Conagra Brands (NYSE: CAG) has released its financial results for the first quarter of fiscal year 2025, ending on August 25, 2024.
Financial Results
The company reported a net sales decrease of 3.8%, bringing in $2.8 billion compared to $2.9 billion in the same period last year. Organic net sales also saw a decline of 3.5%. The reported operating margin was 14.4%, a decrease of 247 basis points, while the adjusted operating margin was 14.2%, down by 244 basis points. Despite these declines, the company achieved a 44.8% increase in reported diluted earnings per share (EPS), reaching $0.97. However, adjusted EPS fell by 19.7% to $0.53.
Gross profit for the quarter decreased by 10.2% to $739 million, and adjusted gross profit dropped by 9.4% to $726 million. The decline was attributed to lower organic net sales, cost of goods sold inflation, and unfavorable operating leverage. Selling, general, and administrative expenses (SG&A) increased by 1.1% to $338 million, primarily due to higher incentive compensation. Adjusted SG&A, excluding advertising and promotional expenses, rose by 7.3% to $277 million. Net interest expense slightly decreased to $106 million, while net income attributable to Conagra Brands surged by 46% to $467 million, driven by a significant income tax benefit.
Expectations vs Reality
When comparing the current quarter’s performance against market expectations, Conagra Brands fell short. Analysts had anticipated an EPS of $0.59 and revenue of $2.84 billion. The reported adjusted EPS of $0.53 missed the mark by $0.06, and the revenue of $2.8 billion was slightly below the expected figure.
The company’s net sales decrease of 3.8% and organic net sales drop of 3.5% were significant contributors to this shortfall. The gross profit decline of 10.2% and adjusted gross profit fall of 9.4% further illustrate the challenges faced by the company in meeting market expectations.
Segment-wise performance also reflected these challenges. The Grocery & Snacks segment experienced a 1.7% decrease in net sales, while the Refrigerated & Frozen segment saw a 5.7% decline. The International segment’s net sales fell by 0.4%, and the Foodservice segment reported a 7.8% decrease.
These declines were primarily driven by unfavorable price/mix impacts, volume decreases, and temporary manufacturing disruptions, particularly in the Hebrew National business during the key grilling season. Despite these setbacks, the company managed to gain market share in several categories, including snacking and frozen meals.
Future Outlook
Conagra Brands has reaffirmed its guidance for fiscal 2025. The company expects organic net sales to be between a decline of 1.5% and flat compared to fiscal 2024. Adjusted operating margin is projected to be between 15.6% and 15.8%, and adjusted EPS is anticipated to range from $2.60 to $2.65.
The company also aims for a free cash flow conversion of approximately 90%. CEO Sean Connolly expressed confidence in the underlying momentum of the business, despite the challenging environment.
In terms of capital expenditures, Conagra Brands now expects to spend approximately $450 million for the full year. The company also anticipates a net leverage ratio of around 3.2x by the end of the fiscal year.
Other guidance metrics, including interest expense, adjusted effective tax rate, and contributions from Ardent Mills, remain unchanged from the previous quarter’s outlook. The company has highlighted that it is unable to provide detailed reconciliations for forward-looking non-GAAP financial measures due to the unpredictability of certain items.
Despite declines in sales and challenges, Conagra Brands continues to believe in the resilience and successful development of its business, focusing on market share growth and financial optimization.
