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Item 2. Management’s Discussion and Analysis

2024-10-02 compared with 2024-04-04 · 110 added, 173 removed, 105 unchanged (73% of the section changed)

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These risks, uncertainties, and factors include, among other things:

risks associated with general economic and industry conditions, including inflation, rising interest rates, decreased availability of capital, volatility in financial markets, declining consumer spending rates, recessions, decreased energy availability, increased energy costs (including fuel surcharges), supply chain challenges, labor shortages, and geopolitical conflicts (including the ongoing conflict between Russia and Ukraine);

negative impacts caused by public health crises;

risks associated with general economic and industry conditions, including inflation, reduced consumer confidence and spending, recessions, increased energy costs, supply chain challenges, labor shortages, and geopolitical conflicts;

risks related to our ability to deleverage on currently anticipated timelines, and to continue to access capital on acceptable terms or at all;

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risks related to our ability to execute operating and value creation plans and achieve returns on our investments and targeted operating efficiencies from cost-saving initiatives, and to benefit from trade optimization programs;

risks related to the availability and prices of commodities and other supply chain resources, including raw materials, packaging, energy, and transportation, including any negative effects caused by changes in levels of inflation and interest rates, weather conditions, health pandemics or outbreaks of disease, actual or threatened hostilities or war, or other geopolitical uncertainty;

risks related to the availability and prices of commodities and other supply chain resources, including raw materials, packaging, energy, and transportation, weather conditions, health pandemics or outbreaks of disease, actual or threatened hostilities or war, or other geopolitical uncertainty;

risks related to our ability to respond to changing consumer preferences and the success of our innovation and marketing investments;

risks associated with actions by our customers, including changes in distribution and purchasing terms;

risks related to the effectiveness of our hedging activities and ability to respond to volatility in commodities;

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risks related to the ultimate impact of, including reputational harm caused by, any product recalls and product liability or labeling litigation, including litigation related to lead-based paint and pigment and cooking spray;

risks related to our ability to respond to changing consumer preferences and the success of our innovation and marketing investments;

risks associated with actions by our customers, including changes in distribution and purchasing terms;

risks related to the seasonality of our business;

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the amount and timing of future dividends, which remain subject to Board approval and depend on market and other conditions;

the amount and timing of future stock repurchases;

and other risks described in our reports filed from time to time with the Securities and Exchange Commission (the “SEC”).

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The discussion that follows should be read together with the unaudited Condensed Consolidated Financial Statements and related notes contained in this report and with the financial statements, related notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended May 26, 2024 and subsequent filings with the SEC.

Results for the third quarter of fiscal 2024 are not necessarily indicative of results that may be attained in the future.

Results for the first quarter of fiscal 2025 are not necessarily indicative of results that may be attained in the future.

EXECUTIVE OVERVIEW

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(the “Company”, “Conagra Brands”, “we”, “us”, or “our”), headquartered in Chicago, is one of North America’s leading branded food companies.

Guided by an entrepreneurial spirit, the Company combines a rich heritage of making great food with a sharpened focus on innovation.

The Company's portfolio is evolving to satisfy people's changing food preferences.

Its iconic brands such as Birds Eye ® , Duncan Hines ® , Healthy Choice ® , Marie Callender's ® , Reddi-wip ® , and Slim Jim ® , as well as emerging brands, including Angie's ® BOOMCHICKAPOP ® , Duke's ® , Earth Balance ® , Gardein ® , and Frontera ® , offer choices for every occasion.

Fiscal 2024 Third Quarter Results

In the third quarter of fiscal 2024, results reflected a decrease in net sales, with organic (excludes the impact of foreign exchange) decreases in our Refrigerated & Frozen and Foodservice segments, offset by increases in our Grocery & Snacks and International segments, in each case compared to the third quarter of fiscal 2023 .

The overall decrease in net sales was primarily due to lower consumption trends and continued behavior shifts and an increase in strategic trade investments.

Overall gross profit increased primarily as a result of higher productivity, lower transportation costs, and lower inventory write-offs, partially offset by the net sales declines discussed above, moderate input cost inflation, and unfavorable operating leverage .

Ove rall segment operating profit decreased in our Refrigerated & Frozen segment, partially offset by increases in our Grocery & Snacks, International, and Foodservice segments.

Corporate expenses were higher primarily due to higher incentive compensation expense compared to the third quarter of fiscal 2023.

We combine a 100-year history of making quality food with agility and a relentless focus on collaboration and innovation.

The Company’s portfolio is continuously evolving to satisfy consumers’ ever-changing food preferences.

Conagra’s brands include Birds Eye ® , Duncan Hines ® , Healthy Choice ® , Marie Callender’s ® , Reddi-wip ® , Slim Jim ® , Angie’s ® BOOMCHICKAPOP ® , and many more.

Fiscal 2025 First Quarter Results

In the first quarter of fiscal 2025, results reflected a decrease in net sales, with organic (excludes the impact of acquisitions and foreign exchange) decreases in our Grocery & Snacks, Refrigerated & Frozen, and Foodservice segments, offset by an increase in our

International segment, in each case compared to the first quarter of fiscal 2024.

The overall decrease in net sales was primarily due to an increase in strategic trade investments and a decrease in volume.

