Conagra Brands' Q2 2026 Earnings Call: Contradictions Emerge on Volume Momentum, Promotional Strategies, and Pricing Amid Inflation and Innovation Shifts

Date of Call: December 19, 2025

Financials Results

• Gross Margin: Approximately 24% for the year (company: "set to end this year around the 24% level"), compared with high-20% pre-COVID; Q3 gross margin expected to be similar to Q2.
• Operating Margin: No single-year percentage disclosed; management said first-half operating margin performance was "good." Q3 operating margin expected below Q2 driven by >3% A&P step-up and absorption/SG&A headwinds.

Guidance:

• Expect organic net sales growth in the second half of FY26.
• Q3 operating margin expected below Q2 due to >3% A&P increase and absorption/SG&A headwinds; gross margin roughly in line with Q2.
• Full-year gross inflation guidance ~7% (core a bit above 4% + tariffs ~3%), net inflation ~5.5%; Q2 inflation slightly south of 7%.
• Baked chicken line completed; repatriation of third-party volume is in transition and is incorporated into FY26 guidance.
• Project Catalyst (process reengineering using AI/tech) underway; more detail to be provided in calendar 2026.

Business Commentary:

* Shipment Timing and Volume Trends: - Conagra Brands is anticipating a positive year-over-year organic sales in fiscal Q3, supported by delayed shipments materializing in December and easier comparisons in the frozen segment. - - The company expects a return to full merchandising and increased promotional activity to drive growth, alongside pricing initiatives in stal

Sentiment Analysis:

Overall Tone: Positive

• "We do expect organic net sales growth in the second half."; "we feel good about the momentum"; baked chicken project complete and repatriation is built into guidance; Project Catalyst "very excited about the potential." These comments emphasize confidence in H2 growth and margin recovery despite near-term headwinds.

Q&A:

• Question from Andrew Lazar (Barclays Bank PLC): Given December shipments, easier frozen comps, return to full merchandising and pricing actions, would you expect positive year-over-year organic sales in fiscal Q3 or other factors to consider?
  Response: Management: Expect organic net sales growth in the second half; inventory timing will shift Q3 vs Q4 and incorporating disclosed information improves quarterly modeling.

• Question from Andrew Lazar (Barclays Bank PLC): Are you seeing a higher 'cost of volume' where more product is sold on promotion at the expense of base/full-price volume?
  Response: Management: No, Conagra has not seen that; plan anticipated investing to drive volume inflection and current trends are consistent with expectations.

• Question from Thomas Palmer (JPMorgan Chase & Co): You reiterated sales and operating margin and took down Ardent (~$30M). Can other P&L items make up for Ardent and keep you in the EPS range?
  Response: CFO: Yes—productivity, favorable tariff timing, favorable chicken costs (offset by beef/pork), and disciplined inventory/working-capital management should cover Ardent and keep us in the EPS range.

• Question from Thomas Palmer (JPMorgan Chase & Co): On Project Catalyst, should we expect clear cost-savings targets and stepped-up spending/CapEx?
  Response: CEO: Catalyst is a multi-year reengineering using AI/tech with implementation costs and later returns; detailed timing/benefits to be disclosed in calendar 2026.

• Question from David Palmer (Evercore ISI): Can multi-year trends improve into fiscal '27 and what are you doing to drive that improvement?
  Response: CEO: Snacks already growing robustly; frozen has reclaimed most lost share (single-serve ~53%); strong H2 promotional and innovation plans should drive momentum into FY27.

• Question from Peter Galbo (BofA Securities): Peers are cutting prices—how might that affect Conagra and your pricing actions?
  Response: CEO: We didn't cut list prices to chase volume; we deferred inflation-driven list price increases and used targeted promotions so volume inflection occurred without lowering list prices.

• Question from Peter Galbo (BofA Securities): Where is inflation running and how does that relate to your 7% guidance?
  Response: CFO: Still on track for ~7% gross inflation (core >4% + ~3% tariffs) and net ~5.5%; Q2 was roughly a bit south of 7% on the margin bridge.

• Question from Max Andrew Gumport (BNP Paribas): Q3 operating margins called out as below Q2 due to A&P and absorption—can you size the absorption headwind?
  Response: CFO: Gross margin should be similar to Q2; operating-margin decline is driven chiefly by the >3% A&P step-up and higher SG&A; absorption timing is uncertain so magnitude not specified.

• Question from Max Andrew Gumport (BNP Paribas): Can you get back to high-20% gross margin over the next several years?
  Response: CEO: Yes—expect margin expansion via strong productivity (~5% now), eventual inflation relief, supply-chain resiliency/repatriation, selective pricing, and Project Catalyst.

• Question from Robert Moskow (TD Cowen): The ~100 bp headwind in Q2—will that reverse in Q3 or might retailers keep leaner inventories permanently?
  Response: CEO: Retailers delayed seasonal promotional builds (partly due to SNAP pause) but seasonal builds should occur later (timing shift from Q2 to Q3), so it's timing not permanent demand loss.

• Question from Alexia Howard (Sanford C. Bernstein): Where is innovation and how are you leaning into health & wellness trends?
  Response: CEO: Innovation performance has improved year-over-year; focus areas are protein, clean label and vegetable nutrition (e.g., Birds Eye, Healthy Choice); portfolio is well positioned for health-and-wellness, especially with younger consumers.

• Question from Leah Jordan (Goldman Sachs): With stepped-up A&P in the back half, how will you allocate spend and has the approach changed given value-seeking consumers?
  Response: CEO: Back-half A&P emphasizes relative value messaging vs QSRs and value-oriented innovations to win back lapsed users while maintaining quality positioning.

