Breaking Down Conagra Brands, Inc. (CAG) Financial Health: Key Insights for Investors

Understanding Conagra Brands, Inc. (CAG) Revenue Streams

Understanding Conagra Brands, Inc. Revenue Streams

The revenue streams for Conagra Brands, Inc. can be categorized into four primary segments: Grocery & Snacks, Refrigerated & Frozen, International, and Foodservice. Each segment contributes differently to the overall revenue, reflecting the company's diverse product portfolio.

Revenue Breakdown by Segment

Year-over-Year Revenue Growth Rate

The year-over-year revenue growth for the first quarter of fiscal 2025 compared to fiscal 2024 shows an overall decrease of 3.8%, with notable declines across major segments. The Grocery & Snacks segment experienced a slight decrease of 1.7%, while the Refrigerated & Frozen and Foodservice segments saw declines of 5.7% and 7.8%, respectively.

Contribution of Different Business Segments to Overall Revenue

Each segment's contribution to total revenue is pivotal for understanding the company's performance. The Grocery & Snacks segment remains the largest contributor, followed closely by Refrigerated & Frozen. The relative contributions are as follows:

Significant Changes in Revenue Streams

In the first quarter of fiscal 2025, the company experienced significant changes in revenue streams driven by several factors, including inflation-driven pricing strategies and shifts in consumer behavior. The Foodservice segment's volume declined by 11.1%, primarily due to lost business from the prior year and reduced restaurant traffic. Additionally, the International segment faced a 3.4% decrease in net sales due to unfavorable foreign exchange rates.

Overall, the decrease in net sales was primarily attributed to increased strategic trade investments and lower volumes across multiple segments, reflecting broader industry challenges.

A Deep Dive into Conagra Brands, Inc. (CAG) Profitability

A Deep Dive into Conagra Brands, Inc.'s Profitability

Gross Profit Margin: For the first quarter of fiscal 2025, the gross profit was $739.3 million on net sales of $2,794.9 million, resulting in a gross profit margin of 26.4%. This compares to a gross profit of $823.1 million on net sales of $2,904.0 million in the first quarter of fiscal 2024, yielding a gross profit margin of 28.3%.

Operating Profit Margin: The operating profit for the first quarter of fiscal 2025 was $328.0 million, leading to an operating profit margin of 11.7%. In contrast, the operating profit for the first quarter of fiscal 2024 was $418.2 million, resulting in an operating profit margin of 14.4%.

Net Profit Margin: The net income for the first quarter of fiscal 2025 was $466.9 million, giving a net profit margin of 16.7%. In the previous year, net income was $319.9 million, which corresponded to a net profit margin of 11.0%.

Trends in Profitability Over Time

The overall trend in profitability metrics indicates a decline in gross and operating profit margins, with net profit margin showing an increase. The decline in gross and operating profit margins can be attributed to rising input costs and decreases in net sales across key segments. However, the net profit margin improved significantly due to a tax benefit of $138.9 million recognized in the first quarter of fiscal 2025, compared to an expense of $98.3 million in the same quarter of fiscal 2024.

Comparison of Profitability Ratios with Industry Averages

When comparing these profitability ratios with industry averages, the gross profit margin of 26.4% is below the industry average of approximately 30%. The operating profit margin of 11.7% also trails the industry average, which typically ranges between 12% and 15%. Conversely, the net profit margin of 16.7% exceeds the average for the industry, which is around 10%.

Analysis of Operational Efficiency

Operational efficiency is crucial for maintaining profitability. The increase in gross profit was negatively impacted by rising input costs, which were partially offset by productivity improvements. The selling, general, and administrative (SG&A) expenses totaled $337.7 million for Q1 2025, reflecting a slight increase from $334.1 million in Q1 2024. However, advertising and promotion expenses saw a decrease of $8.3 million year-over-year, which aided in managing overall costs.

Gross margin trends revealed a decline due to inflationary pressures on raw materials, with gross profits in key segments such as Refrigerated & Frozen dropping by 11.6% year-over-year. Despite these challenges, ongoing productivity initiatives are expected to help stabilize margins in the upcoming quarters.

Debt vs. Equity: How Conagra Brands, Inc. (CAG) Finances Its Growth

Debt vs. Equity: How Conagra Brands Finances Its Growth

The company has a significant level of debt in its capital structure. As of August 25, 2024, the carrying amount of long-term debt, including current installments, was $7.51 billion. The fair value of this debt was estimated at $7.52 billion.

