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Conagra's (CAG -2%) Q4 (May) earnings beat and in-line revenue proved too stale today against the company's prudent FY25 guidance. The snack food giant behind many familiar brands like Slim Jim and Vlasic warned that the consumer will likely remain challenged during the upcoming year, adapting to a gradual transition toward a more normalized operating environment. Even though a normal environment sounds like favorable news for CAG, it expects turbulence as consumers adjust their reference prices, implying that the cumulative effects of inflation are here to stay, with prices unlikely to drop anytime soon. As a result, CAG forecasted adjusted EPS of $2.60-2.65 in FY25, alongside organic net sales growth of negative 1.5% to flat.

Management has been nudging consumers toward accepting its new price points and the updated value the products offer, but admitted it is a process that will take time. Even though disinflation has already cropped up, the past several years of inflation have affected virtually every aspect of daily life; incomes can take time to catch up, while the psychological effects do not disappear overnight.

Nevertheless, CAG is optimistic that it has taken the necessary steps to fortify its positioning in the grocery and snacking industry, as evident by the many bright spots from Q4.

• CAG squeaked out another bottom-line beat in Q4, registering adjusted EPS of $0.61. Revenue did contract for the third consecutive quarter, inching 2.3% lower yr/yr to $2.91 bln. The drivers were CAG's Grocery & Snacks and Foodservice segments, which registered net sales declines of 2.1% and 3.9%, respectively. In Grocery & Snacks, relatively high elasticity drove consumers toward reducing their basket sizes or trading down. Meanwhile, softness in restaurant traffic hurt CAG's Foodservice business, with volumes sliding by over 10% yr/yr.
• However, CAG did an impressive job expanding profitability in these two lagging segments, helping offset the bottom-line impacts of lower revenue and volumes. Furthermore, management noted that it gained unit share in snacking categories as it outperformed several of its competitors during the quarter, strengthening its foundation to reignite growth once economic conditions turn around.
• Meanwhile, the company's Refrigerated and Frozen segment enjoyed a modest volume bump of 0.9%, improving from last quarter. Although it did come on a 4.7% drop in prices. Both metrics resulted from the impacts of CAG's brand-building investments, which center around maximizing consumer engagement and recapturing share following a challenging period last year when trade-down intensified. Similarly, International sales increased nicely on a 4.1% jump in volumes, fueled by exceptional strength in CAG's Mexico and global exports businesses. 

CAG is well aware of the stress inflation places on consumers. However, it is investing in its brands to support a return to positive volumes without significantly compromising its margins, projecting FY25 adjusted operating margins of 15.6-15.8%, similar to the 16.0% posted in FY24. While a transition year may not accompany meaningful financial gains, it is a step toward recovery, signaling that the worst of CAG's headwinds may be in the rear-view mirror.