Why Conagra Stock Just Dropped 10%

Conagra brands (CAG -8.74%)purveyor of everything from Birds Eye frozen vegetables to Duncan Hines cake mix to Marie Callender cakes fell 9.6% as of 10:55 a.m. ET on Wednesday after reporting a profit loss.

Looking at first-quarter 2025 financial results, analysts forecast Conagra will earn $0.59 per share after including one-time items, on sales of more than $2.8 billion. In fact, Conagra earned just $0.53 per share while its sales were just $2.8 billion.

Conagra’s results for the first quarter

The first quarter was a difficult one for this food range, with sales down 4% and operating profit margin falling almost 250 basis points to 14.4%. This turned what could have been a decline in profits into something much bigger, as adjusted profits fell by 20%.

An additional advantage is that profits calculated under generally accepted accounting principles (GAAP) increased by as much as 45% because the company took advantage of a $210 million income tax credit. Kudos to Conagra for explaining to investors that they shouldn’t expect this to happen again and for highlighting what its profits would look like without the tax breaks.

Can Conagra shares be sold?

Investors are punishing Conagra for its transparency. But is this the right response?

Finally, turning to guidance, Conagra assured investors that despite the first quarter setback, it remains on track to meet or exceed consensus targets for fiscal 2025. Management expects adjusted earnings this year to range from 2.60 to $2.65, which is half the $2.61 that Wall Street expects.

Management also suggested a smaller decline in sales in 2025, ranging from just 1.5% to no decline at all. Operating profit margins are expected to improve in fiscal 2024, rebounding to 15.6% or more. Most importantly, Conagra expects to continue to convert 90% of its operating profit to free cash flow (FCF), which by my calculations translates to at least $1.1 billion in FCF this year and about a 14x share price-to-FCF ratio.

If Conagra can get back to 10% growth, it should be cheap enough to buy.