Debt Levels

As of August 25, 2024, the company had the following debt profile:

Debt-to-Equity Ratio

The debt-to-equity ratio is a critical measure of financial leverage. As of August 25, 2024, the total stockholders' equity was $8.70 billion. The debt-to-equity ratio can be calculated as follows:

Debt-to-Equity Ratio = Total Debt / Total Equity

Using the figures:

Debt-to-Equity Ratio = $7.51 billion / $8.70 billion = 0.86

This ratio indicates a balanced approach to using debt and equity for financing, slightly below the industry average of approximately 1.0.

Recent Debt Issuances

In recent activities, the company repaid the entire outstanding $1.0 billion of its 4.30% senior notes on May 1, 2024, and the $500 million of its 0.50% senior notes on August 11, 2023. These repayments were primarily funded through the issuance of commercial paper and operating cash flows.

Credit Ratings and Refinancing Activity

The company maintains solid investment-grade credit ratings. The most recent credit ratings are:

• Moody's: Baa3
• S&P: BBB-

As of August 25, 2024, the company was in compliance with all financial covenants related to its debt agreements.

Balancing Debt and Equity Funding

The company uses a mix of debt and equity to finance its operations. Recent financing activities in the first quarter of fiscal 2025 included:

• Generated $70.1 million from financing activities.
• Issued $336.2 million in net short-term borrowings.
• Paid cash dividends totaling $167.3 million.
• Repurchased common stock for $64.0 million.

This demonstrates an active management approach to capital structure, balancing between debt financing and equity funding.

Assessing Conagra Brands, Inc. (CAG) Liquidity

Assessing Liquidity

The liquidity position of the company can be evaluated using key financial ratios and cash flow trends. The current ratio and quick ratio are essential indicators of short-term financial health.

Current and Quick Ratios

As of August 25, 2024:

• Current Ratio: 1.67
• Quick Ratio: 0.91

The current ratio indicates that the company has $1.67 in current assets for every $1 in current liabilities, suggesting a solid liquidity position. However, the quick ratio, which excludes inventory, suggests that the company may face challenges in covering its immediate liabilities without relying on inventory sales.

Analysis of Working Capital Trends

Working capital, defined as current assets minus current liabilities, was reported as follows:

• Working Capital (August 25, 2024): $1.2 billion
• Working Capital (May 26, 2024): $1.0 billion

This increase in working capital indicates improved operational efficiency and better management of current assets and liabilities over the period.

Cash Flow Statements Overview

The cash flow from operations, investing, and financing provides insights into the company’s liquidity and financial health:

The cash flows from operating activities decreased significantly compared to the previous year, primarily due to lower operating profits. Investing activities saw a substantial outflow, indicative of capital expenditures and acquisitions. Financing activities reflected a net inflow, driven by short-term borrowings.

Potential Liquidity Concerns or Strengths

Despite solid current and working capital ratios, potential concerns include:

• Increased reliance on short-term debt: $926 million outstanding under the commercial paper program as of August 25, 2024.
• High capital expenditures: Projected capital expenditures for FY2025 are approximately $450 million.

On the strength side, the company maintains access to a revolving credit facility of $2.0 billion, with no outstanding borrowings, enhancing its liquidity position.

Is Conagra Brands, Inc. (CAG) Overvalued or Undervalued?

Valuation Analysis

To assess whether the company is overvalued or undervalued, we will analyze key financial ratios, stock price trends, dividend yield, and analyst consensus.

Price-to-Earnings (P/E) Ratio

The current P/E ratio stands at 21.1, reflecting a significant increase compared to the previous year's ratio of 14.5. This suggests that the market anticipates higher growth in earnings.

Price-to-Book (P/B) Ratio

The P/B ratio is currently 2.5, which indicates that the stock is trading at a premium relative to its book value. The previous ratio was 2.1.

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The EV/EBITDA ratio is recorded at 12.0, compared to 10.8 last year. This increase indicates a higher valuation relative to earnings before interest, taxes, depreciation, and amortization.

Stock Price Trends

Over the past 12 months, the stock price has fluctuated between a low of $29.50 and a high of $39.80. As of the latest closing price, the stock is trading at $35.00, reflecting a 5.0% increase year-to-date.

Dividend Yield and Payout Ratios

The current dividend yield is 4.0%, with a dividend payout ratio of 36%. The quarterly dividend is $0.35 per share, consistent with the previous quarter's payout.

Analyst Consensus on Stock Valuation

Analyst consensus indicates a rating of Hold, with 40% of analysts recommending a Buy, 40% recommending a Hold, and 20% recommending a Sell.

Key Risks Facing Conagra Brands, Inc. (CAG)

Key Risks Facing Conagra Brands, Inc.

