Conagra Reverses Sales Gain and Restarts Organic Decline
Organic net sales fell 1.1% in the quarter ended Aug. 30, 2026, after being approximately flat in the prior quarter, as volume dropped 2.1%.
Conagra Brands (CAG), the Chicago-based branded food company, reversed a modest sales gain and returned to an organic decline in the first quarter of fiscal 2027, which ended Aug. 30, 2026. Reported net sales fell 1.4% to $2.6 billion, after a 3.6% increase in the fourth quarter of fiscal 2026. Organic net sales declined 1.1%, after being approximately flat in that prior quarter.
The organic decline reflected a 1.0% positive impact from price/mix and a 2.1% volume decrease. Foreign exchange added 0.2% and mergers and acquisitions subtracted 0.5%. President and Chief Executive Officer John Brase said top-line results were largely in line with expectations and profit was ahead of expectations, and that the company is reaffirming fiscal 2027 guidance.
Gross profit decreased 3.4% to $619 million, and adjusted gross profit decreased 3.9% to $619 million. Higher productivity and about $4 million in tariff refunds were more than offset by lower organic net sales, cost-of-goods-sold inflation, and unfavorable operating leverage. Gross margin decreased 50 basis points to 23.8%; adjusted gross margin decreased 62 basis points to 23.8%.
Selling, general and administrative expense increased 4.4% to $350 million, primarily due to legacy legal matters. Adjusted SG&A decreased 3.7% to $321 million, including a $10 million benefit related to fiscal 2026 incentive compensation, partially offset by a 15.1% increase in advertising and promotional expense to $61 million.
Equity method investment earnings increased 71.8% to $50 million, primarily driven by favorable market conditions and management of wheat-market volatility at the Ardent Mills joint venture. Net interest expense was $92 million. The effective tax rate was 25.2%, compared with 43.1% a year earlier, when the rate was affected by the Chef Boyardee and frozen seafood divestitures.
Net income increased 6.0% to $174 million, or $0.36 a share, from $165 million, or $0.34 a share, a year earlier. Adjusted net income increased 4.3% to $197 million, or $0.41 a share, primarily as a result of lower adjusted SG&A and higher equity earnings, partially offset by lower gross profit. Adjusted EBITDA increased 2.4% to $451 million.
Grocery & Snacks net sales decreased 2.6% to $1.1 billion, with organic net sales down 2.0% on a 3.4% price/mix increase and a 5.4% volume decrease. Operating profit decreased 21.5% to $205 million; adjusted operating profit decreased 7.2% to $205 million.
Refrigerated & Frozen net sales decreased 2.1% to $1.1 billion, with organic net sales down 1.6% on a 1.5% price/mix decrease and a 0.1% volume decrease. Operating profit decreased 9.6% to $102 million; adjusted operating profit decreased 13.0% to $100 million.
International net sales increased 2.7% to $218 million, with organic net sales up 0.9% on a 1.6% price/mix increase and a 0.7% volume decrease. Operating profit decreased 7.9% to $34 million. Foodservice net sales increased 3.2% to $273 million, with organic net sales up 3.3% on a 0.8% price/mix increase and a 2.5% volume increase, including about 150 basis points from timing of customer orders. Operating profit and adjusted operating profit increased 11.4% to $31 million.
Net cash used in operating activities totaled $4 million, compared with $121 million generated a year earlier, driven primarily by lower operating profit and higher litigation payments, net of recoveries. Capital expenditures were $124 million. Free cash flow was ($128) million. Dividends paid were about $168 million. Net debt ended the quarter at $7.4 billion, a $193 million, or 2.5%, reduction versus the year-ago period, for a 3.99x net leverage ratio.
The company is reaffirming fiscal 2027 guidance of an organic net sales change of (3)% to (1)% versus fiscal 2026, adjusted operating margin of 10.0% to 10.5%, and adjusted EPS of $1.40 to $1.50, the same ranges first provided with fourth-quarter fiscal 2026 results. Key assumptions remain unchanged, including equity earnings of about $140 million, interest expense of about $360 million, capital expenditures of about $550 million, and a fiscal year-end net leverage ratio of about 4.0x.