The paragraph is an introduction to Conagra Brands' second quarter and first half fiscal 2025 earnings presentation by Melissa Napier, Vice President of Investor Relations. It mentions a live Q&A session to be held later, and the availability of related materials on their website. The company discusses forward-looking statements and non-GAAP financial measures. Sean Connolly, the CEO, begins the earnings call by stating that Conagra has experienced growth in the second quarter, with improvements in volume, organic net sales, and market share. This growth is attributed to successful innovation, strong execution, and strategic investments, reinforcing their leadership in key categories despite economic challenges.

In the paragraph, the company acknowledges that while it expects continued revenue growth in the latter half of the year, profitability will be impacted by higher inflation and unfavorable foreign exchange rates. As a result, it has updated its financial guidance, anticipating inflation relief to come in fiscal 2026 rather than 2025. The company notes that economic pressures are influencing consumer purchasing behaviors, with a focus on affordability and value. The industry is responding by increasing investments in advertising, promotions, and innovation to appeal to cost-conscious consumers, with mixed responses across different categories and companies. Conagra's investments have shown positive results, driving growth and volume recovery in its domestic retail business, and the company plans to maintain this strategy in the second half to sustain momentum and long-term shareholder value.

The paragraph outlines Conagra's successful navigation of a challenging operating environment, highlighting its strong volume recovery and market share gains. In fiscal '24 and the first half of fiscal '25, 67% of Conagra's portfolio maintained or gained volume share, with even higher performance in the frozen and snacks categories. Conagra's share growth exceeded that of its peers by 24 percentage points, driven by strategic brand building rather than heavy discounting. The company maintains a disciplined promotional strategy, keeping promotional volume share and discounting below peers. This approach prioritizes the long-term health of its brands, particularly evident in the continued improvement of frozen product sales over five consecutive quarters.

In the article's paragraph, Conagra highlights its success in various product categories during the second quarter. They outperformed in Q2 volume sales growth, especially in frozen meals like Banquet and Marie Callender’s, and gained share in Birds Eye Vegetables. They hold a significant position in the $6.4 billion single-serve frozen meals category, improving their volume share by three percentage points. In the snacking sector, despite a decline in Swiss Miss due to rising cocoa prices and weather, their overall snacks volume still grew by 0.6%, with increases in seeds, meat snacks, and popcorn. The staples category also showed positive volume trends, driven by innovation and adding cash flow benefits for Conagra.

The paragraph highlights Conagra's positive performance, particularly in its chili business with new product innovations. Despite initial expectations for inflation to decline in the second half due to lower protein costs, relief is now projected to occur post-fiscal year. The company anticipates some deflation in crop-based inputs in fiscal '26. The strengthening U.S. dollar is also impacting their International segment. Conagra intends to sustain brand-building investments and implement selective price increases to address rising cocoa and sugar costs. The company aims to maximize cash flow, prioritize debt reduction, and adjust its portfolio for long-term success, leading to an updated guidance for fiscal '25 in response to expected economic challenges and changing consumer dynamics.

In the quarter, Conagra experienced volume and organic net sales growth, with organic net sales reaching $3.2 billion, a 0.3% increase from the previous year. Despite the adjusted gross margin declining slightly, the adjusted operating margin improved sequentially from Q1 to Q2. Adjusted earnings per share were $0.70, slightly down from the previous year. The Grocery and Snacks segment saw a 1.2% organic growth due to increased volumes and favorable pricing, while the Refrigerated and Frozen segment maintained flat sales, with volume gains offset by negative price/mix impacts. The International segment experienced a 0.7% decline in organic net sales due to volume drops, offset by better pricing/mix. The Foodservice business also saw a 1% decline, primarily due to volume decreases, despite improved pricing/mix.

In the second quarter, there was an improvement in volume trends compared to the first quarter, but restaurant traffic remained somewhat soft. Net sales were impacted by a 40 basis point volume improvement, a 10 basis point negative price/mix, a 30 basis point foreign exchange headwind, and a 40 basis point M&A activity headwind. The sale of the ATFL joint venture in Q1 affected net sales more than the acquisition of FATTY Smoked Meats. Adjusted operating margin declined by 60 basis points year-over-year to 15.3%, with supply chain productivity partially offsetting unfavorable price/mix and inflation impacts. Advertising costs decreased slightly, helping offset higher adjusted SG&A expenses. Segment-wise, the Grocery and Snacks division's margin improved by 60 basis points, partly due to insurance proceeds from a previous recall, while Refrigerated and Frozen margins saw a slight quarterly improvement but a decline compared to last year, affected by trade investments and cost inflation.

In the first half of fiscal '25, Conagra's international adjusted operating margins improved by 167 basis points, partly due to divesting a lower-margin business. Foodservice margins also saw slight improvement. Despite facing challenges like reduced operating profit and unfavorable exchange rates, adjusted EPS only slightly decreased from $0.71 to $0.70, thanks to positive factors like pension income and lower interest expenses. Cash flow from operations was $754 million, down from the previous year primarily due to lower profits and a past special dividend. Capital expenditures remained flat at $215 million, while dividends paid were $335 million, with no share repurchases or new mergers and acquisitions. Net leverage was on target at 3.54x, with a strong free cash flow conversion of 91% expected to exceed 100% for the full year. This progress has enabled Conagra to repay over $600 million of debt in the past year, keeping them on track to reach their long-term net leverage goal of 3.0x by fiscal '26's end.

The updated fiscal '25 guidance anticipates organic net sales growth near the midpoint of a -1.5% to flat growth range compared to fiscal '24. Limited pricing actions are being implemented to counter cocoa and sugar inflation, with improvements expected in second half volumes and sales. Adjusted operating margin is revised to approximately 14.8%, due to higher than anticipated inflation at 4%, affecting gross margin and causing a contraction of about 90 basis points for the year. Adjusted EPS is expected to be between $2.45 and $2.50, impacted by inflation, operational margins, and an unfavorable foreign exchange rate. Free cash flow conversion is anticipated to exceed 100%, and the net leverage ratio is expected to increase to approximately 3.4x by year-end.

The company is committed to repaying its debt and attributes the increase in estimated leverage to updated earnings expectations rather than changes in debt repayment plans, which are proceeding as planned. They have revised their expected adjusted tax rate to 23%, down from 23.5%, but expectations for capital expenditures, contributions from Ardent Mills, interest expenses, and pension income remain unchanged. Melissa Napier is transitioning to a new role as CFO of the Grocery and Snacks segment, and Matthew Neisius will take over her position, working closely with Bayle Ellis during the transition.

This summary was generated with AI and may contain some inaccuracies.