US – American consumer packaged goods holding company, Conagra Brands, has reported that it was faced with manufacturing downtime that hampered production and led to higher costs in Q1.
This downtime, which happened over the past quarter, led to quality issues and forced it to pause production to address finished goods that did not meet specifications in some instances, resident and CEO Sean Connolly said.
He highlighted two instances that contributed to lost manufacturing time and inventory in Q1. A finished good for one food service customer failed to meet specifications, prompting Conagra to scrap the product.
The company also found quality issues with cans in its chili and beans business. While no recall was issued and production is now up and running properly, Connolly said that lost inventory will linger into Q2.
Connolly noted: “We disposed of the product and lost manufacturing time during our diagnostic, in the first instance.”
These challenges can result in downtime needed to determine and solve the root cause of the issue, as well as proper testing to ramp up production. “That lost time can result in higher costs and less production.”
Despite the disruptions, including increased supply chain productivity during the quarter, Conagra reported its Q1 profit margins to remain in line with its FY 2023 forecast.
The company’s organic net sales increased by 9.7%, driven by a 14.3% improvement in price/mix, which was partially offset by a 4.6% decrease in volume.
Price/mix was driven by the company’s inflation-driven pricing actions that were reflected in the marketplace throughout the quarter.
The volume decrease was primarily a result of the elasticity impact from inflation-driven pricing actions; however, the elasticity impact was favorable to expectations.
Gross profit increased 7.0% to US$720 million in the quarter benefiting from higher organic net sales and supply chain realized productivity while the adjusted gross profit increased 7.1% to $723 million.
In the same quarter, reported and organic net sales for the Grocery & Snacks segment increased 10.5% to US$1.2 billion, Refrigerated & Frozen segment increased 9.6% to US$1.2 billion.
Net sales for the International segment decreased by 1.3% to $234 million in the quarter reflecting, a 2.3% decrease from the unfavorable impact of foreign exchange; and a 1.0% increase in organic net sales.
The company also reported that organic net sales for the Foodservice segment increased 14.6% to $275 million in the quarter.
The company expects to have an organic net sales growth of 4% to 5% compared to fiscal 2022 in Fiscal 2023 while the adjusted operating margin is expected to be approximately 15% and adjusted diluted EPS to have a growth of 1% to 5%.
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