During the Conagra Brands third quarter fiscal 2025 Earnings Conference Call, the operator introduces Matthew Nieses, the Senior Director of Investor Relations, who explains the possibility of forward-looking statements and non-GAAP financial measures. Andrew Lazar from Barclays asks Sean Connolly, the CEO, for insights on fiscal 2026 given the current macroeconomic challenges and uncertainties, such as inflation. Sean Connolly mentions factors for consideration, including higher brand spending, productivity improvements, a fifty-third week in the fiscal year, and the uncertainty regarding inflation.

The paragraph discusses a conversation between Sean Connolly and Andrew Lazar about Conagra's fiscal outlook and current trends. Sean Connolly mentions that Conagra won't provide fiscal year guidance until their Q4 call in July, due to the dynamic macro environment. However, he shares some insights, noting strong consumer demand, rebuilding inventories with lingering supply chain costs, no repeat of Hebrew national issues, and no anticipated supply constraints in the second half of next year. He highlights that inflation, tariffs, consumer sentiment, and pricing are still being monitored. Andrew Lazar asks for more details on the gap between shipments and consumption in the grocery space, which Connolly begins to address.

The paragraph discusses the timing of seasonal holiday shipments in the grocery and snacks segment, noting a shift from Q3 to Q2 due to earlier holidays this year, but overall indicating a normal six-month pattern. Despite some differences in shipment timing, the quarter's results align with prior expectations. Ken Goldman from JPMorgan questions Sean Connolly about any potential impacts on grocery and snack sales from data suggesting challenges in convenience stores, particularly meat snacks. Connolly responds by clarifying that Q3 unfolded as expected, including the grocery and snacks segment, in line with their previous discussions at CAGNY.

The paragraph discusses the company's strong overall consumption, particularly in the grocery and snacks sector, despite a gap between shipments and consumption due to differing shipment timings between quarters. The company notes some challenges within specific channels, particularly the C store and some parts of the dollar channel, which have been weaker. However, these impacts are offset by strong performance in other channels, maintaining robust total consumption. Additionally, Ken Goldman hands over to Lee Jordan, who inquires about the company's confidence in achieving a leverage target by the end of the following year and asks about potential risks to this goal.

In the paragraph, Dave Marberger discusses the company's strong cash flow performance, with a free cash flow conversion of 125% and the repayment of half a billion dollars in debt over the past year. The company plans to continue prioritizing debt repayment and will update their leverage target in their fiscal 2026 guidance. They also reduced their CapEx guidance for the current year by $40 million due to timing shifts, which will likely lead to an increase in CapEx next year. Marberger emphasizes that this adjustment isn't due to cuts but rather the usual project timing variations.

The paragraph discusses the company's commitment to maintaining its operations efficiently through robust allocation of maintenance capital, especially focusing on the modernization of its supply chain and facilities, such as the chicken operation and frozen facility. While they prioritize addressing root issues and have ongoing modernization efforts that began over a year ago, they encountered unexpected quality and consistency issues, causing some disruptions. Despite these challenges, the investment plans for network modernization remain strong. Additionally, Lee Jordan thanks the operator before Tom Palmer from Citi asks about the fourth quarter, noting persistent higher inflation and its potential impacts.

The paragraph discusses the company's sales performance relative to expectations, noting that sales were slightly lower than consensus estimates. Despite this, the company reaffirmed its annual outlook. Sean Connolly explains that Q3 unfolded as expected, but external factors, particularly persistent inflation and potential exacerbating factors, make it challenging to predict the future precisely. The situation remains fluid, with changes occurring rapidly, especially concerning imports like Mexican vegetables. The company aims to settle these uncertainties to provide accurate guidance for the next year. Dave is invited to add to the discussion, particularly about the plans for Q4.

In the paragraph, the company anticipates strong consumption and improved shipment volumes in Q4 compared to Q3, driven by enhanced service levels, especially in their Burseye and chicken frozen meals. They expect better gross margins in Q4 due to resolving supply disruptions and one-time costs faced in Q3. The impact of trade on margins is also expected to be smaller in Q4. The SG&A expenses will be more favorable compared to the previous year. Regarding imports, the company primarily sources materials in the U.S., but procures items like chocolate, avocados, and tin plate steel from abroad due to domestic supply constraints. They acknowledged potential issues with vegetable imports from Mexico but noted that circumstances can change.

