Story Stocks^®

Conagra (CAG -3%) is pulling back following its Q4 (May) earnings report this morning. The food giant (Birds Eye, Duncan Hines, Healthy Choice, Marie Callender's, Reddi-wip, Slim Jim etc.) missed on EPS and revs. Revenue fell 4.3% (-3.5% organically) yr/yr to $2.78 bln. Perhaps most troubling, it guided FY26 adjusted EPS well below analyst expectations at $1.70-1.85. It also guided to FY26 organic revs of -1% to +1%, which is not comparable to consensus.

• CAG says it's proactively managing the business by investing in high-potential frozen and snacks, prioritizing volume strength, and further enhancing supply chain resiliency. However, CAG said that inflation across FY25 and FY26 combined adds up to another 11% of cost increases. This confluence of high inflation and higher investments to improve volume and its supply chain translates to temporary margin compression, which explains the weak FY26 EPS guidance.
• This food giant has been undergoing a portfolio transformation. It recently completed the divestiture of its Van de Kamp's and Mrs. Paul's brands to High Liner Foods for $55 mln in cash. Conagra also recently completed the divestiture of its Chef Boyardee brand to Hometown Food. Conagra is seeking to streamline its portfolio and focus on its most profitable and high-growth areas, particularly in frozen foods and snacks. It is divesting low-margin, non-core, or slow-growth brands to concentrate on more lucrative brands like Healthy Choice, Birds Eye, and Marie Callender's. It also is seeking to pay down debt and focus more on innovation and growth.
• Grocery & Snacks segment sales in Q4 decreased 2.1% (-3.3% organically) to $1.2 bln, which was driven by a price/mix decrease of 1.7% of and a volume decrease of 1.6%. Refrigerated & Frozen segment revenue (both reported and organic) decreased 4.4% to $1.1 bln driven by a price/mix decrease of 2.3% and a volume decrease of 2.1%. Foodservice segment sales decreased 4.0% to $280 mln. And finally, its International segment saw a big 13.8% decline in sales to $230 mln.
• The company said it had to navigate an environment that proved to be more challenging than anticipated throughout FY25. CAG entered the year focused on returning volume to growth and delivered consistent progress through the first half. This resulted in a return to absolute volume growth in domestic retail in Q2 and 1H EPS in line with internal plans. However, the second half of FY25 was impacted by higher than expected inflation, FX headwinds, and supply constraints.

This was a disappointing end to FY25 for Conagra and we suspect investors were hoping for a more upbeat outlook in FY26. Our first thought was, given the recent divestitures, maybe analysts had not yet adjusted their models. However, this was a good bit below expectations, especially the guidance so we think it's more than just that. Unfortunately, Conagra's near term outlook remains cloudy. Higher inflation and higher investments are pressuring margins in the near term. Also, the company really needs to get its supply chain issues behind them.