CHICAGO — A common theme the past few years in food and beverage has been the resiliency of the US consumer. Demand across most categories has remained robust even as companies implemented price increases to cover the rising cost of inputs and services. It appears that resiliency has been weakening as 2023 has progressed.

“… Food companies are starting to wrap pricing in the year-ago period, and dollar sales are coming down as expected, but the rate of improvement in volume recovery is lagging,” said Sean M. Connolly, president and chief executive officer of Conagra Brands, Inc., during a conference call July 13 to discuss fiscal 2023 results. “That suggests new consumer behavior shifts beyond the initial elasticity effects that occurred when pricing actions were initially taken.

“We've seen this dynamic since just after Easter, and it has been broad-based across many categories and competitors. And importantly, where we see it, it is usually not a trade down to lower-priced alternatives within the category. Rather, it's an overall category slowdown. The question is, why now, given the steadiness we've seen from the consumer for two years?”

Mr. Connolly speculated that a busy summer travel season may be contributing to the slowdown and called the situation a temporary behavior shift as consumers stretch their budgets.

Later in the call, Mr. Connolly added that slowdown is not specific to Conagra.

“… If you look at the scanner data that just came out for the period ending July 1, you see Conagra and our five nearest peers are basically in the exact same place in terms of unit performance change versus a year ago,” he said. “We're probably all better served by looking at the unit volume change versus two years ago to get the noise out of the base period last summer.  

“And when you do that, it's really kind of uncanny everybody's volume is at an extremely tight band of down just over 6% in the last several periods. … What we don't see is much of a difference in terms of that volume change versus a year ago between the 13-week data and the past four-week data.

“That's where I think people would have modeled, and us included, a bit of an improvement in that trend from 13 weeks to four weeks because when you roll off a price and you wrap the initial volume elasticity (increase) effect, you should see an improvement there.”

For fiscal year 2023, ended May 28, Conagra Brands earnings fell 23% to $684 million, equal to $1.43 per share on the common stock, from $888 million, equal to $1.85 per share, the year before.

Annual sales rose 6% to $12.3 billion from $11.5 billion.

Gross profit increased 15% to $3.3 billion, and adjusted gross profit increased 16.1% to $3.3 billion as the benefits from higher organic net sales and productivity more than offset the negative impacts from cost of goods sold inflation unfavorable operating leverage, and elevated supply chain operating costs, according to the company. Gross margin increased 198 basis points to 26.6%, and adjusted gross margin increased 226 basis points to 27.1%.

“Looking back at our priorities going into fiscal '23, we're pleased to say that we delivered on each of them,” Mr. Connolly said. “We continued our disciplined pricing execution in the face of ongoing inflation, which helped to drive margin recovery — a top priority coming into fiscal '23. Our supply chain continued to improve as we made meaningful progress on our cost savings initiatives, which in turn led to a vast improvement in service levels.”

For fiscal 2024, Conagra Brands is guiding organic sales growth of approximately 1% and adjusted earning per share to be in a range of $2.70 and $2.75.

During the conference call, Mr. Connolly outlined the tailwinds and headwinds he sees impacting the company during its upcoming fiscal year.

“Starting with the tailwinds,” he said. “In fiscal '24, we will be wrapping the various discrete supply chain disruptions that persisted throughout the year. As the operating environment continues to normalize, we will also benefit from the ongoing advancement of our productivity initiatives, and we expect our investments in innovation to continue to deliver strong results, building upon our track record of success.”

Headwinds, in addition to the shifting consumer behaviors Mr. Connolly discussed, included single-ingredient brands featuring dairy or meat ingredients becoming deflationary.