Conagra(CAG) - 2025 Q1 - Quarterly Results

First Quarter Fiscal 2025 Performance Overview Conagra Brands reported decreased net sales and adjusted operating margins, but a significant tax benefit boosted reported EPS, leading to reaffirmed full-year guidance Key Highlights Conagra Brands experienced declines in net sales and adjusted operating metrics, yet reported EPS significantly increased due to a tax benefit, with full-year guidance reaffirmed Q1 FY2025 Key Financial Metrics | Metric | Value | Change | | :--- | :--- | :--- | | Reported Net Sales | $2.8 billion | -3.8% | | Organic Net Sales | - | -3.5% | | Reported Operating Margin | 14.4% | -247 bps | | Adjusted Operating Margin | 14.2% | -244 bps | | Reported Diluted EPS | $0.97 | +44.8% | | Adjusted EPS | $0.53 | -19.7% | - The significant increase in reported diluted EPS to $0.97 was primarily driven by a $210.4 million income tax benefit from releasing a valuation allowance[8] CEO Perspective CEO Sean Connolly affirmed confidence in the company's strategic execution and underlying business momentum, leading to the reaffirmation of fiscal 2025 guidance despite a challenging quarter - The company is confident in the underlying momentum of its business, leading to the reaffirmation of its fiscal 2025 guidance despite a challenging first quarter[4] Consolidated Financial Results Consolidated financial results show a decline in net sales and gross profit, while reported net income increased due to a tax benefit, despite higher SG&A Net Sales and Gross Profit First-quarter net sales declined 3.8% to $2.8 billion, with gross profit falling 10.2% to $739 million, primarily due to lower sales, inflation, and manufacturing disruptions Q1 FY2025 Net Sales Breakdown | Component | Impact on Net Sales | | :--- | :--- | | Organic Net Sales | -3.5% | | Unfavorable Foreign Exchange | -0.4% | | Favorable M&A | +0.1% | | Total Net Sales Change | -3.8% | - The 3.5% decrease in organic net sales was composed of a 1.9% negative impact from price/mix and a 1.6% decrease in volume[5] - Gross profit was negatively impacted by approximately $11 million due to temporary manufacturing disruptions in the Hebrew National business[6] Operating Expenses and Net Income SG&A expenses increased to $338 million, while reported net income rose to $467 million due to a tax benefit, despite adjusted net income declining to $253 million - Adjusted SG&A (excluding A&P) increased 7.3% to $277 million, primarily due to higher incentive compensation compared to the prior year[7] - Adjusted EBITDA decreased 13.8% to $528 million, driven by the decline in adjusted operating profit[8] Segment Performance All segments experienced net sales declines, with varying impacts on operating profit due to factors like price/mix, volume, and operational disruptions Grocery & Snacks Grocery & Snacks net sales decreased 1.7% to $1.2 billion, with adjusted operating profit falling 3.8% to $253 million, despite dollar share gains in key categories Grocery & Snacks Q1 FY2025 Performance | Metric | Value | Change | | :--- | :--- | :--- | | Net Sales | $1.2 billion | -1.7% | | Organic Net Sales | - | -1.9% | | Adjusted Operating Profit | $253 million | -3.8% | - The company gained dollar share in snacking and staples categories including microwave popcorn, seeds, pudding, and pickles[9] Refrigerated & Frozen Refrigerated & Frozen net sales decreased 5.7% to $1.1 billion, with adjusted operating profit declining 21.0% to $159 million, significantly impacted by manufacturing disruptions Refrigerated & Frozen Q1 FY2025 Performance | Metric | Value | Change | | :--- | :--- | :--- | | Net Sales | $1.1 billion | -5.7% | | Organic Net Sales | - | -5.7% | | Adjusted Operating Profit | $159 million | -21.0% | - The segment was impacted by approximately $24 million in sales and $10 million in operating profit due to temporary manufacturing disruptions for Hebrew National[10][11] International International net sales decreased 0.4% to $259 million, despite organic growth, while adjusted operating profit declined 15.5% to $36 million