Pepsi, Conagra Still Riding Pandemic Food Wave -- Heard on the Street

By Aaron Back 

The eat-at-home trend isn't going anywhere, to the lasting benefit of American food companies.

That was the main takeaway Thursday from two giants of the industry -- PepsiCo and Conagra Brands. But beneath the surface there were also signs that continued innovation to keep up with health and wellness trends remains important.

Both companies reported quarterly earnings that were well ahead of expectations. Pepsi said organic sales, which strip out acquisition and currency impacts, rose 6% from a year earlier in North America for both its Frito-Lay and Quaker Food divisions. More surprising was that its North America beverage business, which has been dragged down by weak out-of-home sales, scored a 3% organic revenue increase on the back of price increases. That compares with a 7% decline the prior quarter.

Conagra did even better. Its grocery and snacks division, which includes Hunt's tomato sauce, Vlasic pickles, and Orville Redenbacher popcorn, saw organic sales soar 21%. In its refrigerated and frozen segment, which includes Birds Eye vegetables and Marie Callender's, organic sales rose 19%. The company also issued stronger-than-expected guidance for the current quarter and unexpectedly raised its dividend.

On a conference call, Conagra argued that food consumption at home is likely to stay elevated, even as states open back up, due to a host of factors: Remote working arrangements are becoming more normal, recessions tend to increase at-home dining, and families have invested already in things such as cookware and appliances to up their kitchen games.

Despite all this, food companies can't rest on their laurels. It is clear that shifts in health and wellness trends that rocked the food industry before the pandemic are still present. At Pepsi, for instance, some of the fastest growth in beverages is coming from newer, sugar-free products, including bubly sparkling water and Gatorade Zero. Pepsi Zero Sugar has grown retail sales by over 30% so far this year, Chief Executive Ramon Laguarta said. Meanwhile, Conagra cited figures from IRI showing that retail sales of its frozen, plant-based meat alternatives were up 36% from a year earlier over the last 13 weeks.

Americans may keep eating more at home, but they still want to eat healthier. Food companies need to keep adapting.

Write to Aaron Back at [e-mail]

(END) Dow Jones Newswires

October 01, 2020 12:05 ET (16:05 GMT)

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