Item 1. Financial Statements
ITEM 1. FINANCIAL STATEMENTS
Conagra Brands, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(in millions except per share amounts)
(unaudited)
Thirteen Weeks Ended
August 25, 2024
August 27, 2023
Net sales
$
2,794.9
$
2,904.0
Costs and expenses:
Cost of goods sold
2,055.6
2,080.9
Selling, general and administrative expenses
337.7
334.1
Pension and postretirement non-service income (expense)
3.1
( 0.3 )
Interest expense, net
105.8
106.0
Equity method investment earnings
29.1
35.5
Income before income taxes
328.0
418.2
Income tax expense (benefit)
( 138.9 )
98.3
Net income
$
466.9
$
319.9
Less: Net income attributable to noncontrolling interests
0.1
0.2
Net income attributable to Conagra Brands, Inc.
$
466.8
$
319.7
Earnings per share — basic
Net income attributable to Conagra Brands, Inc. common stockholders
$
0.97
$
0.67
Earnings per share — diluted
Net income attributable to Conagra Brands, Inc. common stockholders
$
0.97
$
0.67
See Notes to the Unaudited Condensed Consolidated Financial Statements.
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Conagra Brands, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(in millions)
(unaudited)
Thirteen Weeks Ended
August 25, 2024
August 27, 2023
Tax
Tax
Pre-Tax
(Expense)
After- Tax
Pre-Tax
(Expense)
After- Tax
Amount
Benefit
Amount
Amount
Benefit
Amount
Net income
$
328.0
$
138.9
$
466.9
$
418.2
$
( 98.3 )
$
319.9
Other comprehensive income:
Derivative adjustments:
Unrealized derivative adjustments
( 2.5 )
0.6
( 1.9 )
4.1
( 1.0 )
3.1
Reclassification for derivative adjustments included in net income
( 1.9 )
0.5
( 1.4 )
( 2.0 )
0.5
( 1.5 )
Currency translation adjustments:
Unrealized currency translation gains (losses)
( 19.3 )
—
( 19.3 )
10.6
—
10.6
Reclassification for currency translation losses in connection with the sale of Agro Tech Foods Limited (see Note 3)
79.8
—
79.8
—
—
—
Pension and postretirement benefit obligations:
Unrealized pension and postretirement benefit obligations
1.3
( 0.2 )
1.1
0.2
( 0.1 )
0.1
Reclassification for pension and postretirement benefit obligations included in net income
( 1.1 )
0.2
( 0.9 )
( 1.2 )
0.3
( 0.9 )
Comprehensive income
384.3
140.0
524.3
429.9
( 98.6 )
331.3
Comprehensive income attributable to noncontrolling interests (see Note 3)
38.1
—
38.1
0.1
—
0.1
Comprehensive income attributable to Conagra Brands, Inc.
$
346.2
$
140.0
$
486.2
$
429.8
$
( 98.6 )
$
331.2
See Notes to the Unaudited Condensed Consolidated Financial Statements.
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Conagra Brands, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in millions except share data)
(unaudited)
August 25, 2024
May 26, 2024
ASSETS
Current assets
Cash and cash equivalents
$
128.7
$
77.7
Receivables, less allowance for doubtful accounts of $ 2.2 and $ 3.0
933.4
871.8
Inventories
2,220.6
2,083.0
Prepaid expenses and other current assets
133.5
85.0
Current assets held for sale
—
32.0
Total current assets
3,416.2
3,149.5
Property, plant and equipment
6,568.9
6,527.5
Less accumulated depreciation
( 3,691.9 )
( 3,652.0 )
Property, plant and equipment, net
2,877.0
2,875.5
Goodwill
10,758.0
10,582.7
Brands, trademarks and other intangibles, net
2,756.4
2,708.4
Other assets
1,419.0
1,435.6
Noncurrent assets held for sale
21.2
110.6
$
21,247.8
$
20,862.3
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable
$
1,266.4
$
928.4
Current installments of long-term debt
20.2
20.3
Accounts and other payables
1,537.7
1,493.7
Accrued payroll
108.2
193.3
Other accrued liabilities
714.3
591.3
Current liabilities held for sale
—
14.8
Total current liabilities
3,646.8
3,241.8
Senior long-term debt, excluding current installments
7,485.6
7,492.6
Other noncurrent liabilities
1,419.8
1,614.7
Noncurrent liabilities held for sale
—
1.9
Total liabilities
12,552.2
12,351.0
Common stockholders' equity
Common stock of $ 5 par value, authorized 1,200,000,000 shares;
issued 584,219,229
2,921.2
2,921.2
Additional paid-in capital
2,329.7
2,363.2
Retained earnings
6,574.8
6,276.3
Accumulated other comprehensive loss
( 16.1 )
( 35.5 )
Less treasury stock, at cost, 106,946,223 and 106,050,133 common shares
( 3,114.0 )
( 3,084.8 )
Total Conagra Brands, Inc. common stockholders' equity
8,695.6
8,440.4
Noncontrolling interests
—
70.9
Total stockholders' equity
8,695.6
8,511.3
$
21,247.8
$
20,862.3
See Notes to the Unaudited Condensed Consolidated Financial Statements.
