Conagra Brands has officially published results from for the second quarter of fiscal year 2025, which ended on November 24, 2024.
According to certain reports, these results reveal a decline in net sales by 0.4%, whereas on the hand, organic net sales increased 0.3%. Furthermore, the reported operating margin was 12.6%. This represents a 138 basis point decrease. On the flipside, adjusted operating margin was 15.3%, representing a 57 basis point decrease.
The adjusted EPS settled around $2.45 and $2.50, while the free cash flow conversion was of greater than 100%. Going by the available details, gross profit was also flat at $847 million in the quarter, with the adjusted gross profit decreasing by 2.3% to $842 million. It was found to be the case because productivity and higher organic net sales were offset by the negative impacts of cost of goods sold inflation, as well as unfavorable operating leverage.
Gross margin, however, would go on to increase 11 basis points to 26.5% in the quarter, and adjusted gross margin would decrease 52 basis points to 26.4%.
Moving on, selling, general, and administrative expense (SG&A), which includes advertising and promotional expense (A&P), went on to increase by 11.6% to $444 million. This happened, by and large, because of non-cash charges incurred in connection with the company’s restructuring plans and impairments of certain brand intangible assets, partially offset by a 4.4% decrease in A&P. As for the adjusted SG&A, it went up 1.2% to $283 million, an uptick primarily driven by higher incentive compensation compared to the prior year quarter.
“Our business returned to growth in the second quarter despite a continued challenging consumer environment as our investments paid off, driving strong market share performance. While momentum remains strong, we expect the business to be impacted by two headwinds in the back half including higher than expected inflation and unfavorable foreign exchange rates, leading us to update our fiscal 2025 outlook,” said Sean Connolly, president and chief executive officer of Conagra Brands.
Moving on, net sales for the Grocery & Snacks segment increased 2.0% to $1.3 billion in the quarter, which is driven by a 1.2% increase in organic net sales; and a 0.8% increase from the favorable impact of M&A. More on the increase in organic net sales would reveal that it stems from price/mix increase of 0.9% and a volume increase of 0.3%. All in all, Conagra gained volume share in snacking and staples categories, including microwave popcorn, shelf-stable dinners and entrees, chili, and seeds.
The grocery and snacking category operating profit would go up by 5.0% to $293 million in the quarter, and at same time, its adjusted operating profit would increase by 4.8% to $296 million as productivity and higher organic net sales effectively offset the negative impact of cost of goods sold inflation. On top of that, the company realized a $6 million benefit related to insurance proceeds for lost sales from the fiscal 2023 canned meat recall.
Turning our attention towards the Refrigerated & Frozen segment, it experienced relatively flat sales in terms of reported and organic metrics, with the final number understood to be $1.3 billion in the quarter, as price/mix decreased 1.9% due to an increase in strategic investments and volume. Conagra also gained volume share in select categories, such as frozen multi-serve meals, frozen single-serve meals, and frozen vegetables.
Beyond that, we ought to mention how the operating profit for the segment decreased 53.4% to $103 million in the quarter due to non-cash charges incurred in connection with restructuring plans and impairments of certain brand intangible assets. The adjusted operating profit decreased 10.8% to $198 million, considering negative impacts of cost of goods sold inflation and unfavorable operating leverage would nullify productivity and lower SG&A.
Then, there is the international segment, where net sales decreased 12.9% to $243 million in the quarter. This translates to an 8.4% decrease from the unfavorable impact of M&A, a 3.8% decrease from the unfavorable impact of foreign exchange, and a 0.7% decrease in organic net sales.
As for the operating profit, it went up 590.6% to $41 million in the quarter.
