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Item 2. Management’s Discussion and Analysis

2024-12-19 compared with 2024-10-02 · 156 added, 96 removed, 119 unchanged (68% of the section changed)

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Examples of forward-looking statements include statements regarding our expected future financial performance or position, results of operations, business strategy, plans and objectives of management for future operations, and other statements that are not historical facts.

You can identify forward-looking statements by their use of forward-looking words, such as “may”, “will”, “anticipate”, “expect”, “believe”, “estimate”, “intend”, “plan”, “should”, “seek”, or comparable terms.

You can identify forward-looking statements by their use of forward-looking words, such as “may”, “will”, “anticipate”, “expect”, “believe”, “estimate”, “plan”, “should”, “seek”, or comparable terms.

Readers of this report should understand that these forward-looking statements are not guarantees of performance or results.

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

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

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

EXECUTIVE OVERVIEW

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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 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.

Fiscal 2025 Second Quarter Results

In the second quarter of fiscal 2025, results reflected a slight decline in net sales, with an organic (excludes the impact of acquisitions, divestitures, and foreign exchange) increase in our Grocery & Snacks segment and flat net sales in our Refrigerated & Frozen segment that were more than offset by decreases in our Foodservice and International segments, in each case compared to the second quarter of fiscal 2024.

Overall gross profit was flat as the impacts of input cost inflation and unfavorable operating leverage were offset by productivity and lower transportation costs.

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

Corporate expenses were lower and selling, general and administrative (“SG&A”) expenses were higher primarily due to items impacting comparability, as discussed below.

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

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

Diluted earnings per share in the second quarter of fiscal 2025 and 2024 was $0.59 and $0.60, respectively.

Diluted earnings per share was affected by slightly lower net income in the second quarter of fiscal 2025 compared to the second quarter of fiscal 2024.

Trends Impacting Our Business

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.

During the first half of fiscal 2025, we experienced a moderate amount of input cost inflation and negative impacts from exchange rates, which we were able to 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 $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:

We had $10.9 million of derivative gains and $11.2 million of derivative losses in the second quarter of fiscal 2025 and 2024, respectively, and $9.6 million and $16.4 million of derivative gains in the first half of fiscal 2025 and 2024, respectively, which were included in general corporate expenses and reflected as items impacting comparability.

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

● charges totaling $79.5 million ($60.4 million after-tax) in connection with our restructuring plans,

● charges of $18.9 million ($14.5 million after-tax) related to the impairments of certain brand intangible assets, and

● an income tax benefit of $14.4 million primarily associated with the recognition of certain unrecognized tax benefits and release of valuation allowances on certain deferred tax assets based upon interactions with the taxing authorities.

Items of note impacting comparability for the second quarter 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 $14.0 million ($10.4 million after-tax) related to legacy legal matters, and

● charges totaling $3.5 million ($2.7 million after-tax) in connection with our restructuring plans.

Items of note impacting comparability for the first half of fiscal 2025 included the following:

● an income tax benefit of $225.8 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 $83.8 million ($63.6 million after-tax) in connection with our restructuring plans,

● charges of $18.9 million ($14.5 million after-tax) related to the impairments of certain brand intangible assets,

● 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, 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 half 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 totaling $27.9 million ($20.8 million after-tax) in connection with our restructuring plans, and

● charges of $14.0 million ($10.4 million after-tax) related to legacy legal matters.

SEGMENT REVIEW

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Thirteen Weeks Ended

Twenty-Six Weeks Ended

Reporting Segment

August 25, 2024

August 27, 2023

November 24, 2024

November 26, 2023

November 24, 2024

November 26, 2023

Grocery & Snacks

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International

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.

Net sales for the second quarter and first half of fiscal 2025 in our Grocery & Snacks segment included an increase in price/mix of 0.9% and 0.4%, respectively, excluding the impact of acquisitions, when compared to the second quarter and first half of fiscal 2024.

Price/mix was impacted by favorable brand mix and favorability in inflation-driven pricing, partially offset by an increase in strategic trade investments.

Volume increased by 0.3% for the second quarter of 2025 when compared to the second quarter of 2024.

Volume decreased by 0.7% for the first half of 2025 when compared to the first half of 2024, primarily due to the elasticity impact from inflation-driven pricing actions, partially offset by improved consumption trends in the current quarter.

