Conagra: Cost Inflation, Weak Demand and Manufacturing Disruptions Hamper Q1 Results
Against a backdrop of ongoing cost inflation and weakened consumer demand, Conagra Brands posted a 3.8% sales decline and a 3.5% drop in organic net sales during Q1 2025 in its quarterly earnings report released this morning. The results missed analysts’ projections, sending shares down nearly 10% to the lowest they’ve been since 2019.
“Our team executed well to deliver on key priorities across the business during the first quarter in what continued to be a challenging operating environment. We increased share across the portfolio and advanced our portfolio reshaping initiatives,” said president and CEO Sean Connolly in a prepared statement.
The Slim Jim and Birds Eye maker’s gross profit decreased 10.2% to $739 million in Q1, and adjusted gross profit fell 9.4% to $726 million, as higher productivity was more than offset by the impacts of lower organic net sales, cost of goods sold inflation and unfavorable operating leverage.
Additionally, gross profit was negatively impacted by roughly $11 million due to the temporary manufacturing disruptions in the Hebrew National business. According to Connolly, although Conagra Brands fully resumed plant operations, the loss equated to a 60-basis-point reduction in total volume and a 90-basis-point reduction in total organic net sales in the first quarter.
The loss was particularly apparent in the company’s Refrigerated and Frozen segment, where it accounted for a 150-basis-point reduction in volume. In Q1, reported and organic net sales for the segment dropped 5.7% to $1.1 billion as price/mix decreased 5.8%, primarily attributable to increased strategic investments.
Organic net sales in the Foodservice and International segments decreased 7.8% and 0.4%, respectively. Earnings per share (EPS) also dropped during the quarter. Diluted loss per share was $0.97, a 44.8% increase, while adjusted EPS came in at $0.53.
Despite the collective losses in Q1, Connolly expressed confidence in Conagra’s ability to deliver its previously announced fiscal 2025 guidance.
“The bottom line from my vantage point is that after Q1, we are largely where we expected to be. While we didn’t expect the Hebrew National disruption, to me, that is not as noteworthy as the fact that our investments are working quite well,” he told shareholders during today’s earnings call.
Looking ahead, Conagra has reaffirmed its fiscal 2025 guidance estimating that net sales will range between down 1.5% to flat compared to FY 2024. It anticipates adjusted operating margin will range from 15.6% to 15.8% and adjusted EPS of approximately $2.60 to $2.65.
According to Connolly, Conagra’s strong cash flow and balance sheet have put the company in a position to seek out bolt-on acquisitions of faster-growing businesses, particularly within the snacks or frozen segments. The company will also focus on divestitures of low-growth businesses.
In Q1, Conagra advanced these efforts through the acquisition of FATTY Smoked Meat Sticks and the sale of its majority (51.8%) stake in Agro Tech Foods Limited, a food company based in India.
“Portfolio reshaping is in our DNA, and Conagra has taken substantial actions over the past decade to transform our portfolio. However, in recent years, we’ve been more single-mindedly focused on debt paydown. Now, given the progress we’ve made, we are in a strong position to resume active portfolio reshaping,” said Connolly.
