Conagra Brands Q4 2025 Prepared Remarks Earnings Report

Conagra Brands EPS Results

• Actual EPS: $0.56
• Consensus EPS: $0.61
• Beat/Miss: Missed by -$0.05
• One Year Ago EPS: $0.61

Conagra Brands Revenue Results

• Actual Revenue: $2,781,800.00 billion
• Expected Revenue: $2.88 billion
• Beat/Miss: Beat by +$2,781,797.12 billion
• YoY Revenue Growth: -4.30%

Conagra Brands Announcement Details

• Quarter: Q4 2025 Prepared Remarks
• Date: 7/10/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, July 10, 2025
• Conference Call Time: 7:00AM ET

Conagra Brands (NYSE:CAG), Inc. is a leading North American packaged foods company that manufactures, markets and distributes a broad array of branded and private-label food products. The company serves retail grocery, club, dollar and convenience stores as well as foodservice operators across the United States, Canada and select international markets. Its core operating segments encompass Frozen & Refrigerated, Shelf-Stable Foods and International, reflecting a diversified portfolio designed to meet consumer demand for convenience, flavor and innovation.

Conagra’s brand lineup includes well-recognized names across multiple categories. In the frozen meals and snacks space, the company is known for Healthy Choice, Marie Callender’s and Banquet. Its shelf-stable offerings feature condiments and sauces under the Hunt’s and Gulden’s banners, as well as snack items like Slim Jim meat sticks. On the refrigerated and refrigerated-shelf side, Reddi-wip toppings and SmartMade refrigerated meals further bolster its presence in quick-serve and at-home dining occasions.

Originally founded in 1919 as Nebraska Consolidated Mills, the company was renamed Conagra in 1971 and expanded significantly through strategic acquisitions such as Ralcorp in 2013 and Pinnacle Foods in 2018. A relocation of its corporate headquarters from Omaha, Nebraska, to Chicago in 2015 reflected the company’s evolving global ambition. Over the decades, Conagra has focused on streamlining operations, optimizing supply chains and investing in product innovation to maintain competitiveness in the fast-moving consumer goods sector.

Under the leadership of President and Chief Executive Officer Sean Connolly, who took the helm in 2015, Conagra Brands has prioritized brand revitalization and health-and-wellness innovation, while maintaining cost discipline. The company operates manufacturing facilities and distribution centers throughout North America and has implemented sustainability and responsible sourcing initiatives. These efforts underscore Conagra’s commitment to meeting consumer needs, supporting communities and driving long-term value.

Conagra Brands Q4 2025 Prepared Remarks Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strong first half performance with five consecutive quarters of organic volume growth driving market share gains and meeting EPS targets; innovation launches generated over $300 million in retail sales, a 27% increase year-over-year.
• Negative Sentiment: Second half was hampered by 4% cost-of-goods inflation, adverse foreign exchange impacts, supply constraints in frozen chicken meals and vegetables, and weakening consumer sentiment that pressured volumes and margins.
• Negative Sentiment: For fiscal 2026, Conagra guides organic net sales of –1% to +1%, adjusted operating margin near 11–11.5%, and EPS of $1.70–$1.85, while facing approximately 7% total inflation including tariffs.
• Positive Sentiment: Management’s 2026 priorities focus on long-term value creation through volume-driven growth in frozen and snacks (70% of portfolio), backed by increased innovation, targeted merchandising, and marketing investments.
• Positive Sentiment: Conagra achieved its three-year $1 billion cost savings goal and expects about 4% core productivity gains in 2026 to largely offset inflation, bolstering free cash flow and aiding net debt reduction.

Presentation

[Matthew Neisius, Senior Director & Head - IR at Conagra Brands]

Good morning. Thank you for listening to our prepared remarks for the Conagra Brands fourth quarter fiscal twenty twenty five earnings. At 09:30 Eastern this morning, we'll hold a separate live question and answer session on today's results, which you can access via webcast on our Investor Relations website. Our press release, presentation materials and a transcript of these prepared remarks are also available there. We will be making some forward looking statements today.