The paragraph involves a discussion about the uncertainties and volatile conditions affecting business assumptions, particularly regarding materials like palm oil, and the challenges of predicting future trends. Sean notes the need for stability in business assumptions amidst these fluctuations. Dave Marberger emphasizes that the company's U.S. manufactured products are impacted by materials sourced from outside the country. Chris Correa from Wells Fargo asks for clarification on how higher shipment costs in Q4 will still result in improved gross margins compared to Q3. Dave explains that negative absorption impacting costs in Q3 will improve in Q4, and consistent costs related to third-party commands to manage inventories will not increase further in Q4.

In the paragraph, Chris Correa asks Sean Connolly about the uncertainties facing the company as they enter fiscal 2026, particularly concerning consumer response and cost structure. Sean Connolly responds by focusing on the company's strategy from the past year, indicating their priority has been on returning to growth in volume over gross margin expansion. They believe that maintaining strong relationships between consumers and their brands is crucial for long-term value creation, even though this strategy has pressured gross margins for both the company and the industry.

The paragraph discusses the company's anticipation for the upcoming year, focusing on strategies to drive growth and margin expansion. Yasmin Deswandi from Bank of America inquires about cost inflation and expectations for fiscal 2026 compared to fiscal 2025. Dave Marberger responds that they will not provide insights on fiscal 2026 until their July update due to ongoing changes. He notes that their current inflation rate is around 4%, consistent with predictions. Sean Connolly adds that despite predictions of deflation, inflation remains at 4%, emphasizing the persistence of inflationary pressures.

The paragraph involves a discussion about the discrepancy between shipments and consumption in the grocery and snacks sector. Yasmin Deswandi asks for clarification about the components causing this gap, questioning if Swiss Miss is one of the factors. Sean Connolly explains that the gap is largely due to the timing of shipments which were more concentrated in Q3 last year, compared to Q2 this year. The difference is attributed to trade adjustments and the seasonal nature of certain products like Swiss Miss, which experienced strong consumption in Q3 due to weather-related factors. He emphasizes that although seasonality affected expectations, anticipated consumption eventually occurred in Q3. The paragraph concludes with the introduction of the next caller.

In the paragraph, Sean Connolly discusses ongoing shifts in consumer behavior due to financial strains on households. He notes that consumers are increasingly value-seeking, opting for cost-effective options such as using leftovers. The company has invested in addressing these challenges, especially in the frozen food sector, which has seen positive results. Connolly anticipates continued discerning consumer behavior, with potential increases in food prices leading to more trade-down activities. Discretionary spending and food service trends might weaken, leading to more focus on value at home. The company is well-positioned, especially in the frozen foods market and protein-centric snacking, to compete in this challenging environment.

The paragraph discusses the challenges faced by Conagra in adapting to state-level legislation on food additives, such as synthetic dyes and food coloring. Sean Connolly notes that while the majority of Conagra's products do not contain these additives, the varying state regulations pose difficulties for manufacturers. He expresses a preference for a federal standard to simplify compliance. Alexia Howard acknowledges his response and concludes her questioning, followed by the operator introducing the next question from Meghan Clapp of Morgan Stanley, who references expectations for the company's organizational sales in the fourth quarter.

The paragraph discusses the impact of supply chain challenges on consumption trends, noting that consumption has slightly decreased due to these issues. Sean Connolly explains that strong consumer demand will keep consumption strong until inventory levels weaken, leading to temporary out-of-stock situations and decreased consumption, not due to a lack of consumer demand, but due to weakened inventory. The company has invested in rebuilding inventories, which should eventually lead to a rebound in consumption. Dave Marberger adds that the timing of the Easter holiday has affected Q4 consumption negatively compared to the previous year, but they expect strong consumption to continue in Q4. Meghan Clapp mentions that an updated guide for leverage was not provided.

In the paragraph, Max Gunport from BNP Paribas inquires about the company's 4% increase in snack volumes during the third quarter, which contrasts with the broader industry's challenges. Despite industry pressures, the company's performance benefited from several key brands and favorable weather impacts on the Swiss Miss business. Sean Connolly explains that the snacking industry, valued at over $80 billion in the U.S., is shifting away from traditional chips and towards healthier, protein-rich snacks, aligning with the company's focus on protein and fiber in its products. Connolly also directs those interested to Bob Nolan's presentation at CAGNY for more detailed insights into the future of frozen and snacking businesses.

The paragraph discusses the success and current market trends for a company's meat snacks, popcorn, and seeds businesses, highlighting the recent strong performance of Swiss Miss, despite some timing issues related to weather. Furthermore, it mentions the successful integration and positive reception of their newly acquired Fatty smoked meat sticks, encouraging a taste test comparison against competitors. The conversation concludes with an invitation to contact Investor Relations for further questions.

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