CONAGRA BRANDS INC. (CAG) Q2 2025 Earnings Summary

Executive Summary

Q2 FY25 was a mixed quarter: organic net sales returned to growth (+0.3%) with volumes +0.4%, but adjusted operating margin compressed to 15.3% (-57 bps YoY) as higher input inflation and FX offset productivity; adjusted EPS was $0.70 (-1.4% YoY) while reported EPS was $0.59 (-1.7% YoY) .
Management cut FY25 outlook: adj. operating margin to ~14.8% (from 15.6–15.8%), adj. EPS to $2.45–$2.50 (from $2.60–$2.65), and raised FCF conversion to >100%; drivers are higher-than-expected inflation (esp. protein; cocoa/sugar also) and FX headwinds .
Category execution improved: Grocery & Snacks net sales +2.0% with adj. OI +4.8%, Refrigerated & Frozen volumes +1.9% but price/mix -1.9% (adj. OI -10.8%); International pressured by M&A/FX; Foodservice down modestly with traffic softness .
Call color: no “Thanksgiving timing” effect; trade investment underspend in Q2 redeployed to Q3; Q3 operating margin expected to trough with Q4 recovery; pricing selective (offsetting cocoa/sugar) while preserving volume momentum amid deferred protein cost relief .
Street estimates: S&P Global consensus was unavailable at time of analysis due to access limits; versus prior company guidance, the quarter’s narrative and guide cut likely reset expectations lower (see Guidance Changes) .

What Went Well and What Went Wrong

What Went Well
- Volume-led return to growth: organic volume +0.4% and organic sales +0.3%; total gross margin held flat YoY at 26.5% despite inflation (adj. GM 26.4%) .
- Grocery & Snacks outperformed: net sales +2.0% with price/mix +0.9% and volume +0.3%; adj. OI +4.8% to $296M; share gains in popcorn, dinners/entrees, chili, seeds .
- Strong free cash flow discipline: H1 FY25 FCF $538.8M; net debt reduced to $8.43B; TTM leverage 3.54x .
- Management quote: “Our business returned to growth in the second quarter… our investments paid off, driving strong market share performance” .
What Went Wrong
- Margin pressure from cost inflation/FX: adj. operating margin fell to 15.3% (-57 bps YoY); adj. gross profit -2.3% YoY (to $842M) .
- Refrigerated & Frozen profit decline: flat sales on -1.9% price/mix and +1.9% volume; adj. OI -10.8% as COGS inflation and operating leverage weighed .
- International headwinds: net sales -12.9% (M&A -8.4%, FX -3.8%); adj. OI -2.9% .
- Analyst concerns: increased H2 inflation (~4%) and deferred protein cost relief forced guide down; limited new pricing to protect volume momentum .

Financial Results

Metric	Q2 FY24	Q1 FY25	Q2 FY25
Net Sales ($B)	$3.208	$2.795	$3.195
Reported Diluted EPS ($)	$0.60	$0.97	$0.59
Adjusted EPS ($)	$0.71	$0.53	$0.70
Gross Margin (%) – Reported	26.4%	26.5%	26.5%
Gross Margin (%) – Adjusted	26.9%	26.0%	26.4%
Operating Margin (%) – Reported	14.0%	14.4%	12.6%
Operating Margin (%) – Adjusted	15.9%	14.2%	15.3%
Adjusted EBITDA ($M)	$660.7	$527.7	$638.9

Segment Net Sales ($B)

Segment	Q2 FY24	Q2 FY25
Grocery & Snacks	$1.295	$1.321
Refrigerated & Frozen	$1.339	$1.339
International	$0.280	$0.243
Foodservice	$0.295	$0.292
Total	$3.208	$3.195

Adjusted Operating Profit ($M)

Segment	Q2 FY24	Q2 FY25
Grocery & Snacks	$281.9	$295.7
Refrigerated & Frozen	$222.2	$198.1
International	$40.6	$39.4
Foodservice	$35.4	$35.8
Corporate	$(69.8)	$(78.9)
Total	$510.3	$490.1

Q2 FY25 KPI Decomposition (% YoY, Organic)

Segment	Price/Mix	Volume
Total Conagra	(0.1)%	+0.4%
Grocery & Snacks	+0.9%	+0.3%
Refrigerated & Frozen	(1.9)%	+1.9%
International	+1.7%	(2.4)%
Foodservice	+2.9%	(3.9)%

Cash Flow and Leverage (YTD through Q2)

Metric	Q2 FY24 YTD	Q2 FY25 YTD
Cash from Operations ($M)	$854.6	$754.2
Capex ($M)	$214.0	$215.4
Free Cash Flow ($M)	$640.6	$538.8
Net Debt ($B)	$9.01	$8.43
Net Leverage (TTM)	3.55x	3.54x

