Conagra Warns Further Price Increases Are Possible

Sean Connolly,

Conagra’s chief executive, said that while costs for goods such as chicken, beef and edible oils are beginning to ease, costs are still increasing for items such as dairy products, sweeteners and vegetables.

“I don’t think anyone can declare the sun setting [on inflation] yet,” Mr. Connolly said. “We will continue to monitor the situation and take whatever action is necessary.”

For the quarter ended Nov. 27, Conagra said revenue rose 8.3% to $3.31 billion thanks to price increases and a shift in the mix of products the company sold.

Sales volumes, meanwhile, fell 8.4% as customers balked at the price increases, though Conagra said the elasticity of its pricing during the quarter was more favorable than expected.

Conagra said it expects higher sales and earnings for its fiscal year after the food company continued to raise prices to stave off inflation and supply-chain pressures. Conagra said it now expects annual sales to rise between 7% and 8% for fiscal 2023, up from its prior forecast of 4% to 5% growth. Adjusted earnings are now projected to jump at least 10%, the company said. Its previous guidance pointed to earnings rising as little as 1% and no more than 5%.

Shares in Conagra rose 3.4% to $39.97 on Thursday.

Food inflation was running at a multidecade high in 2022 as packaged-food giants including

General Mills Inc.,

Kellogg Co.

and

Kraft Heinz Co.

looked to pass steep cost increases on to their customers. Consumers, meanwhile, have become more budget-conscious than they were at the height of the pandemic, curbing discretionary purchases and scaling back purchases of more expensive items.

Higher prices kept food producers’ top lines growing throughout the year, but frequently ate into volumes and, at times, failed to translate to higher earnings against mounting costs for labor, transportation and raw materials.

Some of those costs are starting to moderate as supply chains normalize across the food industry. General Mills said in December that supply-chain challenges had improved modestly in recent months, with logistics problems waning and disruptions among suppliers declining slightly.

Conagra said in the fall that it was expecting transportation and raw-material costs to come down in the months ahead.

Mr. Connolly said consumers’ response to higher prices for Conagra’s products has been muted—in part because the high cost of dining out means that the trend toward eating at home rather than in restaurants, established during the pandemic, hasn’t fully reversed.

“People are trying to stretch their household balance sheet,” Mr. Connolly said.

Mr. Connolly said Conagra has told grocers that its price increases are justified by the company’s own climbing costs and that Conagra needs to boost its profit margins to continue churning out new products that drive growth for grocery stores.

The company said Thursday that it is continuing to work against inflated input costs, but added that its margins had improved because of higher organic sales and increased productivity.

Conagra’s quarterly profit rose more than one-third to $381.9 million, or 79 cents a share. Stripping out one-time items, adjusted earnings were 81 cents a share, topping analysts expectations of 66 cents a share, according to FactSet.

Write to Jesse Newman at [email protected] and Dean Seal at [email protected]