Overall gross profit decreased primarily as a result of lower net sales, input cost inflation, and unfavorable operating leverage, partially offset by higher productivity and lower transportation costs.

Overall segment operating profit decreased in our Grocery & Snacks, Refrigerated & Frozen, and Foodservice segments, slightly offset by an increase in our International segment.

Corporate expenses were higher primarily due to higher incentive compensation expense compared to the first quarter of fiscal 2024.

Selling, general and administrative (“SG&A”) expenses were higher due primarily to higher incentive compensation expense and items impacting comparability, as discussed below.

We recognized lower equity method investment earnings, higher interest expense, and lower income tax expense, in each case compared to the third quarter of fiscal 2023.

Excluding items impacting comparability, our effective tax rate was slightly higher than the third quarter of fiscal 2023.

Diluted earnings per share in the third quarter of fiscal 2024 and 2023 was $0.64 and $0.71, respectively.

Diluted earnings per share was affected by lower net income in the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023.

We recognized lower equity method investment earnings and lower income tax expense, in each case compared to the first quarter of fiscal 2024.

Excluding items impacting comparability, our effective tax rate was lower than the first quarter of fiscal 2024.

Diluted earnings per share in the first quarter of fiscal 2025 and 2024 was $0.97 and $0.67, respectively.

Diluted earnings per share was affected by higher net income, driven primarily by the release of valuation allowances discussed below, in the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024.

Trends Impacting Our Business

Our industry continues to be impacted by commodity cost fluctuations, labor cost inflation, input cost inflation, and other global macroeconomic challenges.

We experienced a moderate amount of input cost inflation during the first three quarters of fiscal 2024, which we expect to continue throughout the remainder of the fiscal year.

However, we have experienced increased stability in our supply chain during the first three quarters of fiscal 2024 and we expect supply chain productivity to mitigate some of the inflationary pressures.

We also have experienced a reduction to our volumes due to lower consumption trends seen throughout the industry and continued consumer behavior shifts.

Our industry continues to be impacted by shifting consumer behavior, commodity cost fluctuations, exchange rate volatility, labor cost inflation, input cost inflation, supply chain disruptions, and other global macroeconomic challenges.

During the first quarter of fiscal 2025, we experienced a moderate amount of input cost inflation and negative impacts from exchange rates, which we were able to be partially offset through our on-going productivity initiatives.

We expect consumer trends to continue to evolve and our volumes to improve over time, however, economic pressures on consumers, including the challenges of high inflation, may continue to negatively impact our volumes throughout fiscal 2025.

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Segment presentation of gains and losses from derivatives used for economic hedging of anticipated commodity input costs and foreign currency exchange rate risks of anticipated transactions is discussed in further detail in Note 8, “Derivative Financial Instruments” , to the Condensed Consolidated Financial Statements contained in this report.

We had $6.8 million and $22.7 million of derivative losses in the third quarter of fiscal 2024 and 2023, respectively, and $9.6 million of derivative gains and $24.6 million of derivative losses in the first three quarters of fiscal 2024 and 2023, respectively, which were included in general corporate expenses and reflected as items impacting comparability.

Other items of note impacting comparability for the third quarter of fiscal 2024 included the following:

charges of $17.9 million ($13.6 million after-tax) related to legacy legal matters.

Items of note impacting comparability for the third quarter of fiscal 2023 included the following:

charges totaling $6.6 million ($4.9 million after-tax) associated with fires occurring at one of our manufacturing facilities and

net charges totaling $2.5 million ($1.9 million after-tax) in connection with our restructuring plans.

Items of note impacting comparability for the first three quarters of fiscal 2024 included the following:

a charge of $34.2 million ($34.2 million after-tax) related to the impairment of a business held for sale,

charges of $31.9 million ($24.0 million after-tax) related to legacy legal matters, and

We had $1.3 million of derivative losses in the first quarter of fiscal 2025 and $27.6 million of derivative gains in the first quarter of fiscal 2024, which were included in general corporate expenses and reflected as items impacting comparability.

Other items of note impacting comparability for the first quarter of fiscal 2025 included the following:

● an income tax benefit of $211.4 million primarily associated with the release of valuation allowances on certain deferred tax assets based upon interactions with the taxing authorities,

● a gain of $17.0 million ($12.8 million after-tax) associated with insurance proceeds from the previous fire that occurred at one of our manufacturing facilities,

● charges totaling $4.3 million ($3.2 million after-tax) in connection with our restructuring plans, and

● net charges totaling $3.4 million ($2.6 million after-tax) related to legacy legal matters.

Items of note impacting comparability for the first quarter of fiscal 2024 included the following:

● charges totaling $24.4 million ($18.1 million after-tax) in connection with our restructuring plans.

Items of note impacting comparability for the first three quarters of fiscal 2023 included the following:

charges totaling $385.7 million ($326.8 million after-tax) related to the goodwill and Birds Eye ® brand impairments in connection with certain reporting unit changes within our Refrigerated & Frozen segment,

charges totaling $26.7 million ($20.1 million after-tax) related to the impairment of businesses previously held for sale,

charges totaling $14.5 million ($10.9 million after-tax) associated with fires occurring at one of our manufacturing facilities, and

net charges totaling $9.2 million ($6.9 million after-tax) in connection with our restructuring plans.