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Conagra Brands, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in millions)
(unaudited)
Thirteen Weeks Ended
August 25, 2024
August 27, 2023
Cash flows from operating activities:
Net income
$
466.9
$
319.9
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization
99.1
96.6
Asset impairment charges
0.1
15.2
Equity method investment earnings in excess of distributions
( 5.2 )
( 6.7 )
Stock-settled share-based payments expense (benefit)
20.6
( 2.7 )
Contributions to pension plans
( 2.9 )
( 3.1 )
Pension expense (benefit)
( 0.8 )
2.8
Other items
11.6
10.5
Change in operating assets and liabilities excluding effects of business acquisitions and dispositions:
Receivables
( 60.1 )
( 11.1 )
Inventories
( 112.5 )
( 161.8 )
Deferred income taxes and income taxes payable, net
( 165.9 )
90.6
Prepaid expenses and other current assets
( 43.0 )
( 35.6 )
Accounts and other payables
67.7
81.4
Accrued payroll
( 83.7 )
( 49.0 )
Other accrued liabilities
84.4
95.4
Litigation accruals
( 7.7 )
1.1
Net cash flows from operating activities
268.6
443.5
Cash flows from investing activities:
Additions to property, plant and equipment
( 133.0 )
( 143.6 )
Sale of property, plant and equipment
0.3
0.2
Purchase of marketable securities
—
( 0.7 )
Sale of marketable securities
—
0.7
Purchase of business, net of cash acquired
( 230.4 )
—
Proceeds from divestitures, net of cash divested
76.8
—
Other items
—
5.0
Net cash flows from investing activities
( 286.3 )
( 138.4 )
Cash flows from financing activities:
Issuance of short-term borrowings, maturities greater than 90 days
35.1
43.5
Repayment of short-term borrowings, maturities greater than 90 days
( 35.3 )
( 54.8 )
Net issuance (repayment) of other short-term borrowings, maturities less than or equal to 90 days
336.4
( 117.0 )
Issuance of long-term debt
—
500.0
Repayment of long-term debt
( 14.9 )
( 504.3 )
Debt issuance costs
—
( 2.8 )
Repurchase of Conagra Brands, Inc. common shares
( 64.0 )
—
Cash dividends paid
( 167.3 )
( 157.4 )
Exercise of stock options and issuance of other stock awards, including tax withholdings
( 19.8 )
( 13.7 )
Other items
( 0.1 )
( 0.6 )
Net cash flows from financing activities
70.1
( 307.1 )
Effect of exchange rate changes on cash and cash equivalents
( 2.7 )
1.4
Net change in cash and cash equivalents, including cash balances classified as assets held for sale
49.7
( 0.6 )
Less: Net change in cash balances classified as assets held for sale
( 1.3 )
1.0
Net change in cash and cash equivalents
51.0
( 1.6 )
Cash and cash equivalents at beginning of period
77.7
93.3
Cash and cash equivalents at end of period
$
128.7
$
91.7
See Notes to the Unaudited Condensed Consolidated Financial Statements.
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Conagra Brands, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(columnar dollars in millions except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying Condensed Consolidated Financial Statements of Conagra Brands, Inc. (the “Company”, “Conagra Brands”, “we”, “us”, or “our”) have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not include certain information and disclosures required for comprehensive financial statements. The unaudited financial information reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of the results of operations, financial position, and cash flows for the periods presented. During the first quarter of fiscal 2025, we determined that certain assets were held for sale. We have reclassified these assets within our Condensed Consolidated Balance Sheets for all periods presented (see Note 3). All other adjustments are of a normal recurring nature. The results of operations for any quarter or a partial fiscal year period are not necessarily indicative of the results to be expected for other periods or the full fiscal year. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended May 26, 2024. There were no significant changes to our accounting policies from those disclosed in Note 1, “Summary of Significant Accounting Policies” , to the Consolidated Financial Statements in that Form 10-K.
Recently Issued Accounting Pronouncements and Disclosure Rules
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The disclosure requirements must be applied retrospectively to all prior periods presented in the financial statements. The effective date for the standard is for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We are in the process of analyzing the impact of the ASU on our related disclosures. We will adopt this guidance in the fourth quarter of fiscal 2025, when it becomes effective.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures , to provide more detailed income tax disclosure requirements. The guidance requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as information on income taxes paid. The disclosure requirements will be applied on a prospective basis, with the option to apply it retrospectively. The effective date for the standard is for fiscal years beginning after December 15, 2024. Early adoption is permitted. We are in the process of analyzing the impact of the ASU on our related disclosures.
In March 2024, the Securities and Exchange Commission (“SEC”) issued final climate-related disclosure rules that will require disclosure of material climate-related risks and material direct greenhouse gas emissions from operations owned or controlled (Scope 1) and/or material indirect greenhouse gas emissions from purchased energy consumed in owned or controlled operations (Scope 2). Additionally, the rules require disclosure in the notes to the financial statements of the effects of severe weather events and other natural conditions, subject to certain materiality thresholds. In April 2024, the SEC stayed its implementation of this rule pending the outcome of legal challenges. However, we continue to monitor developments and analyze the potential impact of the new rules on our related disclosures.
2. ACQUISITIONS
In July 2024, we acquired the manufacturing operations of an existing co-manufacturer of our cooking spray products, for a cash purchase price of $ 50.2 million, subject to certain working capital adjustments. Approximately $ 44.7 million of the purchase price has been classified as goodwill, which is deductible for income tax purposes. The settlement of certain pre-existing contractual agreements between Conagra and the co-manufacturer as part of the transaction resulted in a net gain of $ 2.9 million within selling, general and administrative (“SG&A”) expenses in the first quarter of fiscal 2025.
In August 2024, we acquired the outstanding equity of Sweetwood Smoke & Co., maker of FATTY ® smoked meat sticks, for a cash purchase price of $ 180.2 million, net of cash acquired and subject to certain working capital adjustments. Approximately $ 129.9 million of the purchase price has been classified as goodwill, which is deductible for income tax purposes. Approximately $ 55.8 million and $ 5.5 million of the purchase price has been allocated to non-amortizing and amortizing intangible assets, respectively.
For each of these acquisitions, the amounts allocated to goodwill were primarily attributable to anticipated synergies, future growth opportunities, and other intangibles that do not qualify for separate recognition such as an assembled workforce. The results of each of these acquisitions, subsequent to the acquisitions closings, are primarily included in the Grocery & Snacks segment and through August 25, 2024, were not material to our Condensed Consolidated Statements of Earnings.
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Under the acquisition method of accounting, the assets acquired and liabilities assumed in these acquisitions were recorded at their respective estimated fair values at the date of acquisition.
