Conagra Brands Reports First Quarter Results
Today Conagra Brands, Inc. (NYSE: CAG) reported results for the first quarter of fiscal year 2025, which ended on August 25, 2024. All comparisons are against the prior-year fiscal period, unless otherwise noted.
Highlights
Reported net sales decreased 3.8%; organic net sales decreased 3.5%.
Reported operating margin was 14.4% representing a 247 basis point decrease. Adjusted operating margin was 14.2% representing a 244 basis point decrease.
Reported diluted earnings per share (EPS) was $0.97, a 44.8% increase. Adjusted EPS was $0.53, a 19.7% decrease.
The company is reaffirming its fiscal 2025 guidance reflecting:
Organic net sales of (1.5)% to flat compared to fiscal 2024
Adjusted operating margin between 15.6% and 15.8%
Adjusted EPS between $2.60 and $2.65
Free cash flow conversion of approximately 90%
CEO Perspective
Sean Connolly, president and chief executive officer of Conagra Brands, commented, “Our team executed well to deliver on key priorities across the business during the first quarter in what continued to be a challenging environment. Our domestic retail volume progressed in-line with expectations, we increased share across the portfolio and advanced our portfolio reshaping initiatives. Overall, we are reaffirming our guidance for fiscal 2025, reflecting confidence in the underlying momentum of our business.”
Total Company First Quarter Results
In the quarter, net sales decreased 3.8% to $2.8 billion reflecting:
a 3.5% decrease in organic net sales,
a 0.4% decrease from the unfavorable impact of foreign exchange; and
a 0.1% increase from the favorable impact of M&A
The 3.5% decrease in organic net sales was driven by a 1.9% negative impact from price/mix, largely driven by the company’s strategic investments in the quarter, and a 1.6% decrease in volume. Additionally, the company estimates that results in the quarter were impacted by approximately $27 million due to temporary manufacturing disruptions in the Hebrew National business during the key grilling season.
Gross profit decreased 10.2% to $739 million in the quarter, and adjusted gross profit decreased 9.4% to $726 million. First quarter gross profit decreased as higher productivity was more than offset by the negative impacts of lower organic net sales, cost of goods sold inflation, and unfavorable operating leverage. Additionally, gross profit was negatively impacted by approximately $11 million due to the temporary manufacturing disruptions in the Hebrew National business. Gross margin decreased 189 basis points to 26.5% in the quarter, and adjusted gross margin decreased 163 basis points to 26.0%.
Selling, general, and administrative expense (SG&A), which includes advertising and promotional expense (A&P), increased 1.1% to $338 million in the quarter driven primarily by higher incentive compensation compared to the prior year quarter, partially offset by a 14.0% decrease in A&P. Adjusted SG&A, which excludes A&P, increased 7.3% to $277 million primarily driven by higher incentive compensation compared to the prior year quarter.
Net interest expense was $106 million in the quarter, a 0.1% decrease compared to the prior-year period due to a reduction in total debt.
The average diluted share count in the quarter was 480 million shares reflecting $64 million in share repurchases during the first quarter.
In the quarter, net income attributable to Conagra Brands increased 46.0% to $467 million, or $0.97 per diluted share compared to $320 million, or $0.67 per diluted share in the prior year quarter driven primarily by releasing an allowance resulting in a $210.4 million income tax benefit in the first quarter of fiscal 2025. Adjusted net income attributable to Conagra Brands decreased 20.0% to $253 million, or $0.53 per diluted share, primarily as a result of the decrease in gross profit and increase in SG&A.
Adjusted EBITDA, which includes equity method investment earnings and pension and postretirement non-service expense (income), decreased 13.8% to $528 million in the quarter, primarily driven by the decrease in adjusted operating profit.
Grocery & Snacks Segment First Quarter Results
Net sales for the Grocery & Snacks segment decreased 1.7% to $1.2 billion in the quarter, reflecting:
a 1.9% decrease in organic net sales; and
a 0.2% increase from the favorable impact of M&A.