[Matthew Neisius, Senior Director & Head - IR at Conagra Brands]

And while we're making those statements in good faith based on current information, we don't have any guarantee about the results we'll achieve. Descriptions of our risk factors are included in our filings with the SEC. We'll also be discussing some non GAAP financial measures. Please see the earnings release and presentation materials for GAAP to non GAAP reconciliations and information on our comparability items, both of which can be found in the Investor Relations section of our website. I'm joined this morning by Sean Connolly, our CEO and Dave Marburger, our CFO. I'll now turn the call over to Sean.

[Sean Connolly, President & CEO at Conagra Brands]

Thanks, Matthew, and good morning, everyone. Thank you for joining our fourth quarter fiscal twenty twenty five earnings call. Today, I'll review the contrasting halves of our fiscal twenty twenty five performance and provide an overview of fiscal twenty twenty six, including the near term environment and various actions we're taking to proactively manage the business for long term value creation. Let's begin with a wrap up of fiscal twenty twenty five, starting on Slide six. Fiscal twenty twenty five was a tale of two halves.

[Sean Connolly, President & CEO at Conagra Brands]

We entered the year with a focus on returning to volume growth and throughout the first half we made progress toward that goal. Our investments in innovation and maximizing consumer value delivered solid results leading to five consecutive quarters of organic volume improvement including a return to growth for our domestic retail segments in the second quarter. Our first half volume recovery outpaced the peer set, drove strong market share performance and enabled us to meet our first half EPS plan. Overall, the first half delivered largely what we expected and demonstrated the strength of our strategy and portfolio. Our investments in innovation were a key performance driver of fiscal twenty twenty five.

[Sean Connolly, President & CEO at Conagra Brands]

As you know, we have a proven innovation capability, which delivered in fiscal twenty twenty five highlighting the continued strength of our data based approach to meeting evolving consumer needs. Slide seven shows that innovation launched in fiscal twenty twenty five contributed more than $300,000,000 in retail sales during the year, reflecting the success of our efforts to bring high quality differentiated products to market. This represented a 27% increase compared to fiscal twenty twenty four launches. Additionally, the velocity of our fiscal twenty twenty five launches improved by 36% compared to fiscal twenty twenty four indicating that our new products are not only resonating with consumers, but also driving repeat purchases at a higher rate. Some standout examples of our fiscal twenty twenty five innovation slate include the Banquet Mega Filets, Dolly Parton's Whits Cheesecake, Blastic Pickleballs and Wendy's Chili.

[Sean Connolly, President & CEO at Conagra Brands]

Our strong innovation performance was enabled in part by a return to historical merchandising levels as evident on Slide eight. By the second quarter of fiscal twenty twenty five, we successfully rebuilt merchandising levels to their pre COVID norm. Since 2020, our merchandising investments had been suppressed as our primary focus was on shelf availability. But over the past year, we methodically ramped up our merchandising investment in response to the strong consumer lifts we were seeing in the marketplace. We were particularly pleased with the results in our frozen portfolio.

[Sean Connolly, President & CEO at Conagra Brands]

The result was a return to domestic retail volume growth in the second quarter shown here on Slide nine. Both volume and consumption continually increased for five consecutive quarters delivering year over year growth in Q2. Consistent with consumption data, we built share over time. Not only was our top line performance strong in absolute terms, but it also stood out when compared to our peers. We significantly outperformed our closest peer by 29 percentage points and 67% of Conagra's portfolio held or gained volume share in the second quarter, marking the fifth consecutive quarter of share gains.