Guidance Changes

Metric	Period	Previous Guidance (Q1 FY25)	Current Guidance (Q2 FY25)	Change
Organic Net Sales vs FY24	FY25	(1.5)% to Flat	(1.5)% to Flat, ~midpoint	Maintained
Adjusted Operating Margin	FY25	15.6%–15.8%	~14.8%	Lowered
Adjusted EPS	FY25	$2.60–$2.65	$2.45–$2.50	Lowered
Free Cash Flow Conversion	FY25	~90%	>100%	Raised
Adjusted Effective Tax Rate	FY25	~23.5%	~23.0%	Lowered
Net Leverage	FY25	~3.2x	~3.4x	Higher (on lower profit)
Inflation (net)	FY25	~3.2%	~4%	Higher
Capital Expenditures	FY25	~$450M	~$450M (unchanged)	Maintained
Interest Expense	FY25	~$415M	Unchanged	Maintained
Ardent Mills Contribution	FY25	~$150M	Unchanged	Maintained
Pension Income	FY25	~$12M	Unchanged	Maintained

Why the change: management cited higher-than-expected inflation (notably protein; also cocoa/sugar) and unfavorable FX in H2; selective pricing to offset cocoa/sugar while preserving top-line momentum; protein cost relief deferred .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 FY24, Q1 FY25)	Current Period (Q2 FY25)	Trend
Brand investments/trade	Emphasis on brand-building; A&P up; strategic investments pressuring price/mix; reaffirmed FY25 outlook	Q2 trade underspend redeployed to Q3; investments working, driving share; no cut to support	Continued/increasing support
Inflation & pricing	FY25 net inflation ~3.0–3.2% expected	Full-year ~4%; selective pricing for cocoa/sugar; defer broad pricing to protect volumes	Inflation worse; cautious pricing
Protein costs	Not highlighted as main driver prior	Protein is the larger cost driver; relief deferred to later	New headwind
FX	Not a major focus	FX a headwind to H2 and International segment	Worsening
Supply chain/inventory	Productivity helped margins; Hebrew National disruption in Q1	No Thanksgiving timing impact; shipments and consumption aligned; small hurricane benefit in G&S	Stable
Frozen category dynamics	Strong share in frozen; innovation-led	Frozen volumes +3.2%; share gains; competition adding capacity but CAG confident in leadership	Positive
GLP-1/health	N/A	“On Track” GLP-1-friendly wayfinder on Healthy Choice; positioning for on/off-ramp consumers	Emerging opportunity
Leverage/FCF	FY25 net leverage ~3.2x target; strong FCF in FY24	FY25 net leverage ~3.4x on lower profit; still targeting ~3.0x by FY26; FCF conversion >100%	Slightly negative near term, path intact

Management Commentary

“Our business returned to growth in the second quarter despite a continued challenging consumer environment as our investments paid off, driving strong market share performance.” — Sean Connolly, CEO .
“There really was not a Thanksgiving timing effect for our company... our inventory levels with customers were essentially even with the year ago.” — Sean Connolly .
“The EPS call down today equates basically identically to the inflation in the back half versus what we had previously expected, that's the majority of it, plus FX.” — Sean Connolly .
“We do believe operating margin will be the lowest of all the quarters for the year [in Q3]... inflation will be higher in Q3 than Q4.” — Dave Marberger, CFO .

Q&A Highlights

Trade spend and timing: Q2 trade came in below plan and was redeployed to Q3; management reiterated that investments have been in place five quarters and are working to drive volumes/share .
Inflation and pricing posture: Incremental H2 inflation (protein primary; cocoa/sugar also) plus FX drove the guide cut; limited new pricing to protect momentum, with targeted pricing for cocoa/sugar .
Margin cadence: Q3 operating margin expected to be the lowest of the year with recovery in Q4; additional slotting/innovation and higher inflation load in Q3 cited .
Consumption vs shipments: No Thanksgiving timing benefit; shipments +1% vs consumption +0.6%; channel inventory even YoY .
Category/strategy: Confidence in frozen leadership amid competitor capacity adds; GLP-1-friendly “On Track” messaging on Healthy Choice to capture health trends .

Estimates Context

S&P Global consensus EPS/revenue estimates were unavailable at the time of analysis due to access limitations; therefore, we cannot present vs-consensus comparisons for Q2 FY25 or FY25. We note company guidance was reduced (adj. EPS $2.45–$2.50; adj. operating margin ~14.8%), which likely implies lower Street trajectory near term absent a cost/inflation reversal .

Key Takeaways for Investors

Volume momentum returned with organic growth and broad share gains, especially in frozen and snacks; management is prioritizing sustained investment to protect this momentum .
Guidance reset reflects higher H2 inflation (~4%) and FX; watch protein cost curves and FX as key sensitivities into Q3/Q4 .
Margin trough anticipated in Q3 with recovery in Q4 as investment timing and inflation cadence normalize; any upside requires faster cost relief and/or improved operating leverage .
Refrigerated & Frozen profitability is the swing factor: volumes improved but price/mix and cost inflation pressured margins; execution on productivity and mix will be crucial .
Strong cash discipline underpins >100% FY25 FCF conversion and continued deleveraging; leverage expected ~3.4x in FY25 with a path to ~3.0x by FY26 per management .
Selective pricing (cocoa/sugar) suggests limited margin recapture near term; the strategy aims to defend volumes/share vs. value-seeking consumers and a rational promotional backdrop .
Tactical watch items for trading: Q3 margin trough vs expectations, protein cost trajectory, frozen category consumption trends, and the magnitude of any Q4 recovery in operating margin .