3. DIVESTITURES AND ASSETS HELD FOR SALE
Divestitures
During the first quarter of fiscal 2025, we completed the sale of our 51.8 % ownership stake in Agro Tech Foods Limited (“ATFL”) for net proceeds of $ 76.8 million. Prior to the transaction, our majority ownership of ATFL was consolidated within our International segment. We recognized a loss of $ 2.3 million on the sale within SG&A expenses in the first quarter of fiscal 2025. In connection with this divestiture, we also released $ 41.8 million and $ 38.0 million of currency translation losses from accumulated other comprehensive loss and noncontrolling interests, respectively.
The assets and liabilities related to ATFL have been reclassified as assets and liabilities held for sale within our Condensed Consolidated Balance Sheet for the period presented prior to the divestiture. The assets and liabilities classified as held for sale reflected in our Condensed Consolidated Balance Sheet were as follows:
May 26, 2024
Current assets
$
32.0
Noncurrent assets (including goodwill of $ 46.4 million)
89.2
Current liabilities
14.8
Noncurrent liabilities
1.9
Other Assets Held for Sale
As a result of management’s decision to exit a certain manufacturing facility and related warehouse in our Refrigerated & Frozen segment in fiscal 2024, we began to actively market these assets during the first quarter of fiscal 2025. We anticipate entering into a definitive agreement to sell these assets in the next twelve months. Accordingly, these assets have been reclassified as assets held for sale within our Condensed Consolidated Balance Sheets for all periods presented.
In addition, we actively market certain other assets from time to time. These assets have also been reclassified as assets held for sale within our Condensed Consolidated Balance Sheets for periods prior to the disposal of the individual asset groups.
The related assets classified as held for sale reflected in our Condensed Consolidated Balance Sheets were $ 21.2 million and $ 21.4 million as of August 25, 2024 and May 26, 2024, respectively.
4. RESTRUCTURING ACTIVITIES
See our Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended May 26, 2024 for additional information on our restructuring activities.
Conagra Restructuring Plan
From fiscal 2019 through August 25, 2024, we have approved $ 256.2 million ($ 81.7 million of cash charges and $ 174.5 million of non-cash charges) and recognized cumulative charges of $ 223.8 million as part of a restructuring plan to improve SG&A expense effectiveness and efficiencies and to optimize our supply chain network (the “Conagra Restructuring Plan”). In the first quarter of fiscal 2025 and 2024, we recognized charges of $ 4.3 million and $ 23.8 million, respectively, in connection with the Conagra Restructuring Plan. We incur costs related to the Conagra Restructuring Plan over a multi-year period.
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During the first quarter of fiscal 2025, we recognized the following pre-tax expenses for the Conagra Restructuring Plan:
Grocery &
Refrigerated
Snacks
& Frozen
International
Corporate
Total
Accelerated depreciation
$
1.4
$
—
$
—
$
—
$
1.4
Other cost of goods sold
1.1
( 0.2 )
( 0.2 )
—
0.7
Total cost of goods sold
2.5
( 0.2 )
( 0.2 )
—
2.1
Severance and related costs
—
( 0.2 )
( 0.3 )
—
( 0.5 )
Contract/lease termination
0.7
—
0.1
—
0.8
Other SG&A
1.0
0.5
0.3
0.1
1.9
Total SG&A
1.7
0.3
0.1
0.1
2.2
Total
$
4.2
$
0.1
$
( 0.1 )
$
0.1
$
4.3
Included in the above results are $ 2.6 million of charges that have resulted or will result in cash outflows and $ 1.7 million in non-cash charges.
Liabilities recorded for the Conagra Restructuring Plan and changes therein for the first quarter of fiscal 2025 were as follows:
Costs
Incurred and
Balance at
Charged to
Costs Paid or
Changes in
Balance at
May 26, 2024
Expense
Otherwise Settled
Estimates
August 25, 2024
Severance and related costs
$
9.8
$
0.2
$
( 5.7 )
$
( 0.7 )
$
3.6
Contract/lease termination
—
0.8
( 0.8 )
—
—
Other costs
0.6
2.3
( 1.8 )
—
1.1
Total
$
10.4
$
3.3
$
( 8.3 )
$
( 0.7 )
$
4.7
5. DEBT AND REVOLVING CREDIT FACILITY
Senior Notes
During the fourth quarter of fiscal 2024, we repaid the entire outstanding $ 1.0 billion aggregate principal amount of our 4.30 % senior notes on their maturity date of May 1, 2024. The repayment was funded by an unsecured term loan described below, along with the issuance of commercial paper and operating cash flows.
During the first quarter of fiscal 2024, we repaid the entire outstanding $ 500.0 million aggregate principal amount of our 0.50 % senior notes on their maturity date of August 11, 2023. The repayment was primarily funded using the net proceeds from the issuance of $ 500.0 million aggregate principal amount of 5.30 % senior notes due October 1, 2026.
Term Loans
During the fourth quarter of fiscal 2024, we entered into an unsecured Term Loan Agreement with a financial institution and borrowed the full principal amount, $ 300.0 million, available thereunder (the “2024 Term Loan”). The 2024 Term Loan matures on April 29, 2025.
During the second quarter of fiscal 2023, we borrowed the full $ 500.0 million aggregate principal amount available under our unsecured term loan (the “Term Loan”) from a syndicate of financial institutions. During the second quarter of fiscal 2024, we prepaid $ 250.0 million of the aggregate principal amount outstanding under the Term Loan. The remaining balance matures on August 26, 2025.
Revolving Credit Facility
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 consent of the lenders). The Revolving Credit Facility matures on August 26, 2027 and is unsecured. The Company may request the term of the Revolving Credit Facility be extended for additional one-year or two-year periods from the then-applicable maturity date on an annual basis. As of August 25, 2024, there were no outstanding borrowings under the Revolving Credit Facility.
