Conagra stock falls after the company names new CEO

Conagra Brands (CAG) CEO Sean Connolly is stepping down on June 1 after 11 years leading the company.

John Brase will be the next CEO of the snack and meal giant, known for snacks like Slim Jim and Reddi-wip. He is currently COO at J.M. Smucker (SJM). Prior to that, he spent 30 years at Procter & Gamble (PG).

“The decision to appoint John as Conagra’s next leader follows our thoughtful approach to succession planning, including discussions with Sean, and our determination that now is the right time for this leadership transition,” Richard Lenny, the independent chair of Conagra’s board of directors, said in the release.

The news, however, seemed to take investors by surprise. Conagra stock fell more than 5% in early afternoon trading.

“We believe that Mr. Brase is well regarded by investors … But he also joins a company facing clear challenges,” JPMorgan analyst Thomas Palmer wrote in a note to clients.

Conagra stock has fallen 45% over the past year as the consumer packaged goods industry faces consumer pushback over higher prices.

“We’ve dealt with the most protracted inflation super cycle that I’ve certainly seen in my 35 years of doing this,” Connolly said on the company’s most recent earnings call earlier this month. Conagra had lowered prices on some of its frozen foods and snacks, but it recently raised prices on canned foods and products with cocoa due to higher costs.

The company reported earnings per share of $1.70 on April 1, which were close to expectations of $1.69 per share, according to Bloomberg estimates.

However, there are “mounting earnings pressures to consider,” Palmer wrote, including “inflation, especially freight and packaging, which could limit the magnitude of CAG’s earnings recovery next year.”

Connolly previously said the team needs to be “agile.” While the company contracts out freight costs, he said it has “less coverage” for diesel fuel, which is currently at elevated prices due to the war in Iran.

According to AAA, diesel fuel is now $5.65 per gallon, just below the record high of $5.82 in June 2022.

Read more: How oil price shocks ripple through your wallet, from gas to groceries

Lackluster volume growth is another key focus for analysts. Volume grew just 0.5% in the third quarter.

“If inflation is benign, you’ll see us likely continue to focus on continued volume momentum,” Connolly said. “If for some reason, inflation was to go the other way, we’ll keep our options open. After all, we are a company that is intensely focused on maximizing cash flow and we’ve already proven that we can move the volume needle to growth in frozen and snacks when we need to.”

Stifel analyst Matthew Smith added that there is “limited balance sheet flexibility, given current leverage against the improved volume trajectory in the Refrigerated & Frozen segment.”

That segment includes brands like Marie Callender’s and Birds Eye, which saw the most volume growth last quarter, with an increase of 0.6%, against declines in all the other categories, such as grocery and snacks, international, and food service.

While Conagra attempts to get consumers to stock up on their grocery trips, the Street is mostly staying on the sidelines on this stock, with one Buy rating, 12 Holds, and four Sells.

Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on X at @BrookeDiPalma or email her at [email protected].

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