SEGMENT REVIEW

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Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Reporting Segment

February 25, 2024

February 26, 2023

February 25, 2024

February 26, 2023

August 25, 2024

August 27, 2023

Grocery & Snacks

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International

Net sales for the third quarter and first three quarters of fiscal 2024 in our Grocery & Snacks segment included a decrease in volumes of 0.8% and 3.0% when compared to the third quarter and first three quarters of fiscal 2023, respectively, primarily due to lower consumption trends seen throughout the industry.

Price/mix increased by 4.2% and 3.1% for the third quarter and first three quarters of fiscal 2024, respectively, when compared to the third quarter and first three quarters of fiscal 2023, primarily due to favorable brand mix and favorability in inflation-driven pricing that was primarily implemented in the prior year, partially offset by an increase in strategic trade investments.

In the third quarter of fiscal 2023, we had a product recall primarily related to our Armour Star® brand, which resulted in a $7.8 million reduction to net sales for estimated customer returns and fees in addition to estimated lost sales of approximately $16 million for the quarter.

Net sales for the third quarter and first three quarters of fiscal 2024 in our Refrigerated & Frozen segment reflected a decrease in volumes of 3.3% and 5.6%, respectively, when compared to the third quarter and first three quarters of fiscal 2023.

The decrease was primarily due to lower consumption trends seen throughout the industry.

Price/mix decreased by 4.8% and 0.6% for the third quarter and first three quarters of fiscal 2024, respectively, when compared to the third quarter and first three quarters of fiscal 2023, primarily attributable to an increase in strategic trade investments slightly offset by favorability in inflation-driven pricing that was implemented in the prior year.

Net sales for the third quarter of fiscal 2024 in our International segment reflected a 3.6% increase due to favorable foreign exchange rates, a 2.7% increase in volumes, and a 1.7% decrease in price/mix, in each case compared to the third quarter of fiscal 2023.

The favorable foreign exchange rates were primarily due to appreciation in the Mexican Peso and volume increases were driven by growth in our Mexico business compared to the third quarter of fiscal 2023.

Net sales for the first three quarters of fiscal 2024 in our International segment reflected a 3.1% increase due to favorable foreign exchange rates, a 2.7% increase in price/mix, and a 2.1% increase in volumes, in each case compared to the first three quarters of fiscal 2023.

The increase in volumes was driven by growth in our Mexico business compared to the first three quarters of fiscal 2023.

The increase in price/mix was primarily due to favorability in inflation-driven pricing that was implemented in the prior year.

Net sales for the third quarter and first three quarters of fiscal 2024 in our Foodservice segment reflected a decrease in volumes of 4.8% and 4.1%, respectively, when compared to the third quarter and first three quarters of fiscal 2023.

The decrease in volumes was driven by a decrease in customer demand and the elasticity impact from inflation-driven pricing actions.

Price/mix increased by 3.8% and 7.0%, respectively, compared to the third quarter and first three quarters of fiscal 2023, reflecting inflation-driven pricing.

Net sales for the first quarter of fiscal 2025 in our Grocery & Snacks segment included a decrease in volumes of 1.8% and a price/mix decrease of 0.1%, excluding the impact of acquisitions, when compared to the first quarter of fiscal 2024.

The lower volumes are primarily due to the elasticity impact from inflation-driven pricing actions on certain brands within the portfolio and continued lower consumption trends.

Price/mix was negatively impacted by an increase in strategic trade investments, offset by favorability in inflation-driven pricing that was implemented in the prior year.

The acquisitions of Sweetwood Smoke & Co.

in August 2024 and an existing co-manufacturer of our cooking spray products in July 2024 contributed $2.7 million to our Grocery & Snacks segment net sales during the first quarter of fiscal 2025.

Net sales for the first quarter of fiscal 2025 in our Refrigerated & Frozen segment reflected a decrease in price/mix of 5.8% when compared to the first quarter of fiscal 2024, primarily attributable to an increase in strategic trade investments.

Volume increased by 0.1% for the first quarter of fiscal 2025 when compared to the first quarter of fiscal 2024.

Additionally, we estimate that net sales during the first quarter of fiscal 2025 were impacted by approximately $24 million due to temporary manufacturing disruptions in our Hebrew National ® business during the key grilling season.

Net sales for the first quarter of fiscal 2025 in our International segment reflected a 3.4% decrease due to unfavorable foreign exchange rates, a 2.4% increase in price/mix, and a 0.6% increase in volumes, in each case compared to the first quarter of fiscal 2024.

The unfavorable foreign exchange rates were primarily due to the devaluation of the Mexican Peso relative to the US dollar, and volume increases were driven by growth in our Global Exports business compared to the first quarter of fiscal 2024.

Net sales for the first quarter of fiscal 2025 in our Foodservice segment reflected a decrease in volumes of 11.1%, excluding the impact of acquisitions, when compared to the first quarter of fiscal 2024.

The decrease in volumes was driven by the ongoing impact of lost business from the prior year and ongoing softness in restaurant traffic.

Price/mix increased by 3.2%, compared to the first quarter of fiscal 2024, reflecting inflation-driven pricing and the value-over-volume strategy.