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Debt Covenants
The Revolving Credit Facility generally requires our ratio of earnings before interest, taxes, depreciation and amortization (“EBITDA”) to interest expense to be not less than 3.0 to 1.0 and our ratio of funded net debt to EBITDA not to exceed 4.5 to 1.0, with each ratio to be calculated on a rolling four-quarter basis. As of August 25, 2024, we were in compliance with all financial covenants under the Revolving Credit Facility.
Commercial Paper
As of August 25, 2024 and May 26, 2024, we had $ 926.0 million and $ 586.0 million, respectively, outstanding under our commercial paper program.
Interest Expense
Net interest expense consisted of:
Thirteen Weeks Ended
August 25, 2024
August 27, 2023
Long-term debt
$
93.1
$
102.5
Short-term debt
15.8
7.4
Interest income
( 0.9 )
( 1.1 )
Interest capitalized
( 2.2 )
( 2.8 )
$
105.8
$
106.0
6. FINANCING ARRANGEMENTS
Supplier Financing Arrangements
In order to manage our cash flow and related liquidity, we work with our suppliers to optimize our terms and conditions, which include the extension of payment terms. A number of factors may impact our future payment terms, including our relative creditworthiness, overall market liquidity, and changes in interest rates and other general economic conditions. Certain suppliers have access to third-party services that allow them to view our scheduled payments online and finance advances on our scheduled payments at the sole discretion of the supplier and the third-party. Our current payment terms with these suppliers, which we deem to be commercially reasonable, range up to 120 days . We have no direct financial relationship with the financial institutions utilized by the third parties, and we have pledged no assets in connection with our accounts payable programs. All amounts due to participating suppliers are paid to the third party on the original invoice due dates, regardless of whether a particular invoice was sold. Supplier participation in these agreements is voluntary. As of August 25, 2024 and May 26, 2024, $ 308.9 million and $ 334.1 million, respectively, of our total accounts and other payables were payable to suppliers who utilized these third-party services. The associated payments are included in net cash flows from operating activities within our Condensed Consolidated Statements of Cash Flows.
We have also concluded that certain obligations to our suppliers, including amounts due and scheduled payment terms, are impacted by these third-party service programs and these arrangements are classified as notes payable within our Condensed Consolidated Balance Sheets. The proceeds and payments associated with short-term borrowings are reflected as financing activities within our Condensed Consolidated Statements of Cash Flows. As of August 25, 2024 and May 26, 2024, we had approximately $ 42.9 million and $ 43.2 million, respectively, of short-term borrowings related to these arrangements.
7. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS
The change in the carrying amount of goodwill for the first quarter of fiscal 2025 was as follows:
Grocery &
Refrigerated
Snacks
& Frozen
International
Foodservice
Total
Balance as of May 26, 2024
$
4,692.4
$
4,943.0
$
214.5
$
732.8
$
10,582.7
Acquisitions
174.6
—
—
—
174.6
Currency translation
—
—
0.7
—
0.7
Balance as of August 25, 2024
$
4,867.0
$
4,943.0
$
215.2
$
732.8
$
10,758.0
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Other identifiable intangible assets were as follows:
August 25, 2024
May 26, 2024
Gross
Gross
Carrying
Accumulated
Carrying
Accumulated
Amount
Amortization
Amount
Amortization
Non-amortizing intangible assets
Brands and trademarks
$
2,082.6
$
—
$
2,026.8
$
—
Amortizing intangible assets
Customer relationships and intellectual property
1,237.7
563.9
1,232.1
550.5
$
3,320.3
$
563.9
$
3,258.9
$
550.5
Amortizing intangible assets carry a remaining weighted average life of approximately 17 years . Amortization expense was $ 13.4 million and $ 13.5 million for the first quarter of fiscal 2025 and 2024, respectively. Based on amortizing assets recognized in our Condensed Consolidated Balance Sheet as of August 25, 2024, amortization expense is estimated to average $ 44.0 million for each of the next five years.
8. DERIVATIVE FINANCIAL INSTRUMENTS
See our Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended May 26, 2024, for additional information on our derivative activities.
Derivatives Designated as Cash Flow Hedges
During the first quarter of fiscal 2019, we entered into deal-contingent forward starting interest rate swap contracts to hedge a portion of the interest rate risk related to our issuance of long-term debt to help finance the acquisition of Pinnacle Foods, Inc. We settled these contracts during the second quarter of fiscal 2019 and deferred a $ 47.5 million gain in accumulated other comprehensive income that is being amortized as a reduction of interest expense over the lives of the related debt instruments. The unamortized amount at August 25, 2024 was $ 27.4 million.
Economic Hedges of Forecasted Cash Flows
Many of our derivatives do not qualify for, and we do not currently designate certain commodity or foreign currency derivatives to achieve, hedge accounting treatment. We reflect realized and unrealized gains and losses from derivatives used to economically hedge anticipated commodity consumption and to mitigate foreign currency cash flow risk in earnings immediately within general corporate expense (within cost of goods sold). The gains and losses are reclassified to segment operating results in the period in which the underlying item being economically hedged is recognized in cost of goods sold. In the event that management determines a particular derivative entered into as an economic hedge of a forecasted commodity purchase has ceased to function as an economic hedge, we cease recognizing further gains and losses on such derivatives in corporate expense and begin recognizing such gains and losses within segment operating results immediately.
The following table presents the net derivative gains (losses) from economic hedges of forecasted commodity consumption and the foreign currency risk of certain forecasted transactions, under this methodology:
Thirteen Weeks Ended
August 25, 2024
August 27, 2023
Gross derivative gains (losses) incurred
$
( 3.7 )
$
19.5
Less: Net derivative losses allocated to reporting segments
( 2.4 )
( 8.1 )
Net derivative gains (losses) recognized in general corporate expenses
$
( 1.3 )
$
27.6
Net derivative losses allocated to Grocery & Snacks
$
( 1.5 )
$
( 3.9 )
Net derivative losses allocated to Refrigerated & Frozen
( 0.8 )
( 2.3 )
Net derivative losses allocated to International
—
( 1.6 )
Net derivative losses allocated to Foodservice
( 0.1 )
( 0.3 )
Net derivative losses included in segment operating profit
$
( 2.4 )
$
( 8.1 )
The fair values of our derivative positions were not material as of August 25, 2024 and were Level 1 or Level 2 assets or liabilities in the fair value hierarchy (see Note 16 for further information). We have not significantly changed our valuation techniques from prior periods.