[Sean Connolly, President & CEO at Conagra Brands]

Taken together, the first half of fiscal twenty twenty five underscores the strength of our brands and effectiveness of our strategy. Now let's take a closer look at the second half of fiscal twenty twenty five, which proved to be more challenging than we anticipated driven by four key factors. First, inflation. While we originally expected to get some relief from inflation in the second half of fiscal twenty twenty five, it actually worsened. At the same time, foreign exchange headwinds emerged providing another challenge.

[Sean Connolly, President & CEO at Conagra Brands]

Additionally, beginning in the third quarter, we experienced supply challenges in two product platforms, frozen meals containing chicken and frozen vegetables. These discrete supply challenges prevented us from fully servicing demand and required us to incur additional cost to add capacity and rebuild inventory. Lastly, consumer sentiment further weakened in the fourth quarter as prolonged inflation and economic pressures weighed on purchasing behaviors. Our second half overall performance reflected this extremely challenging operating environment. Let's take a look at each of these issues individually.

[Sean Connolly, President & CEO at Conagra Brands]

Starting with inflation and foreign exchange headwinds on Slide 12, our cost of goods sold inflation rate actualized at 4% during the second half, well above the sub 3% levels we had expected. Inflation was most challenging within certain proteins like beef, chicken and eggs where it persisted and in some cases even worsened. At the same time, foreign exchange created additional pressure. The strengthening of the U. S.

[Sean Connolly, President & CEO at Conagra Brands]

Dollar relative to the Canadian dollar and Mexican peso negatively impacted our international segment. Slide 13 highlights the impact of the discrete supply challenges we faced in the second half of fiscal twenty twenty five within two key product platforms, frozen vegetables and meals containing chicken. These issues impacted both our sales and our costs. On the top line, supply constraints limited our ability to meet demand resulting in lost sales, particularly during the third quarter. However, service levels rebounded in Q4 to exit the year close to our target.

[Sean Connolly, President & CEO at Conagra Brands]

As you would expect, we also pulled back on merchandising support within these categories amidst the disruption, which further weakened sales. On the cost side, we incurred incremental expenses to address these challenges as we supplemented internal production with an external manufacturer. This resulted in higher product costs and unfavorable fixed cost absorption at our facility. While the increased cost impacted our bottom line, these investments in infrastructure and strategic partnerships enabled us to make solid progress towards restoring inventory and improving customer service levels across these key product platforms. Slide 14 shows the decline in consumer sentiment during the fourth quarter of fiscal twenty twenty five driven by the cumulative impact of persistent inflation, rising interest rates and overall economic uncertainty.

[Sean Connolly, President & CEO at Conagra Brands]

This decline in sentiment translated into more cautious spending behaviors, consumers became increasingly focused on seeking value, prioritizing affordability and trading down where possible. While our brands are well positioned to deliver value and meet these shifting needs, the environment created additional pressure on volumes. Despite these challenges, I'm proud of the Conagra team for their hard work throughout fiscal twenty twenty five as we navigated through an environment that proved to be more difficult than we anticipated. That brings us to fiscal twenty twenty six. The near term environment continues to present significant challenges driven by three key factors.

[Sean Connolly, President & CEO at Conagra Brands]

First, inflation remains persistent. For fiscal twenty twenty six, we expect core cost of goods inflation to be approximately 4%. To put that in context, this level of inflation in fiscal twenty twenty six will bring our five year cumulative net inflation to approximately 45%, a historic amount of inflation over such a short period of time. On top of that, the current tariff environment is expected to add approximately 3% to our cost of goods sold or more than $200,000,000 annually. This brings total anticipated inflation for fiscal twenty twenty six to approximately 7%.

[Sean Connolly, President & CEO at Conagra Brands]

Finally, consumer sentiment remains under pressure. The cumulative impact of inflation and economic uncertainty has led to value seeking behaviors becoming even more pronounced. Given these dynamics, we recognize the importance of a thoughtful and measured approach to future pricing decisions. Amidst this dynamic environment, our focus is on driving long term value creation by investing to restore growth, while maximizing cash and minimizing cost. We believe this is the right course of action to put the business back on its long term algorithm as fast as possible.