Additionally, we estimate that net sales in our Foodservice segment during the first quarter of fiscal 2025 were impacted by approximately $3 million due to the temporary manufacturing disruptions in our Hebrew National ® business.

SG&A Expenses (includes general corporate expenses)

SG&A expenses totaled $387.4 million for the third quarter of fiscal 2024, an increase of $38.6 million, as compared to the third quarter of fiscal 2023.

SG&A expenses for the third quarter of fiscal 2024 reflected the following:

SG&A expenses totaled $337.7 million for the first quarter of fiscal 2025, an increase of $3.6 million, as compared to the first quarter of fiscal 2024.

SG&A expenses for the first quarter of fiscal 2025 reflected the following:

Items impacting comparability of earnings

charges of $17.9 million related to legacy legal matters and

a net gain of $2.2 million primarily associated with insurance proceeds from the previous fire that occurred at one of our manufacturing facilities.

Other changes in expenses compared to the third quarter of fiscal 2023

an increase in salary, wage, and fringe benefit expense of $7.2 million,

an increase in short-term incentive expense and share-based payment expense of $5.8 million and $5.3 million, respectively, primarily due to an increase in the estimated level of achievement of certain performance targets, and

an increase in advertising and promotion expense of $5.2 million.

SG&A expenses for the third quarter of fiscal 2023 included the following items impacting comparability of earnings:

net charges of $2.0 million in connection with our restructuring plans.

SG&A expenses totaled $1.12 billion for the first three quarters of fiscal 2024, a decrease of $343.5 million, as compared to the first three quarters of fiscal 2023.

SG&A expenses for the first three quarters of fiscal 2024 reflected the following:

a charge of $34.2 million related to the impairment of a business held for sale,

● charges of $3.4 million related to legacy legal matters,

net charges of $21.4 million in connection with our restructuring plans, and

a net gain of $8.1 million primarily associated with insurance proceeds from the previous fire that occurred at one of our manufacturing facilities.

Other changes in expenses compared to the first three quarters of fiscal 2023

a decrease in share-based payment expense of $50.1 million primarily due to volatility between periods in our share price and a decrease in the estimated level of achievement of certain performance targets,

an increase in salary, wage, and fringe benefit expense of $25.7 million primarily due to higher employee headcount and merit increases,

an increase in consulting and professional fees of $12.9 million, in part due to information technology implementation services,

an increase in short-term incentive expense of $8.7 million primarily due to an increase in the estimated level of achievement of certain performance targets,

an increase in deferred compensation expense of $7.9 million primarily due to market volatility between periods,

an increase in information technology-related expenses of $4.4 million,

a decrease in advertising and promotion expense of $4.4 million, and

$4.2 million in foreign currency transaction losses, primarily due to remeasuring certain intercompany notes payable.

SG&A expenses for the first three quarters of fiscal 2023 included the following items impacting the comparability of earnings:

charges totaling $385.7 million related to the goodwill and Birds Eye ® brand impairments in connection with certain reporting unit changes within our Refrigerated & Frozen segment,

charges totaling $26.7 million related to the impairment of businesses previously held for sale, and

● a loss of $2.3 million on the sale of our ownership stake in Agro Tech Foods Limited , and

● net charges of $2.2 million in connection with our restructuring plans.

Segment Operating Profit (Earnings before general corporate expenses, pension and postretirement non-service expense (income), interest expense, net, income taxes, and equity method investment earnings)

Other changes in expenses compared to the first quarter of fiscal 2024

● an increase in share-based payment expense of $23.2 million primarily due to volatility between periods in our share price and a decrease in the estimated level of achievement of certain performance targets in the prior year,

● a decrease in short-term incentive expense of $8.5 million,

● a decrease in advertising and promotion expense of $8.3 million, and

● an increase in salary, wage, and fringe benefit expense of $3.8 million.

SG&A expenses for the first quarter of fiscal 2024 included the following items impacting comparability of earnings:

● net charges of $20.1 million in connection with our restructuring plans and

● a net gain of $3.3 million primarily associated with insurance proceeds expected from the previous fire that occurred at one of our manufacturing facilities.

Segment Operating Profit (Earnings before general corporate expenses, pension and postretirement non-service income (expense), interest expense, net, income taxes, and equity method investment earnings)

Operating Profit

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Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Reporting Segment

February 25, 2024

February 26, 2023

February 25, 2024

February 26, 2023

August 25, 2024

August 27, 2023

Grocery & Snacks

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International

Operating profit in our Grocery & Snacks segment for the third quarter of fiscal 2024 reflected an increase in gross profits of $44.3 million compared to the third quarter of fiscal 2023.

The higher gross profit was driven by the increase in net sales discussed abov e, productivity, lower transportation costs, and lower inventory write-offs.

In addition, we received insurance proceeds related to lost sales from our Armour Star ® brand recall that occurred in fiscal 2023 and recognized a net benefit of $7.4 million within cost of goods sold in the third quarter of fiscal 2024.

These increases were slightly offset by the impacts of input cost inflation and unfavorable fixed cost leverage.

Operating profit in our Grocery & Snacks segment for the first three quarters of fiscal 2024 reflected an increase in gross profits of $12.8 million compared to the first three quarters of fiscal 2023.

