Conagra's Q1 2026 Earnings Call: Contradictions Emerge on Inflation Strategy, Volume Growth, and Supply Chain Guidance

The above is the analysis of the conflicting points in this earnings call

Guidance:

• Reiterated FY26 outlook; first half tracking to plan.
• Q2 organic sales expected to decline low single digits; return to positive organic sales growth in H2.
• FY26 inflation now slightly above ~7% (core higher); ~3% gross tariffs unchanged; Q1 tariff costs shift to Q2.
• Commodity coverage ~85% for Q2 and ~60–65% for FY; animal proteins largely spot.
• Tariff-related pricing actions begin late Q2; planning historical elasticities.
• Frozen merchandising/events scheduled later in Q2; expect H2 volume momentum in Frozen and Protein Snacks.
• Targeting ~$700M FY26 debt reduction; potential ~$75M cash benefit from tax legislation.
• Service levels ~98%, enabling restored merchandising and innovation rollout.

Business Commentary:

* Sales Outlook and Volume Growth: - Conagra Brands expects to return to positive organic sales growth in the fiscal second half of 2026, with a potential inflection driven by volume momentum in Frozen and growing businesses like Protein Snacks. - The first half of the year saw Q1 sales slightly ahead of expectations, despite a moderate Q2 outlook, which was attributed to temporary consumption trends tied to promotional event timing and inflation-justified pricing.

• Inflation Impact and Pricing Strategy:
• The company's core inflation outlook has increased due to pressures in Animal Proteins, particularly beef, pork, turkey, and eggs, despite seeing some favorable movement in chicken prices.

• Conagra is implementing inflation-justified pricing strategies and expects continued price increases for certain staples to mitigate the impact of higher costs.

• Inventory and Cash Flow Management:

• Conagra generated strong cash flow, paying down over $400 million in net debt compared to the previous fiscal year, attributing this to proceeds from divestitures and operational cash flow.

• The company focused on restoring service levels and inventory after supply interruptions, building more inventory in Q1 than typical due to safety stock needs.

• Frozen and Frozen Meal Performance:

• Conagra's Frozen and Frozen Meal segments experienced service interruptions and merchandising disruptions affecting share performance in Q2 last year.
• However, the company is optimistic about improved service levels and the positive impact of new product innovations, such as the Dolly Parton branded meals, which are performing well and driving growth.

Sentiment Analysis:

• Reiterated FY26 guidance and said "first half... pretty much on our first half plan." Service "back to 98%" and innovation "performing even higher" than last year. Expect "Q2... low single-digit decline" but "return to positive organic sales growth in the fiscal second half." Inflation "slightly above 7%" with proteins pressured; pricing actions begin late Q2 with "historically accurate elasticity." Debt reduction "$700 million" on track. Environment described as rational with promos near pre-COVID. Overall tone balanced: optimism on Frozen/Snacks momentum vs. consumer value-seeking and inflation/tariffs.

Q&A:

• Question from Andrew Lazar (Barclays): What drives the H2 organic sales inflection, and do recent consumption trends and pricing actions give you pause?
  Response: Q1 softness was timing (BOOMCHICKAPOP promo shift) and Duncan Hines price elasticity; Q2 frozen events are later; H2 growth from Frozen volume recovery, Protein Snacks momentum, and pricing on staples under the "horses for courses" plan.

• Question from Andrew Lazar (Barclays): Could 1H beat plans, and how big was trade timing benefit in Q1?
  Response: Trade timing aided Q1 sales by ~50 bps and flips to Q2; tariff costs delayed into Q2; overall 1H remains on plan with interest favorable and higher tax rate.

• Question from Peter Galbo (BofA): Update on core inflation, animal proteins, and commodity coverage?
  Response: FY26 inflation now slightly above ~7%, driven by higher core (beef, pork, turkey, eggs); ~3% gross tariffs unchanged; coverage ~85% for Q2 and ~60–65% for FY; proteins largely spot with some freezing positions.

• Question from Peter Galbo (BofA): Cash flow, debt paydown cadence, and Q1 inventory build?
  Response: Still targeting ~$700M FY26 debt reduction; potential ~$75M cash benefit from tax legislation; Q1 inventory built to restore service levels; net debt down >$400M vs FY25 end; full-year cash flow on track.

• Question from David Palmer (Evercore ISI): State of the Frozen entrees category and outlook?
  Response: Outlook positive as service is back to 98%, merchandising returns, and innovation (e.g., Dolly Parton meals/desserts) performs well at premium price; expect momentum as supply issues are lapped.

• Question from David Palmer (Evercore ISI): Signals needed in H2 to reestablish balanced growth heading into FY27?
  Response: Frozen & Snacks must grow; Slim Jim momentum (incl. BWW flavor) and return to Frozen merchandising/innovation should yield top-line gains and improving gross margin into FY27.

• Question from Bryan Adams (UBS): Was R&F Q1 volume boosted by shipments ahead of consumption?
  Response: Q1 shipments modestly ahead due to replenishment; over rolling four quarters shipments align with consumption; the cited ~3% was last year’s Q2 Frozen growth.

• Question from Bryan Adams (UBS): Key margin clawback drivers for FY27?
  Response: Drivers: >5% productivity incl. tariff mitigation; eventual inflation relief; supply-chain resiliency and repatriation (chicken plants); pricing benefits post-lag; and process reengineering (incl. AI) to lower costs.

• Question from Robert Moskow (TD Cowen): Q2 volume versus tough comps—similar to Q1 or improving?
  Response: Total company volume in Q2 should be similar to Q1; merchandising and innovation increase through the year supports improvement.

• Question from Megan Christine Alexander (Morgan Stanley): Is FY26 guidance still prudent and where most conservative?
  Response: Yes; service at 98% and stronger innovation velocity support prudence; investing in Frozen & Snacks for volume while taking inflation-justified pricing in staples amid tariffs.

• Question from Megan Christine Alexander (Morgan Stanley): Any change to elasticity assumptions with tariff pricing?
  Response: Elasticities monitored weekly; Conagra’s are better than peers; assumptions reflect historical category norms—no heroic expectations despite new pricing.

• Question from Max Andrew Gumport (BNP Paribas Exane): How are you addressing persistent value-seeking behavior?
  Response: Portfolio and innovation are tilted to deliver superior value via price-pack architecture and value-led propositions to support sales and share.

• Question from Max Andrew Gumport (BNP Paribas Exane): Promotional and volume-share expectations for the year?
  Response: Promo levels are trending back to pre-COVID norms with stable depth; Conagra will rationally increase merchandising as service stabilizes to regain share.

• Question from Scott Marks (Jefferies): Retailer inventory recovery post-disruption?
  Response: Retailer inventories are back to where they need to be; nothing unusual noted.

• Question from Scott Marks (Jefferies): Cadence of margin recovery from chicken facility modernization?
  Response: Baked chicken benefits start first (completion around Q2); fried chicken takes longer with interim outsourcing pressure; margins improve as in-house capacity ramps.

• Question from Thomas Palmer (JPMorgan): Inflation cadence across the year?
  Response: Q1 favorability was tariff timing; core slightly higher; Q2–Q4 inflation rates align with the slightly above 7% full-year outlook.

• Question from Thomas Palmer (JPMorgan): Reconciling promo benefits with pricing/elasticities—any convergence needed?
  Response: Volume businesses rely on innovation, ads, and events; dollar businesses assume ~-1 elasticity; effects are predictable and consistent with history under a prudent plan.