Sean Connolly
Chief Executive Officer at Conagra Brands
Thanks, Melissa. Good morning, everyone, and thank you for joining our first quarter fiscal '24 earnings call. Let's start with what we want you to take away from our presentation, shown here on Slide 5. At an industry-wide level, macro dynamics have clearly impacted consumer behavior across the board. I will cover this in more detail shortly, but ultimately, this behavior shift has elongated the volume recovery period across the industry, which is reflected in our Q1 top line results. As we've navigated these macro dynamics, I'm proud of the team for delivering another quarter of strong margin improvement and EPS growth.
We also continued to strengthen our balance sheet, improving our leverage ratio during the quarter while investing in our business and returning cash to shareholders. Our team's execution supported a strong supply chain recovery during the quarter, hitting pre-pandemic service levels as we exited Q1. Looking toward the remainder of the year, we will work to drive volumes and top line growth through targeted and disciplined investments behind prudent merchandising and continued support for our strong innovation. Finally, we are reaffirming our guidance for fiscal '24, reflecting confidence in our plans, people and agility as we navigate a shifting consumer environment.
As I mentioned a moment ago, the timetable for volume recovery has been elongated across the industry due to near-term consumer behavior changes. After three years of unprecedented inflation, along with other macro dynamics, consumers have felt increased financial pressure and used a variety of strategies to stretch their balance sheets. This resulted in a near-term reprioritization of their typical purchase behaviors in order to make their budgets work. We've seen shifts like this before and expect these near-term changes in behavior to also be temporary. In fact, recent trends suggest this is already underway.
Let me provide a bit more color on the kinds of behavioral shifts we've observed. As you've seen for some time now, with the notable exception of summer travel, discretionary purchases have been down almost across the board. Consumers have also been actively reducing remnant household inventory from the pandemic. Within food, convenience-oriented items, typically a top consumer priority have lagged as shoppers have turned to more hands-on food prep to get additional bang for their buck. And as they've done this, not surprisingly, they have shifted from meals for one to meals for many, even if not everyone is home at the same time to eat together.
And the last shift I will mention is a reduction in wasted food and an increase in the use of leftovers. Collectively, these short-term behavior shifts act as a sort of cheat code to help these consumers spend within their means.
Slide 8 demonstrates the elongated volume recovery across the industry. As you can see through the four-week period ending August 26, the entire peer group was showing volume performance within a very tight band with Conagra in the middle of the pack. As I mentioned a minute ago, more recent trends are showing the first signs of improved performance.
With that backdrop, let's dive into our results shown on Slide 9. As you can see, in the quarter, we delivered organic net sales of approximately $2.9 billion, which is down slightly compared to last year as a result of the slower volume recovery we discussed. Adjusted gross margin of 27.6% was up 272 basis points from last year. Adjusted operating margin of 16.7% was up 297 basis points compared to last year and adjusted earnings per share of $0.66 increased almost 16% versus last year.
Diving further into our top line performance by retail domain, you can see on Slide 10 that sales in our staples domain were flat compared to the prior year. As consumers shift toward more stretchable meals, our staples categories such as Canned Chili and Canned Tomatoes are well positioned and have gained unit share compared to last year.
Quite the macro headwinds, our snacks domain has continued to grow as shown on Slide 11. We're building unit share as consumers continue to respond positively to our Microwave Popcorn and Ready-to-Eat Pudding & Gel brands.
Looking at Slide 12, you can see that our frozen domain has been the most significantly impacted by recent shifts in consumer behavior, particularly in areas like single-serve meals given the headwinds we discussed a moment ago. As we look at the frozen domain, it's worth noting a few key points. First, despite the recent impact on volume, we continue to gain unit share in important frozen categories like single-serve meals. This dynamic demonstrates the relative strength and strong position of our brands. Second, the year-over-year performance figures do not properly represent the broader trend within frozen food. In fact, if you look over a four-year period, Conagra's frozen retail sales have increased 22%.
Frozen meals has been one of the fastest-growing categories in in-home consumption over the past 40 years. Its 4% CAGR is in the top tier of foods growing in at-home consumption. This expansion has been fueled by the long-term sustained consumer demand for convenience, as well as the addition of innovation and quality ingredients. This 40-year trend demonstrates the critical role that frozen plays in providing convenient, high-quality foods for every occasion, which consumers have come to increasingly rely on. This is central to why we believe the current softness is temporary.
Turning to Slide 14, I'm pleased to share that we continued to advance our supply chain initiatives during the quarter, allowing us to return our service, performance back to pre-pandemic levels. Our productivity initiatives remain on track, and we plan to maintain and capitalize on this strong recovery during the rest of fiscal '24.
That's a key piece of our action plan for the remainder of the year as outlined on Slide 15. In addition to our ongoing supply chain execution, we will continue to focus on executing our Conagra Way playbook as we make targeted and disciplined investments behind our brands. We'll protect share, and drive the top line, we're focused on investing behind quality, high ROI merchandising and A&P to support our brand. We'll also continue to prioritize reducing our debt and improving our net leverage ratio.
We are reaffirming our fiscal '24 guidance that we shared last quarter, including organic net sales growth of approximately 1% compared to fiscal '23, adjusted operating margin of 16% to 16.5% and adjusted EPS between $2.70 to $2.75. Overall, we remain confident in our plans, people and agility as we continue to navigate this shifting consumer environment.
With that, I'll pass the call over to Dave to cover the financials in more detail.
