Conagra Brands earnings: Q1 top line stabilizes as tariffs bite
- Hardik Shah
- Oct 1
- 4 min read
TLDR
Revenue Strength: Net sales $2.63B (-5.8% reported); organic -0.6% with price/mix +0.6% and volume -1.2%.
Margin Trends: Adj. gross margin 24.4% (-153 bps); adj. op margin 11.8% (-244 bps) on input inflation and mix.
Forward Outlook: FY26 guide reaffirmed: organic -1% to +1%, adj. op margin ~11.0–11.5%, adj. EPS $1.70–$1.85; inflation now “low-7%” with tariff headwinds.
Business Overview
Conagra Brands (NYSE: CAG) is a leading North American Consumer Packaged Goods (CPG) company with a diversified portfolio across frozen, snacks, staples, and foodservice. Notable brands include Birds Eye, Duncan Hines, Healthy Choice, Marie Callender’s, Reddi-wip, Slim Jim, and Angie’s BOOMCHICKAPOP. Channels span retail (center store and frozen), away-from-home, and international. FY2025 net sales were nearly $12B.
Conagra Brands Earnings (Q1 FY26, quarter ended Aug 24, 2025)
Revenue:
Reported net sales: $2.63B, -5.8% YoY.
Organic net sales: -0.6% (price/mix +0.6%, volume -1.2%). FX -0.1ppt; M&A/divestitures -5.1ppt.
Margins & Profitability:
Gross margin: 24.3% (-212 bps); Adj. gross margin: 24.4% (-153 bps).
Operating margin: 13.2% (-118 bps); Adj. operating margin: 11.8% (-244 bps).
Adj. EBITDA: $441M (-16.4%).
GAAP EPS: $0.34 (down 64.9%); Adj. EPS: $0.39 (down 26.4%). Drivers include lower gross profit and higher adjusted tax rate.
Drivers & Costs:
Elevated cost of goods sold inflation; proteins (beef, pork, chicken, turkey, eggs) cited as the largest headwind. Favorable trade timing in Q1 is expected to reverse in Q2. Productivity and tariff mitigation >5% of COGS in Q1 partially offset inflation.
Segment Performance Snapshot:
Grocery & Snacks: Net sales -8.7% reported; organic -1.0% (price/mix +0.6%, volume -1.6%); adj. op profit -12.9%.
Refrigerated & Frozen: Net sales -0.9% reported; organic +0.2% (volume +0.5% aided by Hebrew National recovery); adj. op profit -28.1%.
International: Net sales -18.0% reported; organic -3.5% (price/mix +1.7%, volume -5.2%); adj. op profit +5.3% on price and FX.
Foodservice: Net sales -0.8% reported; organic +0.2% (price/mix +3.8%, volume -3.6%); adj. op profit -21.1%.
Cash Flow & Balance Sheet:
Operating cash flow: $121M (vs. $269M prior year); Free cash flow: -$(26)M on inventory rebuild and inflation.
Capex: $147M; Dividend: $0.35/share in Q1.
Net debt: $7.6B, 12.3% lower YoY; net leverage 3.55x. $15M share repurchases.
“We successfully delivered on key supply chain objectives, fully restored service levels, and advanced our portfolio reshaping which enabled us to further reduce net debt.” - Sean Connolly, CEO
Forward Guidance
Management Outlook (FY26 reaffirmed):
Organic net sales growth -1% to +1% vs. FY25
Adjusted operating margin ~11.0%–~11.5%
Adjusted EPS $1.70–$1.85
Adjusted effective tax rate ~24%; interest expense ~$390M.
Costs & Tariffs:
Core inflation now slightly higher than 4%; with tariffs, total COGS inflation in the low-7% range. Tariff exposure modeled at ~3% of COGS (steel/aluminum, select China). Mitigation includes cost savings, sourcing alternatives, and targeted pricing.
Near-Term Color (Q2):
Expect organic sales to decline low single digits on trade timing shifting into Q2; net tariff costs higher as pre-tariff inventory is consumed; Q2 operating margin expected moderately below full-year range.
“For the second quarter, we expect our net tariff costs to be higher than Q1… resulting in Q2 operating margin moderately below our full-year range.” - Dave Marberger, CFO
Operational Performance
Service & Productivity: Service levels reached 98%; combined core productivity and tariff mitigation >5% of COGS in Q1. The Baked Chicken insourcing project completes in Q2, with benefits weighted to 2H.
Promotions & Mix: Frozen improved as merchandising normalized; depth of discount environment remains rational. Some promo timing shifted from Q1 to Q2.
Portfolio Actions: Completed Chef Boyardee and frozen seafood divestitures; proceeds used to reduce net debt by >$400M in Q1.
“We achieved 98% service levels, ensuring our products are on shelves and available for our consumers.” - Sean Connolly, CEO
Market Insights
Promotional depth stable; merchandising activity in frozen moving toward normal.
Protein inflation (beef/pork/poultry) remains the primary cost headwind.
Foodservice volumes stabilizing alongside commercial traffic.
Consumer Behavior & Sentiment
Consumers remain value-seeking; elasticity notable in sweet treats (Duncan Hines) after cocoa-driven pricing.
Meat snacks +4% and seeds +2% volumes highlight resilience within protein snacks.
Hebrew National recovery as prior supply constraints eased; share gains across frozen vegetables, frozen meals, and prepared chicken.
Strategic Initiatives
Growth Focus: Double-down on Frozen and Snacks with restored merchandising and targeted innovation.
Pricing: Targeted actions in canned (steel/aluminum) and select snacks (cocoa) to offset input costs.
Supply Chain: Modernization/insourcing (Baked Chicken) to improve cost and service.
Portfolio Optimization: Recent divestitures sharpen focus and fund deleveraging.
Capital Allocation
Dividends: Paid $0.35 per share in Q1; plan to maintain $1.40 annual dividend rate.
Buybacks: $15M repurchased to offset dilution.
Debt & Liquidity: Net debt down ~$1.1B YoY; 3.55x net leverage; $147M capex in Q1 with ~$450M FY plan.
The Bottom Line
Conagra’s Q1 shows top-line stabilization and operational execution (98% service, productivity >5% of COGS) against a still-tough cost backdrop.
Three things to watch:
Tariffs and proteins: Cost cadence into Q2 as pre-tariff inventory rolls off; mitigation vs. mix pressure.
Frozen momentum: Sustainability of share gains as merchandising normalizes and supply chain projects ramp.
Cash & leverage: Free-cash-flow conversion in 2H and path toward ~3.0x leverage over time.
Management’s reaffirmed guide signals confidence, but the Q2 margin dip and low-7% inflation keep execution risk elevated.
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