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The location and amount of gains (losses) from derivatives not designated as hedging instruments in our Condensed Consolidated Statements of Earnings were as follows:
Gains (Losses) Recognized on
Derivatives in Condensed Consolidated
Location in Condensed Consolidated
Statements of Earnings for the
Statements of Earnings of Gains (Losses)
Thirteen Weeks Ended
Derivatives Not Designated as Hedging Instruments
Recognized on Derivatives
August 25, 2024
August 27, 2023
Commodity contracts
Cost of goods sold
$
( 6.9 )
$
22.5
Foreign exchange contracts
Cost of goods sold
3.2
( 3.0 )
Total gains (losses) from derivative instruments not designated as hedging instruments
$
( 3.7 )
$
19.5
As of August 25, 2024, our open commodity contracts had a notional value (defined as notional quantity times market value per notional quantity unit) of $ 106.7 million for purchase contracts and $ 1.4 million for sales contracts. As of May 26, 2024, our open commodity contracts had a notional value of $ 88.2 million for purchase contracts and $ 11.0 million for sales contracts. The notional amount of our foreign currency forward contracts as of August 25, 2024 and May 26, 2024 was $ 104.6 million and $ 101.5 million, respectively.
9. SHARE-BASED PAYMENTS
For the first quarter of fiscal 2025 and 2024, we recognized total stock-based compensation expense (including restricted stock units and performance shares) of $ 20.6 million and income of $ 2.7 million, respectively. In the first quarter of fiscal 2025, we granted 2.2 million restricted stock units at a weighted average grant date price of $ 29.85 per share unit and 0.7 million performance shares at a weighted average grant date price of $ 29.86 per share.
Performance shares are granted to selected executives and other key employees with vesting contingent upon meeting various Company-wide performance goals. The performance goals for the three -year performance periods ending in fiscal 2025 (the “2025 performance period”) and 2026 (the “2026 performance period”) are based on our net sales and diluted earnings per share (“EPS”) growth, subject to certain adjustments, measured over the defined performance period, with each year of the performance period weighted one-third. The performance goals for the three -year performance period ending in fiscal 2027 (the “2027 performance period”) is based on our net sales and diluted EPS on a three-year cumulative basis, subject to certain adjustments, measured over the defined performance period. For each of the 2025 performance period, 2026 performance period, and 2027 performance period, the awards actually earned will range from zero to two hundred percent of the targeted number of performance shares for such performance period. Dividend equivalents are paid on the portion of performance shares actually earned at our regular dividend rate in additional shares of common stock.
Awards, if earned, will be paid in shares of our common stock. Subject to limited exceptions set forth in our performance share plan, any shares earned will be distributed after the end of the performance period, and generally only if the participant continues to be employed with the Company through the date of distribution. For awards where performance against the performance target has not been certified, the value of the performance shares is adjusted based upon the market price of our common stock and current forecasted performance against the performance targets at the end of each reporting period and amortized as compensation expense over the vesting period. Forfeitures are accounted for as they occur.
10. EARNINGS PER SHARE
Basic earnings per share is calculated on the basis of weighted average outstanding shares of common stock. Diluted earnings per share is computed on the basis of basic weighted average outstanding shares of common stock adjusted for the dilutive effect of stock options, restricted stock unit awards, and other dilutive securities.
The following table reconciles the income and average share amounts used to compute both basic and diluted earnings per share:
Thirteen Weeks Ended
August 25, 2024
August 27, 2023
Net income attributable to Conagra Brands, Inc. common stockholders:
$
466.8
$
319.7
Weighted average shares outstanding:
Basic weighted average shares outstanding
478.8
478.2
Add: Dilutive effect of stock options, restricted stock unit awards, and other dilutive securities
1.5
1.6
Diluted weighted average shares outstanding
480.3
479.8
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For the first quarter of fiscal 2025 and 2024, there were 1.3 million and 0.6 million stock options outstanding, respectively, that were excluded from the computation of diluted weighted average shares because the effect was antidilutive.
11. INVENTORIES
The major classes of inventories were as follows:
August 25, 2024
May 26, 2024
Raw materials and packaging
$
336.8
$
323.1
Work in process
287.5
277.1
Finished goods
1,485.3
1,377.2
Supplies and other
111.0
105.6
Total
$
2,220.6
$
2,083.0
12. INCOME TAXES
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 ( 42.4 )% and 23.5 % for the first quarter of fiscal 2025 and 2024, respectively.
The effective tax rate in the first quarter of fiscal 2025 reflected a $ 210.4 million deferred tax benefit related to the release of valuation allowances booked against certain deferred tax assets. Recent interactions with the U.S. Internal Revenue Service (IRS) regarding certain elections that had previously been under IRS review make the realization of certain deferred tax assets likely. The realization of these deferred tax assets allows for both current and future tax deductions through 2036.
The effective tax rate in the first quarter of fiscal 2024 was in line with our expected effective tax rate of approximately 24 %.
We have previously made the assessment that the current earnings of certain foreign subsidiaries were not indefinitely reinvested or that we could not remit to the U.S. parent in a tax-neutral transaction. Accordingly, we have recorded a deferred tax liability of $ 1.6 million on approximately $ 33.7 million of cumulative earnings as of August 25, 2024. The deferred tax liability relates to local withholding taxes that will be owed when this cash is distributed. In the first quarter of fiscal 2025, we paid $ 16.9 million of withholding taxes previously accrued in connection with the restructuring of our ownership interest in Ardent Mills.
