Conagra(CAG) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Conagra's Q1 FY2025 financial statements show a 3.8% net sales decrease to $2.8 billion, but net income rose to $466.8 million due to a significant tax benefit Condensed Consolidated Statements of Earnings Q1 FY2025 earnings show a 3.8% net sales decrease to $2.79 billion, yet net income attributable to Conagra increased 46.0% to $466.8 million due to a significant income tax benefit Condensed Consolidated Statements of Earnings (Q1 FY2025 vs Q1 FY2024) | Metric | Thirteen Weeks Ended Aug 25, 2024 | Thirteen Weeks Ended Aug 27, 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $2,794.9 million | $2,904.0 million | -3.8% | | Income Before Income Taxes | $328.0 million | $418.2 million | -21.6% | | Income Tax Expense (Benefit) | $(138.9) million | $98.3 million | N/A | | Net Income Attributable to Conagra | $466.8 million | $319.7 million | +46.0% | | Diluted EPS | $0.97 | $0.67 | +44.8% | Condensed Consolidated Balance Sheets As of August 25, 2024, total assets increased to $21.25 billion and total liabilities to $12.55 billion, with stockholders' equity rising to $8.70 billion Balance Sheet Summary | Metric | August 25, 2024 | May 26, 2024 | | :--- | :--- | :--- | | Total Current Assets | $3,416.2 million | $3,149.5 million | | Total Assets | $21,247.8 million | $20,862.3 million | | Total Current Liabilities | $3,646.8 million | $3,241.8 million | | Total Liabilities | $12,552.2 million | $12,351.0 million | | Total Stockholders' Equity | $8,695.6 million | $8,511.3 million | Condensed Consolidated Statements of Cash Flows Q1 FY2025 net cash from operating activities decreased to $268.6 million due to lower profits and working capital changes, while investing activities increased due to acquisitions Cash Flow Summary (Q1 FY2025 vs Q1 FY2024) | Cash Flow Activity | Thirteen Weeks Ended Aug 25, 2024 | Thirteen Weeks Ended Aug 27, 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $268.6 million | $443.5 million | | Net Cash from Investing Activities | $(286.3) million | $(138.4) million | | Net Cash from Financing Activities | $70.1 million | $(307.1) million | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail Q1 events including two acquisitions totaling $230 million, a divestiture, a $210.4 million deferred tax benefit, and debt covenant compliance - In July and August 2024, the company completed two acquisitions: the manufacturing operations of a cooking spray co-manufacturer for $50.2 million and Sweetwood Smoke & Co. for $180.2 million. These acquisitions added $174.6 million to goodwill[32][33][55] - Completed the sale of its 51.8% ownership stake in Agro Tech Foods Limited (ATFL) for net proceeds of $76.8 million, recognizing a loss of $2.3 million on the sale[37] - Recognized a significant income tax benefit of $138.9 million, resulting in an effective tax rate of (42.4)%. This was primarily due to a $210.4 million deferred tax benefit from the release of valuation allowances against certain deferred tax assets[71] - As of August 25, 2024, the company was in compliance with all financial covenants under its Revolving Credit Facility[49] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 net sales decline to trade investments and lower volumes, with gross profit decreasing due to inflation, while diluted EPS rose due to a non-recurring tax benefit Segment Review Q1 FY2025 segment review shows declining sales and operating profit in most domestic segments, with International being a bright spot due to organic sales growth Net Sales by Segment (Q1 FY2025 vs Q1 FY2024) | Segment | Q1 FY2025 Net Sales | Q1 FY2024 Net Sales | % Change | | :--- | :--- | :--- | :--- | | Grocery & Snacks | $1,182.7 M | $1,202.9 M | (1.7)% | | Refrigerated & Frozen | $1,086.4 M | $1,151.6 M | (5.7)% | | International | $259.1 M | $260.2 M | (0.4)% | | Foodservice | $266.7 M | $289.3 M | (7.8)% | Operating Profit by Segment (Q1 FY2025 vs Q1 FY2024) | Segment | Q1 FY2025 Operating Profit | Q1 FY2024 Operating Profit | % Change | | :--- | :--- | :--- | :--- | | Grocery & Snacks | $249.1 M | $258.7 M | (3.7)% | | Refrigerated & Frozen | $176.0 M | $199.2 M | (11.6)% | | International | $33.6 M | $23.7 M | 42.1% | | Foodservice | $35.1 M | $44.1 M | (20.4)% | - Refrigerated & Frozen net sales were negatively impacted by approximately $24 million due to temporary manufacturing disruptions in the Hebrew National® business during the key grilling season[126] - Foodservice volume decreased by 11.1%, driven by the ongoing impact of lost business from the prior year and softness in restaurant traffic[128] Liquidity and Capital Resources Conagra maintains strong liquidity with a $2.0 billion undrawn credit facility, repurchased 2.1 million shares for $64.0 million, and plans $450 million in FY2025 capital expenditures - Cash flow from operating activities decreased to $268.6 million in Q1 FY25 from $443.5 million in Q1 FY24, driven by lower operating profits and unfavorable working capital changes[156] - Repurchased 2.1 million shares of common stock for $64.0 million during the quarter. The remaining share repurchase authorization is $852.6 million[152] - The company has a $2.0 billion revolving credit facility that matures in August 2027, with no outstanding borrowings as of August 25, 2024[147] - Capital expenditure estimate for fiscal 2025 is approximately $450 million[155] Item 3. Quantitative and Qualitative Disclosures About Market Risk Conagra manages market risks from commodity prices, interest rates, and foreign exchange using derivatives, with a 10% adverse move impacting fair value by $20.9 million Fair Value Impact of a Hypothetical 10% Fluctuation | In Millions | August 25, 2024 | August 27, 2023 | | :--- | :--- | :--- | | Energy commodities | $3.5 | $2.7 | | Agriculture commodities | $7.3 | $6.7 | | Foreign exchange | $10.1 | $9.5 | - A 1% increase in interest rates would decrease the fair value of fixed-rate debt by approximately $369.6 million, while a 1% decrease would increase its fair value by approximately $416.2 million[163] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of August 25, 2024, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by the report[168] - No change in internal control over financial reporting occurred during the quarter that has materially affected, or is reasonably likely to materially affect, internal controls[169] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 13 for legal proceedings, including ongoing litigation related to lead-based paint and Pam® cooking spray product liability claims - For details on legal proceedings, the report refers to Note 13, "Contingencies", in the financial statements[170] Item 1A. Risk Factors No material changes occurred to the company's previously disclosed risk factors during Q1 FY2025, with full details available in the Annual Report on Form 10-K - During the first quarter of fiscal 2025, there were no material changes to the company's previously disclosed risk factors[171] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q1 FY2025, Conagra repurchased 2,106,954 shares for approximately $64.0 million, with $852.6 million remaining under the share repurchase authorization Share Repurchase Activity (Q1 FY2025) | Metric | Value | | :--- | :--- | | Total Shares Purchased | 2,106,954 | | Average Price Paid per Share | $30.38 | | Total Cost | ~$64.0 million | | Remaining Authorization | $852,578,000 | Item 5. Other Information CEO Sean Connolly and COO Thomas M. McGough adopted Rule 10b5-1 trading plans in August 2024 for the exercise and sale of stock options expiring in 2025 - CEO Sean Connolly and COO Thomas M. McGough adopted Rule 10b5-1 trading plans in August 2024 for the exercise and sale of stock options set to expire in 2025[175] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including governance documents, stock agreements, and CEO/CFO certifications under Sarbanes-Oxley Act Sections 302 and 906 - The exhibits include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act, as well as Inline XBRL data files[177]