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.

in August 2024 and an existing co-manufacturer of our cooking spray products in July 2024 contributed $10.9 million and $13.6 million to our Grocery & Snacks segment net sales during the second quarter and first half of fiscal 2025, respectively.

Net sales for the second quarter and first half of fiscal 2025 in our Refrigerated & Frozen segment reflected a decrease in price/mix of 1.9% and 3.7%, respectively, when compared to the second quarter and first half of fiscal 2024, primarily attributable to an increase in strategic trade investments.

Volume increased by 1.9% and 1.1% for the second quarter and first half of fiscal 2025, respectively, when compared to the second quarter and first half of fiscal 2024 due to improved consumption trends and strategic investments in certain brands.

Additionally, we estimate that net sales during the first half 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 second quarter of fiscal 2025 in our International segment reflected a 3.8% decrease due to unfavorable foreign exchange rates, a 2.4% decrease in volumes, and a 1.7% increase in price/mix, in each case compared to the second 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 decreases were driven by lower consumption trends in our Canadian business.

The second quarter of fiscal 2024 included $24.5 million of net sales related to our ownership stake in Agro Tech Foods Limited (“ATFL”), which was sold in the first quarter of fiscal 2025.

Net sales for the first half of fiscal 2025 in our International segment reflected a 3.6% decrease due to unfavorable foreign exchange rates, a 3.1% increase in price/mix, and a 1.9% decrease in volumes, in each case compared to the first half of fiscal 2024.

The unfavorable foreign exchange rates were primarily due to the devaluation of the Mexican Peso relative to the US dollar.

The first half of fiscal 2025 and 2024 included $23.6 million and $48.5 million, respectively, of net sales related to ATFL.

Net sales for the second quarter and first half of fiscal 2025 in our Foodservice segment reflected a decrease in volumes of 3.9% and 7.5%, respectively, excluding the impact of acquisitions, when compared to the second quarter and first half 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.

Price/mix increased by 2.9% and 3.1%, compared to the second quarter and first half of fiscal 2024, respectively, reflecting inflation-driven pricing and the value-over-volume strategy.

Additionally, we estimate that net sales in our Foodservice segment during the first half 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 $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:

SG&A expenses totaled $444.1 million for the second quarter of fiscal 2025, an increase of $46.0 million, as compared to the second quarter of fiscal 2024.

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

Items impacting comparability of earnings

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

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

● net charges of $73.3 million in connection with our restructuring plans and

● charges of $18.9 million related to the impairments of certain brand intangible assets.

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

● a decrease of $4.7 million in information technology-related expenses, in part due to implementation of a new enterprise resource planning software system in Mexico in the prior year,

● an increase in salary, wage, and fringe benefit expense of $4.5 million,

● a decrease in advertising and promotion expense of $3.2 million, and

● an increase in share-based payment expense of $3.0 million.

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

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

● charges of $14.0 million related to legal matters, and

● a net gain of $2.6 million primarily associated with insurance proceeds from the previous fire that occurred at one of our manufacturing facilities.

SG&A expenses totaled $781.8 million for the first half of fiscal 2025, an increase of $49.6 million, as compared to the first half of fiscal 2024.

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

Items impacting comparability of earnings

● net charges of $75.5 million in connection with our restructuring plans,

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

● charges of $18.9 million related to the impairments of certain brand intangible assets,

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

● a loss of $2.3 million on the sale of our ownership stake in ATFL.

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

● an increase in share-based payment expense of $26.2 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

● a decrease in advertising and promotion expense of $11.5 million,

● an increase in salary, wage, and fringe benefit expense of $8.3 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.

● a decrease in short-term incentive expense of $7.2 million, and

● a decrease in consulting and professional fees of $6.0 million, partially due to implementation of a new enterprise resource planning software system in Mexico in the prior year.

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

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

● net charges of $20.8 million in connection with our restructuring plans,

● charges of $14.0 million related to legal matters, and

● a net gain of $5.9 million primarily associated with insurance proceeds 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)

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Thirteen Weeks Ended

Twenty-Six Weeks Ended

Reporting Segment

August 25, 2024

August 27, 2023

November 24, 2024

November 26, 2023

November 24, 2024

November 26, 2023

Grocery & Snacks

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International

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.

Operating profit in our Grocery & Snacks segment for the second quarter and first half of fiscal 2025 reflected an increase in gross profits of $20.4 million and $6.8 million, respectively, compared to the second quarter and first half of fiscal 2024.

