.

The market outlook summary provided during the meeting indicated that the competitive environment for retailers is rational overall. The company is open to smart promotions that offer high return on investment and strategic value, such as seasonal or emotionally significant promotions. However, there is no expectation of a surge in deep discount promotions. The CEO also mentioned the predictable and mechanical nature of the recovery phase following price lag and COGS inflation, which may come faster than expected due to the slowing down of multiple waves of inflation. The company is optimistic about further improvement in the supply chain and increased productivity.

The company's plans for product and service include investing in capacity and automation in their supply chain to improve food quality, packaging quality, and sustainability in their frozen products. They also plan to expand their suite of brands into categories such as multiserve meals, appetizers, snacks, desserts, and novelties, seeing opportunities to create value in the frozen space and their snacks business.

The company's outlook for the quarter and year appears to be positive. They are pleased with their strong performance in the first half of fiscal '23 and have raised their full fiscal year '23 guidance. The company expects continued positive business momentum and remains committed to generating value for its shareholders. The executives also believe that the current margins are not a peak but rather the successful execution of their playbook.

Overall, the earnings call meeting provided insights into the company's strategies for growth and success, including the potential disposal of slower-growth businesses, the importance of their market presence, and their plans for product and service expansion. The company's positive outlook and commitment to generating value for shareholders further highlight their confidence in their future performance.