Conagra(CAG) - 2025 Q4 - Annual Report

Part I Business Overview Conagra Brands is a leading North American branded food company operating across four segments, focusing on innovation and managing risks, with a significant portion of sales concentrated with Walmart Reporting Segments Conagra's operations are structured into four distinct reporting segments: Grocery & Snacks, Refrigerated & Frozen, International, and Foodservice - The company's four reporting segments are Grocery & Snacks, Refrigerated & Frozen, International, and Foodservice[14][15][16] Business Operations and Environment Conagra navigates a competitive food industry, managing fluctuating raw material costs, seasonal demand, intellectual property, and extensive government regulation - The company experiences intense competition from both branded and private label food items, competing on quality, innovation, value, and brand loyalty[21] - The company's largest customer, Walmart, Inc. and its affiliates, accounted for approximately 29% of consolidated net sales for fiscal 2025, up from 28% in fiscal 2024 and 2023[26] - The company's intellectual property, including owned trademarks (e.g., Healthy Choice®, Slim Jim®) and licensed trademarks (e.g., P.F. Chang's®, Wendy's®), is of material importance[23] Human Capital Resources Conagra manages approximately 18,300 employees, with a focus on health, safety, and human capital development, including collective bargaining agreements and ERGs - As of May 25, 2025, the company had approximately 18,300 employees, with about 44% being parties to collective bargaining agreements[28] - The OSHA Incident Rate has shown consistent improvement, decreasing from 1.58 in FY2023 to 1.40 in FY2024, and further to 1.32 in FY2025, with no employee fatalities in the last three fiscal years[30][31] Executive Officers The executive leadership team, led by Sean M. Connolly, comprises experienced professionals overseeing key functions including finance and operations - Sean M. Connolly has served as President and CEO since April 2015[45] - David S. Marberger has served as Executive Vice President and Chief Financial Officer since August 2016[46] Risk Factors Conagra faces diverse risks including economic downturns, commodity price volatility, supply chain disruptions, high debt levels, intense competition, evolving consumer preferences, and cybersecurity threats - Deterioration of general economic conditions, inflation, and rising interest rates could reduce consumer spending and harm business operations[59][61] - The company is subject to price increases in raw materials and other inputs; it may not be able to fully offset this inflation in a timely manner[65][66][67] - Supply chain disruptions, such as those experienced in recent years due to transportation issues and labor challenges, could continue to negatively impact profitability[71] - The company's debt of approximately $8.07 billion as of May 25, 2025, could limit cash flow for business needs and restrict its ability to return cash to stockholders[83] - Failure to identify and adapt to changing consumer preferences, including health and wellness trends and the growing use of weight loss medication, could negatively impact sales[96] - Impairment of the $10.50 billion in goodwill or $2.42 billion in other intangibles could result in significant charges and negatively impact net worth[136] Cybersecurity Conagra maintains a comprehensive cybersecurity program, integrated with ERM and overseen by the Board, focusing on risk management, monitoring, and training to mitigate threats - The cybersecurity program is integrated with the company's Enterprise Risk Management (ERM) and is overseen by the Board of Directors and its Audit/Finance Committee[150][158][164] - The program includes ongoing monitoring, annual employee training, vulnerability assessments like penetration testing, and engagement with law enforcement and intelligence-sharing organizations[149][153] - The cybersecurity team is led by a Chief Information Security Officer (CISO) with over 25 years of experience, who reports to the Chief Information Officer (CIO)[160] - While threats have been experienced, the company is not aware of any cybersecurity breach to date that has had a material impact on its operations or business[154] Properties Conagra operates 38 domestic and international manufacturing facilities, primarily owned, with headquarters in Chicago, Illinois - As of July 10, 2025, Conagra operated 38 domestic manufacturing facilities and also has international facilities in Canada and Mexico[168] - The company owns most of its manufacturing facilities but leases a limited number of plants, transportation equipment, and distribution centers[169] Legal Proceedings Conagra is involved in product liability and legacy litigation, with an accrual of $204.5 million for all matters as of May 25, 2025 - The company is party to product liability claims regarding cooking spray products and has settled most matters, paying $25 million in fiscal 2025 with an additional $185 million to be paid in fiscal 2026 and 2027[422] - The