Conagra Brands, Inc. — Fiscal 2023 Form 10-K
Reporting period: 52 weeks ended May 28, 2023; comparisons are with the 52 weeks ended May 29, 2022. This is an annual filing, not a standalone fourth-quarter report.
Business context
Conagra is a branded food company operating through Grocery & Snacks, Refrigerated & Frozen, International, and Foodservice. Its portfolio includes shelf-stable, refrigerated, and frozen foods, snacks, and foodservice products. Walmart and affiliates represented 28% of fiscal 2023 sales, up from 27% in fiscal 2022.
Financial performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Net sales | $12.277 billion | $11.536 billion | +6% |
| Gross profit | $3.265 billion | $2.839 billion | +15% |
| Gross margin | 26.6% | 24.6% | +198 basis points, as reported by management |
| Net income attributable to Conagra | $683.6 million | $888.2 million | −23% |
| Diluted EPS | $1.42 | $1.84 | −23% |
| Operating cash flow | $995.4 million | $1.177 billion | −15% |
| Capital expenditures | $362.2 million | $464.4 million | −22% |
| Net interest expense | $409.6 million | $379.9 million | +7.8% |
Operating cash flow less capital expenditures was approximately $633 million. Cash and equivalents were $93.9 million at year-end. Total debt, including notes payable and current and long-term debt, was approximately $9.24 billion, versus approximately $8.98 billion a year earlier. Current assets were $3.39 billion and current liabilities $4.44 billion. The company reported compliance with its debt covenants and no borrowings under its $2.0 billion revolving credit facility.
Material changes versus FY2022
- Sales rose in all four segments, led by Foodservice (+13%); Grocery & Snacks and Refrigerated & Frozen each increased 6%, and International increased 3%.
- Price/mix increased 13%–16% across segments, while volume declined 3%–9%, reflecting pricing elasticity and supply constraints. International sales also faced a 2% foreign-exchange headwind.
- Reported segment operating profit was mixed: Grocery & Snacks rose 17%, International 14%, and Foodservice 41%; Refrigerated & Frozen fell 55% to $255 million, largely reflecting impairment charges.
- Net income and EPS declined despite higher sales and gross profit. Fiscal 2023 included $730.9 million of goodwill, brand, and other asset impairment charges, compared with $209.0 million of brand impairment charges in fiscal 2022.
- Operating cash flow decreased, with management citing working-capital changes, payment timing, higher inventory, and higher tax and interest payments.
Outlook, commentary, risks, and unusual items
- Management expected input-cost inflation to continue into fiscal 2024, though at a moderating pace; pricing and supply-chain productivity were expected to mitigate some pressure. Fiscal 2024 effective tax rate guidance was approximately 24%, excluding unusual transactions or tax events; estimated capital expenditures were approximately $500 million.
- Management said pricing actions and productivity helped recover gross margin, while inflation, unfavorable fixed-cost leverage, and elevated supply-chain costs remained offsets. Sales growth was substantially pricing-led, with lower volumes an important watchpoint.
- Fiscal 2023 unusual items included $730.9 million of impairment charges, $26.7 million of held-for-sale business impairments, $13.4 million related to facility fires, $13.1 million of restructuring charges, $8.4 million of costs for a planned divestiture that did not proceed, and $4.4 million related to a vendor cybersecurity incident. A $28.1 million tax benefit arose from release of a valuation allowance.
- A product recall, primarily involving Armour Star, reduced sales by $7.8 million and was associated with estimated lost sales of about $40 million and estimated lost operating profit of about $14 million.
- Key risks include persistent commodity, labor, energy, and transportation inflation; supply-chain disruptions; consumer trade-down and pricing-related volume declines; Walmart/customer concentration; leverage and refinancing needs; impairment risk; product liability and labeling claims; and cyber incidents. A third-party vendor cyber shutdown disrupted order fulfillment in fiscal Q4.
- Contingencies include lead-paint litigation and settlement payments, cooking-spray product liability cases, environmental matters, and guarantees. Management did not expect the disclosed matters, after recorded reserves, to have a material adverse effect, but noted estimates could change. A tentative $1.25 million penalty was discussed in an environmental proceeding.
- The Board declared a quarterly dividend of $0.35 per share after year-end, a 6% increase in the annualized rate. Fiscal 2023 cash dividends paid were $623.8 million; share repurchases totaled $150 million.
Important facts for investors to verify
- Underlying sales, volume, and margin trends after separating pricing, mix, inflation, and one-time impairments—especially in Refrigerated & Frozen.
- Whether the fiscal 2023 impairments signal lasting brand or reporting-unit weakness; several brands and one reporting unit had limited valuation cushion.
- Fiscal 2024 inflation, pricing elasticity, supply-chain productivity, and the ability to sustain volume and gross-margin recovery.
- Debt maturities and refinancing: $1.516 billion of current debt installments were on the year-end balance sheet, including $500 million of notes due August 2023; verify subsequent repayment or refinancing.
- Working-capital and cash-flow trends, the roughly $2.58 billion of unconditional purchase obligations, and the planned $500 million of fiscal 2024 capital expenditures.
- Exposure to Walmart, recall-related losses, open legal and environmental matters, and cybersecurity/vendor resilience.