Conagra Brands reports Q1 results for fiscal 2027
Conagra Brands reported net sales of $2.6 billion, representing a 1.4% drop compared to the same period last year. Organic net sales fell 1.1%, driven by a 2.1% decline in volume that was partially offset by a 1.0 % gain in price and mix.
Despite top-line pressure, profits exceeded expectations. Diluted earnings per share reached $0.36, up 5.9% from $0.34 in the previous year, while adjusted earnings per share rose 5.1 % to $0.41. Net income grew 6.0% to $174 million.
President and chief executive officer John Brase highlighted that the company achieved solid profit performance despite a tough business environment. Brase noted that Conagra is making measurable progress on core priorities, including restoring margins, increasing investments, reducing complexity and rebalancing capital allocation.
Category market share and segment performance
Conagra gained dollar market share across several key grocery and c-store categories during the quarter, including frozen breakfast, hot dogs, pudding, chili, frozen desserts and frozen vegetables. The company's brand portfolio features popular convenience items such as Slim Jim, Reddi-wip, Healthy Choice, Birds Eye, Duncan Hines, Marie Callender's and Angie's Boomchickapop.
Performance varied across the company's business segments:
- Grocery and Snacks: Net sales decreased 2.6% to $1.1 billion. Organic sales dropped 2.0%, as a 5.4% decline in volume outweighed a 3.4% increase in price and mix. Operating profit for the segment fell 21.5% to $205 million, impacted by lower sales, inflation on goods, leverage shifts and higher advertising investment.
- Refrigerated and Frozen: Net sales dropped 2.1% to $1.1 billion, with organic sales down 1.6% due to a 1.5% price/mix decline and a 0.1% volume decrease. Operating profit fell 9.6% to $102 million.
- International: Net sales rose 2.7% to $218 million, bolstered by a 2.4 % favorable foreign exchange impact and a 0.9% increase in organic net sales. Segment operating profit fell 7.9% to $34 million due to cost inflation and currency pressures.
- Foodservice: Net sales grew 3.2% to $273 million, backed by a 3.3% rise in organic sales. Volume increased 2.5%, benefiting by roughly 150 basis points from customer order timing differences compared to the prior year. Operating profit for the division climbed 11.4% to $31 million.
Cost structure, debt and cash flow
Gross profit fell 3.4% to $619 million, with gross margin dropping 50 basis points to 23.8%. Productivity gains and approximately $4 million in tariff refunds were offset by lower sales volumes, inflation on the cost of goods sold and unfavorable operating leverage.
Selling, general and administrative expense increased 4.4% to $350 million, primarily driven by legacy legal matters. However, adjusted expense dropped 3.7% to $321 million, aided by a $10 million benefit from fiscal 2026 incentive compensation. Advertising and promotional expenses rose 15.1% to $61 million.
Equity method investment earnings jumped 71.8% to $50 million, powered by strong market conditions and effective management of wheat market volatility within the Ardent Mills joint venture. Net interest expense dropped 2.1% to $92 million following debt reduction efforts. Conagra ended the quarter with $7.4 billion in net debt, down $193 million from the prior year, bringing its net leverage ratio to 3.99x.
Cash used in operating activities totaled $4 million, down from $121 million generated in the prior year period due to lower operating profit and higher litigation payments. Capital expenditures were $124 million, resulting in free cash flow of negative $128 million. Dividend payments totaled $168 million at $0.35 per share.
Fiscal 2027 financial guidance
Conagra reaffirmed its full-year guidance for fiscal 2027. The company continues to expect:
- Organic net sales change between negative 3% and negative 1% relative to fiscal 2026
- Adjusted operating margin between 10.0% and 10.5%
- Adjusted earnings per share between $1.40 and $1.50
Key full-year assumptions remain intact, including an equity earnings contribution of roughly $140 million, pension income of $25 million, interest expense of $360 million, capital expenditures of $550 million, a net leverage ratio around 4.0x and free cash flow conversion exceeding 90%.
