[ad_1]
Consumers are no longer simply looking for cheaper food brands to stretch their grocery budget. Now they are actually buying less food, according to Sean Connolly, CEO of consumer-foods giant Conagra Brands Inc.
The parent company of a wide range of food brands — including Birds Eye, Duncan Hines, Hunt’s, Orville Redenbacher’s and Slim Jim — on Thursday reported fiscal fourth-quarter profit that topped expectations but revenue that came up shy. Conagra also provided a full-year earnings outlook that was below Wall Street expectations.
Conagra’s
CAG,
stock initially fell after the results were released and was down as much as 0.4% in intraday trading, but it reversed course to be up 0.8% in midday trading.
On a conference call with analysts following the earnings report, Connolly said that while pricing may have peaked, which has put pressure on dollar sales, the rate of improvement in volume sales is lagging.
That suggests “new consumer behavior shifts” when compared with behavior seen in response to initial price increases implemented a year ago.
“We’ve seen this dynamic since just after Easter, and it has been broad-based across many categories and competitors,” Connolly said, according to a transcript provided by AlphaSense.
Also read: As food prices rise in June, analysts warn of a ‘tipping point’ for Americans
Importantly, Connolly said that where the shifts have taken place, consumers aren’t trading down to lower-priced alternatives within the category. Instead, there has been an overall category slowdown.
“One behavior shift we’ve heard about from consumers is just buying fewer items overall, more of a hunkering down than a trading down,” Connolly said.
After two years of consumers holding steady, the question is, why now?
Connolly provided some possible reasons for the new behavior.
First, he said, consumers may be trying to save money because this summer will likely be “more travel intensive” than last year, something he believes will be a temporary shift.
Other reasons he gave include deflationary trends in a few single-ingredient items and lower pension incomes.
Regarding what the company can do to stimulate demand, Connolly said he is not a fan of deep-discount promotions, because those tend to train the shopper to look for deals.
“So we don’t like those kinds of promotions,” he said. “But in the current environment with the consumer that is cutting back and making other choices, we probably are more likely to see some players resort to harder deals to stimulate units.”
Conagra’s stock has dropped 11.4% over the past three months, while the Consumer Staples Select Sector SPDR exchange-traded fund
XLP,
has slipped 2.4% and the S&P 500
SPX,
has gained 8.5%.
[ad_2]
Source link