The higher gross profit was due to inflation driven pricing that was primarily implemented in the prior year, productivity, lower transportation costs, lower inventory write-offs, and a net benefit of $7.4 million related to insurance proceeds received for lost sales from our Armour Star ® brand recall.

These increases were partially offset by the impacts of input cost inflation and unfavorable fixed cost leverage.

Advertising and promotion expenses increased $7.8 million compared to the first three quarters of fiscal 2023 .

O perating profit in the first three quarters of fiscal 2024 included $7.7 million of net charges related to our restructuring plans.

The first three quarters of fiscal 2023 also included expenses of $3.5 million related to a municipal water line break.

Operating profit in our Refrigerated & Frozen segment for the third quarter of fiscal 2024 reflected a decrease in gross profits of $59.5 million compared to the third quarter of fiscal 2023.

The decrease was driven by the net sales decline discussed above, impacts of input cost inflation, and unfavorable fixed cost leverage, partially offset by productivity, lower transportation costs, and lower inventory write-offs.

Operating profit in the third quarter of fiscal 2023 included charges of $5.2 million associated with a previous fire that occurred at one of our manufacturing facilities.

Operating profit in our Refrigerated & Frozen segment for the first three quarters of fiscal 2024 reflected a decrease in gross profits of $74.0 million compared to the first three quarters of fiscal 2023.

The de crease was driv en by the net sales decline discussed above, impacts of input cost inflation, and unfavorable fixed cost leverage, partially offset by inflation driven pricing that was implemented in the prior year, productivity, lower transportation costs, and lower inventory write-offs.

Advertising and promotion expenses decreas ed $19.1 million compared to the first three quarters of fiscal 2023 .

Operating profit in the first three quarters of fiscal 2024 and 2023 included charges of $3.7 million and $13.1 million, respectively, associated with a previous fire that occurred at one of our manufacturing facilities.

Operating profit in the first three quarters of fiscal 2023 included charges of $385.7 million related to the goodwill and Birds Eye ® brand impairments in connection with certain reporting unit changes within our Refrigerated & Frozen segment and $5.7 million related to the impairment of businesses previously held for sale.

Operating profit in our International segment for the third quarter of fiscal 2024 reflected an increase in gross profits of $9.7 million when compared to the third quarter of fiscal 2023.

The increase was driven by the net sales growth discussed above and productivity, partially offset by the impacts of input cost inflation and an increase in inventory write-offs.

Advertising and promotion expenses increased $3.7 million compared to the third quarter of fiscal 2023.

Operating profit in our International segment for the first three quarters of fiscal 2024 reflected an increase in gross profits of $35.6 million when compared to the first three quarters of fiscal 2023.

The increase was driven by the net sales growth discussed above and productivity, partially offset by the impacts of input cost inflation and an increase in inventory write-offs.

Advertising and promotion expenses increased $5.7 million compared to the first three quarters of fiscal 2023 .

Operati ng profit in the first three quarters of fiscal 2024 included a charge of $34.2 million related to the impairment of a business held for sale and $20.2 million of net charges related to our restructuring plans.

Operating profit in our Foodservice segment for the third quarter of fiscal 2024 reflected an increase in gross profits of $9.6 million compared to the third quarter of fiscal 2023.

The increase in gross profit was driven by productivity and lower transportation costs.

Operating profit in our Foodservice segment for the first three quarters of fiscal 2024 reflected an increase in gross profits of $38.5 million compared to the first three quarters of fiscal 2023.

The increase in gross profit was driven by the net sales growth discussed above, productivity, and lower transportation costs, partially offset by the impacts of input cost inflation and unfavorable fixed cost leverage.

Operating profit in the first three quarters of fiscal 2024 included a benefit of $5.9 million associated with insurance proceeds from the previous fire that occurred at one of our manufacturing facilities.

Operati ng profit in the first three quarters of fiscal 2023 included expense of $20.5 million related to the impairment of businesses previously held for sale.

Pension and Postretirement Non-service Expense (Income)

In the third quart er of fiscal 2024 , pension and postretirement non-service expense was $1.4 million compared to income of $6.0 million in the third quarter of fiscal 2023 .

In the first three quarters of fiscal 2024 , pension and postretirement non-service expense was $2.1 million compared to income of $18.2 million in the first three quarters of fiscal 2023 .

The third quarter and first three quarters of fiscal 2024 reflected higher interest costs.

Operating profit in our Grocery & Snacks segment for the first quarter of fiscal 2025 reflected a decrease in gross profits of $13.6 million compared to the first quarter of fiscal 2024.

The lower gross profit was driven by the decrease in net sales discussed above, the impacts of input cost inflation, and unfavorable fixed cost leverage, slightly offset by higher productivity and a benefit of $3.3 million related to insurance proceeds received for lost sales from our previous brand recall on Armour Star ® .

The decrease in gross profits was partially offset by lower SG&A expenses, including a decrease of $2.4 million in advertising and promotion expenses.

Operating profit in our Grocery & Snacks segment for the first quarter of fiscal 2025 and 2024 included charges of $4.2 million and $4.8 million, respectively, related to our restructuring plans.

Operating profit in our Refrigerated & Frozen segment for the first quarter of fiscal 2025 reflected a decrease in gross profits of $32.4 million compared to the first quarter of fiscal 2024.

