Conagra Brands Conference Call Summary Company Overview - **Company**: Conagra Brands - **Industry**: Packaged Foods - **Key Products**: Frozen entrees, frozen vegetables, meat snacks, popcorn - **Leadership**: Sean Connolly (CEO since 2015), Dave Marberger (CFO since 2016) [1][1] Core Insights and Arguments Market Dynamics - The packaged food industry has faced significant challenges, including a 40%-45% cost of goods inflation over the past five years, leading to price increases and volume declines [2][3] - Recent scanner data indicates a 1.5% decline in volumes over the past four weeks, attributed to consumer behavior shifts in response to inflation [2][3] - The demand shift is categorized as both cyclical and structural, varying by product category [3][4] Consumer Behavior - Value-seeking behavior among consumers is seen as a transitory shift, driven by budget constraints rather than a fundamental change in preferences [4][5] - A notable trend is the increased focus on health and wellness, particularly among younger consumers, which may indicate a more permanent shift in some categories [5][6] Competitive Landscape - Larger brands are losing market share to smaller, perceived healthier brands, driven by consumer pursuit of value [7][8] - Conagra's response includes acquisitions, such as Fatty Smoked Meat Sticks, to compete effectively in the meat snacks category [9][10] Frozen Foods Strategy - Conagra is the largest frozen food manufacturer in North America, emphasizing the benefits of frozen foods as convenient and nutritious [13][14] - The company is investing in expanding its frozen chicken product lines due to high demand, particularly for fried chicken [16][17] Promotional Activity - The company is gradually ramping up promotional activities to restore consumer confidence following service interruptions [20][21] - Promotional effectiveness varies by category, with strong lifts observed in frozen foods as consumers shift away from scratch cooking [22][23] Inflation and Cost Management - Conagra anticipates 7% overall inflation for the year, with 4% core inflation and 3% related to tariffs [24][25] - Protein costs are a significant concern, with double-digit inflation across beef, chicken, turkey, and pork [24][25] - The company is managing costs through strategic procurement and expects to bring more production in-house to mitigate expenses [26][27] Tariffs and Pricing Strategy - Tariffs, particularly on tin plate and steel, are expected to remain, impacting canned goods pricing [28][29] - Conagra has prioritized volume growth over immediate price increases in frozen meals, which may pressure margins in the short term [30][31] Future Outlook - The company expects to see recovery in volume trends in the back half of the fiscal year, particularly in frozen and snacks [41][42] - Innovation remains a key focus, with strong performance anticipated in meat snacks and frozen categories [46][47] Capital Allocation - Conagra is balancing capital allocation between debt reduction, maintaining dividends, and investing in business growth [54][56] - The company has paid down $1 billion in debt over the past year and plans to continue this trend [56][57] Joint Ventures and Portfolio Management - Ardent Mills, a joint venture, has performed well and serves as a hedge during volatile times, but its future within Conagra remains open for discussion [67][71] Additional Important Points - The company is adapting to changing consumer preferences and shopping behaviors, emphasizing agility in innovation and product offerings [50][51] - Conagra is focused on maintaining a strong connection with consumers to drive volume growth, particularly in the frozen and snacks segments [60][61]

Core Insights - During market turbulence, investors often seek dividend-yielding stocks, which typically have high free cash flows and offer substantial dividends [1] Company Ratings and Performance - **Conagra Brands Inc (NYSE:CAG)**: - Dividend Yield: 8.24% - Morgan Stanley analyst Megan Alexander maintained an Equal-Weight rating and raised the price target from $20 to $21 on Sept. 24, 2025, with an accuracy rate of 64% [7] - JP Morgan analyst Ken Goldman maintained a Neutral rating and reduced the price target from $26 to $25 on May 6, 2025, with an accuracy rate of 73% [7] - Recent News: On Oct. 1, Conagra Brands reported better-than-expected first-quarter adjusted EPS results [7] - **Kraft Heinz Co (NASDAQ:KHC)**: - Dividend Yield: 6.56% - Piper Sandler analyst Michael Lavery maintained a Neutral rating and cut the price target from $30 to $25 on Oct. 30, 2025, with an accuracy rate of 65% [7] - Morgan Stanley analyst Megan Alexander upgraded the stock from Underweight to Equal-Weight and raised the price target from $28 to $29 on Sept. 3, 2025, with an accuracy rate of 64% [7] - Recent News: On Oct. 29, Kraft Heinz reported mixed third-quarter financial results and lowered its FY25 adjusted EPS guidance below estimates [7] - **General Mills Inc (NYSE:GIS)**: - Dividend Yield: 5.28% - Morgan Stanley analyst Megan Alexander maintained an Underweight rating and cut the price target from $49 to $48 on Sept. 15, 2025, with an accuracy rate of 64% [7] - Goldman Sachs analyst James Yaro downgraded the stock from Buy to Neutral and slashed the price target from $68 to $58 on June 9, 2025, with an accuracy rate of 64% [7] - Recent News: On Oct. 14, General Mills reaffirmed long-term growth targets and fiscal 2026 financial outlook at Investor Day [7]

