Q2 2025 Earnings Summary
- Return to volume and organic net sales growth in Q2 FY2025, with organic net sales of $3.2 billion, up 0.3% over the prior year, driven by volume growth in the domestic retail business.
- Strong performance in key business domains, including the Frozen segment, which has seen five consecutive quarters of volume sales improvement, and an increased volume share position by 3 percentage points in the single-serve meals category.
- Continued commitment to brand-building investments to drive top-line momentum, despite facing higher inflation and unfavorable foreign exchange rates, highlighting management's focus on long-term growth and shareholder value.
- Conagra Brands lowered its adjusted operating margin guidance to approximately 14.8%, down from previous expectations, due to higher-than-anticipated inflation, especially in animal protein and egg costs that are not moderating as projected. [2]
- The company reduced its adjusted EPS guidance to a range of $2.45 to $2.50, citing the impact of higher inflation on operating margins and an estimated $0.04 EPS headwind from unfavorable foreign exchange rates. [2]
- Conagra's net leverage ratio is now expected to be approximately 3.4x, up from the prior estimate of approximately 3.2x, indicating increased financial leverage due to lower adjusted earnings expectations. [2]
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -0.4% | The company’s revenue of $3,195.1 million saw a slight decline due to minor volume reductions offset by price/mix improvements and foreign exchange headwinds, reflecting continued cost inflation and strategic trade shifts. |
International Segment | -13% | Segment net sales of $243.4 million were impacted by unfavorable foreign exchange and cost inflation, which outweighed moderate organic net sales growth. Company-specific trade strategies and restructuring costs from prior periods also influenced the YoY comparison. |
Refrigerated Sub-Segment | -15% | Net sales of $198.3 million declined largely due to temporary manufacturing disruptions (notably in Hebrew National), deflation in certain categories, and strategic trade investments that lowered price/mix. Productivity gains only partially offset these challenges. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Leverage ratio | FY 2025 | 3.4x | 3.4x | no change |
Inflation forecast | FY 2025 | ~4% | ~4% | no change |
Free cash flow conversion | FY 2025 |
| Above 100% | no change |
Inflation forecast | Q3 2025 | No prior guidance | Expected to be higher in Q3 2025 than in Q4 2025 | no prior guidance |
Long-term leverage target | FY 2026 | 3x by end of FY 2026 | 3x by end of FY 2026 | no change |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Total Revenue | Q2 2025 | "Expected to be the highest trade merchandising quarter of the year and also the highest sales quarter" | "3,195.1" | Met |
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Inflation Impact on Earnings
Q: Is it harder to raise prices to offset higher costs now?
A: Sean Connolly explained that the EPS guidance reduction is due to increased inflation in the back half plus FX, not due to increased investments. While there is inflation in cocoa and sweeteners, impacting a narrow part of the portfolio, the bigger driver is protein costs like meats and eggs. They anticipated lower inflation in the second half but now face higher costs. Instead of raising prices again and triggering elasticity effects, they chose to maintain top-line momentum, believing it's in the best interest of consumers and shareholders. -
Leverage and Free Cash Flow
Q: What is driving the increase in leverage targets, and how about free cash flow?
A: CFO David Marberger stated that the forecasted leverage ratio is now 3.4x, up from 3.2x, entirely due to reduced profit outlook. Free cash flow conversion is above 100% because net income is down, but free cash flow is on track. They are pleased with their progress in working capital and inventory management and expect to reach their long-term leverage target of 3x by fiscal '26. -
Operating Margin Outlook
Q: What's driving the expected margin inflection from Q3 to Q4?
A: David Marberger explained that Q3 operating margin will be the lowest of the year due to factors like increased innovation investment and higher inflation forecasted at close to 4% for the full year, higher in Q3 than Q4. Volumes are expected to improve sequentially, and A&P and SG&A will be in line with a year ago. -
Competitive Landscape in Frozen
Q: Have you seen increased competition in frozen, and how does it affect your growth?
A: Sean Connolly stated that while competitors are adding capacity in frozen, Conagra has been leading the frozen category for about 10 years. Their products and innovation are ahead of competition, evidenced by their strong market share. They plan to continue driving and leading the category and remain the leader globally and in the U.S.. -
Investments and EPS Impact
Q: Are incremental investments contributing to back-half EPS pressure?
A: Sean Connolly clarified that their decision to invest in driving top-line growth is not new and has been built into their plan for the fiscal year. The investments are working, with trend lines improving over the past 5 quarters, particularly in frozen and snack businesses. In Q2, actual spend was lower than planned; they redeployed those funds to Q3 rather than reducing support. -
Protein Snack Trends
Q: What's driving the trend toward high-protein snacks, and how long will it last?
A: Sean Connolly noted that protein and fiber are super on-trend right now, and they are highly concentrated in those benefit areas. They acquired the FATTY Smoked Meat business, adding to their portfolio alongside Slim Jim and Duke's, creating a trifecta smokehouse. He doesn't see these trends changing and believes being protein-centric and fiber-centric is advantageous. -
Healthy Choice GLP-1 Messaging
Q: What are your plans for the Healthy Choice GLP-1 On Track program?
A: Sean Connolly discussed adding a "On Track" wayfinder with "GLP-1 friendly" language on Healthy Choice packaging for consumers managing their diet, including those using GLP-1 drugs. Although the number of users is small and some are dropping off, Healthy Choice provides an excellent solution for those seeking to maintain progress after GLP-1 use. -
Advertising and Promotion Timing
Q: How is A&P spend shifting between Q2 and Q3?
A: David Marberger explained they spend the most on trade merchandising in Q2, but some spend shifted to Q3. They are ramping up A&P starting in Q3, aiming for A&P percentage to be in line with the prior year by year-end. There's a slight increase in innovation investment expected in Q3. -
Consumer Value Behaviors
Q: What best practices address consumer challenges and value-seeking behaviors?
A: Sean Connolly emphasized that benefits like convenience are unshakable trends. They've nudged consumers back using investments in innovation, advertising, and high-quality trade, focusing on frozen and snacks where their brands are resonating. This strategy has been effective in driving growth. -
Impact of Thanksgiving and Hurricanes
Q: Was there any benefit from Thanksgiving timing or hurricane impacts?
A: Sean Connolly stated there was no Thanksgiving timing effect on their company, as shipments and consumption tracked closely. He also mentioned a very small benefit from the hurricane in the Grocery & Snacks segment, but not material to overall results.