The decrease was driven by the net sales decline discussed above and the impacts of input cost inflation, partially offset by productivity, lower transportation costs, and a gain of $17.0 million from insurance recoveries associated with a previous fire that occurred at one of our manufacturing facilities.

In addition, we estimate that gross profits during the first quarter of fiscal 2025 were negatively impacted by approximately $10 million, primarily due to lost profits, abnormal manufacturing variances, and certain inventory write-offs resulting from the temporary manufacturing disruptions in our Hebrew National ® business.

The decrease in gross profits was partially offset by lower SG&A expenses, including a decrease of $6.1 million in advertising and promotion expenses.

Operating profit in our International segment for the first quarter of fiscal 2025 reflected a decrease in gross profits of $3.7 million when compared to the first quarter of fiscal 2024.

The decrease was driven by the impacts of input cost inflation and unfavorable foreign exchange rates, partially offset by productivity.

Operating profit in the first quarter of fiscal 2025 included a $2.3 million loss on the sale of our ownership stake in Agro Tech Foods Limited.

Operating profit in the first quarter of fiscal 2024 included net charges of $18.6 million related to our restructuring plans.

Operating profit in our Foodservice segment for the first quarter of fiscal 2025 reflected a decrease in gross profits of $5.2 million compared to the first quarter of fiscal 2024.

The decrease in gross profits was driven by the net sales decline discussed above, the impacts of input cost inflation, and unfavorable fixed cost leverage, partially offset by productivity.

Pension and Postretirement Non-service Income (Expense)

In the first quarter of fiscal 2025, pension and postretirement non-service income was $3.1 million compared to expense of $0.3 million in the first quarter of fiscal 2024.

The first quarter of fiscal 2025 reflected lower interest costs.

Interest Expense, Net

Net interest expense was $106.5 million and $104.2 million for the third quarter of fiscal 2024 and 2023, respectively.

Net interest expense was $325.8 million and $301.6 million for the first three quarters of fiscal 2024 and 2023, respectively.

The increase was driven by a higher weighted average interest rate on outstanding debt.

Net interest expense was $105.8 million and $106.0 million for the first quarter of fiscal 2025 and 2024, respectively.

See Note 5, “Debt and Revolving Credit Facility” , to the Condensed Consolidated Financial Statements contained in this report for further discussion.

In the third quarter of fiscal 2024 and 2023, we recognized income tax expense of $95.9 million and $100.1 million, respectively.

In the first three quarters of fiscal 2024 and 2023, we recognized income tax expense of $297.1 million and $237.0 million, respectively.

The effective tax rate (calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings) was approximately 23.7% and 22.6% for the third quarter of fiscal 2024 and 2023, respectively.

The effective tax rate was approximately 24.5% and 26.8% for the first three quarters of fiscal 2024 and 2023, respectively.

In the first quarter of fiscal 2025 and 2024, we recognized an income tax benefit of $138.9 million and income tax expense of $98.3 million, respectively.

The effective tax rate (calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings) was approximately (42.4)% and 23.5% for the first quarter of fiscal 2025 and 2024, respectively.

See Note 12, “Income Taxes” , to the Condensed Consolidated Financial Statements contained in this report for a discussion on the change in effective tax rates.

Equity Method Investment Earnings

Equity method investment earnings were $41.2 million and $50.5 million for the third quarter of fiscal 2024 and 2023 , respectively.

Equity method investment earnings w ere $131.0 million and $149.0 million for the first three quarters of fiscal 2024 and 2023, respectively.

Ardent Mills earnings for the third quarter of fiscal 2024 continued to reflect slightly lower volume trends as seen throughout the industry, partially offset by improved product margins.

Equity method investment earnings were $29.1 million and $35.5 million for the first quarter of fiscal 2025 and 2024, respectively.

Ardent Mills earnings for the first quarter of fiscal 2025 continued to reflect slightly lower volume trends as seen throughout the industry.

Earnings Per Share

Diluted earnings per share in the third quarter of fiscal 2024 and 2023 was $0.64 and $0.71, respectively.

The decrease reflected lower net income in the third quarter of fiscal 2024.

Diluted earnings per share in the first three quarters of fiscal 2024 and 2023 was $1.91 and $1.34, respectively.

The increase in diluted earnings per share for the first three quarters of fiscal 2024 reflected higher net income.

Diluted earnings per share in the first quarter of fiscal 2025 and 2024 was $0.97 and $0.67, respectively.

The increase reflected higher net income in the first quarter of fiscal 2025.

LIQUIDITY AND CAPITAL RESOURCES

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We use short-term debt principally to finance ongoing operations, including our seasonal requirements for working capital (accounts receivable, prepaid expenses and other current assets, and inventories, less accounts and other payables, accrued payroll, and other accrued liabilities).

We are committed to maintaining solid investment grade credit ratings.

We strive to maintain solid investment grade credit ratings.

Management believes that existing cash balances, cash flows from operations, existing credit facilities, our commercial paper program, and access to capital markets will provide sufficient liquidity to meet our debt obligations, including any repayment of debt or refinancing of debt, working capital needs, planned capital expenditures, other contractual obligations, and payment of anticipated quarterly dividends for at least the next twelve months and the foreseeable future thereafter.