total accrual for all litigation matters was $204.5 million as of May 25, 2025[425] Part II Market for Common Equity and Shareholder Matters Conagra's common stock trades on the NYSE under CAG, with no share repurchases in the fourth quarter of fiscal 2025 - The company's common stock is listed on the NYSE under the ticker symbol CAG[174] - No shares of common stock were repurchased during the fourth quarter of fiscal 2025[175] Management's Discussion and Analysis (MD&A) Fiscal 2025 saw a 3.6% net sales decrease and significant diluted EPS growth driven by a tax benefit, as Conagra navigates inflation, supply chain pressures, and manages its $8.07 billion debt Fiscal 2025 vs. 2024 Key Financial Results | Metric | Fiscal 2025 | Fiscal 2024 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $11,612.8 M | $12,050.9 M | (3.6)% | | Gross Profit | $3,003.5 M | $3,333.4 M | (9.9)% | | Operating Profit | $1,364.6 M | $852.8 M | 60.0% | | Net Income | $1,152.5 M | $347.7 M | 231.5% | | Diluted EPS | $2.40 | $0.72 | 233.3% | - The company anticipates continued challenges in fiscal 2026 from supply chain issues, commodity cost volatility, and economic pressures on consumers, which are expected to negatively impact volumes[186] Segment Performance Review In fiscal 2025, most segments experienced net sales and operating profit declines, with Refrigerated & Frozen particularly impacted by manufacturing challenges and inflation Net Sales by Segment (Fiscal 2025 vs. 2024) | Reporting Segment | FY2025 Net Sales ($M) | FY2024 Net Sales ($M) | % Change | | :--- | :--- | :--- | :--- | | Grocery & Snacks | $4,899.3 | $4,958.7 | (1.2)% | | Refrigerated & Frozen | $4,662.3 | $4,865.5 | (4.2)% | | International | $956.5 | $1,078.3 | (11.3)% | | Foodservice | $1,094.7 | $1,148.4 | (4.7)% | | Total | $11,612.8 | $12,050.9 | (3.6)% | Operating Profit by Segment (Fiscal 2025 vs. 2024) | Reporting Segment | FY2025 Operating Profit ($M) | FY2024 Operating Profit ($M) | % Change | | :--- | :--- | :--- | :--- | | Grocery & Snacks | $1,017.0 | $1,100.3 | (7.6)% | | Refrigerated & Frozen | $651.7 | $815.9 | (20.1)% | | International | $143.9 | $155.1 | (7.1)% | | Foodservice | $131.0 | $151.3 | (13.4)% | - The Refrigerated & Frozen segment's operating profit was significantly impacted by manufacturing challenges at a primary facility for chicken, leading to increased costs from using third-party manufacturers and temporary production stoppages[205] Consolidated Results of Operations Fiscal 2025 saw increased SG&A, decreased net interest expense, and a significant income tax benefit of $225.8 million, which substantially boosted diluted EPS - Income tax expense for fiscal 2025 was $3.7 million, a steep decline from $262.5 million in fiscal 2024, principally due to a $225.8 million tax benefit from the release of a valuation allowance related to a federal audit settlement[211] - The effective tax rate was 0.3% in fiscal 2025, compared to 43.0% in fiscal 2024, with an expectation of approximately 23% for fiscal 2026[211][212] - Net interest expense decreased by 3.2% to $416.7 million in fiscal 2025, driven by an overall reduction in debt balances[209] Liquidity and Capital Resources Conagra manages liquidity through operations, a $2.0 billion credit facility, and commercial paper, with total debt at $8.07 billion and decreased operating cash flow in fiscal 2025 - As of May 25, 2025, the company had total debt of approximately $8.07 billion[83] - The company has a $2.0 billion revolving credit facility, which was extended to June 27, 2030, subsequent to the fiscal year-end, with no borrowings outstanding as of May 25, 2025[217][350] - Cash generated from operating activities decreased to $1.69 billion in fiscal 2025 from $2.02 billion in fiscal 2024, primarily due to lower operating profits and higher inventory balances[238] - During fiscal 2025, the company repurchased 2.1 million shares for $64.0 million, with $852.6 million remaining under the share repurchase authorization[228] Critical Accounting Estimates Critical accounting estimates involve significant judgment, particularly for marketing costs, income taxes, employee benefits, and the annual impairment testing of goodwill and intangible assets - Goodwill and other intangible assets, valued at $10.50 billion and $2.42 billion respectively, are tested annually for impairment using methods that require significant management judgment on future cash flows, growth rates, and discount rates[136][263] - For brands with less than 10% excess fair value over carrying amount, a 50-basis-point increase in the discount rate would decrease their aggregate fair value by $70.9 million, while a 100-basis-point decrease in the royalty rate would decrease it by $247.9 million, indicating sensitivity to these assumptions[264][265] - Pension benefit accounting requires significant estimates, including a weighted-average discount rate of 6.17% for service and interest expense for fiscal 2026 and an expected long-term rate of return on plan assets of 5.89%[255][256] Market Risk Disclosures Conagra manages market