Conagra's Q2 Earnings Top Estimates, Organic Sales Decline 3%

Conagra Brands, Inc. CAG reported second-quarter fiscal 2026 results, wherein both earnings and sales declined year over year. Results reflected a challenging consumer environment, lower volumes and continued impacts from divestitures, partly offset by productivity gains and resilient performance across several growth categories.

CAG’s Quarterly Performance: Key Metrics and Insights

Conagra’s adjusted earnings per share (EPS) for the quarter were 45 cents, beating the Zacks Consensus Estimate of 44 cents. However, the bottom line declined 35.7% year over year, primarily reflecting lower adjusted operating profit.

Net sales declined 6.8% year over year to $2,979.1 million, missing the Zacks Consensus Estimate of $2,990 million. The decline included a 3.9% headwind from M&A, a 3% decrease in organic net sales and a modest 0.1% favorable currency impact.

Organic net sales fell 3% due to a 3% decline in volume, while price/mix remained flat. Management noted a roughly 100-basis-point headwind from retailer purchasing patterns and merchandising timing during the quarter. Despite volume pressure, Conagra gained volume share in multiple categories, including ready-to-eat popcorn, pudding, hot cocoa, seeds, refrigerated whipped toppings, frozen desserts and frozen breakfast items.

Adjusted gross profit declined 17.1% to $698 million, as productivity gains were more than offset by lower sales, cost inflation and lost profit from divested businesses. Adjusted gross margin contracted 292 basis points to 23.4% from the year-ago period.

Adjusted SG&A expenses, including advertising and promotional (A&P) costs, increased 2.9% year over year to $362 million, reflecting higher A&P investment. Adjusted EBITDA declined 25.2% to $478 million.

Decoding CAG’s Segmental Performance

Grocery & Snacks: Segment net sales declined 8.5% year over year to $1,209 million due to a 7.0% adverse M&A impact and a 1.5% fall in organic net sales. Organic results reflected a 0.8% benefit from price/mix, offset by a 2.3% decline in volume. Adjusted operating profit decreased 21.8% to $231 million.

Refrigerated & Frozen: Net sales fell 6.5% to $1,251 million, reflecting a 5.1% drop in organic net sales and a 1.4% M&A headwind. Organic performance was adversely impacted by a 2.1% decline in price/mix and a 3.0% decrease in volume. Adjusted operating profit declined 35.6% to $128 million, as inflation and unfavorable operating leverage weighed on margins.

International: International segment sales declined 5.4% year over year to $230 million, reflecting a 4.1% M&A impact, a 2.9% fall in organic net sales and a 1.6% favorable currency benefit. Organic results included a 3.5% increase in price/mix, offset by a 6.4% volume decline. Adjusted operating profit decreased 18.4% to $32 million.

Foodservice: Foodservice sales decreased 1.3% to $288 million due to M&A impacts, partially offset by 0.2% organic net sales growth. Organic performance reflected a 4.2% benefit from price/mix, offset by a 4.0% volume decline. Adjusted operating profit fell 12.6% to $31 million.

CAG’s Financial Health Snapshot

In the first half of fiscal 2026, Conagra generated net cash from operating activities of $331 million. Capital expenditures totaled $219 million, resulting in free cash flow of $113 million.

CAG ended the second quarter with net debt of $7.6 billion. The company paid a dividend of 35 cents per share in the quarter.

What to Expect From CAG in FY26?

The company has reiterated its outlook for fiscal 2026, projecting organic net sales to range from a decline of 1% to growth of 1% versus fiscal 2025. Adjusted operating margin is expected to fall between 11% and 11.5%, while adjusted earnings per share are anticipated in the range of $1.70 to $1.85.

Adjusted equity income for the fiscal year is now forecasted at about $170 million, down from the prior expectation of roughly $200 million. 

The outlook also factors in continued elevated inflation in the cost of goods sold during fiscal 2026, with core inflation expected to be slightly above 4%. In addition, the forecast incorporates the anticipated impact of previously announced U.S. tariffs. Although tariff conditions remain subject to change, assumptions include a 50% tariff on imported tin plate steel and aluminum, a 20% tariff on select imports from China and various reciprocal tariffs by country. 

Collectively, these measures are expected to raise the cost of goods sold by roughly 3% on an annual basis before mitigation efforts such as accelerated cost-saving programs, alternative sourcing strategies and selective pricing actions. Overall, the total cost of goods sold inflation is projected at approximately 7%.

Shares of CAG have tumbled 34.3% in a year compared with the industry’s decline of 14%.

Stocks to Consider

United Natural Foods, Inc. UNFI distributes natural, organic, specialty, produce and conventional grocery and non-food products in the United States and Canada. At present, United Natural flaunts a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The consensus estimate for United Natural’s current fiscal-year sales and earnings implies growth of 1% and 187.3%, respectively, from the year-ago figures. UNFI delivered a trailing four-quarter earnings surprise of 52.1%, on average.

Village Farms International, Inc. VFF produces, markets and distributes greenhouse-grown tomatoes, bell peppers, cucumbers and mini-cukes in North America. It sports a Zacks Rank #1. Village Farms delivered a trailing four-quarter earnings surprise of 155.6%, on average.

The Zacks Consensus Estimate for Village Farms’ current fiscal-year earnings indicates growth of 165.6% from the prior-year levels.

The Vita Coco Company, Inc. COCO develops, markets and distributes coconut water products under the Vita Coco brand name. COCO currently flaunts a Zacks Rank #1. Vita Coco delivered a trailing four-quarter earnings surprise of 30.4%, on average.

The Zacks Consensus Estimate for Vita Coco's current fiscal-year sales and earnings implies growth of 18% and 15%, respectively, from the year-ago figures.

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This article originally published on Zacks Investment Research (zacks.com).

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