Conagra Brands (NYSE:CAG) executives said the company is seeing “continued upward inflection” in its growth businesses despite a challenging consumer backdrop and several timing-related disruptions that created unusual volatility during the second quarter of fiscal 2026. Management reaffirmed full-year guidance and said it expects a return to organic net sales growth in the second half as shipments normalize and merchandising activity increases.
Macro backdrop and Q2 “noise”
CEO Sean Connolly said the macro environment remained difficult, with weak consumer sentiment and strained household budgets driving ongoing value-seeking behavior, particularly among low- and middle-income consumers. He also pointed to a set of “unanticipated dynamics” that the company expects were largely timing-related.
CFO Dave Marberger quantified the inventory impact, saying reduced retailer inventories tied to merchandising timing created an estimated 100-basis-point headwind to the quarter, resulting in a gap between shipments and consumption that Conagra expects to reverse in Q3. He also cited a 60-basis-point headwind from lapping favorable trade timing in the year-ago quarter and said unseasonal weather had a modest impact.
Frozen and snacks: volume-focused investments
Connolly said Conagra is executing a portfolio segmentation strategy aimed at driving volume growth in frozen and snacks while “maximizing cash” in staples, where the company has taken inflation-justified pricing to protect margins. He said in-market execution is working and momentum is building, particularly in frozen and snacks where the company is “strategically investing margin to drive volume performance.”
In frozen, Connolly said results were affected by lapping an unusually strong year-ago quarter (when volumes were up 3%) and by promotional timing shifting into Q3. Even so, he said the company delivered strong growth on a two-year basis and that 90% of the frozen portfolio held or gained volume share over the same period.
Within frozen, Connolly highlighted:
- Single-serve meals: Conagra reported a 52.9 market share, which Connolly described as “far and away the market leader” and close to last year’s level. He said the latest period showed a return to “solid growth” of plus 1% versus two years ago.
- Frozen vegetables (Birds Eye): Connolly said Birds Eye showed momentum across time periods, with the most recent data showing more than 3% volume growth versus a year ago and more than 9% versus two years ago. He added the brand has recovered share lost during prior supply challenges and is now above 19% share, up 130 basis points versus two years ago.
In snacks, Connolly said the business significantly outperformed the categories in which it competes in both volume and dollars, marking the fourth consecutive quarter of dollar sales growth in those snacking categories. He characterized Conagra’s snacks portfolio as “protein-centric high-fiber foods” that are resonating with consumers.
He highlighted performance in protein-centric snacks, including:
- Meat snacks (including Slim Jim, Duke’s, and FATTY): 5% volume growth and 4% dollar growth. Connolly said FATTY, which he described as the company’s most recent acquisition, is on track to double in size in fiscal 2026.
- Seeds (DAVID and BIGS): 4% volume growth and 4% dollar growth.
Connolly also discussed a convenience-channel dynamic affecting Slim Jim. He said Slim Jim is disproportionately represented in convenience stores attached to gas stations and that traffic in that channel correlates with gas prices. With gas prices moderating, he said convenience-store traffic has improved and Slim Jim performance has improved accordingly, while Slim Jim volume performance in broader multi-outlet channels “remained positive throughout.”
On the sweet treat side, Connolly said Swiss Miss and Snack Pack faced unusually high costs tied to cocoa inflation. After pricing actions, he said Swiss Miss posted 14% dollar growth and 5% volume growth, while Snack Pack posted 8% dollar growth and 1% volume growth.
Staples and supply chain performance
Discussing canned products, Connolly said the lack of hurricane activity and the late start to winter weighed on consumption. He also noted inflation-justified pricing due to rising steel costs, adding that early elasticities were tracking with expectations. Connolly said several categories exited the quarter with improved trends, citing canned tomatoes improving from -3% to +3.5% dollar growth and chili improving from 3.6% to 12.3% dollar growth.
Connolly said the supply chain delivered approximately 99% service levels in Q2, which he called the highest sustained service levels the company has achieved. He said first-half productivity was approximately 5%. Marberger added that core productivity, including tariff mitigation, was approximately 4.5% of cost of goods sold in Q2.
Both Connolly and Marberger referenced completion of a baked chicken modernization project during the quarter, which management said will enable the company to insource previously outsourced production at lower costs.