• Question from Leah Jordan (Goldman Sachs): Weather impact—with colder weather now, have trends normalized quarter-to-date?
  Response: CEO: Late-start winter delayed seasonal ramp (and an unusually light hurricane season compared with prior year) but recent colder weather should normalize and benefit seasonal categories (cocoa, canned tomatoes, chili).

• Question from Megan Christine Alexander (Morgan Stanley): Why is the EPS range still wide halfway through the year—what are key swing factors?
  Response: CEO: No special signal—wide range reflects volatile environment and typical practice to narrow guidance later in the year; expect to update next quarter.

• Question from Megan Christine Alexander (Morgan Stanley): Will the 2-year consumption trend in Refrigerated & Frozen accelerate in Q3 given shipment timing and promotions?
  Response: CEO: Expect a strong second half in frozen—market shares have largely recovered and planned promotions are stronger than a year ago, supporting acceleration.

• Question from Christopher Carey (Wells Fargo): Can inflation return to ~2% next year or are there anomalies to prevent that?
  Response: CEO: Cautious view—history suggests commodity peaks descend over time, but protein costs remain elevated and different proteins have different timetables; eventual normalization possible but timing uncertain.

• Question from Christopher Carey (Wells Fargo): Update on portfolio strategy and how leverage targets factor into medium-term objectives?
  Response: CEO: Portfolio reshaping (M&A and divestitures) is ongoing but current priority is debt reduction; opportunistic value-creating moves will be pursued when appropriate; recent Chef Boyardee divestiture reflects that discipline.

• Question from Scott Marks (Jefferies LLC): Status and cadence of repatriating baked chicken production and expected margin cadence?
  Response: CEO/CFO: Baked chicken line completed at end of Q2; transitioning volume back from third parties is underway and the margin/benefit was built into FY26 guidance.

• Question from Scott Marks (Jefferies LLC): Can you explain the sizable impairment charge in the quarter?
  Response: CFO: Impairment resulted from a triggering event (sustained lower stock price) and an increased discount rate in goodwill/brand impairment testing; business forecasts and guidance remain intact.

Contradiction Point 1

Volume Momentum and Consumer Behavior

It involves differing expectations regarding the volume momentum and consumer behavior in key product categories, which are critical for understanding the company's growth strategy and market performance.

Do you expect positive year-over-year organic sales in fiscal 3Q, considering delayed shipments, easier comparisons in frozen, and the return to full merchandising? - Andrew Lazar (Barclays Bank PLC)

2026Q2: We are seeing positive momentum in December and expect overall organic net sales growth in the second half. - Sean Connolly(CEO)

What has changed to boost your confidence in the second-half outlook? - Max Andrew Gumport (BNP Paribas)

2024Q1: The consumer environment is becoming more favorable. Supply chain back to pre-pandemic levels, and we're in a strong position to invest smartly. - Sean Connolly(CEO)

Contradiction Point 2

Promotional Activity and Consumer Engagement

It involves the company's strategy on promotional activity and consumer engagement, which directly impacts sales and marketing strategies.

How will competitor price cuts affect your pricing strategy and the broader food group dynamics? - Peter Galbo (BofA Securities)

2026Q2: We haven't rolled back prices to move volume. Our strategy is to hold pricing to support high-quality promotional business that has driven growth without lowering list prices. - Sean Connolly(CEO)

What form will the targeted and disciplined spend take, and how do you ensure its discipline? What competitive trends are you observing? - Andrew Lazar (Barclays)

2024Q1: We're selectively adding promotional activity high ROI events at critical calendar windows. We'll pick our spots and invest smartly. - Sean Connolly(CEO)

Contradiction Point 3

Inflation Impact and Strategic Focus

It involves the company's stance on inflation and strategic focus, which are critical for investor expectations and business planning.

Are you expecting positive year-over-year organic sales in fiscal 3Q, considering delayed shipments, easier frozen comparisons, and the return to full merchandising? - Andrew Lazar (Barclays Bank PLC)

2026Q2: We are seeing positive momentum in December and expect overall organic net sales growth in the second half. - Sean Connolly(CEO)

Does the aggressive investment in consumer challenges indicate a structural issue in the industry? - Andrew Lazar (Barclays)

2025Q4: We believe that we are in the latter stages of this inflation cycle. We do expect it to go on longer than we initially thought it would. - Sean Connolly(CEO)

Contradiction Point 4

Innovation and Product Development

It involves the company's approach to innovation and product development, which is crucial for maintaining market relevance and competitive advantage.

Can you detail your innovation performance and health and wellness initiatives? - Alexia Howard (Sanford C. Bernstein & Co.)

2026Q2: Our innovation performance has been improving, with a focus on health and wellness trends like clean label and protein presence in products. - Sean Connolly(CEO)

Can you explain the expected improvements in consumption behavior in the second half? - Kenneth Goldman (JPMorgan)

2024Q1: The change is driven by a mix of more favorable comps, increased merch investment, and A&P. - Sean Connolly(CEO)

Contradiction Point 5

Pricing Strategy and Consumer Behavior

It involves the company's pricing strategy and consumer behavior, which are crucial for revenue management and market positioning.

How might competitor price cuts affect your pricing strategy and food industry dynamics? - Peter Galbo (BofA Securities)

2026Q2: We haven't rolled back prices to move volume. Our strategy is to hold pricing to support high-quality promotional business that has driven growth without lowering list prices. - Sean Connolly(CEO)

How do you assess price and promotion across categories, and how should they impact growth spending strategies? - David Palmer (Evercore ISI Institutional Equities)

2025Q4: Though facing challenges, the company attributes success in frozen and snacks to these strategies. They will continue to invest in growth despite inflation, balancing spending to maximize shareholder value. - Sean Connolly(CEO)