Back to top

Image: Bigstock

Conagra Q1 Earnings Lag Estimates, Organic Sales Decline Y/Y

Read MoreHide Full Article

Conagra Brands, Inc. (CAG - Free Report) posted soft first-quarter fiscal 2025 results, wherein the bottom and top lines declined year over year and fell short of the respective Zacks Consensus Estimate. Despite the ongoing difficult landscape, Conagra progressed well on its key priorities. Domestic retail volumes met the company’s expectations, market share expanded across the portfolio, and progress was made on portfolio reshaping initiatives.

CAG’s Quarterly Performance: Key Metrics and Insights

Conagra’s quarterly adjusted earnings per share (EPS) came in at 53 cents, which fell short of the Zacks Consensus Estimate of 59 cents, delivering a negative surprise of -10.2%. This Zacks Rank #4 (Sell) company’s bottom line declined 19.7% year over year.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

The company generated net sales of $2,794.9 million, which declined 3.8% year over year and missed the Zacks Consensus Estimate of $2,839 million. The top line included a 0.4% negative impact of currency movements.

Organic net sales declined 3.5% year over year due to a 1.6% drop in volumes and a 1.9% adverse effect from price/mix as a result of elevated strategic investments. Results were also affected by temporary manufacturing hurdles in the Hebrew National business during the key grilling season. Our model suggested an organic sales decline of 2% and a volume decline of 0.8% for the first quarter.

The adjusted gross profit declined 9.4% year over year at $726 million. The adjusted gross margin contracted 163 basis points (bps) to 26%. The gross profit was hurt by lower organic net sales, cost of goods sold inflation, adverse operating leverage and the impacts of the abovementioned manufacturing disruptions, partly made up by higher productivity. 

Adjusted SG&A expenses, excluding advertising and promotional costs, escalated 7.3% year over year on account of elevated incentive compensation.

Adjusted EBITDA (including equity method investment earnings and the pension and post-retirement non-service income) came in at $528 million, down 13.8% year over year.

Conagra Brands Price, Consensus and EPS Surprise

Conagra Brands Price, Consensus and EPS Surprise

Conagra Brands price-consensus-eps-surprise-chart | Conagra Brands Quote

Decoding CAG’s Segmental Performance

Grocery & Snacks: Quarterly net sales in the segment came in at $1,182.7 million, down 1.7% year over year. Organic sales fell 1.9% due to a 1.8% drop in volumes and a 0.1% dip in price/mix. We had expected segment volumes to drop 1.3%. The company witnessed a 0.2% favorable impact from M&A. During the quarter, CAG saw dollar share gains in snacking categories like microwave popcorn, pudding, pickles and seeds.

Refrigerated & Frozen: Net sales and organic sales declined 5.7% year over year to $1,086.4 million. The price/mix fell 5.8%, with volumes up 0.1%. The company saw dollar share gains in frozen single-serve meals, frozen multi-serve meals and frozen breakfasts.

International: Net sales dropped 0.4% year over year to $259.1 million, reflecting improved organic net sales (up 3%) and negative currency effects (3.4%). Organic sales growth was driven by the price/mix (which climbed 2.4%) and volumes (which rose 0.6% due to strength in the Global Exports business).

Foodservice: Reported sales declined 7.8% year over year to $266.7 million. Organic sales tumbled 7.9%, and M&A contributed 0.1% to reported sales. The price/mix improved 3.2%, whereas volumes declined 11.1% on account of the ongoing effects of previously unveiled lost business, along with the current sluggishness in restaurant traffic.

CAG’s Financial Health Snapshot

The company exited the quarter with cash and cash equivalents of $128.7 million, senior long-term debt (excluding current installments) of $7,485.6 million and total stockholders’ equity of $8,695.6 million. 

In the first quarter of fiscal 2025, Conagra generated $269 million as net cash flows from operating activities, with capital expenditures amounting to $133 million. The company generated a free cash flow of $136 billion in the quarter. During the quarter, Conagra paid dividends worth $167 million.

What to Expect From CAG in FY25?

For fiscal 2025, organic net sales growth is anticipated in the range of 1.5% decline to flat. The adjusted operating margin is expected between 15.6% and 15.8%.

Management envisions an adjusted EPS in the range of $2.60-$2.65 in fiscal 2025 compared with $2.67 recorded in fiscal 2024.

For fiscal 2025, the net leverage ratio is anticipated to be nearly 3.2. Full-year net inflation (input cost inflation, including the impacts of hedging and other sourcing benefits) is expected to be around 3.2%.

Capital expenditure is likely to be around $450 million, interest expenses are expected to be $415 million, and the adjusted effective tax rate is forecasted to be 23.5%.

Shares of the company have risen 16.3% in the past three months compared with the industry’s growth of 8.9%.

Top Staple Stocks

Here, we have highlighted some better-ranked consumer staple stocks — The Chef's Warehouse (CHEF - Free Report) , Flowers Foods (FLO - Free Report) and Kimberly-Clark Corporation (KMB - Free Report) .

The Chef’s Warehouse, which engages in the distribution of specialty food products, currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. The Zacks Consensus Estimate for The Chef’s Warehouse’s current fiscal year sales and earnings indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.

Flowers Foods, one of the largest producers of packaged bakery foods in the United States, currently carries a Zacks Rank #2. FLO has a trailing four-quarter earnings surprise of 1.9%, on average. 

The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales and earnings implies growth of around 1% and 5%, respectively, from the year-ago reported numbers.

Kimberly-Clark is a personal care and consumer tissue product company that currently carries a Zacks Rank of 2.

The Zacks Consensus Estimate for Kimberly-Clark’s current fiscal-year earnings indicates an advancement of 10.4% from the year-ago reported figure. KMB has a trailing four-quarter earnings surprise of 12.6%, on average.

Published in