The increase in gross profit was driven by the increase in net sales discussed above and productivity, partially offset by the impacts of input cost inflation.

In addition, we recognized a benefit of $6.4 million and $9.7 million in the second quarter and first half of fiscal 2025 related to insurance proceeds for lost sales from our fiscal 2023 brand recall on Armour Star ® .

Operating profit in our Grocery & Snacks segment for the second quarter of fiscal 2025 and 2024 included charges of $1.8 million and $2.7 million, respectively, related to our restructuring plans.

Operating profit in our Grocery & Snacks segment for the first half of fiscal 2025 and 2024 included charges of $6.0 million and $7.5 million, respectively, related to our restructuring plans.

Operating profit in our Refrigerated & Frozen segment for the second quarter of fiscal 2025 reflected a decrease in gross profits of $35.4 million compared to the second quarter of fiscal 2024.

The decrease was driven by the impacts of input cost inflation and unfavorable operating leverage, partially offset by productivity and lower transportation costs.

The decrease in gross profits was partially offset by lower SG&A expenses.

Operating profit in our Refrigerated & Frozen segment for the second quarter of fiscal 2025 included charges of $77.3 million related to our restructuring plans and $18.2 million related to the impairments of certain brand intangible assets.

Operating profit in our Refrigerated & Frozen segment for the first half of fiscal 2025 reflected a decrease in gross profits of $67.8 million compared to the first half of fiscal 2024.

The decrease was driven by the net sales decline discussed above, the impacts of input cost inflation, and unfavorable operating leverage, 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 half 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 $7.7 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.

Operating profit in our Refrigerated & Frozen segment for the first half of fiscal 2025 included charges of $77.4 million related to our restructuring plans and $18.2 million related to the impairments of certain brand intangible assets.

Operating profit in our International segment for the second quarter of fiscal 2025 reflected a decrease in gross profits of $6.5 million when compared to the second quarter of fiscal 2024.

The decrease was driven by a reduction in profit associated with the sale of our ownership stake in ATFL, the impacts of input cost inflation, and unfavorable foreign exchange rates, partially offset by productivity.

The decrease in gross profits was partially offset by lower SG&A expenses.

Operating profit in the second quarter of fiscal 2024 included a charge of $34.2 million related to the impairment of our ATFL business, which was sold in the first quarter of fiscal 2025.

Operating profit in our International segment for the first half of fiscal 2025 reflected a decrease in gross profits of $10.2 million when compared to the first half of fiscal 2024.

Operating profit in the first half of fiscal 2025 included a $2.3 million loss on the sale of our ownership stake in ATFL.

Operating profit in the first half of fiscal 2024 included a charge of $34.2 million related to the impairment of our ATFL business and net charges of $19.1 million related to our restructuring plans.

Operating profit in our Foodservice segment for the second quarter and first half of fiscal 2025 reflected a decrease in gross profits of $0.5 million and $5.7 million when compared to the second quarter and first half 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 operating leverage, partially offset by productivity.

The decrease in gross profits was partially offset by lower advertising and promotion expenses in both the second quarter and first half of fiscal 2025.

The second quarter and first half of fiscal 2024 was impacted by net benefits of $2.6 million and $5.9 million, respectively, associated with insurance recoveries related to a fire that occurred at one of our manufacturing facilities.

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.

In the second quarter and first half of fiscal 2025, pension and postretirement non-service income was $3.1 million and $6.2 million, respectively, compared to expense of $0.4 million and $0.7 million in the second quarter and first half of fiscal 2024, respectively.

The second quarter and first half of fiscal 2025 reflected lower interest costs.

Interest Expense, Net

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

Net interest expense was $108.2 million and $113.3 million for the second quarter of fiscal 2025 and 2024, respectively.

Net interest expense was $214.0 million and $219.3 million for the first half of fiscal 2025 and 2024, respectively.

The decrease was driven by an overall reduction of our debt balances.

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

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 $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.

Equity method investment earnings were $48.5 million and $54.3 million for the second quarter of fiscal 2025 and 2024, respectively.

Equity method investment earnings were $77.6 million and $89.8 million for the first half of fiscal 2025 and 2024, respectively.

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

In the second quarter of fiscal 2025 and 2024, we recognized income tax expense of $61.5 million and $102.9 million, respectively.

