Conagra Brands Q4 Earnings Call Highlights

Key Points

• Conagra Brands said fiscal Q4 and full-year results were within its original guidance, but sales were flat and profitability declined as inflation outpaced productivity. Q4 adjusted EPS fell to $0.47 from $0.56 a year ago, while adjusted operating margin dropped to 11.7%.
• New CEO John Brase laid out a turnaround plan centered on restoring margins, boosting brand and supply-chain investment, and simplifying the business. He also signaled possible portfolio changes and more pricing actions, especially in frozen foods, even if that pressures volumes in the near term.
• The company cut its quarterly dividend by 50% to free up about $335 million annually for debt reduction and investment. Conagra also issued a cautious fiscal 2027 outlook, with organic sales expected to decline 1% to 3% and adjusted EPS projected at $1.40 to $1.50.

Conagra Brands NYSE: CAG reported fourth-quarter fiscal 2026 results that were within its original full-year guidance ranges, while newly appointed CEO John Brase outlined a plan to restore margins, increase investment and simplify the packaged foods company’s operations.

Brase, speaking on his first earnings call as CEO, said Conagra’s results came in a “dynamic environment” but also showed “the continued need to take bold action to unlock our full potential.” He said the company has strong brands, attractive categories, innovation capabilities and a foundation in technology and artificial intelligence, but acknowledged several areas needing improvement.

“Our focus on volume and margin has become imbalanced,” Brase said, adding that Conagra has reached an inflection point after investments helped improve volumes and strengthen its market position. “The next phase is to translate that momentum into stronger profitability with a focus on restoring margin.”

Fourth-Quarter Sales Flat, Margins Down

CFO Dave Marberger said fourth-quarter organic net sales were approximately $2.7 billion, flat with the prior year. Volumes declined 1.6%, while price mix increased 1.6%. Adjusted gross margin was 24.5%, and adjusted operating margin was 11.7%, down from the prior year but improved sequentially from the third quarter. Adjusted earnings per share were $0.47, compared with $0.56 a year earlier.

For the full fiscal year, organic net sales declined 0.4%, adjusted operating margin was 11.3%, and adjusted EPS was $1.72. Marberger said all three metrics were within Conagra’s original fiscal 2026 guidance ranges.

Segment results were mixed. Grocery & Snacks posted about $1.2 billion in fourth-quarter net sales, with organic net sales up 0.5%, driven by growth in snacks and partially offset by weakness in grocery. Refrigerated & Frozen also generated about $1.2 billion in net sales, with organic net sales down 0.5%. Marberger said volumes in that segment grew modestly, helped by volume share gains in frozen meals and vegetables and the benefit of lapping prior-year supply constraints.

International organic net sales declined 2.4%, as growth in Mexico was more than offset by softer volumes in Canada and global markets. Foodservice organic net sales rose 1.8%, marking the fourth consecutive quarter of organic growth.

Inflation and Investment Pressured Profitability

Marberger said fourth-quarter adjusted operating margin declined 215 basis points from the prior year to 11.7%. Price mix contributed 90 basis points to margin, as inflation-justified pricing actions more than offset incremental merchandising investments. However, total inflation, including core inflation and gross tariffs, remained elevated at approximately 6.5%.

He cited ongoing inflation in beef and edible oil, along with more recent increases tied to crude oil and logistics. Core productivity, including tariff mitigation, was more than 5% of cost of goods sold and included about $6 million of tariff refunds. Those benefits were partly offset by unfavorable operating leverage from lower internal production volumes, which Marberger attributed mainly to pricing elasticity and actions to reduce inventory levels.

Adjusted EPS declined in the quarter due to lower adjusted operating profit as inflation exceeded productivity, lower adjusted equity earnings from the Ardent Mills joint venture and reduced profit from divested businesses. Favorability in the tax rate and the benefit of a 53rd week partially offset those pressures.

CEO Sets Four Priorities

Brase identified four priorities for Conagra: stabilizing and restoring margins, increasing investment in brands and supply chain, simplifying the portfolio and organization, and rebalancing capital allocation.

He said the company has “sacrificed a significant amount of margin” over the past several years because of inflation and a focus on driving volume, particularly in frozen foods. Conagra plans to target productivity of more than 4% and implement strategic, inflation-justified pricing actions where necessary, with special emphasis on frozen products.

Brase cautioned that these pricing actions may pressure volumes in the short term but said they are needed to restore margins and fund investments for long-term category and business health.

The company also plans to increase advertising spending to about 3% of net sales in fiscal 2027, a 14% year-over-year increase, with a focus on frozen meals and meat snacks. Brase said the company will also increase capital investment in its supply chain to improve service, resilience and productivity.

Brase repeatedly emphasized “radical simplicity,” saying Conagra has operated with a portfolio that is “too large and too complex for too long.” He said the company will review where it has the right to win, actively manage the portfolio for better growth and stronger margins, and evaluate strategic options for non-core businesses.

Dividend Cut Aimed at Financial Flexibility

Conagra also announced that its board approved a quarterly dividend at an annualized rate of $0.70 per share, a 50% reduction from the prior rate. Marberger said the revised dividend is expected to provide about $335 million in additional discretionary cash on an annualized basis.

The company plans to use that cash for debt reduction, brand-building investments, and supply chain and modernization initiatives. Marberger said the action resets Conagra’s dividend payout ratio near its long-term target of 50% to 55% and supports the company’s investment-grade credit rating.

Conagra reduced net debt by nearly $1 billion in fiscal 2026, and its net leverage ratio ended the year at 3.83 times. The company continues to target long-term leverage of three times.

Fiscal 2027 Outlook Calls for Lower Sales and EPS

For fiscal 2027, Conagra expects organic net sales to decline 1% to 3%, adjusted operating margin of 10% to 10.5%, and adjusted EPS of $1.40 to $1.50.

Marberger said the outlook includes planned inflation-justified pricing actions and associated volume impacts. The company expects volumes to decline in the mid-single digits, assuming larger-than-historical elasticities, especially in frozen.

Conagra expects inflation to remain elevated throughout fiscal 2027, driven largely by oil-related costs, logistics and animal protein such as beef. The company also expects about $40 million in expense from wrapping a portion of last year’s tariff mitigation, equal to roughly 0.5% of cost of goods sold. Productivity is expected to exceed 4% of cost of goods sold.

In the first quarter, Conagra expects organic net sales to decline in the low single digits and adjusted operating margin in the high single digits, reflecting category trends, the wrap from fiscal 2026 pricing actions, heightened inflation and increased advertising and promotion spending.

Brase said Conagra is developing a longer-term strategic roadmap and expects to share more at an Investor Day in early calendar 2027. “We’ll be honest about where we stand and what we need to do to deliver consistent and reliable results,” he said.

About Conagra Brands NYSE: CAG

Conagra Brands, Inc is a leading packaged foods company based in Chicago, Illinois, with a broad portfolio of shelf-stable, frozen and refrigerated foods marketed under familiar brands. The company develops, produces and distributes a wide range of consumer food products, serving both retail grocery and foodservice channels. Conagra's product lineup includes frozen entrees, snacks, condiments, baking goods and desserts, providing convenient meal solutions for consumers across North America and select international markets.

Among its well-known brands are Birds Eye, Healthy Choice, Lean Cuisine, Marie Callender's and Banquet in the frozen foods category, as well as Hunt's sauces, Orville Redenbacher's popcorn, Slim Jim meat snacks and Reddi-wip toppings.

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