[Sean Connolly, President & CEO at Conagra Brands]

Our fiscal twenty twenty six priorities include first, driving growth in our frozen and snacks domains, which remains critical to achieving our long term financial algorithm. Growing volume is our top priority even if it means investing margin in the short term. Second, increasing our supply chain resiliency by investing to modernize our facilities and expand capacity in high growth categories. Third, differentiating the approach to our can products to address the impact of tariffs through a combination of alternative sourcing methods, cost savings initiatives and targeted price adjustments. And fourth, actively managing the business to drive strong productivity savings and continue our focus on cash flow.

[Sean Connolly, President & CEO at Conagra Brands]

Again, we're focused on the long game. In our effort to deliver sustainable growth and stronger margins over time, we will continue to make prudent decisions today to best position ConAgra for the future. That starts by delivering growth within our strategic domains. As we look to return to our long term financial algorithm, the path forward starts with our strategic focus areas, frozen and snacks. These domains are critical for a good reason.

[Sean Connolly, President & CEO at Conagra Brands]

They represent almost 70% of our portfolio's retail sales and present significant growth opportunity. The frozen meals category has delivered strong above market growth for the past forty years and we have an advantaged position as the largest frozen food manufacturer in North America. The opportunity is equally compelling in snacks. The large snacks domain is expected to expand further with occasions projected to grow by an estimated $9,000,000,000 over the next two years fueled by consumer demand for on the go options with modern attributes such as our leading meat sticks portfolio. In line with this trend, we plan to further scale Fatty Smoked Meat Sticks, our most recent acquisition in fiscal twenty twenty six.

[Sean Connolly, President & CEO at Conagra Brands]

Our snacks portfolio is already performing exceptionally well with 91% of our snack brands growing volume share in Q4 versus last year. To drive volume growth in these critical areas, we're continuing to invest in innovation, adding incremental merchandising and supporting our brands with more marketing consistent with our proven Conagra Way playbook. Fiscal twenty twenty five demonstrated that our innovation pipeline continues to deliver results. Disciplined merchandising ensures we support our brands in store, while targeted A and P investments will amplify brand visibility and consumer engagement via social media and traditional advertising. We were intentionally investing margin to enable this growth as we believe these categories have the potential to deliver outsized value over the long term.

[Sean Connolly, President & CEO at Conagra Brands]

Moving to Slide 20, a critical focus for fiscal twenty twenty six is materially strengthening our supply chain resiliency to support growth and ensure we can meet consumer demand effectively, not just today, but well into the future. This includes previously planned investments to modernize our facilities as well as new investments to expand capacity in high growth categories. As we detailed already, we're taking steps to modernize our chicken production facilities to resolve constraints in baked chicken, which were a challenge in fiscal twenty twenty five. Our baked chicken plant modernization project is expected to be completed by early Q2. It's also worth noting that we have resolved the challenges within our frozen vegetable platform.

[Sean Connolly, President & CEO at Conagra Brands]

Beyond baked chicken, we're also expanding capacity for fried chicken, which Dave will unpack for you in a minute. Chicken has been the fastest growing protein and fried chicken in particular has proven to be a consumer favorite, mirroring what we've seen in foodservice QSRs in recent years. This new investment will better support innovations like Banquet Mega Filets, which was a huge hit in fiscal twenty twenty five and Marie Callender's Fried Chicken Bowls, another consumer favorite. These investments will not only help resolve current constraints, but also enable us to build a more resilient, consistent foundation that supports long term growth capabilities ensuring we can continue to deliver for our customers. Slide '21 underscores the differentiated approach needed for our can products, which are disproportionately impacted by recent steel and aluminum tariffs.