13. CONTINGENCIES
Litigation Matters
We are a party to certain litigation matters as a result of our acquisition of Beatrice Company (“Beatrice”) in fiscal 1991, including litigation proceedings related to lead-based pigment businesses divested by Beatrice prior to our acquisition. These lawsuits have generally sought damages for personal injury, property damage, economic loss, and governmental expenditures allegedly caused by the use of lead-based paint. We have denied liability, both on the merits of the claims and on the basis that we do not believe we are the successor to any such liability. In one such action, we agreed to pay $ 101.7 million, in seven annual installments from fiscal 2020 through fiscal 2026 (of which $ 73.0 million had been paid as of August 25, 2024), as part of a 2019 settlement, which also included a guarantee of up to $ 15.0 million in payments to be made in the event of default by a co-defendant, NL Industries, Inc. We had accrued $ 28.7 million ($ 12.0 million within other accrued liabilities and $ 16.7 million within other noncurrent liabilities) as of August 25, 2024 and $ 28.9 million ($ 11.8 million within other accrued liabilities and $ 17.1 million within other noncurrent liabilities) as of May 26, 2024.
We are party to a number of matters asserting product liability claims against the Company related to certain Pam ® and other cooking spray products. For example, during fiscal 2024, a jury entered a verdict against the Company for $ 3.1 million in compensatory damages and $ 4.0 million in punitive damages in one of these lawsuits captioned Reese v. Conagra Brands, Inc., et al. (“Reese”) . We have appealed the judgment in the Reese lawsuit. These lawsuits generally seek damages for personal injuries allegedly caused by defects in the design, manufacture, or safety warnings of our cooking spray products and we have denied liability, however, we cannot predict with certainty the results of these proceedings. The Company believes adequate provision has been made in its Condensed Consolidated Financial Statements for all probable and reasonably estimable losses for the litigation related to the cooking spray products based on information available to us at the time of our evaluation. Additionally, we have put the applicable insurance carriers on notice of these cooking spray matters and had recognized a related insurance receivable of $ 9.7 million ($ 4.7 million within receivables and $ 5.0 million within other assets) as of August 25, 2024 and $ 14.7 million ($ 7.1 million within receivables and $ 7.6 million within other assets) as of May 26, 2024 in connection with a settlement agreement with one of these insurance carriers.
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We are party to various other lawsuits such as putative class action lawsuits challenging various product claims made in the Company’s product labeling and matters challenging the Company’s wage and hour practices. While we cannot predict with certainty the results of these or any other legal proceedings, we do not expect these matters to have a material adverse effect on our financial condition, results of operations, or business.
Our accrual for all litigation matters, including those matters described above that are probable and estimable, was $ 68.6 million ($ 32.5 million within other accrued liabilities and $ 36.1 million within other noncurrent liabilities) as of August 25, 2024 and $ 76.3 million ($ 30.4 million within other accrued liabilities and $ 45.9 million within other noncurrent liabilities) as of May 26, 2024.
Environmental Matters
Securities and Exchange Commission (the “SEC”) regulations require us to disclose certain information about environmental proceedings if a governmental authority is a party to such proceedings and such proceedings involve potential monetary sanctions that we reasonably believe will exceed a stated threshold. Pursuant to the SEC regulations, the Company uses a threshold of $ 1.0 million for purposes of determining whether disclosure of any such proceedings is required.
We are a party to certain environmental proceedings relating to businesses divested by Beatrice prior to our acquisition in fiscal 1991, including litigation and administrative proceedings involving Beatrice’s possible status as a potentially responsible party at approximately 35 Superfund, proposed Superfund, or state-equivalent sites (the “Beatrice sites”). The Beatrice sites consist of locations previously owned or operated by predecessors of Beatrice that used or produced petroleum, pesticides, fertilizers, dyes, inks, solvents, polychlorinated biphenyls, acids, lead, sulfur, tannery wastes, and/or other contaminants. Reserves for these Beatrice environmental proceedings have been established based on our best estimate of the undiscounted remediation liabilities, which estimates include evaluation of investigatory studies, extent of required clean-up, the known volumetric contribution of Beatrice and other potentially responsible parties, and its experience in remediating sites. The accrual for Beatrice-related environmental matters totaled $ 39.0 million ($ 3.2 million within other accrued liabilities and $ 35.8 million within other noncurrent liabilities ) as of August 25, 2024 and $ 39.3 million ($ 3.3 million within other accrued liabilities and $ 36.0 million within other noncurrent liabilities ) as of May 26, 2024, a majority of which relates to the Superfund and state-equivalent sites referenced above.
General
After taking into account liabilities recognized for all of the foregoing matters, management believes the ultimate resolution of such matters should not have a material adverse effect on our financial condition, results of operations, or liquidity; however, it is reasonably possible that a change of the estimates of any of the foregoing matters may occur in the future that could have a material adverse effect on our financial condition, results of operations, or liquidity.
Costs of legal services associated with the foregoing matters are recognized within SG&A expenses as services are provided.
14. PENSION AND POSTRETIREMENT BENEFITS
We have defined benefit retirement plans (“pension plans”) for eligible salaried and hourly employees. Benefits are based on years of credited service and average compensation or stated amounts for each year of service. We also sponsor postretirement plans which provide certain medical and dental benefits to qualifying U.S. employees.