In the first half of fiscal 2025 and 2024, we recognized an income tax benefit of $77.4 million and income tax expense of $201.2 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 17.8% and 26.5% for the second quarter of fiscal 2025 and 2024, respectively.

The effective tax rate was approximately (11.5)% and 24.9% for the first half 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.

Earnings Per Share

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.

Diluted earnings per share in the second quarter of fiscal 2025 and 2024 was $0.59 and $0.60, respectively.

Diluted earnings per share in the first half of fiscal 2025 and 2024 was $1.57 and $1.26, respectively.

The increase reflected higher net income in the first half of fiscal 2025 compared to the first half of fiscal 2024.

LIQUIDITY AND CAPITAL RESOURCES

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Borrowing Facilities and Long-Term Debt

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).

At November 24, 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 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.

As of November 24, 2024, there were no outstanding borrowings under the Revolving Credit Facility.

As of November 24, 2024, we had $849.0 million outstanding under our commercial paper program.

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

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

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%.

During the second quarter of fiscal 2025, we prepaid the remaining outstanding $250.0 million aggregate principal amount of our unsecured term loan (the “Term Loan”).

The repayment was primarily funded by operating cash flows.

The weighted average coupon interest rate of long-term debt obligations outstanding as of November 24, 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 first quarter of fiscal 2025, our senior long-term debt ratings were all investment grade.

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

As of November 24, 2024, we were in compliance with all financial covenants.

Equity and Dividends

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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.

We did not repurchase any shares of common stock during the second quarter of fiscal 2025.

The Company’s total remaining share repurchase authorization as of November 24, 2024 was $852.6 million.

On November 27, 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 October 31, 2024.

On December 12, 2024, we announced that our Board had authorized a quarterly dividend of $0.35 per share to be paid on February 27, 2025, to stockholders of record as of close of business on January 27, 2025.

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.

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.

In the second quarter of fiscal 2025, we entered into a warehousing service agreement with obligations totaling approximately $187 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 26, 2024.

Capital Expenditures

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

During the first half of fiscal 2025, we used $41.6 million of cash, which was the net result of $754.2 million generated from operating activities, $366.0 million used in investing activities, $425.2 million used in financing activities, and a decrease of $4.6 million due to the effects of changes in foreign currency exchange rates.

Cash generated from operating activities totaled $754.2 million and $854.6 million in the first half of fiscal 2025 and 2024, respectively.

The decrease in operating cash flows for the first half of fiscal 2025 compared to the first half of fiscal 2024 was primarily driven by lower operating profits and lower dividend payments received from one of our equity method investments partially offset by the timing of payments of accounts payable and the accelerated receipt of our outstanding receivables.

In the second quarter of fiscal 2025, we utilized certain customer payment term offerings to accelerate receipt on our outstanding receivables in exchange for a slightly higher prompt pay discount, which increased our cash flow from operations by approximately $155 million.

Operating cash flows in the first half of fiscal 2025 also benefited from lower tax payments as a result of recent interactions with the U.S.

Internal Revenue Service (“IRS”) allowing for additional tax deductions.

Cash used in investing activities totaled $366.0 million and $203.9 million in the first half of fiscal 2025 and 2024, respectively.

Investing activities in the first half of fiscal 2025 consisted primarily of capital expenditures totaling $215.4 million, and the purchases of an existing co-manufacturer and Sweetwood Smoke & Co.

for a total of $230.6 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 half of fiscal 2024 consisted primarily of capital expenditures totaling $214.0 million.

Cash used in financing activities totaled $425.2 million and $683.4 million in the first half of fiscal 2025 and 2024, respectively.

Financing activities in the first half of fiscal 2025 principally reflected repayments of long-term debt of $270.2 million, cash dividends paid of $335.1 million, and common stock repurchases of $64.0 million partially offset by net short-term borrowing issuances of $264.4 million.

Financing activities in the first half of fiscal 2024 principally reflected repayments of long-term debt of $760.6 million, the issuance of long-term debt totaling $500.0 million, net short-term borrowing repayments of $81.2 million, and cash dividends paid of $324.7 million.

Cash Held by International Subsidiaries

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.

The Company had cash and cash equivalents of $37.4 million at November 24, 2024 and $77.7 million at May 26, 2024, of which $28.3 million at November 24, 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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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