[Sean Connolly, President & CEO at Conagra Brands]

The focus within our staples portfolio is generating cash, particularly within our can products business. These cash contributors help fund the investments that drive growth in frozen and snacks. We're committed to managing them in a way that maintains their value while mitigating the impact of higher input costs. Accordingly, we will look to offset recent cost increases in this portfolio through a combination of alternative sourcing methods, cost savings initiatives and targeted price adjustments that are expected to benefit the second half of the year. The final piece of our fiscal twenty twenty six plan is our ongoing work to actively manage the business for strong productivity and cash flow.

[Sean Connolly, President & CEO at Conagra Brands]

We're working to accelerate our productivity savings to help offset persistent inflation. We're also focused on driving out stranded costs from recent divestitures including Chef Boyardee. And of course, we continue to focus on cash, including working capital. Our cash priorities for fiscal twenty twenty six are to invest in CapEx to drive supply chain resiliency, continue to repay debt and maintain our healthy dividend. We're confident in our strategy and the actions we're taking to navigate these headwinds as we lay the groundwork to deliver sustainable growth and value creation in the years to come.

[Sean Connolly, President & CEO at Conagra Brands]

Thank you. And I'll now turn it over to Dave to discuss our financial results and outlook in more detail.

[David Marberger, EVP & CFO at Conagra Brands]

Thanks, Sean, and good morning, everyone. I'll start today with a brief update on our fourth quarter and full year fiscal twenty twenty five performance and then provide more detail on our fiscal twenty twenty six outlook. Slide '26 shows our financial results for key metrics in the quarter and the year. For the fourth quarter, Conagra's organic net sales were $2,800,000,000 a 3.5% decline versus the prior year. Adjusted gross margin was 25.8% and adjusted operating margin was 13.8, both down year over year, but improved versus Q3.

[David Marberger, EVP & CFO at Conagra Brands]

Adjusted earnings per share were $0.56 down $05 versus year ago. For the full year fiscal twenty twenty five, organic net sales of $11,600,000,000 were down 2.9. Adjusted gross profit margin was 25.7%, adjusted operating margin was 14.1% and adjusted EPS was $2.3 Slide 27 shows our fourth quarter net sales bridge. Total Conagra organic net sales decreased 3.5% over the previous year with volumes down 2.5% and price mix down 1%. Foreign exchange was a 60 basis points unfavorable due to the strength of the U.

[David Marberger, EVP & CFO at Conagra Brands]

S. Dollar relative to the Canadian dollar and Mexican peso. And as expected, reduced sales from the divestiture of our ATFL joint venture exceeded the additional net sales from our acquisition of fatty smoked meats. As a reminder, the divestitures of the Chef Boyardee, Bande Decamps and Mrs. Paul's brands did not close until the first quarter of fiscal twenty twenty six.

[David Marberger, EVP & CFO at Conagra Brands]

Slide '28 shows the composition of net sales by segment. In Grocery and Snacks, we delivered net sales of $1,200,000,000 representing a 3.3% decline in organic net sales versus the prior year, driven by lower volumes and unfavorable price mix, primarily concentrated within our grocery business. Our Refrigerated and Frozen segment delivered $1,100,000,000 in net sales, down 4.4% versus the prior year, driven by lower pricemix and lower volumes. Volume declines improved versus Q3 and we made progress restocking retailer inventory in frozen vegetables and frozen meals with chicken as the quarter progressed. In our International segment, organic net sales increased 0.8% versus the prior year.

[David Marberger, EVP & CFO at Conagra Brands]

Elasticity related volume declines were more than offset by an increase in pricemix following price increases across each of our international markets. Organic net sales in our Foodservice segment declined 4.3% over prior year as volume declines were partially offset by favorable pricemix. Our Foodservice business saw ongoing softness in commercial traffic during the quarter, though trends showed signs of improvement versus Q3. Slide 29 shows that adjusted operating margin declined 96 basis points over the previous year to 13.8%. Pricemix was a 110 basis point headwind, reflecting an increase in strategic investments in our domestic retail business and unfavorable mix, partially offset by pricing benefits in our International and Foodservice segments.