Components of pension and postretirement plan costs (benefits) are:
Pension Plans
Thirteen Weeks Ended
August 25, 2024
August 27, 2023
Service cost
$
1.4
$
1.5
Interest cost
34.0
36.7
Expected return on plan assets
( 36.6 )
( 35.8 )
Amortization of prior service cost
0.4
0.4
Pension cost (benefit) — Company plans
( 0.8 )
2.8
Pension cost (benefit) — multi-employer plans
2.2
2.1
Total pension cost (benefit)
$
1.4
$
4.9
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Postretirement Plans
Thirteen Weeks Ended
August 25, 2024
August 27, 2023
Interest cost
$
0.6
$
0.6
Amortization of prior service cost (benefit)
( 0.4 )
( 0.4 )
Recognized net actuarial gain
( 1.1 )
( 1.2 )
Total postretirement cost (benefit)
$
( 0.9 )
$
( 1.0 )
The Company uses a split discount rate (spot-rate approach) for the U.S. plans and certain foreign plans. The spot-rate approach applies separate discount rates for each projected benefit payment in the calculation of pension service and interest cost.
The weighted-average discount rates for service and interest costs under the spot-rate approach used for pension cost in fiscal 2025 were 5.72 % and 5.51 %, respectively.
During the first quarter of fiscal 2025, we contributed $ 2.9 million to our pension plans and contributed $ 1.9 million to our postretirement plans. Based upon the current funded status of the plans and the current interest rate environment, we anticipate making further contributions of approximately $ 8.8 million to our pension plans during the remainder of fiscal 2025. We anticipate making further contributions of approximately $ 4.7 million to our postretirement plans during the remainder of fiscal 2025. These estimates are based on ERISA guidelines, current tax laws, plan asset performance, and liability assumptions, which are subject to change.
15. STOCKHOLDERS’ EQUITY
The following table presents a reconciliation of our stockholders’ equity accounts for the thirteen weeks ended August 25, 2024:
Conagra Brands, Inc. Stockholders' Equity
Accumulated
Additional
Other
Common
Common
Paid-in
Retained
Comprehensive
Treasury
Noncontrolling
Total
Shares
Stock
Capital
Earnings
Loss
Stock
Interests
Equity
Balance at May 26, 2024
584.2
$
2,921.2
$
2,363.2
$
6,276.3
$
( 35.5 )
$
( 3,084.8 )
$
70.9
$
8,511.3
Stock option and incentive plans
( 33.5 )
( 0.5 )
34.8
0.8
Currency translation adjustments
22.5
38.0
60.5
Repurchase of common shares
( 64.0 )
( 64.0 )
Derivative adjustments
( 3.3 )
( 3.3 )
Activities of noncontrolling interests
( 108.9 )
( 108.9 )
Pension and postretirement healthcare benefits
0.2
0.2
Dividends declared on common stock; $ 0.35 per share
( 167.8 )
( 167.8 )
Net income attributable to Conagra Brands, Inc.
466.8
466.8
Balance at August 25, 2024
584.2
$
2,921.2
$
2,329.7
$
6,574.8
$
( 16.1 )
$
( 3,114.0 )
$
—
$
8,695.6
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The following table presents a reconciliation of our stockholders’ equity accounts for the thirteen weeks ended August 27, 2023:
Conagra Brands, Inc. Stockholders' Equity
Accumulated
Additional
Other
Common
Common
Paid-in
Retained
Comprehensive
Treasury
Noncontrolling
Total
Shares
Stock
Capital
Earnings
Loss
Stock
Interests
Equity
Balance at May 28, 2023
584.2
$
2,921.2
$
2,376.9
$
6,599.4
$
( 44.4 )
$
( 3,116.3 )
$
70.5
$
8,807.3
Stock option and incentive plans
( 42.9 )
1.1
25.6
( 16.2 )
Currency translation adjustments
10.7
( 0.1 )
10.6
Derivative adjustments
1.6
1.6
Activities of noncontrolling interests
0.2
0.2
Pension and postretirement healthcare benefits
( 0.8 )
( 0.8 )
Dividends declared on common stock; $ 0.35 per share
( 167.3 )
( 167.3 )
Net income attributable to Conagra Brands, Inc.
319.7
319.7
Balance at August 27, 2023
584.2
$
2,921.2
$
2,334.0
$
6,752.9
$
( 32.9 )
$
( 3,090.7 )
$
70.6
$
8,955.1
The following table details the accumulated balances for each component of other comprehensive loss, net of tax:
August 25, 2024
May 26, 2024
Currency translation losses, net of reclassification adjustments
$
( 66.7 )
$
( 89.2 )
Derivative adjustments, net of reclassification adjustments
25.9
29.2
Pension and postretirement benefit obligations, net of reclassification adjustments
24.7
24.5
Accumulated other comprehensive loss
$
( 16.1 )
$
( 35.5 )
The following tables summarize the reclassifications from accumulated other comprehensive income (loss) into income:
Affected Line Item in the Condensed Consolidated Statement of
Thirteen Weeks Ended
Earnings 1
August 25, 2024
August 27, 2023
Net derivative adjustments:
Cash flow hedges
$
( 0.7 )
$
( 0.9 )
Interest expense, net
Cash flow hedges
( 1.2 )
( 1.1 )
Equity method investment earnings
( 1.9 )
( 2.0 )
Total before tax
0.5
0.5
Income tax expense
$
( 1.4 )
$
( 1.5 )
Net of tax
Pension and postretirement liabilities:
Net actuarial gain
$
( 1.1 )
$
( 1.2 )
Pension and postretirement non-service income
( 1.1 )
( 1.2 )
Total before tax
0.2
0.3
Income tax expense
$
( 0.9 )
$
( 0.9 )
Net of tax
Currency translation losses
$
41.8
$
—
Selling, general and administrative expenses 2
41.8
—
Total before tax
—
—
Income tax expense
$
41.8
$
—
Net of tax
1 Amounts in parentheses indicate income recognized in the Condensed Consolidated Statements of Earnings.
2 Amount represents the reclassification for currency translation losses in connection with the sale of ATFL (see Note 3).
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16. FAIR VALUE MEASUREMENTS
Financial Accounting Standards Board guidance establishes a three-level fair value hierarchy based upon the assumptions (inputs) used to price assets or liabilities. The three levels of inputs used to measure fair value are as follows:
Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities,
Level 2 — Observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets, and
Level 3 — Unobservable inputs reflecting our own assumptions and best estimate of what inputs market participants would use in pricing the asset or liability.
