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CONAGRA BRANDS INC. (CAG) Q1 2026 Earnings Summary

Executive Summary

  • Q1 FY26 delivered an EPS and revenue beat versus consensus, while margins compressed year over year due to elevated core commodity inflation and tariff-related cost headwinds; adjusted EPS $0.39 vs $0.33* and net sales $2.63B vs $2.62B* .*
  • Management reaffirmed FY26 guidance (organic net sales -1% to +1%, adjusted operating margin 11.0–11.5%, adjusted EPS $1.70–$1.85) and refined interest expense ($390M) and adjusted tax rate (~24%) assumptions; total COGS inflation outlook nudged to low 7% range (higher core inflation, unchanged gross tariffs) .
  • Supply chain normalization to 98% service levels enabled merchandising and innovation to resume; Frozen and Snacks expected to regain momentum in 2H, supported by new products (e.g., Dolly Parton meals/desserts, Slim Jim Buffalo Chicken) and restored event cadence .
  • Near-term pressures: animal proteins (beef/pork/turkey) inflation, tariff timing, and cautious consumer sentiment; management plans “horses-for-courses” execution—drive volume in Frozen/Snacks and maximize dollars via inflation-justified pricing in staples .
  • Balance sheet strengthened: net debt reduced ~12% YoY to $7.6B; net leverage 3.55x; dividend maintained at $0.35/share .

What Went Well and What Went Wrong

What Went Well

  • Service recovery and merchandising resumption: “getting to 98% [service], check,” enabling promotion/innovation and improving takeaway; management sees prudent FY26 setup .
  • Revenue and EPS beat vs Street: net sales $2.63B vs $2.62B* and adjusted EPS $0.39 vs $0.33*; reaffirmed FY26 guidance .*
  • Portfolio/innovation traction: Dolly Parton frozen offerings performing “extremely well” at premium pricing; Slim Jim momentum with Buffalo Chicken product and C‑store strength .

What Went Wrong

  • Margin compression: adjusted gross margin down 153 bps to 24.4% and adjusted operating margin down 244 bps to 11.8%, driven by cost inflation and unfavorable operating leverage .
  • Core commodity inflation (animal proteins) running above plan; Q2 coverage ~85%, full-year ~60–65%, with proteins more spot-exposed; tariff timing benefits in Q1 to reverse in Q2 .
  • Cash flow softness: CFO $121M vs $269M prior year; FCF negative $(26)M due to inventory rebuild to support service and inflationary costs .

Financial Results

MetricQ3 FY25Q4 FY25Q1 FY26
Net Sales ($USD Billions)$2.841 $2.782 $2.633
GAAP Diluted EPS ($)$0.30 $0.53 $0.34
Adjusted Diluted EPS ($)$0.51 $0.56 $0.39
Gross Margin (%) Reported25.0% 25.4% 24.3%
Gross Margin (%) Adjusted24.8% 25.8% 24.4%
Operating Margin (%) Reported8.4% 11.5% 13.2%
Operating Margin (%) Adjusted12.7% 13.8% 11.8%
Segment Net Sales ($USD Millions)Q1 FY25Q1 FY26YoY Change
Grocery & Snacks$1,182.7 $1,079.6 (8.7)%
Refrigerated & Frozen$1,086.4 $1,076.2 (0.9)%
International$259.1 $212.3 (18.0)%
Foodservice$266.7 $264.5 (0.8)%
Total$2,794.9 $2,632.6 (5.8)%
Segment Organic Net Sales (% YoY)Q1 FY26
Grocery & Snacks(1.0)%
Refrigerated & Frozen+0.2%
International(3.5)%
Foodservice+0.2%
Total(0.6)%
Segment Adjusted Operating Profit ($USD Millions)Q1 FY25Q1 FY26YoY Change
Grocery & Snacks$253.3 $220.8 (12.9)%
Refrigerated & Frozen$159.1 $114.4 (28.1)%
International$35.8 $37.7 +5.3%
Foodservice$35.1 $27.7 (21.1)%
Total$397.9 $310.7 (21.9)%
KPIsQ3 FY25Q4 FY25Q1 FY26
Cash from Operations ($USD Millions)$1,346 YTD $1,692 FY $121
Capital Expenditure ($USD Millions)$304 YTD $389 FY $147
Free Cash Flow ($USD Millions)$1,043 YTD $1,303 FY $(26)
Net Debt ($USD Millions)$8,096 $8,000 $7,582
Net Leverage (Net Debt / Adj. EBITDA) (x)3.59x 3.60x 3.55x
Dividend per Share ($)$0.35 $0.35 $0.35
Effective Tax Rate (%)23.3% 12.7% 43.1%
Adjusted Effective Tax Rate (%)23.1% 22.3% 25.0%
Adjusted EBITDA ($USD Millions)$514 $544 $441