[David Marberger, EVP & CFO at Conagra Brands]

Core cost of goods sold inflation continued to be elevated in the fourth quarter at 4%. We experienced double digit inflation in categories including chicken, beef and eggs as proteins remained highly inflationary. Our overall productivity pacing rebounded in Q4 as operational efficiency across the network continued to improve. We experienced a slight decline in operating leverage from lower internal production volumes, partly due to building baked chicken inventory with a third party manufacturer in advance of our facility modernization expected to be completed in early Q2. The fourth quarter capped off the delivery of our three year $1,000,000,000 cost savings target ending fiscal twenty twenty five, a testament to the hard work of our teams.

[David Marberger, EVP & CFO at Conagra Brands]

We expect to continue this momentum into fiscal twenty twenty six. Adjusted SG and A, which includes advertising and promotion expense, was 90 basis points favorable to year ago, primarily due to lower incentive compensation expense and slightly lower A and P spend. And lastly, foreign exchange was a headwind of approximately 10 basis points. Our segment operating profit margin results summarized on Slide 30 were impacted by the same drivers that I just discussed on Slide 29. The adjusted EPS bridge for the fourth quarter and full year are shown on Slide 31.

[David Marberger, EVP & CFO at Conagra Brands]

Adjusted EPS was $0.56 in the quarter compared to $0.61 a year ago, driven by lower adjusted operating profit. In addition, we had a higher adjusted tax rate and unfavorable FX rates, which more than offset favorable adjusted pension income, interest expense and strong performance from our Ardent Mills joint venture. For the full year, the adjusted EPS decline was driven by similar factors, except for the tax rate providing slight favorability. Cash key cash flow metrics are shown on Slide 32. Conagra generated $1,700,000,000 in net cash flows from operating activities in fiscal twenty twenty five, in line with our plan.

[David Marberger, EVP & CFO at Conagra Brands]

Capital expenditures totaled $389,000,000 and dividends paid were $669,000,000 for the year, both largely in line with the prior year. Slide 33 shows that our free cash flow conversion was 118% in fiscal twenty twenty five, enabling us to reduce net debt by over $360,000,000 Net leverage at the end of the quarter was 3.6 times, and we remain committed to paying down debt as we target long term leverage of three times. That wraps up our summary of the fourth quarter and full year fiscal twenty twenty five, and I'll now move to fiscal twenty twenty six. Slide 35 shows our fiscal twenty twenty six guidance. For the fiscal year, we expect organic net sales growth in the range of minus 1% to plus 1%, adjusted operating margin of approximately 11% to 11.5% and adjusted EPS in the range of $1.7 to $1.85 I'd like to spend a moment on Slide 36 unpacking the EPS guidance range as there are several factors impacting our estimate.

[David Marberger, EVP & CFO at Conagra Brands]

We closed on both the Chef Boyardee and frozen seafood divestitures in early Q1 fiscal twenty twenty six. Proceeds from the divestitures have already been used to reduce debt. And as previously disclosed, we expect roughly $0.11 of fiscal twenty twenty six EPS headwind from the two divestitures, net of interest savings. Next, inflation remains persistent, and we expect our core cost of goods sold inflation to be approximately 4% for the year, driven by higher costs in areas such as proteins, cocoa and eggs. In addition, enacted tariffs present a headwind to our business despite most of our manufacturing taking place in The U.

[David Marberger, EVP & CFO at Conagra Brands]

S. Our canned food products make up the largest tariff exposure as steel and aluminum tariffs significantly increased the cost to procure tinplate steel as domestic supply is very limited. In addition, tariffs on our low level of imports from China and other countries impact items such as palm oil, cocoa and other inputs. Taken together, gross annualized tariff exposure is projected to add approximately 3% to our cost of goods sold inflation, bringing our total fiscal twenty twenty six inflation rate to roughly 7%. Managing this inflation will be a critical focus this year.