The fair values of our Level 2 derivative instruments were determined using valuation models that use market observable inputs including both forward and spot prices for currencies and commodities. Derivative assets and liabilities included in Level 2 primarily represent commodity and foreign currency option and forward contracts.
The following table presents our financial assets and liabilities measured at fair value on a recurring basis, based upon the level within the fair value hierarchy in which the fair value measurements fall, as of August 25, 2024:
Level 1
Level 2
Level 3
Net Value
Assets:
Derivative assets
$
5.3
$
2.6
$
—
$
7.9
Deferred compensation assets
6.4
—
—
6.4
Available-for-sale debt securities
—
—
2.9
2.9
Total assets
$
11.7
$
2.6
$
2.9
$
17.2
Liabilities:
Derivative liabilities
$
—
$
3.0
$
—
$
3.0
Deferred compensation liabilities
75.1
—
—
75.1
Total liabilities
$
75.1
$
3.0
$
—
$
78.1
The following table presents our financial assets and liabilities measured at fair value on a recurring basis, based upon the level within the fair value hierarchy in which the fair value measurements fall, as of May 26, 2024:
Level 1
Level 2
Level 3
Net Value
Assets:
Derivative assets
$
2.3
$
0.7
$
—
$
3.0
Deferred compensation assets
6.3
—
—
6.3
Available-for-sale debt securities
—
—
2.9
2.9
Total assets
$
8.6
$
0.7
$
2.9
$
12.2
Liabilities:
Derivative liabilities
$
—
$
3.6
$
—
$
3.6
Deferred compensation liabilities
70.4
—
—
70.4
Total liabilities
$
70.4
$
3.6
$
—
$
74.0
Nonrecurring Fair Value Measurements
Certain assets and liabilities, including long-lived assets, goodwill, asset retirement obligations, and equity investments are measured at fair value on a nonrecurring basis using Level 3 inputs.
Other Asset Impairments
In the first quarter of fiscal 2024, we recognized charges for the impairment of certain long-lived assets based upon a discounted cash flow valuation model and included in restructuring activities. Impairments totaled $ 0.6 million in our Grocery & Snacks segment and $ 14.1 million in our International segment. The majority of these impairment charges were based upon management’s decision to exit certain manufacturing facilities in fiscal 2024, which reduced the future expected cash flows to be generated at these facilities.
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Long-Term Debt Fair Value
The carrying amount of long-term debt (including current installments) was $ 7.51 billion and $ 7.51 billion as of August 25, 2024 and May 26, 2024, respectively. Based on current market rates, the fair value of this debt (level 2 liabilities) at August 25, 2024 and May 26, 2024 was estimated at $ 7.52 billion and $ 7.26 billion, respectively.
17. BUSINESS SEGMENTS AND RELATED INFORMATION
We reflect our results of operations in four reporting segments: Grocery & Snacks, Refrigerated & Frozen, International, and Foodservice.
The Grocery & Snacks reporting segment principally includes branded, shelf-stable food products sold in various retail channels in the United States.
The Refrigerated & Frozen reporting segment principally includes branded, temperature-controlled food products sold in various retail channels in the United States.
The International reporting segment principally includes branded food products, in various temperature states, sold in various retail and foodservice channels outside of the United States.
The Foodservice reporting segment includes branded and customized food products, including meals, entrees, sauces and a variety of custom-manufactured culinary products packaged for sale to restaurants and other foodservice establishments primarily in the United States.
We do not aggregate operating segments when determining our reporting segments.
Operating profit for each of the segments is based on net sales less all identifiable operating expenses. General corporate expense; pension and postretirement non-service income (expense); interest expense, net; income taxes; and equity method investment earnings have been excluded from segment operations.
Thirteen Weeks Ended
August 25, 2024
August 27, 2023
Net sales
Grocery & Snacks
$
1,182.7
$
1,202.9
Refrigerated & Frozen
1,086.4
1,151.6
International
259.1
260.2
Foodservice
266.7
289.3
Total net sales
$
2,794.9
$
2,904.0
Operating profit
Grocery & Snacks
$
249.1
$
258.7
Refrigerated & Frozen
176.0
199.2
International
33.6
23.7
Foodservice
35.1
44.1
Total operating profit
$
493.8
$
525.7
Equity method investment earnings
29.1
35.5
General corporate expense
92.2
36.7
Pension and postretirement non-service income (expense)
3.1
( 0.3 )
Interest expense, net
105.8
106.0
Income tax expense (benefit)
( 138.9 )
98.3
Net income
$
466.9
$
319.9
Less: Net income attributable to noncontrolling interests
0.1
0.2
Net income attributable to Conagra Brands, Inc.
$
466.8
$
319.7
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The following table presents further disaggregation of our net sales:
Thirteen Weeks Ended
August 25, 2024
August 27, 2023
Frozen
$
913.4
$
948.4
Staples
Other shelf-stable
690.3
696.8
Refrigerated
173.0
203.2
Snacks
492.4
506.1
Foodservice
266.7
289.3
International
259.1
260.2
Total net sales
$
2,794.9
$
2,904.0
To be consistent with the manner in which we present certain disaggregated net sales information to investors, we have categorized certain net sales of our segments as “Staples”, which includes all of our U.S. domestic retail refrigerated products and other shelf-stable grocery products. Management continues to regularly review financial results and make decisions about allocating resources based upon the four reporting segments outlined above.
Assets by Segment
The majority of our manufacturing assets are shared across multiple reporting segments. Output from these facilities used by each reporting segment can change over time. Also, working capital balances are not tracked by reporting segment. Therefore, it is impracticable to allocate those assets to the reporting segments, as well as disclose total assets by segment. Total depreciation expense was $ 85.7 million and $ 83.1 million for the first quarter of fiscal 2025 and 2024, respectively.
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