Conagra Brands, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and first 39 weeks ended February 27, 2022. Although the request labels this “2021 Q3,” the filing covers fiscal 2022 Q3. The financial statements are unaudited; amounts below are in millions except per-share data.
Financial performance
| Metric | Q3 FY2022 | Q3 FY2021 | 39 weeks FY2022 | 39 weeks FY2021 |
|---|---|---|---|---|
| Net sales | $2,913.7 | $2,771.1 | $8,625.9 | $8,445.2 |
| Operating profit, segments | $424.1 | $545.4 | $1,320.4 | $1,775.0 |
| Net income attributable to Conagra | $218.4 | $281.4 | $729.3 | $989.3 |
| Diluted EPS | $0.45 | $0.58 | $1.51 | $2.02 |
| Operating cash flow | Not separately presented | Not separately presented | $752.6 | $1,070.0 |
| Capital expenditures | Not separately presented | Not separately presented | $364.2 | $396.7 |
- Q3 sales increased about 5%; year-to-date sales increased about 2%. Net income attributable to Conagra fell about 22% in Q3 and 26% year to date.
- Gross profit, calculated as sales less cost of goods sold, was $697.2 million in Q3 versus $758.4 million a year earlier; the corresponding gross margin was approximately 23.9% versus 27.4%. Year-to-date gross margin was approximately 24.6% versus 29.1%.
- Q3 segment operating profit declined in Grocery & Snacks (20%), Refrigerated & Frozen (26%), and Foodservice (64%); International increased 7%. Year-to-date declines were 22%, 33%, and 36%, respectively, while International declined 4%.
- Operating cash flow less capital expenditures was approximately $388.4 million year to date, down from approximately $673.3 million. This is a simple calculation, not a company-reported free-cash-flow measure.
- Net interest expense was $94.6 million in Q3 and $283.7 million year to date, both lower than the comparable periods. The year-to-date effective tax rate was 26.5%, versus 21.3%; Q3 rate was 33.4%, versus 26.5%.
Balance sheet and liquidity
- At February 27, 2022, cash was $79.7 million; total current assets were $2,914.6 million and current liabilities were $3,524.6 million.
- Long-term debt, including current installments, had a carrying amount of $8.80 billion, compared with $8.30 billion at May 30, 2021. Notes payable were $362.8 million. The filing does not provide a single total-debt figure combining these balances.
- The company had no borrowings under its $1.6 billion revolving credit facility, and reported compliance with its financial covenants. It had $361.0 million outstanding under its commercial paper program.
- Management stated that cash, operating cash flow, credit facilities, commercial paper, and capital-market access should provide sufficient liquidity for at least the next 12 months. The company reported investment-grade senior debt ratings.
Material changes, outlook, and risks
- Management attributed lower gross profit primarily to input-cost inflation, higher transportation and supply-chain costs, labor and materials disruptions, and unfavorable fixed-cost leverage. Pricing, productivity, Pinnacle integration synergies, and lower pandemic-related costs provided partial offsets.
- Inflation and transportation costs were expected to remain elevated through the rest of fiscal 2022. Pricing and productivity were expected to mitigate some pressure; management expected gross margins to begin benefiting from price increases in Q4, but not enough to fully offset higher costs for the fiscal year. The filing gives no clear quantified full-year sales or EPS guidance.
- Fiscal 2022 year-to-date impairment charges on businesses held for sale totaled $70.1 million, including $30.9 million in Q3. A further $25.0 million Q3 tax expense related to tax elections remained under IRS review; potential associated benefits may arise in future periods.
- Management reported elevated retail demand versus pre-pandemic levels, but lower retail volumes than a year earlier due partly to inflation-related price elasticity and comparison with pandemic demand. Foodservice volumes improved with the recovery in away-from-home dining.
- The company had no operations in Russia or Ukraine and reported no material direct impact to date, but cited shortages and higher transportation, energy, and raw-material costs partly related to the conflict. Further disruption could affect supply, demand, currencies, and markets.
- Other exposures include commodity and currency volatility, supply-chain constraints, possible impairment of brands and goodwill, customer concentration (Walmart represented about 27% of sales), and legal and environmental matters. The Waseca facility faced proposed Minnesota penalties totaling $6.1 million, still subject to settlement discussions. Management said the matters discussed were not expected to have a material adverse effect overall, while acknowledging estimates and outcomes could change.
Important facts for investors to verify
- Whether pricing and productivity can offset persistent input, freight, and supply-chain inflation without further volume or margin deterioration.
- The progress and final sale terms of the businesses held for sale, and whether additional impairments or tax consequences arise.
- Debt maturities, refinancing access, commercial-paper capacity, and continued compliance with credit-facility covenants.
- The resolution of the IRS review, Waseca environmental matter, lead-paint settlement obligations, and other disclosed litigation and contingencies.
- Whether demand, segment profitability, and management’s Q4 expectations develop as described; the filing provides no quantified full-year revenue or EPS forecast.