In the 10 months since taking the helm at Conagra Foods Inc., Sean Connolly has sold a private-label unit for $2.7 billion, announced plans to spin off a business that supplies potatoes to fast-food chains, and decided to move the company's headquarters to Chicago from Omaha, Nebraska.
So why this flurry of changes? Conagra, it turns out, has a lot of catching up to do. In recent years, other big U.S. food and beverage companies, including General Mills Inc. and Kraft Foods, have tried to adapt to changing consumers tastes by reducing artificial colors and flavors and by offering more organic and natural options. Conagra has been mostly left behind.
Connolly's recent moves appear to be paying off -- at least with investors. Since he joined the company in March, Conagra's stock has climbed 12 percent, beating the Standard & Poor's 500 Index. Even so, he's the first to admit that there's still heavy lifting ahead. Connolly is searching for ways to improve margins while breathing new life into brands like Hunt's Ketchup, Reddi- wip and Orville Redenbacher's.
"We have a lot to do," Connolly, 50, said in an interview inside Chicago's Merchandise Mart, where Conagra will move later this year. "If we're slow-footed, we're going to lose."
The main knock on Conagra is that its portfolio of products -- including Peter Pan peanut butter and Healthy Choice foods -- is made up of mostly second-tier names that risk losing sales to cheaper private-label products.
"Their legacy brands are having trouble," said Carl Jorgensen, a director at retailing consultant Daymon Worldwide. "They're going to have reinvent themselves and clean up their labels -- some of their brands will have trouble doing that."
Connolly's first big challenge, at least, is out of the way: undoing the damage and the distraction brought on by its merger with Ralcorp, which makes generic products for grocery stores. Conagra bought the business in 2013 for about $6.7 billion, betting that it could combine Ralcorp's private-label foods with its stable of household brands.
The idea was to get more leverage with retailers. It didn't work: More than 40 percent of the unit's sales came from low- margin, less popular pasta, cereal and bakery items. And the former management team raised prices too much, leading to a drop in sales, according to Michael Halen, an analyst at Bloomberg Intelligence.
"It was two totally different businesses -- there were no synergies," Halen said.
Connolly sold Ralcorp to TreeHouse Foods Inc. for $2.7 billion. That's a steep discount from the price Conagra paid, but the difficult saga is over. Conagra also is working toward a spinoff of Lamb Weston, a division that sells frozen french fries and other potato products to chains like McDonald's and KFC.
Now Connolly is turning his attention back to basics: figuring out how to sell more microwave popcorn, tomato sauce, frozen food and hot dogs. In the most recent quarter, the budget for advertising and promoting Conagra's consumer foods rose about 18 percent as it tried to boost sales of Banquet frozen meals, Hunt's and other products. Still, overall sales fell 1.4 percent to $3.09 billion, missing analyst estimates.
Part of the sales dip stemmed from an overhaul of Conagra's so-called trade spending -- key to its plan to save $300 million annually by 2019. Trade spending is money sent to retailers to offer consumers discounts. For decades, Conagra subsidized the sale of Banquet frozen meals in a 10-for-$10 special. As inflation crept in, Conagra reduced food quality. Connolly said that was a losing equation and scrapped the program.
The challenge now is burnishing Conagra's brands.
"We have great iconic brands, but when you don't modify your iconic brands to be relevant with today's consumer -- they get stale," Connolly said. "Some of our businesses are wired for growth. We just haven't gotten behind them."
The turmoil at Conagra hasn't escaped the notice of activist investors. In June, Jana Partners, a hedge fund founded by Barry Rosenstein, disclosed a 7.2 percent active stake in Conagra, pointing to the failed 2013 acquisition as a sign the company had been mismanaged. As it turns out, Connolly and Rosenstein were on the same page. The Conagra chief had already just received board approval to sell the business, though the announcement came two weeks later.
"I don't view any of my investor interactions as a distraction or a drain," Connolly said. "We want to listen to them carefully. We're incredibly like-minded."
Even so, Rosenstein's investment was a wake-up call for Connolly, who is well aware of the recent flurry of dealmaking in the food industry. In 2015, the value of mergers and acquisitions among U.S. food producers hit $77 billion, the highest in more than a decade, including the $55 billion merger of Kraft Foods and Heinz, which was orchestrated by Warren Buffett and 3G Capital. That's put pressure on companies to either eat or be eaten.
Connolly's been down this road before. In 2014, he was rebuilding Hillshire Brands, which emerged from the breakup of Sara Lee. His efforts resulted in Tyson Foods Inc. buying the company. So could Connolly's frenetic reorganization of Conagra lead to another company sale? He insists he's only focused on selling more of Conagra's food to consumers.
"This isn't about financial engineering," Connolly said. "You never know if someone is going to show up on your doorstep -- that's not something we're going to obsess about. We're focused on what we can control, and that's the discipline that can unlock more value."
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