The financial health of Conagra Brands, Inc. is influenced by various internal and external risk factors that could impact its operations and profitability.

Industry Competition

Conagra operates in a highly competitive food industry, facing pressure from both established brands and emerging players. The company reported a 3.8% decrease in total net sales, from $2,904.0 million in the first quarter of fiscal 2024 to $2,794.9 million in the first quarter of fiscal 2025 . The Grocery & Snacks segment also experienced a decline of 1.7% in net sales .

Regulatory Changes

Changes in food safety regulations and labeling requirements can significantly impact operational costs and compliance expenses. The company is subject to various federal, state, and local regulations, which could impose additional costs or limit operational flexibility.

Market Conditions

Shifts in consumer behavior and economic conditions, such as inflation, are critical risk factors. The company noted that high inflation has negatively impacted consumer purchasing power, which may continue to affect sales volumes throughout fiscal 2025 . In the first quarter of fiscal 2025, the Foodservice segment saw an 11.1% decrease in volume .

Operational Risks

Operational disruptions, including supply chain issues and manufacturing interruptions, can adversely affect product availability. The first quarter of fiscal 2025 experienced approximately $24 million in net sales impacts due to temporary manufacturing disruptions . Additionally, the company incurred significant costs related to a previous fire at one of its facilities, resulting in a gain of $17.0 million from insurance recoveries .

Financial Risks

Conagra's debt levels present financial risks, with total long-term debt amounting to $7.51 billion as of August 25, 2024 . Rising interest rates could lead to increased interest expenses, with a potential $369.6 million decrease in fair value for a 1% increase in interest rates . The company reported net interest expense of $105.8 million for the first quarter of fiscal 2025 .

Strategic Risks

The effectiveness of the company's strategic initiatives, including mergers and acquisitions, can be a double-edged sword. The recent acquisition of Sweetwood Smoke & Co. for $230.4 million is part of its growth strategy . However, integration challenges and market acceptance of new products pose risks to achieving anticipated synergies.

Mitigation Strategies

To address these risks, Conagra has implemented several strategies, including:

• Investment in supply chain resilience and flexibility to mitigate operational disruptions.
• Active management of commodity price risks through hedging strategies to stabilize input costs.
• Ongoing evaluation of market trends to adapt product offerings and pricing strategies accordingly.

Future Growth Prospects for Conagra Brands, Inc. (CAG)

Future Growth Prospects for Conagra Brands, Inc.

Analysis of Key Growth Drivers

Conagra Brands is positioned to capitalize on several growth drivers, including product innovations, market expansions, and strategic acquisitions.

• Product Innovations: The company has been focusing on developing new products to meet evolving consumer preferences. In fiscal 2025, they launched several new items across various categories, including plant-based options and healthy snack alternatives.
• Market Expansions: Conagra is actively expanding its presence in international markets, with a specific focus on the Asia-Pacific region, which has shown promising growth potential.
• Acquisitions: In July 2024, the company acquired a co-manufacturer for cooking spray products for $50.2 million. Additionally, the acquisition of Sweetwood Smoke & Co. for $180.2 million in August 2024 enhances their product portfolio in the snacks segment.

Future Revenue Growth Projections and Earnings Estimates

Analysts project that Conagra's revenue will grow at a compound annual growth rate (CAGR) of approximately 3% to 5% over the next five years. For fiscal 2025, the company's revenue is estimated to reach $11.5 billion, reflecting a recovery from previous declines. Earnings per share (EPS) for fiscal 2025 is expected to be around $3.80, up from $2.68 in fiscal 2024.

Strategic Initiatives or Partnerships that May Drive Future Growth

Conagra is pursuing several strategic initiatives aimed at driving future growth:

• Partnerships with Retailers: The company has strengthened its partnerships with major retailers to enhance distribution and visibility of its products.
• Investment in E-commerce: Conagra is increasing its investment in e-commerce platforms to capture the growing online food retail market, which is projected to grow by 25% annually.

Competitive Advantages that Position the Company for Growth

Conagra Brands benefits from several competitive advantages that position it well for future growth:

• Diverse Product Portfolio: The company has a wide range of products across different segments, including Grocery & Snacks, Refrigerated & Frozen, and Foodservice, which helps mitigate risks associated with market fluctuations.
• Strong Brand Recognition: Conagra's established brands, such as Marie Callender's and Healthy Choice, maintain customer loyalty and drive repeat purchases.
• Operational Efficiency: The company has implemented several cost-saving initiatives that have improved operational efficiency, contributing to better margins.

Financial Overview: Key Figures