The decrease in organic net sales was driven by a price/mix decrease of 0.1%, partially attributable to an increase in strategic investments, and a volume decrease of 1.8%. The company gained dollar share in snacking and staples categories including microwave popcorn, seeds, pudding, and pickles.
Operating profit for the segment decreased 3.7% to $249 million in the quarter and adjusted operating profit decreased 3.8% to $253 million as higher productivity, and lower A&P and SG&A were more than offset by the negative impacts of cost of goods sold inflation, lower organic net sales, and unfavorable operating leverage.
Refrigerated & Frozen Segment First Quarter Results
Reported and organic net sales for the Refrigerated & Frozen segment decreased 5.7% to $1.1 billion in the quarter as price/mix decreased 5.8%, primarily attributable to an increase in strategic investments, and volume increased 0.1%. Additionally, the company estimates that results in the quarter were impacted by approximately $24 million due to temporary manufacturing disruptions in the Hebrew National business during the key grilling season. The company gained dollar share in select categories such as frozen single-serve meals, frozen multi-serve meals, and frozen breakfast.
Operating profit for the segment decreased 11.6% to $176 million in the quarter. Adjusted operating profit decreased 21.0% to $159 million as higher productivity and lower A&P and SG&A were more than offset by the negative impacts of lower organic net sales, cost of goods sold inflation, and unfavorable operating leverage. Additionally, the company estimates that operating profit was negatively impacted by approximately $10 million due to the temporary manufacturing disruptions in the Hebrew National business.
International Segment First Quarter Results
Net sales for the International segment decreased 0.4% to $259 million in the quarter reflecting:
a 3.4% decrease from the unfavorable impact of foreign exchange; and
a 3.0% increase in organic net sales.
On an organic net sales basis, price/mix increased 2.4% and volume increased 0.6%, primarily driven by a strong performance in the company’s Global Exports business.
Operating profit for the segment increased 42.1% to $34 million in the quarter primarily due to the wrap of certain non-cash restructuring charges in the prior year period. Adjusted operating profit decreased 15.5% to $36 million as the benefits from higher organic net sales and productivity were more than offset by the negative impacts of unfavorable foreign exchange and cost of goods sold inflation.
Foodservice Segment First Quarter Results
Net sales for the Foodservice segment decreased 7.8% to $267 million in the quarter, reflecting:
a 7.9% decrease in organic net sales; and
a 0.1% increase from the favorable impact of M&A.
Organic net sales were driven by a price/mix increase of 3.2% and volume decrease of 11.1% due to the ongoing impact of previously disclosed lost business and ongoing softness in restaurant traffic.
Operating profit for the segment decreased 20.4% to $35 million. Adjusted operating profit decreased 13.8% to $35 million in the quarter as higher productivity was more than offset by the negative impacts of lower organic net sales, cost of goods sold inflation, unfavorable operating leverage, and one-time costs related to capital investment projects.
Additionally, the company estimates that organic net sales in the quarter were impacted by approximately $3 million and gross profit was impacted by approximately $1 million due to the temporary manufacturing disruptions in the Hebrew National business.
Other First Quarter Items
Corporate expenses increased 151.2% to $92 million in the quarter and adjusted corporate expense increased 34.1% to $85 million in the quarter driven primarily by higher incentive compensation compared to the prior year quarter.
The company incurred pension and post-retirement non-service income of $3.1 million in the quarter compared to $0.3 million of expense in the prior-year quarter, due primarily to lower interest costs.
In the quarter, equity method investment earnings decreased 18.1% to $29 million as results from the company’s joint venture, Ardent Mills, reflected slightly lower volume trends in the milling industry.
In the quarter, the effective tax rate was (42.4)% compared to 23.5% in the prior-year quarter. The effective tax rate in the first quarter reflected a $210.4 million deferred tax benefit that was related to the release of valuation allowances booked against certain deferred tax assets. The adjusted effective tax rate was 22.1% compared to 23.6% in the prior-year quarter.
In the quarter, the company paid a dividend of $0.35 per share.
