Conagra Brands begins strategic reset with dividend cut and higher reinvestment

Conagra Brands Inc (NYSE:CAG) is embarking on a strategic reset after reporting fourth quarter results that missed expectations on sales and operating profit, prompting Jefferies to reiterate its Hold rating while raising its price target to $14 from $13.

The company reported fourth quarter revenue and operating profit below consensus expectations, although adjusted earnings per share were broadly in line with forecasts, helped by a lower tax rate. Management also issued fiscal 2027 guidance that Jefferies described as broadly consistent with buy-side expectations.

A key announcement was Conagra's decision to cut its dividend by 50%, a move expected to free about $335 million in annual cash flow. The company plans to use the funds for debt reduction, increased investment in its brands, and supply chain modernization.

Jefferies wrote that the dividend reduction should help accelerate progress toward the company's long-term leverage target, although leverage is expected to rise to around 4.0x in fiscal 2027. Capital expenditure is projected to increase to about $550 million in fiscal 2027, with roughly $100 million of the year-over-year increase allocated to protein and fried chicken projects. Advertising and promotion spending is also expected to rise to around 3% of net sales.

The firm highlighted CEO John Brase's strategic priorities, including a shift in the frozen food business away from volume growth and toward protecting margins through pricing. According to Jefferies, the company's guidance assumes mid-single-digit percentage volume declines alongside low-single-digit price increases, driven primarily by the frozen category.

Brase also outlined plans to simplify Conagra's product portfolio and operations, beginning with a review of individual stock keeping units (SKUs) before broader portfolio changes over the medium to long term. Additional details are expected at an investor day in early calendar 2027.

Jefferies wrote that inflation remains a challenge, with management citing approximately 6.5% inflation across beef, edible oils, and more recently crude oil and logistics, while consumers remain focused on value.

"With the fiscal 2027 guide within buyside expectations and actions outlined to address volume/margin imbalance, underinvestment, and complexity, we don't view the print as an incremental negative,” the analysts wrote.

Jefferies noted that the key question is whether fiscal 2027 represents the low point for earnings and whether the company's assumptions are sufficiently conservative.

The firm added that if Conagra's reinvestment efforts lead to a gradual improvement in demand while restoring profitability, the turnaround could ultimately benefit the business, although execution risks remain.

Shares of Conagra traded at $14 on Thursday afternoon, down about 16% so far this year.