Conagra stock hits lowest level since 2020 as consumers grow cold on frozen food

The hype around the frozen aisle may be melting.

Conagra Brands (CAG) stock hit its lowest level since March 2020 on Thursday, closing at $26 following its fiscal first quarter results. The leading frozen food company behind brands such as Birds Eye and Marie Callender's has seen shares drop more than 31% year to date.

On Friday, shares of Conagra moved lower early on but bounced back to close the day 1.5% higher.

In Q1, Conagra beat on earnings but missed on revenue as sales of refrigerated and frozen items dragged, dropping 4.6% last quarter compared to the year prior. Volume in the segment was down 10.5%, though that was partially offset by an increase in prices.

On a call with investors, Conagra CEO Sean Connolly said consumer behaviors are changing as shoppers turn less to convenience items and more to "hands-on food prep" to get more "bang for their buck" by stretching food further.

"Most of the frozen items we sell are frozen convenience items," Connolly said. "What you've seen over the last quarter [is] more of this consumer pivot to what we'll call 'meals for many' instead of 'meals for one.' It's more of a 'speed scratch' type of thing [in which consumers add fresh ingredients to ready-made ones] where you can stretch your buck and feed more mouths."

However, Connolly added, the company believes this consumer shift is a short-term phenomenon since "speed scratch" cooking tends to be more laborious.

"We remain incredibly bullish on our frozen business," he said about the long-term growth prospects of frozen food.

But as the company sees improvement in volumes in the back half of 2024 with more promotions and advertisements, Stifel analyst Matthew Smith thinks that may be a reach.

"The dynamics leading to the current consumer environment are nearly unprecedented," Smith wrote in a note to clients. "Therefore we believe expectation that volumes recovery in the second half of this year as behaviors normalize could be ambitious."

Kraft Heinz, J.M. Smucker continue to push frozen snacks

Conagra isn't alone in experiencing this consumer shift.

Other frozen food companies such as Kraft Heinz (KHC) and J.M. Smucker (SJM) are also down over 20% year to date.

Historically, demand for frozen foods tends to be highly sensitive to price changes, Bank of America analyst Peter Galbo told Yahoo Finance over the phone.

"Demand elasticities in frozen foods are actually among some of the worst of all of the different food categories," Galbo said. "They cater more to the to the lower-income consumer and so as the price moves, ... there's a greater sensitivity."

Mizuho analyst John Baumgartner shared a similar view.

"Convenience has been strong when the economy has been strong, ... sort of appealing across all, or most of, the income demographics," Baumgartner told Yahoo Finance. "I don't think you have that benefit now because you've got [a] stressed ... low-end consumer. ... There's probably a little bit of a drag on the convenience channel."

Yet frozen food companies, like Conagra's Connolly, remain bullish on the future of the category, as evident by continued expansion and innovation in the space.

In September, Kraft Heinz introduced frozen Lunchables grilled cheese, the Lunchables brand's first entrance into the frozen food category. It uses new packaging technology, dubbed 360 Crisp, that ensures the bread gets crispy in the microwave, rather than soggy.

The new frozen food technology is part of Kraft Heinz's larger goal to drive $2 billion in incremental net sales by 2027.

"We see a real runway and a pipeline in the frozen space beyond grilled cheese," Kraft Heinz VP of disruption Alan Kleinerman told Yahoo Finance on a video call. "There's so much runway in frozen snacks — consumers are willing to try new things. They're willing to try new ways of prepping as long as it delivers on convenience and [having] great taste."

According to Mary Emma Young, a spokesperson for the American Frozen Food Institute (AFFI), a lot of the bullishness in the space comes from innovation, which is redefining consumers' perceptions of frozen products.

"The frozen food you're seeing now is not what we might have been seeing 20, 30, 40 years ago," Young told Yahoo Finance. "I think some folks still have this image of the big block of spinach, for example. And you're seeing a lot of shift into spaces such as international food, better-for-you products. You're seeing these protein bowls and restaurant-quality pizzas."

J.M. Smucker also continues to bet on Uncrustables, a frozen-to-thawed sandwich success story.

"Uncrustables is on fire," J.M. Smucker CEO Mark Smucker told Yahoo Finance Live in late August. "We're going to hit $800 million in sales this year. ... We're building our third plant, and we're still in growth mode."

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Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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