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Conagra Brands' Gross Margin Under Strain: Is Recovery Losing Steam?
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Key Takeaways
CAG's Q3 adjusted gross margin fell 112 bps to 23.7%, even as organic sales rose 2.4%.
CAG gained volume share across frozen meals, vegetables and snacks, but COGS inflation hurt leverage.
CAG's margin recovery remains elusive as elevated costs and inefficiencies keep profitability pressured.
Conagra Brands, Inc. (CAG - Free Report) is seeing improving consumer demand across key categories, but profitability remains under pressure as elevated costs continue to weigh on margins.
In third-quarter fiscal 2026, the company’s adjusted gross margin declined 112 basis points to 23.7%, while reported gross margin contracted 141 basis points to 23.6%. Adjusted gross profit decreased 6.3% year over year to $659.5 million, while reported gross profit fell 7.4% to $657.7 million. The pressure on margins came despite the company’s return to organic sales growth during the quarter.
Organic net sales increased 2.4%, supported by a 1.9% improvement in price/mix and a 0.5% rise in volume. The company also gained volume share in categories, including frozen single-serve meals, frozen vegetables, frozen handhelds and appetizers, meat snacks, hot cocoa, seeds and pudding. However, the higher cost of goods sold inflation, unfavorable operating leverage and lost profit from divested businesses more than offset the benefits of higher sales and productivity gains.
The pressure was visible across segments. Refrigerated and Frozen, which has been central to Conagra’s volume recovery strategy, posted a 3.6% increase in organic net sales, though segment adjusted operating profit declined 15.4% to $104.8 million. Grocery and Snacks reported 1.8% organic sales growth, but adjusted operating profit fell 10.6% to $216.7 million. Adjusted operating margin for the overall company contracted 213 basis points to 10.6% in the quarter.
Image Source: Zacks Investment Research
For fiscal 2026, Conagra expects the cost of goods sold inflation to remain elevated at roughly 7%, including both core inflation and gross tariff expense before mitigation actions.
CAG’s third-quarter fiscal 2026 results underscored that recovery is becoming increasingly volume-driven, while margin recovery remains elusive. Although demand trends improved across frozen and snacks, elevated input costs and operating inefficiencies continued to erode profitability. The quarter showed that rebuilding sales momentum alone may not be enough if Conagra’s gross margins remain under sustained pressure.
Shares of this Zacks Rank #5 (Strong Sell) company have tumbled 37.6% over the past year compared with the industry’s decline of 24.9%.
The Zacks Consensus Estimate for The Chef's Warehouse’s current financial-year sales and earnings indicates growth of 8.3% and 24.7%, respectively, from the prior-year reported levels. CHEF delivered a trailing four-quarter earnings surprise of 28.9%, on average.
Darling Ingredients Inc. (DAR - Free Report) transforms food and animal byproducts into sustainable ingredients for essential uses. DAR carries a Zacks Rank #2 (Buy).
The consensus estimate for Darling Ingredients’ current fiscal-year sales and earnings implies growth of 10.3% and 567.7%, respectively, from the year-ago reported figures. DAR delivered a trailing four-quarter earnings surprise of 16.1%, on average.
Tyson Foods, Inc. (TSN - Free Report) operates as a leading protein company producing chicken, beef, pork and prepared food products. TSN currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Tyson Foods’ current fiscal-year sales calls for growth of 4.5%, while the consensus mark for earnings indicates a 0.5% increase from the year-ago reported figures. TSN delivered a trailing four-quarter earnings surprise of 18.1%, on average.
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Conagra Brands' Gross Margin Under Strain: Is Recovery Losing Steam?
Key Takeaways
Conagra Brands, Inc. (CAG - Free Report) is seeing improving consumer demand across key categories, but profitability remains under pressure as elevated costs continue to weigh on margins.
In third-quarter fiscal 2026, the company’s adjusted gross margin declined 112 basis points to 23.7%, while reported gross margin contracted 141 basis points to 23.6%. Adjusted gross profit decreased 6.3% year over year to $659.5 million, while reported gross profit fell 7.4% to $657.7 million. The pressure on margins came despite the company’s return to organic sales growth during the quarter.
Organic net sales increased 2.4%, supported by a 1.9% improvement in price/mix and a 0.5% rise in volume. The company also gained volume share in categories, including frozen single-serve meals, frozen vegetables, frozen handhelds and appetizers, meat snacks, hot cocoa, seeds and pudding. However, the higher cost of goods sold inflation, unfavorable operating leverage and lost profit from divested businesses more than offset the benefits of higher sales and productivity gains.
The pressure was visible across segments. Refrigerated and Frozen, which has been central to Conagra’s volume recovery strategy, posted a 3.6% increase in organic net sales, though segment adjusted operating profit declined 15.4% to $104.8 million. Grocery and Snacks reported 1.8% organic sales growth, but adjusted operating profit fell 10.6% to $216.7 million. Adjusted operating margin for the overall company contracted 213 basis points to 10.6% in the quarter.
Image Source: Zacks Investment Research
For fiscal 2026, Conagra expects the cost of goods sold inflation to remain elevated at roughly 7%, including both core inflation and gross tariff expense before mitigation actions.
CAG’s third-quarter fiscal 2026 results underscored that recovery is becoming increasingly volume-driven, while margin recovery remains elusive. Although demand trends improved across frozen and snacks, elevated input costs and operating inefficiencies continued to erode profitability. The quarter showed that rebuilding sales momentum alone may not be enough if Conagra’s gross margins remain under sustained pressure.
Shares of this Zacks Rank #5 (Strong Sell) company have tumbled 37.6% over the past year compared with the industry’s decline of 24.9%.
Stocks to Consider
The Chef's Warehouse, Inc. (CHEF - Free Report) , a specialty food distributor serving restaurants, hotels and hospitality customers, sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for The Chef's Warehouse’s current financial-year sales and earnings indicates growth of 8.3% and 24.7%, respectively, from the prior-year reported levels. CHEF delivered a trailing four-quarter earnings surprise of 28.9%, on average.
Darling Ingredients Inc. (DAR - Free Report) transforms food and animal byproducts into sustainable ingredients for essential uses. DAR carries a Zacks Rank #2 (Buy).
The consensus estimate for Darling Ingredients’ current fiscal-year sales and earnings implies growth of 10.3% and 567.7%, respectively, from the year-ago reported figures. DAR delivered a trailing four-quarter earnings surprise of 16.1%, on average.
Tyson Foods, Inc. (TSN - Free Report) operates as a leading protein company producing chicken, beef, pork and prepared food products. TSN currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Tyson Foods’ current fiscal-year sales calls for growth of 4.5%, while the consensus mark for earnings indicates a 0.5% increase from the year-ago reported figures. TSN delivered a trailing four-quarter earnings surprise of 18.1%, on average.