risks from commodity prices, interest rates, and foreign currency using derivatives, with a 1% interest rate increase impacting fixed-rate debt by $302.8 million - A 1% increase in interest rates would decrease the fair value of the company's fixed-rate debt by approximately $302.8 million as of May 25, 2025[272] Fair Value Impact of a Hypothetical 10% Fluctuation | In Millions | Average During FY Ended May 25, 2025 | Average During FY Ended May 26, 2024 | | :--- | :--- | :--- | | Energy commodities | $5.7 | $4.4 | | Agriculture commodities | $8.4 | $4.5 | | Foreign exchange | $9.6 | $10.0 | Financial Statements and Supplementary Data This section presents consolidated financial statements and notes for fiscal years 2023-2025, audited by KPMG LLP, with the Birds Eye intangible asset valuation noted as a critical audit matter Consolidated Financial Statements The consolidated financial statements show fiscal 2025 net sales of $11.61 billion, a significant increase in net income to $1.15 billion, and total assets of $20.93 billion Consolidated Statement of Earnings Highlights (FY2025) | Metric (in millions) | FY2025 | FY2024 | FY2023 | | :--- | :--- | :--- | :--- | | Net sales | $11,612.8 | $12,050.9 | $12,277.0 | | Gross profit | $3,003.5 | $3,333.4 | $3,264.8 | | Operating profit | $1,364.6 | $852.8 | $1,075.3 | | Net income attributable to Conagra | $1,152.4 | $347.2 | $683.6 | Consolidated Balance Sheet Highlights (at year-end) | Metric (in millions) | May 25, 2025 | May 26, 2024 | | :--- | :--- | :--- | | Total Current Assets | $3,071.0 | $3,149.5 | | Total Assets | $20,933.9 | $20,862.3 | | Senior Long-Term Debt | $6,234.1 | $7,492.6 | | Total Liabilities | $12,001.2 | $12,351.0 | | Total Stockholders' Equity | $8,932.7 | $8,511.3 | Selected Notes to Consolidated Financial Statements Notes to financial statements detail fiscal 2025 acquisitions, significant divestitures, intangible asset impairments, a $225.8 million tax benefit, litigation accruals, and a major pension de-risking action - In fiscal 2025, the company acquired Sweetwood Smoke & Co. for $179.4 million and a contract manufacturer for $51.2 million, adding $176.3 million to goodwill[327][328][369] - Subsequent to fiscal year-end, the company completed the sale of its Chef Boyardee® business for $601.2 million and its frozen fish business (Van De Kamp's®, Mrs. Paul's®) for $42.4 million[356][359] - In fiscal 2025, the company recorded $72.1 million in brand intangible impairment charges, primarily related to its spreads businesses (Earth Balance®, Smart Balance®), following significant impairments of $430.2 million in FY2024 and $589.2 million in FY2023[374][377][379] - During fiscal 2025, the company transferred $760.6 million of its U.S. defined benefit pension plan obligations to an insurance company via an annuity contract, resulting in a noncash pre-tax settlement gain of $13.0 million[447] Report of Independent Registered Public Accounting Firm KPMG LLP issued an unqualified opinion on financial statements and internal controls, identifying the Birds Eye intangible asset valuation as a critical audit matter - The auditor, KPMG LLP, issued an unqualified opinion on the financial statements and internal controls[507] - A critical audit matter was identified concerning the evaluation of the recoverability of the Birds Eye indefinite-lived intangible asset, highlighting the subjective and challenging nature of the assumptions used in its valuation[516][517] Controls and Procedures As of May 25, 2025, management concluded that disclosure controls and internal control over financial reporting were effective, with no material changes in the fourth quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures and its internal control over financial reporting were effective as of May 25, 2025[521][524] Part III Directors, Executive Compensation, and Corporate Governance This section incorporates information on directors, executive compensation, and security ownership by reference from the forthcoming 2025 Proxy Statement - Information regarding directors, executive compensation, security ownership, and related transactions is incorporated by reference from the forthcoming 2025 Proxy Statement[531][537][538] Equity Compensation Plan Information (as of May 25, 2025) | Plan Category | Securities to be Issued Upon Exercise (a) | Weighted-Average Exercise Price (b) | Securities Remaining Available for Future Issuance (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 7,876,676 | $33.76 | 13,798,410 | | Equity compensation plans not approved by security holders | — | — | — | | Total | 7,876,676 | $33.76 | 13,798,410 | Part IV Exhibits and Financial Statement Schedules This section provides a comprehensive list of all exhibits filed with the Form 10-K, including governance documents, debt agreements, and compensation plans - This section provides a comprehensive list of all exhibits filed with the annual report, including the Restated Certificate of Incorporation, debt indentures, credit agreements, and various management and compensation plans[547][550][552]