Core Insights - During market turbulence, investors often seek dividend-yielding stocks, which typically have high free cash flows and offer substantial dividends [1] Group 1: Conagra Brands Inc (CAG) - Conagra Brands has a dividend yield of 8.24% [7] - Morgan Stanley analyst Megan Alexander maintained an Equal-Weight rating and raised the price target from $20 to $21 on September 24, 2025, with an accuracy rate of 64% [7] - JP Morgan analyst Ken Goldman maintained a Neutral rating and reduced the price target from $26 to $25 on May 6, 2025, with an accuracy rate of 73% [7] - On October 1, Conagra Brands reported better-than-expected first-quarter adjusted EPS results [7] Group 2: Kraft Heinz Co (KHC) - Kraft Heinz has a dividend yield of 6.56% [7] - Piper Sandler analyst Michael Lavery maintained a Neutral rating and cut the price target from $30 to $25 on October 30, 2025, with an accuracy rate of 65% [7] - Morgan Stanley analyst Megan Alexander upgraded the stock from Underweight to Equal-Weight and raised the price target from $28 to $29 on September 3, 2025, with an accuracy rate of 64% [7] - On October 29, Kraft Heinz reported mixed third-quarter financial results and lowered its FY25 adjusted EPS guidance below estimates [7] Group 3: General Mills Inc (GIS) - General Mills has a dividend yield of 5.28% [7] - Morgan Stanley analyst Megan Alexander maintained an Underweight rating and cut the price target from $49 to $48 on September 15, 2025, with an accuracy rate of 64% [7] - Goldman Sachs analyst James Yaro downgraded the stock from Buy to Neutral and slashed the price target from $68 to $58 on June 9, 2025, with an accuracy rate of 64% [7] - On October 14, General Mills reaffirmed long-term growth targets and fiscal 2026 financial outlook at Investor Day [7]

Core Viewpoint - Conagra Brands, Inc. is facing significant stock underperformance despite a strong market position and positive quarterly results, with ongoing challenges from inflation and tariffs impacting future earnings expectations [1][2][4]. Company Overview - Conagra Brands has a market capitalization of $8.2 billion and operates in the North American packaged foods sector with a diverse brand portfolio including Birds Eye, Healthy Choice, Slim Jim, Reddi-wip, and Marie Callender's [1]. - The company operates across four segments: Grocery & Snacks, Refrigerated & Frozen, International, and Foodservice, focusing on innovative food products that cater to changing consumer preferences [1]. Stock Performance - Over the past 52 weeks, Conagra's stock has decreased by 41.1%, significantly underperforming the S&P 500 Index, which has increased by 18.5% during the same period [2]. - Year-to-date, the stock is down 38.3%, while the S&P 500 has risen by 15.1% [2]. Recent Financial Results - On October 1, Conagra reported Q1 2026 revenue of $2.63 billion and adjusted EPS of $0.39, exceeding expectations [4]. - The company has maintained its annual forecasts despite facing inflation and tariff pressures, indicating confidence in its pricing actions and cost-saving initiatives to offset rising costs [4]. Earnings Expectations - For the fiscal year ending in May 2026, analysts project a 23.5% year-over-year decrease in adjusted EPS to $1.76 [5]. - Conagra's earnings surprise history is mixed, with two beats and two misses in the last four quarters [5]. Analyst Ratings - Among 17 analysts covering Conagra, the consensus rating is a "Hold," with two "Strong Buy," 13 "Holds," one "Moderate Sell," and one "Strong Sell" [5]. - Morgan Stanley has set a price target of $21, with a mean price target of $20.53 indicating a nearly 20% premium to current levels, while the highest target of $27 suggests a potential upside of 57.8% [6].

Group 1: Altria Group - Altria Group is experiencing challenges due to declining cigarette sales, with a reported decrease of 4.5% in the last quarter [1] - The company is focusing on diversifying its product portfolio, particularly in the smokeless tobacco and vaping segments, to offset the decline in traditional tobacco products [1] - Altria's revenue for the last quarter was reported at $5.1 billion, reflecting a year-over-year decrease of 2% [1] Group 2: Conagra Brands Inc. - Conagra Brands Inc. has shown resilience in the food sector, with a revenue increase of 3% year-over-year, reaching $3.0 billion in the last quarter [1] - The company is investing in innovation and marketing to enhance its product offerings and capture a larger market share [1] - Conagra's operating income for the last quarter was reported at $400 million, indicating a strong performance despite market challenges [1]

Core Insights - The Federal Reserve's rate cuts are impacting the investment landscape, making it more challenging to find yield, particularly for investors focused on major market indices like the S&P 500 [1] Market Conditions - The broad markets have experienced a significant rise following a relatively strong earnings week, indicating positive sentiment among investors [1]

