MW Conagra's stock falls as factory upgrade and inflation weigh on profit view

By Steve Gelsi

Food giant cites inventory problems with frozen meals containing chicken, as well as with frozen vegetables

Conagra Brands Inc.'s stock fell sharply Tuesday after the food giant said higher costs from temporary supply-chain challenges in frozen meals containing chicken and in frozen vegetables will bite into its profits.

Conagra said Monday that a production problem at a key chicken-processing plant required the company to buy meat from a third-party supplier, raising expenses, but that upgrades at the facility are on schedule.

This issue, along with strong demand for frozen-vegetable products, created supply problems for the company.

"We were unable to service all of our demand in the third quarter, which will negatively impact both our sales and profit for fiscal 2025," Chief Financial Officer Dave Marberger said on a call with analysts Tuesday.

Conagra's stock $(CAG)$ dropped 6.4% as one of the worst performers in the S&P 500 SPX on Tuesday. So far this year, the stock is down about 14.7%, while the S&P 500 has risen about 4.1%.

The company warned it expects adjusted fiscal 2025 earnings of about $2.35 a share, below the FactSet consensus estimate of $2.45 a share. The company had previously expected fiscal 2025 earnings of $2.45 a share to $2.50 a share.

To tackle its supply-chain issues, Conagra said it is working to rebuild its inventories between now and the end of its fiscal year in May.

"We expect most of the impact of the sales and profit reduction to impact our third quarter, given the timing of the supply challenges and the additional costs that we've been incurring," Marberger said.

Conagra is due to report its third-quarter earnings on April 3.

The company faces higher costs as it sources chicken from a third party while it works on improvements to the plant, which are expected to wrap up in August, he said.

"Yes, we've had to navigate near-term realities like persistent inflation, [foreign exchange] and supply constraints, but our underlying demand remains incredibly strong and our long-term realities are firmly intact, including the bright future of frozen and snacks," Chief Executive Sean Connolly said on the call Tuesday.

In a statement Monday, Conagra said it has faced "manufacturing challenges" at its primary facility that prepares and cooks chicken used in frozen meals.

It temporarily stopped production, made adjustments and restarted the plant at a slower pace to restore consistency while transacting with a third-party manufacturer, the company said.

"While these actions enabled the company to resume production that meets our strict quality standards, the net impact of this issue is lower volume, net sales, and profit in the second half of the fiscal year," Conagra said.

-Steve Gelsi

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February 18, 2025 12:07 ET (17:07 GMT)

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