Conagra Brands, Inc. CAG posted second-quarter fiscal 2025 results, wherein the top and bottom lines beat the Zacks Consensus Estimate while declining year over year. 

Despite a difficult consumer landscape, Conagra’s results were driven by strategic investments that delivered robust market share gains. Although momentum remains strong, management anticipates greater-than-expected inflation and adverse foreign exchange rates in fiscal 2025, prompting a revision to its fiscal 2025 guidance.

CAG’s Quarterly Performance: Key Metrics and Insights

Conagra’s quarterly adjusted earnings per share (EPS) came in at 70 cents, which beat the Zacks Consensus Estimate of 68 cents. However, the bottom line declined 1.3% year over year due to reduced gross profit and higher SG&A costs.

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The company generated net sales of $3,195.1 million, which declined 0.4% year over year while beating the Zacks Consensus Estimate of $3,144 million. The top-line decline resulted from adverse currency movements and an unfavorable impact of M&A, somewhat negated by a slight increase in organic net sales.

Organic net sales climbed 0.3% year over year due to a 0.4% rise in volumes, partly countered by a 0.1% adverse effect from the price/mix. 

The adjusted gross profit declined 2.3% to $842 million as a result of the cost of goods sold inflation and adverse operating leverage, partially made up by productivity and improved organic net sales. The adjusted gross margin contracted 52 basis points (bps) to 26.4%.

Adjusted SG&A expenses, excluding advertising and promotional costs, escalated 1.2% year over year to $283 million due to elevated incentive compensation.

Adjusted EBITDA (including equity method investment earnings and pension and post-retirement non-service income) came in at $639 million, down 3.3% year over year.

Decoding CAG’s Segmental Performance

Grocery & Snacks: Quarterly net sales in the segment came in at $1,321 million, up 2% year over year, including a 0.8% positive impact of M&A. Organic sales rose 1.2% due to a 0.3% increase in volumes and a 0.9% rise in the price/mix. During the quarter, CAG saw volume share gains in the snacking and staples categories such as microwave popcorn, shelf-stable dinners and entrees, chili and seeds.

Refrigerated & Frozen: Net sales and organic sales were flat year over year at $1,338.5 million. The price/mix fell 1.9%, with volumes up by an equal rate. The company saw volume share gains in frozen multi-serve meals, frozen single-serve meals and frozen vegetables.

International: Net sales dropped 12.9% year over year to $243.4 million. Organic net sales dipped 0.7%. M&A had an 8.4% negative effect on sales, and adverse currency effects impacted sales by 3.8%. Organic sales included a 1.7% increase in the price/mix and a volume decline of 2.4%. 

Foodservice: Reported sales declined 0.9% year over year to $292.2 million. Organic sales fell 1%, and M&A positively contributed 0.1% to reported sales. The price/mix improved 2.9%, whereas volumes declined 3.9% due to the ongoing effects of the 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 $37.4 million, senior long-term debt (excluding current installments) of $6,237.8 million and total stockholders’ equity of $8,800.7 million. 

In the first half of fiscal 2025, Conagra generated $754 million in net cash flows from operating activities, with capital expenditures amounting to $215 million. The company generated a free cash flow of $539 million in the quarter. During the quarter, Conagra paid a dividend of 35 cents per share.

What to Expect From CAG in FY25?

For fiscal 2025, organic net sales growth is now expected to be close to the midpoint of the previously guided range of a decline of 1.5% to flat. 

The adjusted operating margin is expected to be about 14.8% compared with the earlier range of 15.6%-15.8%.

Management envisions fiscal 2025 adjusted EPS in the range of $2.45-$2.50 compared with the prior view of $2.60-$2.65 and the $2.67 recorded in fiscal 2024.

Inflation is expected to be around 4% in fiscal 2025. Capital expenditure is still likely to be around $450 million.

Shares of this Zacks Rank #3 (Hold) company have tumbled 15.3% in the past three months compared with the industry’s decline of 9.6%.

Some Solid Bets

We have highlighted three better-ranked stocks from the Consumer Staples sector — Ingredion Incorporated INGR, Freshpet FRPT and US Foods Holding Corp. USFD.

Ingredion Incorporated manufactures and sells sweeteners, starches, nutrition ingredients and biomaterial solutions derived from wet milling and processing corn and other starch-based materials. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

INGR has a trailing four-quarter earnings surprise of 9.5%, on average. The Zacks Consensus Estimate for Ingredion’s current financial year’s earnings indicates growth of 12.4% from the year-ago reported number.

Freshpet, a pet food company, presently carries a Zacks Rank #2 (Buy). FRPT has a trailing four-quarter earnings surprise of 144.5%, on average.

The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings suggests growth of 27.3% and 228.6%, respectively, from the year-ago period’s reported figure.

US Foods, together with its subsidiaries, engages in the marketing, sale and distribution of fresh, frozen and dry food and non-food products to food service customers in the United States. It currently carries a Zacks Rank #2. USFD delivered a negative earnings surprise of 0.4% in the last reported quarter.

The Zacks Consensus Estimate for US Foods Holding’s current fiscal-year sales and earnings indicates growth of 6.4% and 18.6%, respectively, from the prior-year reported levels.

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Conagra Brands (CAG) : Free Stock Analysis Report

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