Conagra Brands’ Q3 Net Sales Decline by 6.3%, Operating Margin and EPS Affected

Conagra Brands, Inc. (NYSE: CAG) released its third-quarter financial results for fiscal 2025, ending February 23, 2025. The company reported a 6.3% decline in net sales, bringing the total to $2.8 billion. This decrease was attributed to a 5.2% drop in organic net sales, compounded by a 0.7% negative impact from foreign exchange and a 0.4% decrease due to mergers and acquisitions. The company’s reported operating margin fell to 8.4%, a significant decrease of 712 basis points, while the adjusted operating margin was 12.7%, down by 369 basis points.

Earnings per share (EPS) also experienced a notable decline. Reported diluted EPS was $0.30, marking a 53.1% decrease, and adjusted EPS was $0.51, representing a 26.1% drop. These figures reflect challenges in maintaining profit margins amidst lower net sales and inflation in the cost of goods sold. The gross profit decreased by 17.3% to $710 million, and the adjusted gross profit decreased by 19.1% to $704 million. The company’s gross margin also saw a decline, decreasing by 331 basis points to 25.0%, with the adjusted gross margin falling by 389 basis points to 24.8%.

The company’s segments showed varied performance. The Grocery & Snacks segment saw a 3.2% decrease in net sales to $1.2 billion, with the Refrigerated & Frozen segment reporting a 7.2% decline to $1.1 billion. The International segment faced a 17.6% reduction, and the Foodservice segment experienced a 6.1% drop in net sales. These declines were driven by a combination of price/mix adjustments and volume decreases, reflecting ongoing supply constraints and strategic investments in the domestic retail business.

Conagra Brands Fails to Meet Market Expectations with Q3 FY’25 Results

Comparing the current quarter’s performance against expectations, Conagra Brands fell short of market anticipations. Analysts had projected an EPS of $0.5429 and revenue of $2.92 billion. However, the company reported an adjusted EPS of $0.51 and revenue of $2.8 billion, missing the EPS expectation by 6.3% and the revenue target by approximately $120 million. The shortfall in EPS is attributed to decreased adjusted gross profit and increased selling, general, and administrative expenses, which rose by 14.5% to $444 million due to charges related to legacy legal matters.

The company’s net income attributable to Conagra Brands decreased by 53.0% to $145 million, or $0.30 per diluted share, compared to $309 million, or $0.64 per diluted share, in the prior year quarter. This decline in net income was primarily driven by lower adjusted gross profit and increased corporate expenses. Adjusted EBITDA also decreased by 18.9% to $514 million, reflecting the challenges in maintaining profitability amidst a challenging market environment.

Despite these challenges, the company managed to gain volume share in certain categories. In the Grocery & Snacks segment, Conagra saw gains in snacking and staples categories, including microwave popcorn and hot cocoa. The Refrigerated & Frozen segment gained volume share in frozen desserts and single-serve meals. However, these gains were not enough to offset the overall decline in sales and profits for the quarter.

Join our Telegram group and never miss a breaking digital asset story.

Conagra Brands Maintains Fiscal 2025 Guidance

Looking ahead, Conagra Brands has maintained its fiscal 2025 guidance despite the challenges faced in the third quarter. The company expects organic net sales to decrease by approximately 2% compared to fiscal 2024, with an adjusted operating margin of around 14.4%. The adjusted EPS is projected to be approximately $2.35, and the company anticipates a free cash flow conversion of greater than 100%.

Conagra Brands remains focused on executing its strategic initiatives and restoring inventory levels to improve customer service. The company is also closely monitoring the external environment, including supply chain challenges and inflationary pressures. Capital expenditures for the year are expected to be approximately $410 million, with other guidance metrics, including interest expense and the adjusted effective tax rate, remaining unchanged from previous estimates.

The company has indicated that it expects limited impact from previously announced U.S. tariffs on steel and aluminum and imports from China. However, the inability to predict the timing and impact of foreign exchange, acquisitions, divestitures, and other items affecting comparability makes it challenging to provide detailed reconciliations of forward-looking non-GAAP financial measures.

Disclaimer: The author does not hold or have a position in any securities discussed in the article. All stock prices were quoted at the time of writing.