Core Insights - Conagra Brands has experienced a 9.2% decline in share price over the past month, underperforming the S&P 500 [1][2] Financial Performance - For Q1 fiscal 2026, Conagra reported adjusted earnings per share (EPS) of 39 cents, exceeding the Zacks Consensus Estimate of 33 cents, but reflecting a 26.4% year-over-year decline [3][4] - The company generated net sales of $2,632.6 million, a 5.8% decrease year-over-year, yet surpassing the Zacks Consensus Estimate of $2,609 million [5] - Organic net sales decreased by 0.6%, with a 0.6% positive impact from price/mix offset by a 1.2% decline in volume [6] Segment Performance - Grocery & Snacks segment net sales were $1,079.6 million, down 8.7% year-over-year, impacted by a 7.7% adverse effect from M&A [9] - Refrigerated & Frozen segment net sales decreased by 0.9% to $1,076.2 million, with a 1.1% headwind from M&A [10] - International segment net sales fell 18% to $212.3 million, driven by a 13.2% unfavorable impact from M&A [11] - Foodservice reported sales of $264.5 million, down 0.8% year-over-year, including a 1.0% headwind from M&A [12] Financial Health - Conagra ended the quarter with cash and cash equivalents of $698.1 million and long-term debt of $7,222.6 million [14] - The company generated $120.6 million in net cash flows from operating activities, with capital expenditures of $146.8 million, resulting in a free cash flow of negative $26.2 million [14] Future Outlook - For fiscal 2026, Conagra expects organic net sales growth to range from negative 1% to positive 1%, with adjusted earnings forecasted between $1.70 and $1.85 per share, down from $2.30 in fiscal 2025 [16] - Recent estimates for the company have been trending downward, indicating a potential in-line return in the coming months [19] Industry Context - Conagra Brands is part of the Zacks Food - Miscellaneous industry, where competitor Lamb Weston reported a slight revenue increase of 0.3% year-over-year [20]

Core Insights - Monitoring insider trading activities, such as those of directors, CEOs, and CFOs, can provide valuable information for traders and long-term investors [1] Group 1 - Insiders include key executives like directors, CEOs, and CFOs [1] - Keeping track of insider share transactions can be beneficial for investment decisions [1]

Group 1: Grocery Stocks Overview - Conagra Brands, BJ's Wholesale Club, CAVA Group, Brixmor Property Group, and Maplebear are highlighted as key grocery stocks to watch, indicating significant trading volume recently [2] - Grocery stocks are characterized as defensive investments, providing steady cash flows but are sensitive to input costs and consumer spending patterns, such as food inflation and private-label competition [2] Group 2: Company Profiles - Conagra Brands operates as a consumer packaged goods food company in the U.S., with segments including Grocery & Snacks, Refrigerated & Frozen, International, and Foodservice [3] - BJ's Wholesale Club operates membership warehouse clubs, offering a wide range of products including grocery, household items, electronics, and more [3] - Brixmor Property Group is a real estate investment trust that owns and operates grocery-anchored community and neighborhood shopping centers [4] - Maplebear, doing business as Instacart, provides online grocery shopping services in North America, including delivery and pickup services through a mobile app and website [4]

Industry Overview - The natural foods industry is transitioning from a niche market to a mainstream powerhouse, driven by increased consumer awareness regarding personal health and environmental impact [2] - Consumers are prioritizing clean eating, ethical sourcing, and sustainability, leading to a preference for natural and organic products [2][3] - Government actions, including stricter food labeling regulations, are supporting this shift away from heavily processed foods [3] Market Growth and Trends - The global healthy foods market is projected to reach $2.26 trillion by 2035, indicating significant growth potential [5] - Companies are investing in plant-based alternatives, functional foods, and sustainable farming technologies to meet evolving consumer demands [5] - E-commerce is enhancing accessibility to natural foods, allowing consumers to easily shop for organic and gluten-free products [5] Key Companies Vital Farms, Inc. (VITL) - Vital Farms focuses on transparency and ethical farming practices, resonating with consumers who value sustainability and high-quality nutrition [7] - The company is scaling its supply chain to meet rising demand, working with over 500 family farms and managing more than 9 million hens [8] - Vital Farms aims for $1 billion in net revenues by 2027, supported by retail expansion and innovative marketing strategies [9] United Natural Foods, Inc. (UNFI) - UNFI is the leading distributor of natural, organic, and specialty foods, with a focus on creating long-term value in a $90 billion market [10] - The company’s Natural segment grew by 9% in fiscal 2025, outpacing broader market trends [11] - UNFI is enhancing its technological capabilities to support supplier success and improve product availability [12] Conagra Brands, Inc. (CAG) - Conagra is modernizing its portfolio to align with consumer demand for natural and high-quality foods, particularly in frozen and snack categories [13] - The company is introducing more natural, high-protein, and minimally processed meals, with recent product launches aimed at attracting health-conscious consumers [14] - Conagra's strategy includes blending convenience with quality ingredients to sustain growth in the natural and organic segments [15]