Cash Flow and Debt Update
For the first quarter, the company generated $269 million in net cash flows from operating activities compared to $444 million in the prior year period, driven primarily by lower operating profit and anticipated changes in working capital. Capital expenditures were $133 million compared to $144 million in the prior year period. Additionally, our free cash flow decreased from the prior year quarter by $164 million to $136 million. Dividends paid increased 6.4% to $167 million.
The company ended the quarter with net debt of $8.6 billion, representing a 5.8% reduction in net debt versus the prior year period, resulting in a 3.60x net leverage ratio at the end of the quarter.
Outlook
The company is reaffirming its fiscal 2025 guidance reflecting:
Organic net sales of (1.5)% to flat compared to fiscal 2024
Adjusted operating margin between 15.6% and 15.8%
Adjusted EPS between $2.60 and $2.65
Free cash flow conversion of approximately 90%
Net leverage ratio of approximately 3.2x
Additionally, the company now expects capital expenditures of approximately $450M and full year net inflation (input cost inflation including the impacts of hedging and other sourcing benefits) to be roughly 3.2%. Other guidance metrics including interest expense, the adjusted effective tax rate, Ardent Mills’ contribution, and pension income that were provided in our fourth quarter fiscal 2024 earnings release remain unchanged.
The inability to predict the amount and timing of the impacts of foreign exchange, acquisitions, divestitures, and other items impacting comparability makes a detailed reconciliation of forward-looking non-GAAP financial measures impracticable. Please see the end of this release for more information.
Items Affecting Comparability of EPS
The following are included in the $0.97 EPS for the first quarter of fiscal 2025 (EPS amounts are rounded and after tax). Please see the reconciliation schedules at the end of this release for additional details.
Approximately $0.01 per diluted share of net expense related to restructuring plans
Approximately $0.03 per diluted share of net benefit related to fire-related insurance recoveries
Approximately $0.01 per diluted share of net expense related to legal matters
Approximately $0.44 per diluted share of net benefit related to a valuation allowance adjustment
Approximately $0.01 per diluted share of net expense related to rounding
The following are included in the $0.67 EPS for the first quarter of fiscal 2024 (EPS amounts are rounded and after tax). Please see the reconciliation schedules at the end of this release for additional details.
Approximately $0.04 per diluted share of net expense due to restructuring plans
Approximately $0.04 per diluted share of net benefit related to corporate hedging derivative gains
Approximately $0.01 per diluted share of net benefit related to rounding
Please note that certain prior year amounts have been reclassified to conform with current year presentation.
Discussion of Results and Outlook
Conagra Brands will issue pre-recorded remarks prior to hosting a live Q&A conference call and webcast at 9:30 a.m. Eastern time today to discuss the company’s results and outlook. The live audio webcast Q&A conference call, pre-recorded remarks, transcript of the pre-recorded remarks, and presentation slides will be available on www.conagrabrands.com/investor-relations under Events & Presentations. The Q&A conference call may be accessed by dialing 1‑877‑883‑0383 for participants in the U.S. and 1‑412‑902‑6506 for all other participants and using passcode 7095043. Please dial in 10 to 15 minutes prior to the call start time. A replay of the Q&A conference call will be available on www.conagrabrands.com/investor-relations under Events & Presentations until October 2, 2025.
About Conagra Brands
Conagra Brands, Inc. (NYSE: CAG), is one of North America’s leading branded food companies. We combine a 100-year history of making quality food with agility and a relentless focus on collaboration and innovation. The company’s portfolio is continuously evolving to satisfy consumers’ ever-changing food preferences. Conagra’s brands include Birds Eye®, Duncan Hines®, Healthy Choice®, Marie Callender’s®, Reddi-wip®, Slim Jim®, Angie’s® BOOMCHICKAPOP®, and many more. As a corporate citizen, we aim to do what’s right for our business, our employees, our communities and the world. Headquartered in Chicago, Conagra Brands generated fiscal 2024 net sales of more than $12 billion.