Borrowing Facilities and Long-Term Debt

At February 25, 2024, we had a revolving credit facility (the "Revolving Credit Facility") with a syndicate of financial institutions providing for a maximum aggregate principal amount outstanding at any one time of $2.0 billion (subject to increase to a maximum aggregate principal amount of $2.5 billion with the consent of the lenders).

At August 25, 2024, we had a revolving credit facility (the “Revolving Credit Facility”) with a syndicate of financial institutions providing for a maximum aggregate principal amount outstanding at any one time of $2.0 billion (subject to increase to a maximum aggregate principal amount of $2.5 billion with the consent of the lenders).

The Revolving Credit Facility matures on August 26, 2027 and is unsecured.

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We have historically used a credit facility principally as a back-up for our commercial paper program.

As of February 25, 2024, there were no outstanding borrowings under the Revolving Credit Facility.

As of February 25, 2024, we had $116.0 million outstanding under our commercial paper program.

The highest level of borrowings outstanding during the first three quarters of fiscal 2024 was $697.0 million.

As of August 25, 2024, there were no outstanding borrowings under the Revolving Credit Facility.

As of August 25, 2024, we had $926.0 million outstanding under our commercial paper program.

The highest level of borrowings outstanding during the first quarter of fiscal 2025 was $1.0 billion.

We had $586.0 million outstanding under our commercial paper program as of May 26, 2024.

During the second quarter of fiscal 2024, we prepaid $250.0 million of the $500.0 million aggregate principal amount outstanding under our unsecured Term Loan (the "Term Loan").

The repayment was funded by operating cash flows and the issuance of commercial paper.

The remaining balance matures on August 26, 2025.

During the first quarter of fiscal 2024, we issued $500.0 million aggregate principal amount of 5.30% senior notes due October 1, 2026.

The net proceeds were used to repay the outstanding $500.0 million aggregate principal amount of our 0.50% senior notes on their maturity date of August 11, 2023.

We have $1.00 billion aggregate principal amount of 4.30% senior notes maturing on May 1, 2024 that we expect to pay and/or refinance using available sources which may include the investment grade note market, bank loans, commercial paper, and cash on hand.

For additional information about our long-term debt balances, refer to Note 4, "Debt and Revolving Credit Facility" , to the Condensed Consolidated Financial Statements contained in this report and Note 3, "Long-Term Debt" , to the Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended May 28, 2023.

The weighted average coupon interest rate of long-term debt obligations outstanding as of February 25, 2024 was approximately 4.8%.

For additional information about our long-term debt balances, refer to Note 5, “Debt and Revolving Credit Facility” , to the Condensed Consolidated Financial Statements contained in this report and Note 3, “Long-Term Debt” , to the Consolidated Financial

Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended May 26, 2024.

The weighted average coupon interest rate of long-term debt obligations outstanding as of August 25, 2024 was approximately 4.9%.

We expect to maintain or have access to sufficient liquidity to retire or refinance long-term debt at maturity or otherwise, from operating cash flows, our commercial paper program, access to the capital markets, and our Revolving Credit Facility.

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however, any refinancing is subject to market conditions and other factors, including financing options that may be available to us from time to time, and there can be no assurance that we will be able to successfully refinance any debt on commercially acceptable terms at all.

As of the end of the third quarter of fiscal 2024, our senior long-term debt ratings were all investment grade.

As of the end of the first quarter of fiscal 2025, our senior long-term debt ratings were all investment grade.

A significant downgrade in our credit ratings would not affect our ability to borrow amounts under the Revolving Credit Facility, although borrowing costs would increase.

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Each ratio is to be calculated on a rolling four-quarter basis.

As of February 25, 2024, we were in compliance with these financial covenants.

As of August 25, 2024, we were in compliance with all financial covenants.

Equity and Dividends

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The share repurchase authorization has no expiration date.

We did not repurchase any shares of common stock during the first three quarters of fiscal 2024.

The Company's total remaining share repurchase authorization as of February 25, 2024 was $916.6 million.

On February 29, 2024, the Company paid a quarterly cash dividend on shares of its common stock of $0.35 per share to stockholders of record as of close of business on January 30, 2024.

During the first quarter of fiscal 2025, we repurchased 2.1 million shares of our common stock under this authorization for an aggregate of $64.0 million.

The Company’s total remaining share repurchase authorization as of August 25, 2024 was $852.6 million.

On August 29, 2024, the Company paid a quarterly cash dividend on shares of its common stock of $0.35 per share to stockholders of record as of close of business on August 1, 2024.

On October 2, 2024, we announced that our Board had authorized a quarterly dividend of $0.35 per share to be paid on November 27, 2024, to stockholders of record as of close of business on October 31, 2024.

Contractual Obligations

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In addition to principal and interest payments on our outstanding long-term debt and notes payable balances, discussed above, our contractual obligations primarily consist of lease payments, income taxes, pension and postretirement benefits, and unconditional purchase obligations.

In the second quarter of fiscal 2024, we entered into a contract that contains a lease that has not yet commenced with minimum aggregate payments totaling $81.8 million over a term of 10 years.

There were no other material changes to our contractual obligations from those disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended May 28, 2023.