Guidance Changes

MetricPeriodPrevious Guidance (Q4 FY25)Current Guidance (Q1 FY26)Change
Organic Net Sales GrowthFY26(1)% to +1% (1)% to +1% Maintained
Adjusted Operating MarginFY26~11.0%–~11.5% ~11.0%–~11.5% Maintained
Adjusted EPSFY26$1.70–$1.85 $1.70–$1.85 Maintained
Interest ExpenseFY26~$400M ~$390M Lowered
Adjusted Effective Tax RateFY26~23% ~24% Raised
Tariffs (Gross Impact on COGS)FY26~3% (50% tinplate/aluminum; 30% limited China; 10% reciprocal) ~3% (50% tinplate/aluminum; 30% limited China; various reciprocal) Maintained
Total COGS InflationFY26~7% Low ~7% (higher core inflation) Slightly Higher Core
53rd Week EPS BenefitFY26~$0.05 Unchanged Maintained
DividendQuarterly$0.35/share $0.35/share (Nov. 26 payment) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 & Q4 FY25)Current Period (Q1 FY26)Trend
Supply chain/serviceQ3: discrete supply constraints in frozen chicken/vegetables; Q4: constraints and inflation persisted .Service restored to ~98%, resuming merchandising; inventory rebuilt to avoid stock-outs .Improving
Tariffs & inflationQ4 guide: ~3% gross tariffs; core inflation ~4% .Gross tariffs ~3% unchanged; core inflation higher; Q2 coverage ~85%, FY ~60–65%; proteins spot-exposed .Worsening core
Frozen category trajectoryQ3/Q4: R&F pressured by cost inflation and lower volumes .Expect 2H inflection; innovation (e.g., Dolly Parton), merchandising cadence to drive volume .Improving
Snacks momentumQ4: Grocery & Snacks adjusted OP down; strategic investments .Slim Jim innovation and C‑store recovery driving momentum .Improving
Consumer sentiment/valueQ3: strategic investments, cautious consumption .Ongoing value-seeking in lower-income cohorts; focus on value-oriented innovation and price-pack architecture .Stable (macro cautious)
Technology/AI initiativesNot highlighted in prior press releases.Kicking off process reengineering leveraging technology including AI to accelerate growth and lower costs .Emerging positive

Management Commentary

  • “I am pleased by the solid progress we made in the first quarter with top line improvement and continued strategic execution… fully restored service levels… reaffirming our fiscal 2026 guidance.” — Sean Connolly, CEO .
  • “What I was looking for this quarter… can we get the service issues behind us? And getting to 98%, check.” — CEO Q&A .
  • “Horses for courses… investing to drive volume in frozen and snacks while maximizing cash via inflation justified pricing and staples.” — CEO .
  • “We… reengineer our core work processes, leveraging technology, including AI… to accelerate growth and lower costs.” — CEO .
  • “Tariffs… ~3% gross; mitigation ~1–1.5%; productivity helps offset core inflation.” — CFO .

Q&A Highlights

  • Consumption and elasticity: Q1 softness tied to timing (Boom Chick a Pop promo shift to Q2) and Duncan Hines pricing due to cocoa costs; elasticities assumed ~−1 and “a bit better than peers” historically .
  • Inflation and coverage: Core inflation pressure from animal proteins; ~85% Q2 coverage and 60–65% FY; proteins more spot-exposed; tariff timing benefited Q1 but reverses in Q2 .
  • Cash flow and inventory: CFO explained inventory build to restore service and safety stocks; net debt down >$400M QoQ and ~$1.1B rolling 12 months; confident in FY plan .
  • Frozen trajectory: Service/merchandising resumption, innovation (Dolly Parton meals/desserts) performing well; expect regained share/momentum in 2H .
  • Margin clawback path: Five levers—productivity/tariff mitigation (>5%), eventual inflation relief, supply chain resiliency (chicken plants), targeted pricing, and technology/AI-driven process reengineering .
  • Promotional environment: Returning toward pre-COVID norms in promo mix without deeper discounts; rational competitive backdrop .

Estimates Context

MetricQ3 FY25Q4 FY25Q1 FY26
Revenue Consensus ($USD Billions)$2.9038*$2.8399*$2.6175*
Revenue Actual ($USD Billions)$2.841 $2.782 $2.633
EPS Consensus (Primary) ($)$0.5267*$0.5807*$0.3322*
Adjusted EPS Actual ($)$0.51 $0.56 $0.39
# Revenue Estimates10*10*11*
# EPS Estimates14*15*13*
  • Q1 FY26: revenue and EPS beats versus consensus; Q4 FY25: slight EPS miss vs $0.5807*, revenue miss; Q3 FY25: EPS and revenue below consensus. Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Near-term setup constructive: Q1 beat with service at 98%, merchandising resumed, and innovation traction; guidance reaffirmed despite higher core inflation .
  • Expect 2H volume inflection in Frozen/Snacks as supply constraints lap and events normalize; watch Dolly Parton and Slim Jim innovation performance and promo cadence .
  • Margin pressure in FY26 from animal proteins and tariffs; mitigation levers (productivity >5%, pricing, sourcing) are active; monitor Q2 inflation cadence and coverage .
  • Cash discipline intact: net debt down ~12% YoY; dividend maintained; leverage moving toward low-3s; watch FCF recovery as inventory normalizes .
  • Narrative catalysts: visible tariff pricing in late Q2, AI/process reengineering updates, chicken facility modernization timing/benefits, and share recovery in Frozen .
  • Estimate implications: modest upward revisions to near-term EPS/revenue likely after Q1 beat; full-year maintained but tax/interest updates should be reflected in models .*
  • Risk watch: elasticity on staples pricing, animal protein volatility, and rational promo environment persistence; management tracking elasticities weekly and sees resilience vs peers .
Notes:
* Consensus values marked with * retrieved from S&P Global.

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