Conagra Brands (CAG) Q1 2025 (Q&A) earnings summary

Executive summary

• Net sales declined 3.8% to $2.8 billion, with organic net sales down 3.5% year-over-year, driven by declines in Grocery & Snacks, Refrigerated & Frozen, and Foodservice, partially offset by International growth.

• Reported EPS rose 44.8% to $0.97, driven by a $210.4 million income tax benefit, while adjusted EPS fell 19.7% to $0.53.

• Operating margin decreased 247 bps to 14.4%; adjusted operating margin decreased 244 bps to 14.2%.

• Temporary manufacturing disruptions in the Hebrew National business impacted results by ~$27 million in net sales and ~$11 million in gross profit.

• Portfolio reshaping continued with the acquisition of FATTY Smoked Meat Sticks and divestiture of Agro Tech Foods Limited.

Financial highlights

• Q1 FY25 organic net sales were $2.80B, down 3.5% year-over-year; gross profit decreased 10.2% to $739 million; adjusted gross profit down 9.4% to $726 million.

• Adjusted gross margin was 26.0% (down 163 bps); adjusted operating margin was 14.2% (down 244 bps); adjusted EBITDA declined 13.8% to $528 million.

• Adjusted EPS was $0.53, a 19.7% decrease compared to Q1 FY24.

• Free cash flow for Q1 FY25 was $136M, down 54.8% year-over-year; net cash from operating activities fell 39.4% to $269 million.

• Net leverage ratio increased to 3.60x from 3.55x in Q1 FY24; net debt reduced 5.8% year-over-year to $8.6 billion.

Outlook and guidance

• Fiscal 2025 organic net sales expected between -1.5% and flat versus fiscal 2024.

• Adjusted operating margin projected at 15.6%–15.8%; adjusted EPS between $2.60 and $2.65.

• Free cash flow conversion targeted at ~90%; net leverage ratio expected at ~3.2x.

• Volume and margin recovery anticipated to be most meaningful in H2; Q2 expected to show sequential improvement.

• Full-year net inflation now expected at ~3.2%, with peak in Q2.