Conagra Brands (NYSE:CAG) executives told investors they are seeing improving momentum heading into the second half of fiscal 2026, with organic net sales growth expected over that period and stronger activity in December as previously delayed shipments begin to flow.
During the company’s second-quarter fiscal 2026 earnings Q&A call, CEO Sean Connolly said Conagra does not provide formal quarterly guidance, but reiterated management expects organic net sales growth in the second half. CFO Dave Marberger added that the cadence between the third and fourth quarters will be influenced by a shift in trade inventory from the second quarter into the third, lapping prior-year supply constraints, and cycling an unfavorable trade adjustment in last year’s third quarter.
Second-half sales outlook shaped by timing and merchandising
- Trade inventory shifting from fiscal Q2 into Q3
- Wrapping supply constraints that affected the prior year
- Wrapping an unfavorable Q3 trade adjustment a year ago
Connolly also addressed retailer ordering patterns, describing Conagra’s volume as having a steady year-round baseline plus a seasonal promotional build that typically begins in the fall. He said the seasonal inventory build “always comes,” but can fall into either Q2 or Q3 depending on promotion timing and factors such as Thanksgiving timing. This year, he added, the promotional calendar in frozen is weighted more toward Q3, and some retailers delayed inventory builds amid a “SNAP pause” related to a government shutdown concern. Connolly said December ordering trends have been unfolding consistently with that framework.
Promotions, pricing, and “cost of volume” commentary
Connolly said Conagra has not experienced the “higher cost of volume” dynamic described by another food company, in which more product is sold on promotion at the expense of base volume. He said Conagra’s plan assumed investment to support volume inflection in frozen and snacks and was built on experience from the prior year, when the company had delivered six straight quarters of volume progress before encountering temporary frozen supply constraints.
In response to questions about peers enacting price cuts, Connolly said Conagra has limited overlap with some large packaged food companies and noted the company is a market leader in its core frozen business and competes in snack categories like meat snacks and seeds that do not heavily overlap with peers. He emphasized that Conagra has not rolled back list prices to drive volume. Instead, he said the company chose not to take certain “inflation-justified pricing” in frozen and snacks, keeping pricing steady to allow for a “reasonable and high-quality promotional” program consistent with historical approaches.
Connolly added that Conagra’s share of volume sold on deal and discount depth are not beyond historical levels and, if anything, are more conservative than the company’s past practices. He characterized the volume inflection as “very efficient,” which he said supports confidence around guidance assumptions.
Margins: Q3 expected below Q2 as spending steps up
Management reiterated expectations for sales and operating margin for the year, while discussing how quarterly margin performance may shift. Marberger said third-quarter operating margin is expected to be below second-quarter levels due to higher advertising and marketing spend (AMP) and absorption headwinds tied to inventory reduction. While he declined to quantify the absorption impact, he said gross margin in Q3 should be similar to Q2, “maybe a little bit better,” and cited two main drivers of lower operating margin versus Q2:
- AMP rising to “over 3%” of sales in Q3
- SG&A as a percentage of net sales expected to be higher than Q2
On the longer-term margin profile, Connolly said the company expects margin expansion following fiscal 2026 and intends to “claw” gross margin higher. He pointed to productivity, potential inflation normalization, supply chain resiliency investments (including chicken plants and repatriating outsourced production over time), selective pricing actions, and Project Catalyst as building blocks for improvement. Connolly said productivity is running at about 5%.
Inflation, tariffs, and supply chain investments
Marberger reiterated total gross inflation guidance of about 7% for the year, consisting of “core inflation a bit above 4%” and gross tariff inflation of approximately 3%. He said the company remains on track, with commodity puts and takes including favorable chicken costs offset by increased beef and pork costs. On tariffs, he noted more than half of tariff exposure is tied to tin plate, where there has been no change in tariff levels. He also said that where tariff rates have come down, Conagra’s mitigation has come down as well, limiting the net impact.
When asked about the trajectory of inflation into next year, Connolly said he is cautious about forecasting, noting that while historical inflation “supercycles” often show a downward slope after peaks, the industry has not yet experienced that normalization. He said Conagra’s portfolio is heavily skewed to proteins, which have remained high, but added that proteins “go up, and they usually come down,” and that relief could become more visible in the P&L once current costs are embedded in the base.
On chicken production, Connolly said the baked chicken project is complete and quality inconsistencies that contributed to prior challenges have been fixed. He also cited strong results for Banquet MEGA Filets, a fried chicken product, and said Conagra is making additional investments to increase capacity. Marberger said completing the line at the end of the second quarter was built into fiscal 2026 guidance, and the company is now transitioning volume back from third-party production, including inventory build and depletion steps.
Innovation, health and wellness, and Project Catalyst
Connolly said Conagra’s innovation performance has improved over several years, citing progress in both total points of distribution (TPDs) and velocity per TPD. He linked part of that success to health-and-wellness-oriented product development, saying current consumer focus is “heavily about protein,” along with clean label and vegetable nutrition. He cited Birds Eye vegetables, Healthy Choice, and protein-focused snack brands as areas of alignment with those trends, and said younger consumers—where Conagra “over-indexes”—are increasingly focused on health and wellness.
On advertising, Connolly said the company plans to incorporate an increased emphasis on relative value in marketing, highlighting the value of Conagra products versus quick-serve restaurants. He said that value messaging is being woven into innovation and marketing to help bring “light or lapsed users back into the franchise.”
Connolly also provided early framing for Project Catalyst, describing it as a re-engineering of core business processes using technology, “especially AI,” to improve effectiveness and efficiency. He said the initiative will take time, require investment, and deliver a return, and that the company expects to share more detail during calendar 2026.
Separately, Marberger addressed an impairment charge, saying a sustained decline in Conagra’s stock price and market capitalization required an impairment analysis. He said the company increased its discount rate during the assessment, which drove the impairment, while forecasts remained largely unchanged and guidance was maintained.
About Conagra Brands (NYSE:CAG)
Conagra Brands, Inc is a leading packaged foods company based in Chicago, Illinois, with a broad portfolio of shelf-stable, frozen and refrigerated foods marketed under familiar brands. The company develops, produces and distributes a wide range of consumer food products, serving both retail grocery and foodservice channels. Conagra’s product lineup includes frozen entrees, snacks, condiments, baking goods and desserts, providing convenient meal solutions for consumers across North America and select international markets.
Among its well-known brands are Birds Eye, Healthy Choice, Lean Cuisine, Marie Callender’s and Banquet in the frozen foods category, as well as Hunt’s sauces, Orville Redenbacher’s popcorn, Slim Jim meat snacks and Reddi-wip toppings.
