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Cans of Chef Boyardee, a product of ConAgra Foods, are seen on the shelf of a grocery store in the Brooklyn borough of New York December 16, 2015. REUTERS/Darren Ornitz/File Photo
July 13 (Reuters) – Packaged foods company Conagra Brands Inc (CAG.N) lowered its full-year profit and margin forecasts on Tuesday, warning that raw material and production costs would be “materially higher” than it previously estimated.
“As the fourth quarter unfolded, input cost inflation accelerated and we now expect fiscal 2022 input cost inflation to be materially higher than we anticipated at the end of fiscal Q3,” Conagra CEO Sean Connolly said in a statement.
Ingredient and packaging costs represent 60% to 65% of the total cost basket of the company, which makes of Duncan Hines cake mixes and Marie Callender’s pulled pork mac and cheese bowls.
Coupled with higher coronavirus-related manufacturing and transportation costs, the company now expects its adjusted operating margin to be about 16% for the full year, compared with the 18% to 19% it expected earlier.
Conagra, like its packaged goods peers Unilever (ULVR.L) and General Mills (GIS.N), has been raising prices to offset inflation on a broad-range of ingredients, including pork and edible oils.
It said it would have be more aggressive with pricing now but that there would be a lag between the time the company is hit with higher costs and when it realizes the benefits of its pricing actions.
This lag will be most acute in the first quarter, which started in June, and is expected to be its lowest margin quarter of the year, Conagra said.
Conagra shares fell 3.7% in premarket trade, even after it announced a 14% hike in its annual dividend.
The company also cut its adjusted profit to $2.50 per share in fiscal 2022, lower than the average analyst estimate of $2.72 per share, and below its prior forecast of $2.63 per share to $2.73 per share.
Organic net sales growth is now expected to be flat year-over-year, compared to the increase of 1% to 2% it expected earlier.
Reporting by Siddharth Cavale and Mehr Bedi in Bengaluru; Editing by Amy Caren Daniel
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