Conagra Brands (CAG 1.67%), purveyor of everything from Birds Eye frozen vegetables to Duncan Hines cake mix to Marie Callender's pies, tumbled 9.6% through 10:55 a.m. ET Wednesday after reporting an earnings miss.
Heading into its fiscal Q1 2025 results, analysts forecast Conagra would earn $0.59 per share adjusted for one-time items, on sales of more than $2.8 billion. In fact, Conagra earned just $0.53 per share, while its sales were just short of $2.8 billion.
NYSE: CAG
Key Data Points
Conagra Q1 earnings
Q1 was rough for this food stock, with sales sinking 4% and operating profit margins plunging nearly 250 basis points to 14.4%. That turned what might have been a slip in profits into something much larger as adjusted earnings tumbled 20%.
On the plus side, earnings as calculated according to generally accepted accounting principles (GAAP) rose a whopping 45%, as the company benefited from a $210 million income tax benefit. Kudos to Conagra, though, for making clear to investors that they shouldn't expect this to happen again and for highlighting what its earnings would have looked like without the tax benefit.
Is Conagra stock a sell?
Investors are punishing Conagra for its transparency. But is that the right reaction?
After all, turning to guidance, Conagra reassured investors that despite the Q1 miss, it's still on track to meet or beat consensus targets for fiscal 2025. Management sees adjusted earnings coming in between $2.60 and $2.65 this year, which at the midpoint is more than the $2.61 that Wall Street expects.
Management also suggested a smaller sales decline in 2025, ranging from down only 1.5% to down nothing at all. And operating profit margins should improve over fiscal 2024, bouncing back to 15.6% or better. Best of all, Conagra expects to continue converting 90% of operating profit to free cash flow (FCF), which by my calculation makes for at least $1.1 billion in FCF this year and about a 14x price-to-FCF ratio on the stock.
If Conagra can get back to 10% growth, that should be cheap enough to buy.