due to foreign exchange and inflation International Q1 FY2025 Performance | Metric | Value | Change | | :--- | :--- | :--- | | Net Sales | $259 million | -0.4% | | Organic Net Sales | - | +3.0% | | Adjusted Operating Profit | $36 million | -15.5% | Foodservice Foodservice net sales fell 7.8% to $267 million, primarily due to volume declines, resulting in a 13.8% decrease in adjusted operating profit to $35 million Foodservice Q1 FY2025 Performance | Metric | Value | Change | | :--- | :--- | :--- | | Net Sales | $267 million | -7.8% | | Organic Net Sales | - | -7.9% | | Adjusted Operating Profit | $35 million | -13.8% | - The volume decline of 11.1% was attributed to the ongoing impact of previously disclosed lost business and continued softness in restaurant traffic[13] Cash Flow and Capital Structure Operating cash flow and free cash flow decreased, while net debt was reduced, and the company repurchased shares Cash Flow and Debt Update Net cash from operating activities decreased to $269 million, and free cash flow to $136 million, while net debt was reduced to $8.6 billion, and shares were repurchased Q1 FY2025 Cash Flow and Debt | Metric | Q1 FY2025 | Q1 FY2024 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $269 million | $444 million | | Capital Expenditures | $133 million | $144 million | | Free Cash Flow | $136 million | $300 million | | Net Debt (End of Quarter) | $8.6 billion | $9.2 billion | | Net Leverage Ratio | 3.60x | N/A | - The company repurchased $64 million in shares during the first quarter[7] Fiscal 2025 Outlook Conagra Brands reaffirmed its full-year fiscal 2025 guidance, with updated expectations for capital expenditures and net inflation Reaffirmed Guidance Conagra Brands reaffirmed its full-year fiscal 2025 guidance, including updated capital expenditure expectations of $450 million and net inflation of approximately 3.2% Fiscal 2025 Full-Year Guidance | Metric | Guidance Range | | :--- | :--- | | Organic Net Sales vs. FY24 | (1.5)% to 0.0% | | Adjusted Operating Margin | 15.6% to 15.8% | | Adjusted EPS | $2.60 to $2.65 | | Free Cash Flow Conversion | ~90% | | Net Leverage Ratio | ~3.2x | - The company updated its outlook for capital expenditures to approximately $450 million and expects full-year net inflation to be around 3.2%[18] Financial Statements and Reconciliations Detailed financial statements provide a comprehensive overview of the company's earnings, balance sheet, and cash flow performance for the quarter Consolidated Statements of Earnings Consolidated Statements of Earnings show a decrease in net sales to $2.79 billion, while net income attributable to Conagra significantly increased to $466.8 million due to a tax benefit Q1 FY2025 vs Q1 FY2024 Income Statement (in millions) | Line Item | Q1 FY2025 | Q1 FY2024 | | :--- | :--- | :--- | | Net Sales | $2,794.9 | $2,904.0 | | Gross Profit | $739.3 | $823.1 | | Income before income taxes | $328.0 | $418.2 | | Income tax expense (benefit) | $(138.9) | $98.3 | | Net income attributable to Conagra | $466.8 | $319.7 | | Diluted EPS | $0.97 | $0.67 | Consolidated Balance Sheets As of August 25, 2024, total assets increased to $21.25 billion, total liabilities rose, and total stockholders' equity grew to $8.70 billion Balance Sheet Summary (in millions) | Account | August 25, 2024 | May 26, 2024 | | :--- | :--- | :--- | | Total Current Assets | $3,416.2 | $3,149.5 | | Total Assets | $21,247.8 | $20,862.3 | | Total Current Liabilities | $3,646.8 | $3,241.8 | | Total Stockholders' Equity | $8,695.6 | $8,511.3 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities decreased to $268.6 million, while net cash used in investing activities increased, and net cash from financing activities shifted to a positive $70.1 million Q1 Cash Flow Summary (in millions) | Cash Flow Activity | Q1 FY2025 | Q1 FY2024 | | :--- | :--- | :--- | | Net cash from operating activities | $268.6 | $443.5 | | Net cash from investing activities | $(286.3) | $(138.4) | | Net cash from financing activities | $70.1 | $(307.1) | | Net change in cash | $51.0 | $(1.6) |