There were no material changes to our contractual obligations from those disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended May 26, 2024.

Capital Expenditures

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Our estimate of capital expenditures for fiscal 2025 is approximately $450 million.

During the first three quarters of fiscal 2024, we used $14.6 million of cash, which was the net result of $1.53 billion generated from operating activities, $295.6 million used in investing activities, and $1.25 billion used in financing activities.

Cash generated from operating activities totaled $1.53 billion and $703.4 million in the first three quarters of fiscal 2024 and 2023, respectively.

The increase in operating cash flows for the first three quarters of fiscal 2024 compared to the first three quarters of fiscal 2023 was primarily driven by our change in inventory balances, which were impacted by reduced inventory volumes due to recent consumption trends in addition to an inventory rebuild from previous supply chain constraints in fiscal 2023.

Other changes in working capital were positively impacted by decreased accounts receivables and extended payment terms with certain vendors resulting in reduced cash outflows for accounts and other payables.

Operating cash flows in the first three quarters of fiscal 2024 also benefited from higher dividend payments received from one of our equity method investments in the second quarter.

Cash used in investing activities totaled $295.6 million and $260.2 million in the first three quarters of fiscal 2024 and 2023, respectively.

Net cash outflows from investing activities in the first three quarters of fiscal 2024 and 2023 consisted primarily of capital expenditures totaling $309.6 million and $267.4 million, respectively.

Cash used in financing activities totaled $1.25 billion and $454.5 million in the first three quarters of fiscal 2024 and 2023, respectively.

Financing activities in the first three quarters of fiscal 2024 principally reflected repayments of long-term debt of $766.8 million, the issuance of long-term debt totaling $500.0 million, net short-term borrowing repayments of $473.8 million, and cash dividends paid of $492.0 million.

Financing activities in the first three quarters of fiscal 2023 principally reflected repayments of long-term debt of $708.0 million, the issuance of long-term debt totaling $500.0 million, net short-term borrowing issuances of $367.9 million, cash dividends paid of $466.4 million, and common stock repurchases of $150.0 million.

During the first quarter of fiscal 2025, we generated $49.7 million of cash, which was the net result of $268.6 million generated from operating activities, $286.3 million used in investing activities, $70.1 million generated from financing activities, and a decrease of $2.7 million due to the effects of changes in foreign currency exchange rates.

Cash generated from operating activities totaled $268.6 million and $443.5 million in the first quarter of fiscal 2025 and 2024, respectively.

The decrease in operating cash flows for the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 was primarily driven by lower operating profits and changes in working capital, which were negatively impacted by increased accounts receivables and higher cash payments associated with our annual short-term incentive plan partially offset by lower inventory balances.

Cash used in investing activities totaled $286.3 million and $138.4 million in the first quarter of fiscal 2025 and 2024, respectively.

Investing activities in the first quarter of fiscal 2025 consisted primarily of capital expenditures totaling $133.0 million, and the purchases of an existing co-manufacturer and Sweetwood Smoke & Co.

for a total of $230.4 million, net of cash acquired, which were partially

offset by net proceeds totaling $76.8 million from the sale of our ownership stake in Agro Tech Foods Limited (“ATFL”).

Investing activities in the first quarter of fiscal 2024 consisted primarily of capital expenditures totaling $143.6 million.

Cash generated from financing activities totaled $70.1 million in the first quarter of fiscal 2025 compared to $307.1 million used in financing activities in the first quarter of fiscal 2024.

Financing activities in the first quarter of fiscal 2025 principally reflected net short-term borrowing issuances of $336.2 million, partially offset by cash dividends paid of $167.3 million and common stock repurchases of $64.0 million.

Financing activities in the first quarter of fiscal 2024 principally reflected repayments of long-term debt of $504.3 million, the issuance of long-term debt totaling $500.0 million, net short-term borrowing repayments of $128.3 million, and cash dividends paid of $157.4 million.

Cash Held by International Subsidiaries

The Company had cash and cash equivalents of $78.5 million at February 25, 2024 and $93.3 million at May 28, 2023, of which $67.4 million at February 25, 2024 and $84.9 million at May 28, 2023 was held in foreign countries.

The Company had cash and cash equivalents of $128.7 million at August 25, 2024 and $77.7 million at May 26, 2024, of which $119.7 million at August 25, 2024 and $66.7 million at May 26, 2024 was held in foreign countries.

A deferred tax liability is provided for certain undistributed foreign earnings that are not considered to be indefinitely reinvested or cannot be remitted in a tax-neutral transaction.

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CRITICAL ACCOUNTING ESTIMATES

Consistent with previous years, we will perform our annual impairment test on our indefinite-lived intangible assets and goodwill in the fourth quarter of fiscal 2024.

We recognized impairment charges on several brands, primarily from the Pinnacle acquisition, in the fourth quarter of both fiscal 2023 and 2022.

As a result of the impairment charges, these assets were written down to their respective fair values resulting in zero excess fair value over carrying amount.

If expectations of future long-term growth rates and margins are not met or if management's future strategy changes on certain brands, there is a heightened risk of future impairment.

For further discussion of our critical accounting estimates, please refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in Part II, Item 7, of our Annual Report on Form 10-K for the fiscal year ended May 26, 2024.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis