Why Conagra Stock Plunged 10%

Conagra Brands (CAG -8.30%)purveyor of everything from Birds Eye frozen vegetables to Duncan Hines cookie mix to Marie Callender pies, was down 9.6% by 10:55 a.m. ET Wednesday after reporting an earnings miss.

Heading into fiscal 2025 Q1 results, analysts expect Conagra to earn $0.59 per share adjusted for 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 under $2.8 billion.

Conagra Q1 earnings

Q1 was tough for this grocery stock, with sales down 4% and operating profit margins down nearly 250 basis points to 14.4%. That turned what could have been a slide in profits into something much bigger, as adjusted earnings fell 20%.

In addition, GAAP earnings rose 45% as the company enjoyed a $210 million tax benefit. Congratulations to Conagra, however, for clarifying to investors that this should not be expected to happen again and for highlighting how its earnings would have looked without the tax benefit.

Is Conagra stock a sell?

Investors punish Conagra for transparency. But is this the right reaction?

After all, referring to guidance, Conagra assured investors that despite the Q1 rate, it is still on track to meet or exceed consensus targets for fiscal 2025. Management believes adjusted earnings are between 2.60 USD and $2.65 this year, which in the middle is more than the $2.61 expected by Wall Street.

Management also suggested a smaller decline in sales in 2025, ranging from just 1.5% to nothing. And operating profit margins should improve from fiscal 2024, returning to 15.6% or better. At best, Conagra expects to continue to convert 90% of operating profit into free cash flow (FCF), which by my calculations brings in at least $1.1 billion in FCF this year and a price-to-FCF ratio about 14 times per share.

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