Conagra Brands (NYSE:CAG) executives said the company’s fiscal 2027 outlook remains unchanged following a first-quarter earnings beat, while emphasizing that transportation inflation, the rollout of pricing actions and investments in advertising will shape results in coming quarters.
During the company’s first-quarter fiscal 2027 question-and-answer call, CEO John Brase said pricing actions discussed during the prior quarter were only beginning to reach the market. He said results so far were in line with Conagra’s planning assumptions.
Brase said Conagra has maintained what he described as a prudent stance on price elasticity assumptions. The company is modeling elasticity of more than two-to-one in its Refrigerated & Frozen segment and more than one-to-one in Grocery & Snacks. Conagra has not assumed that competitors will follow its pricing actions, though Brase said followership could create upside to those assumptions.
Inflation shifts toward transportation
Marberger said Conagra continues to forecast fiscal-year inflation of 5% to 6%, now toward the high end of that range. Favorable protein costs helped the company in the first quarter, but that benefit has been more than offset by transportation inflation running at roughly twice the company’s original planning assumption.
He attributed transportation pressure to a driver shortage and higher oil prices. Conagra expects inflation in the second and third quarters to be higher than in the first quarter, before easing in the fourth quarter relative to the third quarter.
Marberger said the company is still experiencing elevated costs for several inputs, including edible oils, corrugated materials and aluminum. However, he said Conagra could begin lapping many of those higher-cost categories in fiscal 2028.
For the second quarter, Conagra expects operating margin in the high single digits, compared with 11.5% in the first quarter. Marberger cited three primary factors behind the expected decline:
- Higher inflation in the second quarter versus the first quarter.
- The reversal of first-quarter SG&A favorability, including both a one-time benefit and expenses that were deferred into the second quarter.
- Higher advertising and promotional spending, with A&P expected to reach 3% of net sales versus 2.3% in the first quarter.
He added that higher inflation would have some effect on gross margin, though the company maintained its full-year operating-margin outlook and continues to expect gross margin to be relatively flat from the prior year.
Marketing investment targets key categories
Brase said Conagra is increasing spending behind brand building after concluding it had not consistently invested at levels needed to build consumer awareness and affinity. The company is focusing incremental marketing investment on single-serve meals, meat snacks and popcorn.
He said the company is working to make its marketing more targeted and effective, and has seen early improvements in reach and engagement. Brase described the effort as part of a “new modern marketing machine” that Conagra is building internally.
In snacks, Brase said Conagra’s sweet treats portfolio performed strongly in the first quarter, supported by Snack Pack and Swiss Miss. However, the company sees room for improvement in permissible snacking, including meat snacks, popcorn and seeds.
Conagra has significant exposure to meat snacks and seeds in convenience stores, where demand has been pressured by higher gasoline prices, Brase said. He added that the company needs to improve execution and channel participation in the areas where meat-snack growth is occurring. The company plans a significant increase in marketing and innovation for meat snacks and popcorn beginning in the second quarter.
Brase also said Conagra saw some benefit in frozen foods from demand related to Cyclospora concerns, though he characterized the impact as immaterial. He noted that the effect was partly offset by pressure on Wish-Bone salad dressing. Brase said the company sees an opportunity to build further trial and engagement for its Birds Eye frozen vegetable brand.
Simplification efforts could accelerate in fiscal 2028
Conagra is pursuing SKU, format and formulation simplification across its portfolio, according to Brase. The company has created an internal work stream focused on significantly reducing SKU count, with efforts divided between exiting smaller, lower-profit brands and simplifying core product platforms.
Brase cited the company’s exit from Celeste Pizza as an example. The move reduced first-quarter net sales by about 15 basis points but was profit accretive, he said.
The larger opportunity, he said, involves simplifying the company’s core offerings. Conagra has more than 400 single-serve meal SKUs, and Brase said the company believes it can develop a more productive assortment without reducing its commitment to the category, ceding distribution or slowing innovation.
The initiative is intended to improve operational efficiency, procurement scale, organizational focus and shelf velocity. Brase said the company will take a measured approach that accounts for customer reset timing and inventory implications. Most benefits are expected in fiscal 2028, although decisions are being made now.
Debt reduction remains a priority
Marberger said Conagra expects to finish fiscal 2027 with leverage of approximately four times, after ending the first quarter at 3.99 times. The company expects seasonal inventory builds to use cash during the first half before cash flow improves in the second half.
Conagra expects to pay down approximately $250 million of debt during the fiscal year and remains focused on reaching its long-term leverage target of three times as quickly as possible, Marberger said. He said improved profitability and the company’s dividend adjustment should support progress in fiscal 2028.
The company is largely insulated from current interest-rate movements because its debt is almost entirely fixed rate, with commercial paper representing its variable-rate exposure. Marberger said Conagra has $500 million and $260 million of notes maturing during the month, and that it issued a $500 million note in July at a 5.4% rate to finance ahead of those maturities.
On consumer demand, Brase described conditions as “muted” and bifurcated by income, but said Conagra has not seen a material shift in overall consumer behavior. He said the company’s portfolio spans value-oriented offerings, including Banquet, as well as more premium brands such as Healthy Choice.
About Conagra Brands (NYSE:CAG)
Conagra Brands, Inc is a packaged food company headquartered in Chicago, Illinois. The company develops, produces and markets branded food products sold through grocery stores, mass merchandisers, club stores, convenience stores, foodservice operators and e-commerce channels.
Its portfolio includes frozen, refrigerated, grocery and snack products. Well-known brands include Birds Eye, Healthy Choice, Marie Callender’s, Banquet, Duncan Hines, Reddi-wip, Slim Jim, Hunt’s, Chef Boyardee, Orville Redenbacher’s, Vlasic, PAM and Angie’s BOOMCHICKAPOP.
