Shares of Conagra Brands Inc. (NYSE: CAG) fell 7% on Thursday after the company reported mixed results for its fourth quarter of 2022. While earnings beat estimates, sales lagged. Like its peers, Conagra is dealing with the impacts of inflation, but the company is taking steps to deal with the situation. During the quarter, the company saw its margins improve in some of its segments and it expects this improvement to extend to all segments in the coming year.

Mixed results

For the fourth quarter of 2022, Conagra generated net sales of $2.91 billion, which increased 6.2% year-over-year, but below market estimates. Net sales increased by 6.8% on an organic basis. Adjusted EPS rose 20% to $0.65, beating expectations.

Tendencies

During the quarter, organic sales growth was driven by double-digit price/mix improvement which was fueled by pricing actions and favorable brand mix. However, price increases resulted in a volume decline of 6.4%. Gross margin fell 183 basis points to 24.5% due to the effects of inflation.

Conagra recorded sales growth in all of its segments, both on a reported and organic basis, but volumes declined in most segments due to the impact of price increases. The grocery and snacks segment saw a 7% decline in volume, but the company gained market share in the staple food and snack categories during the quarter.

In the Chilled and Frozen segment, Conagra gained market share in categories such as frozen single-serve meals, frozen meat alternatives and frozen desserts. Foodservice volumes increased 4.5% as restaurant traffic picked up as the pandemic subsided. This was, however, partly offset by impacts on the elasticity of pricing actions.

During the quarter, the Grocery & Snacks and Foodservice segments recorded increases in adjusted operating profit while the Chilled & Frozen and International divisions recorded declines. Conagra expects margins to improve across all of its segments as fiscal 2023 progresses.

Outlook

Looking ahead, Conagra expects cost of goods sold inflation to continue in fiscal 2023 and has implemented price increases that will take effect in the second quarter of 2023. Company forecasts assume gross inflation will be in the sub-10 range.

For fiscal 2023, Conagra expects organic net sales to grow 4-5% and adjusted EPS to grow 1-5% year-over-year. Adjusted operating margin should be c. 15%. Capital expenditures are expected to total approximately $500 million.

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