Profit companies

Conagra expects profit below estimates as demand falters and costs soar

The ConAgra Foods production facility is seen in Oakdale, California December 18, 2015. REUTERS/Fred Greaves

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July 14 (Reuters) – Conagra Brands Inc (CAG.N) forecast full-year profits below Wall Street expectations on Thursday as inflation-driven price rises weigh on demand for its frozen foods and snacks while rising costs reduce margins.

Shares of Conagra, known for brands such as Birds Eye and Chef Boyardee, fell around 9% as the company also reported a 6.4% drop in sales volumes in the fourth quarter as consumers showed signs resistance to price increases.

Ongoing supply chain issues and soaring freight and ingredient costs have forced Conagra to raise prices at a time when decades-high inflation is pinching U.S. household spending, eating away at profit margins in the business and hampers demand.

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“We need to have healthy margins…we need to take inflation-justified pricing to recoup our margins after going through those windows where we experienced the squeeze that happens at the start of the inflation cycle,” the chief executive said. Sean Connolly. on a call with analysts.

The more than a century-old company, however, said it expects sales volumes to be hit harder in fiscal 2023 due to higher prices.

Conagra now expects adjusted earnings per share for the full year to rise 1% to 5% from expectations of 8.3% growth, with gross inflation expected to be in the range the low percentage range to ten for the year.

On Wednesday, consumer prices in the United States in the 12 months ending in June jumped 9.1%, their biggest rise since November 1981, solidifying the case for an oversized rate hike by the Federal Reserve. Read more

“There will be some pushback among retailers and some pushback among consumers… Going forward, it will be a bit more difficult for packaged food companies to raise prices,” said Arun Sundaram, an analyst at the CFRA.

Net sales rose 6.2% less than expected to $2.91 billion in the quarter, while adjusted earnings of 65 cents per share beat expectations by 2 cents.

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Reporting by Mehr Bedi and Deborah Sophia in Bengaluru; Editing by Vinay Dwivedi

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