[David Marberger, EVP & CFO at Conagra Brands]

We expect core productivity to accelerate in fiscal twenty twenty six to approximately 4% of cost of goods sold, largely offsetting core inflation. Additionally, we have established a cross functional task force to mitigate our tariff exposure through various cost reduction levers. We currently expect these efforts to help mitigate approximately 1% of the 3% tariff headwind in fiscal twenty twenty six. This is before factoring in any potential targeted pricing actions. All in, we have forecasted the net impact of core inflation, core productivity and tariffs after cost mitigation to approximate $0.25 of EPS versus fiscal twenty twenty five.

[David Marberger, EVP & CFO at Conagra Brands]

Moving on, we see fiscal twenty twenty six as a year to continue investments. From a brand standpoint, we expect roughly $05 per share headwind related to increases in our A and P spend and slightly higher levels of promotional investment. We are also expanding our investments in our supply chain to increase the resiliency, capacity and technology of our facilities. We expect these incremental investments to more than offset the favorable lapping impact of fiscal twenty twenty five supply challenges. The planned facility modernization that we discussed last quarter is expected to be completed in early Q2, which will improve capacity of our baked chicken manufacturing and reduce reliance on external manufacturing.

[David Marberger, EVP & CFO at Conagra Brands]

In addition, we have expanded the scope of our frozen investments to include adding fried chicken capacity in light of strong demand. We will source fried chicken from an external manufacturer to meet demand while prebuilding inventory as facility investments are made throughout fiscal twenty twenty six. This will result in elevated sourcing costs in fiscal twenty twenty six with improved internal fried chicken capacity coming in fiscal twenty twenty seven. Next, we expect an approximate $0.10 per share headwind as it relates to rebased incentive compensation within SG and A as we are paying below target in fiscal twenty twenty five. The last box on the bridge includes several other variables that we expect will impact fiscal twenty twenty six, including the expected volume response to our increased investments, targeted pricing and the related elasticity impacts and other profit drivers such as equity earnings, pension income, interest expense and tax.

[David Marberger, EVP & CFO at Conagra Brands]

In addition, fiscal twenty twenty six will have a fifty third week. Given the range of outcomes around volume, pricing and inflation in this environment, we believe we've taken a prudent approach to building fiscal twenty twenty six projections. Slide 37 provides a few key assumptions for the remainder of the fiscal year. We expect first half organic net sales to be down slightly versus prior year, with growth in the second half driven by the benefit of our targeted pricing actions and the wrap of our fiscal twenty twenty five supply constraints, partially offset by the estimated elasticity impacts related to pricing. Adjusted gross and operating margins are expected to improve sequentially each quarter.

[David Marberger, EVP & CFO at Conagra Brands]

First quarter margins are expected to be the lowest of the year given the timing of our supply chain modernization investments as well as forecasted pricing actions being weighted towards the second half. For the fiscal year, A and P is expected to increase to approximately 2.5% of net sales, and SG and A, excluding A and P, is expected to be approximately 10% of net sales. Further down, Slide 37, you'll see our expectations for other line items of our P and L, including interest expense, pension income, equity earnings and tax rate. And finally, we are expecting to reduce net debt by approximately $700,000,000 in fiscal twenty twenty six, driven by proceeds from our recent divestitures and from free cash flow in excess of our dividend payouts. We are expecting to hold our dividend payout flat in fiscal twenty twenty six.

[David Marberger, EVP & CFO at Conagra Brands]

And yesterday, we announced that our Board approved a quarterly dividend of $0.35 per share to be paid in August. Year end net leverage is expected to be approximately 3.85x, with debt reduction being more than offset by a reduction in EBITDA. Cash conversion is expected to approximate 90%. That concludes our prepared remarks for today's call. Thank you for joining us today.

Participants

Executives

• Matthew Neisius, Senior Director & Head - IR
• Sean Connolly, President & CEO
• David Marberger, EVP & CFO