Conagra (CAG)

Packaged foods company Conagra Brands (NYSE:CAG) met Wall Streets revenue expectations in Q4 CY2025, but sales fell by 6.8% year on year to $2.98 billion. Its non-GAAP profit of $0.45 per share was 3.2% above analysts’ consensus estimates.

Company Overview

Founded in 1919 as Nebraska Consolidated Mills in Omaha, Nebraska, Conagra Brands today (NYSE:CAG) boasts a diverse portfolio of packaged foods brands that includes everything from whipped cream to jarred pickles to frozen meals.

As America industrialized and moved away from an agricultural economy, people faced more demands on their time. Packaged foods emerged as a solution offering convenience to the evolving American family, whether it be canned goods or snacks. Today, Americans seek brands that are high in quality, reliable, and reasonably priced. Furthermore, there's a growing emphasis on health-conscious and sustainable food options. Packaged food stocks are considered resilient investments. People always need to eat, so these companies can enjoy consistent demand as long as they stay on top of changing consumer preferences. The industry spans from multinational corporations to smaller specialized firms and is subject to food safety and labeling regulations.

Competitors with a broad packaged and frozen foods portfolio include Kraft Heinz (NASDAQ:KHC), General Mills (NYSE:GIS), and Kellogg's (NYSE:K).

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $11.23 billion in revenue over the past 12 months, Conagra is one of the larger consumer staples companies and benefits from a well-known brand that influences purchasing decisions. However, its scale is a double-edged sword because there are only so many big store chains to sell into, making it harder to find incremental growth. For Conagra to boost its sales, it likely needs to adjust its prices, launch new offerings, or lean into foreign markets.

As you can see below, Conagra’s demand was weak over the last three years. Its sales fell by 2.3% annually as consumers bought less of its products.

This quarter, Conagra reported a rather uninspiring 6.8% year-on-year revenue decline to $2.98 billion of revenue, in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months. Although this projection implies its newer products will spur better top-line performance, it is still below the sector average.

Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.

To analyze whether Conagra generated its growth (or lack thereof) from changes in price or volume, we can compare its volume growth to its organic revenue growth, which excludes non-fundamental impacts on company financials like mergers and currency fluctuations.

Over the last two years, Conagra’s average quarterly volumes have shrunk by 1.8%. This isn’t ideal for a consumer staples company, where demand is typically stable. In the context of its 2.6% average organic sales declines, we can see that most of the company’s losses have come from fewer customers purchasing its products.

In Conagra’s Q4 2026, sales volumes dropped 3% year on year. This result represents a further deceleration from its historical levels, showing the business is struggling to move its products.

All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products, has a stronger brand, and commands pricing power.

Conagra has bad unit economics for a consumer staples company, giving it less room to reinvest and develop new products. As you can see below, it averaged a 25.9% gross margin over the last two years. That means Conagra paid its suppliers a lot of money ($74.09 for every $100 in revenue) to run its business.

Conagra’s gross profit margin came in at 23.4% this quarter, marking a 3.1 percentage point decrease from 26.5% in the same quarter last year. Conagra’s full-year margin has also been trending down over the past 12 months, decreasing by 2.7 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Conagra was profitable over the last two years but held back by its large cost base. Its average operating margin of 4.4% was weak for a consumer staples business. This result isn’t too surprising given its low gross margin as a starting point.

Analyzing the trend in its profitability, Conagra’s operating margin decreased by 3.3 percentage points over the last year. Conagra’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, Conagra generated an operating margin profit margin of negative 20.1%, down 32.7 percentage points year on year. Since Conagra’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, and administrative overhead increased.

We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

In Q4, Conagra reported adjusted EPS of $0.45, down from $0.70 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 3.2%. Over the next 12 months, Wall Street expects Conagra’s full-year EPS of $1.91 to shrink by 4.7%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Conagra has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 10.4% over the last two years, quite impressive for a consumer staples business. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Taking a step back, we can see that Conagra’s margin dropped by 5 percentage points over the last year. This decrease warrants extra caution because Conagra failed to grow its revenue organically. Its cash profitability could decay further if it tries to reignite growth through investments.

Conagra’s free cash flow clocked in at $138.8 million in Q4, equivalent to a 4.7% margin. The company’s cash profitability regressed as it was 8 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Conagra historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 4%, lower than the typical cost of capital (how much it costs to raise money) for consumer staples companies.

Conagra reported $46.6 million of cash and $7.62 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.82 billion of EBITDA over the last 12 months, we view Conagra’s 4.2× net-debt-to-EBITDA ratio as safe. We also see its $200.5 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We liked that although revenue was in line, EPS beat, partly driven by gross margin outperformance vs. Wall Street’s estimates. Overall, this print had some key positives. The stock traded up 1.3% to $18.03 immediately after reporting.

Updated: December 19, 2025 at 7:41 AM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Conagra.

We see the value of companies helping consumers, but in the case of Conagra, we’re out. To begin with, its revenue has declined over the last three years. And while its strong free cash flow generation allows it to invest in growth initiatives while maintaining an ample cushion, the downside is its declining EPS over the last three years makes it a less attractive asset to the public markets. On top of that, its projected EPS for the next year is lacking.

Conagra’s P/E ratio based on the next 12 months is 9.8x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $19.93 on the company (compared to the current share price of $18.03).