Release Date: April 03, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Conagra Brands Inc (NYSE:CAG) reported strong consumer pull for its products, indicating robust demand.
• The company has been successful in maintaining strong consumption trends, particularly in its frozen foods and snacks segments.
• Conagra Brands Inc (NYSE:CAG) achieved a free cash flow conversion of 125% and paid down $0.5 billion of debt over the last 12 months.
• The company is actively modernizing its supply chain, with significant investments in maintenance capital to enhance operational efficiency.
• Conagra Brands Inc (NYSE:CAG) has a strong position in the healthy snacking market, with a focus on protein and fiber-rich products, contributing to its outperformance in the snacking category.

Negative Points

• Conagra Brands Inc (NYSE:CAG) is facing persistent inflationary pressures, with inflation rates remaining higher than expected.
• The company is dealing with supply chain constraints, which have impacted shipment volumes and led to negative absorption costs.
• There is uncertainty regarding tariffs and other external factors, which could exacerbate cost pressures and affect future financial performance.
• Conagra Brands Inc (NYSE:CAG) is experiencing challenges in the convenience store channel, which is underperforming relative to other channels.
• The company is cautious about providing fiscal year 2026 guidance due to the dynamic macroeconomic environment and ongoing external uncertainties.

Q & A Highlights

• Warning! GuruFocus has detected 5 Warning Signs with CAG.

Q: Sean, could you provide insights on how Conagra is thinking about fiscal '26, given the challenging macro environment? A: Sean Connolly, CEO: We don't provide fiscal year guidance until the Q4 call, so official guidance will come in July. The macro environment is dynamic, and we are monitoring several external factors. Consumer demand remains strong, and while inventories are being rebuilt, some higher costs will linger. We are also watching inflation, tariffs, and consumer sentiment closely. It's too early to give a detailed outlook.

Q: Can you explain the gap between shipments and consumption in the Grocery & Snacks segment? A: Sean Connolly, CEO: The gap is due to supply constraints, particularly in frozen products. In Grocery & Snacks, the timing of seasonal shipments was different this year compared to last year, with more shipments in Q2 this year. Overall, the six-month pattern is normal, and consumption trends remain strong.

Q: How confident are you in hitting the leverage target of 3 times by the end of next year? A: David Marberger, CFO: We are pleased with our cash flow performance, with a free cash flow conversion of 125% and $0.5 billion of debt paid down in the last 12 months. We expect strong cash flow to continue, allowing us to pay down more debt. We will update our leverage target in July when we provide fiscal '26 guidance.

Q: What are the expectations for Q4, given the persistence of higher inflation and other factors? A: Sean Connolly, CEO: Q3 unfolded as expected, and we anticipate strong consumption in Q4. Shipment volumes should improve as service levels increase, and we expect better gross margins compared to Q3. We are also seeing favorable SG&A trends. However, we are closely monitoring external factors that could impact inflation and costs.

Q: Can you provide more color on the snacking segment's performance, given industry pressures? A: Sean Connolly, CEO: Our snack volumes were up 4% in Q3, driven by strong performance in protein and fiber-rich snacks like meat snacks and popcorn. The broader industry is seeing a shift towards healthier snacking, and our portfolio is well-positioned in these on-trend categories. Our recent acquisition of FATTY Smoked Meat Sticks is also performing well.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.