Financial results, margins, and guidance
Marberger said second-quarter organic net sales were approximately $3 billion, down 3% versus the prior year, with volumes down 3% and flat price/mix. He reported adjusted gross margin of 23.4% and adjusted operating margin of 11.3%, both down year over year but “slightly better than our expectations.” Adjusted EPS was $0.45, down from $0.70 a year ago.
For the first half, Marberger reported organic net sales of $5.6 billion, a 1.9% decline versus the prior year.
By segment in Q2:
- Grocery & Snacks: $1.2 billion in net sales; organic net sales down 1.5%, with inflation-justified pricing partially offsetting lower volumes and unfavorable mix.
- Refrigerated & Frozen: $1.3 billion in sales; organic net sales down 5.1%, primarily due to lower volumes, including retailer inventory dynamics, plus 140 basis points of unfavorable mix from lapping promotional events.
- International: organic net sales down 2.9% (improvement versus Q1), with organic growth in Mexico and volume softness in Canada and global markets tied to inflation-justified pricing actions.
- Foodservice: organic net sales up 0.2%, marking a second consecutive quarter of growth as pricing more than offset volume declines.
Marberger said adjusted operating margin declined 406 basis points year over year, citing elevated inflation (though slightly favorable to expectations), moderating chicken prices, and ongoing cost pressure in proteins such as beef, pork, and eggs. He said gross tariff inflation was in line with expectations. He also noted unfavorable operating leverage from lower internal production volumes as the company focuses on optimizing working capital, and said adjusted SG&A was 70 basis points unfavorable versus the year-ago period, including higher incentive compensation. Advertising and promotion spending was slightly higher than last year and favorable to expectations, he said.
On the balance sheet, Marberger said net debt was down by nearly $850 million versus the year-ago period, with net leverage ending the quarter at 3.83x, which was favorable to the company’s expectations. He said Conagra remains committed to a balanced capital allocation approach and continues to target long-term leverage of 3x. The company reported first-half capital expenditures of $219 million and dividends paid of $335 million. Marberger said Conagra did not repurchase any shares in the quarter and had no additional M&A activity.
Marberger also updated expectations for adjusted equity earnings from the Ardent Mills joint venture, citing that while the core flour milling business delivered solid results, lower prices and volatility in wheat markets reduced commodity trading revenue. Conagra now expects adjusted equity earnings of approximately $170 million, down from a prior expectation of $200 million.
Management reaffirmed fiscal 2026 guidance, including organic net sales change of -1% to +1% versus fiscal 2025, adjusted operating margin of approximately 11% to 11.5%, and adjusted EPS of $1.70 to $1.85. Looking to the second half, Marberger said Conagra expects a return to organic net sales growth driven by the wrap of frozen supply constraints, recent inflation-justified pricing actions, and a “robust investment slate.” He added that inventory reduction efforts are expected to create short-term absorption headwinds that will pressure year-over-year margins, and that advertising and promotion spending will increase in the second half relative to the first half, peaking at over 3% in Q3—contributing to an expectation that Q3 adjusted operating margin will be below the Q2 result.
Connolly said the company has recently debuted new innovation and has more coming, citing examples including Banquet Mega Breakfast Bowls, Slim Jim’s expansion into chicken with Buffalo Wild Wings chicken sticks, Dolly Parton single-serve frozen meals, and new spicy Vlasic Pickleballs tied to its Pickleball platform.
About Conagra Brands (NYSE:CAG)
Conagra Brands, Inc is a leading packaged foods company based in Chicago, Illinois, with a broad portfolio of shelf-stable, frozen and refrigerated foods marketed under familiar brands. The company develops, produces and distributes a wide range of consumer food products, serving both retail grocery and foodservice channels. Conagra’s product lineup includes frozen entrees, snacks, condiments, baking goods and desserts, providing convenient meal solutions for consumers across North America and select international markets.
Among its well-known brands are Birds Eye, Healthy Choice, Lean Cuisine, Marie Callender’s and Banquet in the frozen foods category, as well as Hunt’s sauces, Orville Redenbacher’s popcorn, Slim Jim meat snacks and Reddi-wip toppings.
