CHICAGO — Despite a plant disruption and top-line decreases across all business segments, Conagra Brands Inc. swung to a profit in its fiscal 2025 first quarter after closing out the prior fiscal year with a fourth-quarter net loss.

For the quarter ended Aug. 25, Conagra saw net income rise 46% to $466.8 million, equal to 97¢ per share on the common stock, from $319.7 million, or 67¢ per share, a year earlier, lifted in part by a $210.4 million income tax benefit.

On an adjusted basis, net earnings declined to $252.6 million, or 53¢ per share, from $315.9 million, or 66¢ per share, in the prior-year period. The result missed the low end of Wall Street’s forecast for adjusted earnings per share of 55¢.

“We told you last quarter that Q1 would have plenty of noise in it, and it did,” Sean Connolly, president and chief executive officer, said in remarks to analysts on Conagra’s first-quarter performance. “Beyond the anomalies we planned for, we had one out-of-plan dynamic to contend with.”

Hebrew National plant production halted

Connolly said a “manufacturing disruption” during the quarter paused production at Conagra’s Hebrew National hot dog plant in the middle of the grilling season.

“While we were able to fully resume plant operations, the temporary manufacturing pause resulted in lost sales,” he said. “Revenue for the Hebrew National brand was down 47% in Q1. We estimate that this equated to a 60-basis-point reduction in total volume and a 90-basis-point reduction in total organic net sales during the first quarter. The loss was particularly apparent within (business unit) Refrigerated and Frozen, where we estimated that it accounted for a 150-basis-point reduction in volume and a 210-basis-point reduction in organic net sales for the segment. We estimate that the majority of the impact of this disruption will be isolated to the first quarter.”

Conagra’s first-quarter net sales totaled $2.79 billion, down 3.8% from $2.9 billion a year ago. On an organic basis, net sales fell 3.5%, reflecting a 1.9% negative impact from price/mix and a 1.6% decrease in volume. The Chicago-based food company estimated that the halted production at the Hebrew National plant pared organic net sales by about $27 million.

“Our results for the quarter were in line or above our internal plan for most metrics except organic net sales, which was impacted by the temporary manufacturing disruption,” Connolly said.

In the Refrigerated and Frozen segment, reported and organic net sales were down 5.7% to $1.1 billion in the quarter, as price/mix decreased 5.8% and volume increased 0.1%. The company said the segment took a $24 million hit from the Hebrew National facility disruption. Operating profit dropped 11.6% to $176 million, reflecting a $10 million negative impact from the Hebrew National plant pause.  

“Volume and price/mix were both impacted by the temporary manufacturing disruption in Hebrew National,” said Dave Marberger, chief financial officer. “Excluding Hebrew (National), we estimate that Refrigerated and Frozen net sales in the quarter would have been down 3.6%. Volume for the quarter would have increased 1.6%, and price/mix would have been down 5.2%.”

During an Oct. 2 conference call with analysts, Connolly said that “having a Hebrew National issue in grilling season is like getting a flat tire on the way to your wedding. It’s unfortunate timing. But just like the flat, it’s a minor issue that you have to deal with, and you keep moving on.”

Still, Conagra said it gained frozen food dollar share in such categories as single-serve meals, multi-serve meals, breakfast and vegetables. Connolly noted a 1.9 percentage point gain to a 51% share in single-serve meals, Conagra’s largest frozen category.

“Conagra now represents a majority of all industry volume in this $6.5 billion dollar category, a tremendous achievement in this dynamic and competitive environment,” he said. “Our investments have enabled us to drive steady share improvement in this category throughout fiscal ’24, and we built upon that success during the first quarter of fiscal ’25.”

Snacks drive share gains

The Grocery and Snacks unit saw net sales decrease 1.7% to $1.2 billion in the quarter, with organic net sales down 1.9% on declines of 0.1% in price/mix and 1.8% in volume. Operating income fell 3.7% to $249 million.

Dollar share grew in snacking and staples categories such as microwave popcorn, seeds, pudding and pickles, with the overall snacks portfolio posting a 1.2% volume gain versus a 0.9% decrease for the total category, according to Conagra.

“We continue to considerably outpace the total snacking category, largely due to our advantaged portfolio,” Connolly said. “Our brands span on-trend, permissible snacking subspaces like meat snacks, popcorn and seeds as consumers opt for low-carb, protein- and fiber-rich snacks offered by Slim Jim, Duke’s, David, Angie’s Boomchickapop and more. Permissible snacking is growing much faster than the overall snacking category, and our portfolio of well-known brands is benefiting.”

The August acquisition of Sweetwood Smoke & Co. added the Fatty Smoked Meat Sticks brand to Slim Jim and Duke’s in Conagra’s meat snacks portfolio, which the company said has notched four-year compound annual volume sales growth of 4.5%, including 8.7% in meat sticks.

“Conagra is a leader in the meat snacks category with significant scale,” Connolly said. “But within meat snacks, Conagra is the leader in meat sticks, a high-margin business that is growing faster than all other snacking categories as demand for more convenient, healthy and affordable experiences continues to attract new buyers.”

Foodservice net sales were down 7.8% to $267 million. On an organic basis, net sales sank 7.9%, with a price/mix uptick of 3.2% overcome by an 11.1% volume decrease. Conagra attributed the latter to the ongoing impact of previously reported lost business and continued softness in restaurant traffic. Operating profit fell 20% to $35 million.

“It’s no secret that COVID posed an unprecedented challenge for the entire foodservice industry, and our Foodservice segment was no exception,” Connolly said. “This past year, we were able to restore Foodservice margins to their fiscal ’19 levels. During Q1, we sustained that margin as we continued to execute our value-over-volume strategy.”

International segment net sales dipped 0.4% to $259 million in the quarter but were up 3% organically, reflecting gains of 2.4% in price/mix and 0.6% in volume that Conagra attributed mainly to a strong performance in its Global Exports business. Operating income climbed 42% to $34 million.

Eye on ‘portfolio reshaping’

Conagra reaffirmed its fiscal 2025 outlook for adjusted EPS of $2.60 to $2.65 and organic net sales of down 1.5% to flat.

“We expect sequential volume recovery each quarter, and we expect adjusted operating margin improvement to be greater in the second half,” Marberger said. “For Q2, we expect improvement in volume, top line and margin compared to Q1. We do expect our fiscal ’25 merchandising investment to be at the highest level in Q2.”

Connolly said the company will continue to focus on reshaping its product portfolio, including via potential acquisitions.

“Consumer tastes and habits are constantly changing, and we continuously evaluate opportunities to reshape our portfolio to position the company for further growth and margin expansion, whether that be through investments in innovation and brand modernization, M&A or value-accretive divestitures or spins,” he said, citing the Sweetwood Smoke acquisition and divestiture of its majority stake in India-based Agro Tech Foods Ltd. during the first quarter. “Looking ahead, we will continue to assess opportunities to reshape our portfolio for faster growth and stronger margins.”