CONAGRA BRANDS INC. (CAG) Q3 2025 Earnings Summary

Executive Summary

• Q3 FY25 came in soft on shipments due to discrete supply constraints in frozen meals containing chicken and frozen vegetables; reported net sales fell 6.3% to $2.84B, reported EPS fell to $0.30 and adjusted EPS to $0.51, while adjusted operating margin contracted to 12.7% .
• Versus Wall Street consensus, Q3 missed on revenue ($2.84B vs $2.90B*) and EPS ($0.51 vs $0.53*), driven by supply-related negative absorption, transitory co-manufacturing costs, and a trade accrual true-up; full-year guidance was reaffirmed at organic net sales ~(2)%, adjusted margin ~14.4%, adjusted EPS ~$2.35, FCF conversion >100% .
• Segment pressure was broad-based (Refrigerated & Frozen -7.2% sales, Grocery & Snacks -3.2%, International -17.6%, Foodservice -6.1%), with adjusted operating profit down across segments; legal charges elevated SG&A (legacy matters) and drove comparability impacts .
• Management expects sequential improvement in Q4: better service levels for Birds Eye and frozen chicken meals, improving gross margin vs Q3, and less trade headwind, though inflation (~4%) and evolving tariff risks remain key variables .
• Near-term catalysts: resolution of supply constraints (inventory rebuild), modernization of chicken facility by end of Q1 FY26, capex timing shift (FY25 now ~$410M), and strong cash flow used to delever (net leverage 3.59x at Q3) .

What Went Well and What Went Wrong

• What Went Well

  • Strong consumption and share resilience despite shipment constraints; management: “consumer pull for our products remains strong…inventories are being rebuilt” .
  • Clear path to Q4 improvement: “expect improvement in gross margins in Q4 versus Q3…service levels on Birds Eye and Frozen Meals with chicken improving” .
  • Free cash flow conversion tracking >100% and deleveraging progress ($0.5B debt reduced LTM; net leverage 3.59x at Q3) .

• What Went Wrong

  • Supply constraints in frozen chicken meals and vegetables drove volume shortfalls, negative absorption, and transitory co-manufacturing costs; adjusted gross margin fell 389 bps YoY to 24.8% .
  • SG&A spiked on legacy legal matters; reported SG&A up 14.5% to $443.7M, with ~$0.15 EPS drag from legal items .
  • International pressured by FX/M&A headwinds (-17.6% sales) and Foodservice volume (-10.0%) amid soft commercial traffic; Refrigerated & Frozen adjusted operating profit fell 38.8% .

Financial Results

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Our third quarter unfolded largely as expected…strong consumption trends and share performance…While shipments lagged consumption largely due to the discrete supply constraints…we are making solid progress in restoring inventory and improving customer service levels.” — Sean Connolly, CEO .
• “We expect our shipment volumes to improve versus Q3 as we improve our service levels…Expect improvement in gross margins in Q4 versus Q3…our SG&A will be favorable in Q4 versus the prior year.” — Dave Marberger, CFO .
• “C-store…is a bit weaker…We tend to make that up in other channels, so our total consumption remains incredibly strong.” — Sean Connolly .
• “Our free cash flow conversion is 125%. We paid down $0.5 billion of debt in the last 12 months…priority with that cash flow is to pay down debt.” — Dave Marberger .
• “We are still monitoring inflation, tariffs, consumer sentiment and the need for pricing…everything is on the table.” — Sean Connolly .

Q&A Highlights

• Shipments vs consumption gap: management emphasized timing (seasonal/holiday flows) in Grocery & Snacks and supply constraints in frozen, with inventory rebuild underway; Swiss Miss weather timing pushed consumption into Q3 .
• Q4 building blocks: improving service levels, better gross margins vs Q3 (less negative absorption; consistent co-manufacturing costs), reduced trade impact, and favorable SG&A vs prior year .
• Inflation/tariffs: inflation ~4% persists; tariff exposure dynamic (steel tinplate, imported vegetables, palm oil), but FY25 impact limited; mitigation via productivity, sourcing, pricing .
• Leverage & capex: FCF strong; deleveraging priority; FY25 capex lowered to ~$410M due to timing—higher capex expected in FY26; chicken plant modernization completion targeted by August (Q1 FY26) .
• Snacking performance: protein-centric portfolio (meat sticks, seeds, popcorn) outperforming broader snacks; FATTY integration progressing well .

Estimates Context

Values retrieved from S&P Global.*

Key Takeaways for Investors

• Supply-driven underperformance should abate: frozen chicken/vegetable constraints and negative absorption drove Q3 margin compression; management guided to sequential margin improvement and service recovery in Q4, with plant modernization done by August (Q1 FY26) .
• Guidance intact despite Q3 miss: FY25 outlook unchanged at organic net sales ~(2)%, adjusted margin ~14.4%, adjusted EPS ~$2.35, FCF conversion >100%, signaling confidence in execution and inventory rebuild cadence .
• Cash generation supports deleveraging: strong FCF conversion and ongoing debt reduction (net leverage 3.59x at Q3) underpin balance sheet progress and dividend continuity ($0.35) .
• Watch inflation/tariffs: persistent ~4% inflation and evolving tariff policies (steel/aluminum/imports) are key risk factors; productivity and targeted pricing are levers to protect margins .
• Segment lens: Refrigerated & Frozen and International faced outsized pressures (FX, supply, costs); recovery hinges on service normalization and improved operating leverage; G&S impacted by shipment timing and trade accrual true-up .
• Near-term catalysts: Birds Eye/frozen meals service improvement, Q4 gross margin rebound, clarity on tariffs, FY26 capex ramp for modernization projects .
• ESG/operations: Bloom Energy partnership adds resilient, cleaner power at two Ohio facilities, advancing supply chain modernization and sustainability goals .

Non-GAAP Adjustments (Q3 FY25)

• Items affecting comparability included ~$0.15 EPS net expense (legal matters), ~$0.05 (impairment of business held for sale), ~$0.01 (restructuring), ~$0.01 (Ardent Mills JV restructuring), and ~$0.01 net benefit (corporate hedging derivative gains) .