ConAgra Foods Stock

Good morning, and welcome to the Conagra Brands Fourth Quarter Fiscal 2026 Earnings Q&A Call. [Operator Instructions]

Please also note, today's event is being recorded. I would now like to turn the conference over to Matthew Neisius, Senior Director of Investor Relations for Conagra Brands. Please go ahead.

Good morning, everyone, and thank you for joining us. This morning, I'm joined by John Brase, our CEO. Due to unforeseen circumstances, Dave is unable to join us this morning, but sends his regrets. So John and I will be taking your questions.

We may be making some forward-looking statements in discussing non-GAAP financial measures during this Q&A session. Please see our earnings release, prepared remarks, presentation materials and filings with the SEC in the Investor Relations section of our website for descriptions of our risk factors, GAAP to non-GAAP reconciliations and information on our comparability items.

I'll now ask the operator to introduce the first question.

[Operator Instructions] Today's first question comes from Andrew Lazar at Barclays.

Welcome, John.

Thank you, Andrew.

Sure. I guess my question would be, even with the dividend cut, leverage is still expected to rise in fiscal '27, given the business reinvestment needs, both A&P and supply chain as well as I'm assuming some volume deleverage impacts. Are the balance sheet constraints causing you to not invest as much as you would have truly liked to this coming year? Or is your early work suggested that what you propose is appropriate with some flex built in as things rarely go sort of exactly as planned? And I ask because early investor discussion certainly seems to suggest many feel that the reinvestment planned at this stage looks insufficient.

Thanks again for the question, Andrew. As I discussed in my opening remarks, I really believe a balanced approach to capital allocation is critical to the long-term success of the company. The dividend cut is going to enable us over time to progress towards that 3.0 leverage target, which is really, really important to enable the strategic optionality to reshape the portfolio over time.

But it's also unlocking some meaningful investments in the business in fiscal '27. We talked about the $40 million increase in brand building, which is a 14% increase, along with an incremental $125 million in capital. It's really going to help drive supply chain resilience and also lower cost by moving more production in-house.

I would say relative to brand building, I would call this a first move towards efficiency. We're going to continue to increase our investments behind our strategic growth brands to drive trial and preference.

So overall, I really do believe these are the immediate right investments. But as you know, I'm still in the early innings here. I can assure you we're going to continue to look for additional opportunities to invest where we can accelerate our path to profitable growth.

And our next question today comes from Peter Galbo at Bank of America.

John, I was maybe hoping to piggyback off of that question from Andrew. Specifically, your plan to stabilize and improve margins in the frozen business, which I think you're looking to do via some pretty significant pricing actions. But you're also, I think, at the same time reinvesting. So I just think there's a bit of confusion around we want to grow margins in the frozen business, but also we want to reinvest at the same time. And so maybe you can just help us reconcile those 2 kind of priorities and pillars that you have in the plan because I just think there's a bit of confusion around which one is ultimately going to win out.

Yes. Thanks, Peter. I think over the past couple of years, as you're well aware, we've invested significantly to drive volume improvement. And that's yielded solid results, but it's also resulted in significant margin compression.

I would tell you, with inflation persistent in '27, we have to remain agile as we look to offset continued cost pressure. Our first line of defense will always be to use productivity to fight inflation. We're targeting another year of productivity above 4%. But we're going to also have to lean on inflation-justified pricing where necessary just to give us the fuel that we need to invest in our business and with our customers to drive that long-term growth.

I would say this is all about balance, ensuring we're priced competitively. But we're -- and also passing along inflation-justified prices where we need to, to give us the ability to drive our brands that we compete in.

I want to make sure you hear something importantly though, we are not backing off our commitment to frozen. We're making significant incremental investments in brand building, like I just talked about in fiscal '27. And we have probably our strongest innovation pipeline in place to delight the consumer. And I think as you think about elasticity, we've been very prudent in our elasticity assumptions. Our guidance has assumed higher than historic elasticities with volumes down mid-single digits really weighted towards frozen. So I think we've taken a prudent approach to how we plan the year.

And our next question today comes from David Palmer at Evercore ISI.

I guess my one question would be what you're going to be tracking the most? There's a lot of variables that go into any fiscal year, you have a guidance range. If you're going to hit the high end of that guidance, what will be going right? What are some of the key things that you're specifically going to be tracking and watching that you think are the key variables? It might be price elasticities in certain key brands in frozen, for example. But I'd love to understand how you're thinking about the key variables going into this year.

Yes. A couple of thoughts here. I think you hit the first one, which is, I think, the price elasticity. And again, as I want to reinforce, I think we've taken a very prudent approach. We're expecting higher than historic elasticities, that is probably the most important thing we'll be watching on the top line. I think the next thing is to really continue to drive those productivity savings. We've benchmarked productivity above 4%, and we have to ensure that those productivity savings are flowing to the bottom line. And so I think that will be another important marker. But Matthew, anything else you want to build here?

Yes. I think as you go down the P&L, inflation of 5% to 6% is what we called out relative to productivity above 4%. So that continues to be a pressure point with inflation exceeding productivity. However, I'll note the pricing we're putting in place mid-Q2, we're only getting a half year impact of that. So as we get into FY '28, we should have a favorable wrap on that piece as well.

So I think those pieces get you to gross margin that's roughly flat on the year. And then John talked about the step-up in A&P that we're going to have, which really is -- gets you to the margin guidance that we gave. And then just in terms of other swing factors, Ardent Mills is always one that we keep an eye on, right? Wheat prices have been a bit more volatile of late, but it's always challenging to extrapolate that into a full year.

So as we rolled everything up, as John mentioned, I think we've given our best shot at how we think the year is going to play out while also building in some prudent assumptions where we felt necessary.

And our next question today comes from Robert Moskow with TD Cowen.

John, maybe you could give a little more color on how you went about trying to figure out what the new earnings base should be. Did you consider something even lower like $1.20 even just to fully clear out any further downside and create a path? And if not, is there kind of a margin here like -- the margins are pretty low at 10%. Is getting below that line just kind of dangerous for the business? Is that one of the concerns you had?

Yes, Rob, thanks for the question. I think on -- as you think about EPS next year. Again, I think this is a balancing act. And I'll continue to use that. We wanted to give ourselves the room to invest meaningfully back into the business, which we've done with the step up in A&P and also in the capital to really drive the supply chain resilience and also, obviously, the cost savings to come from repatriating some of our manufacturing back in-house.

So I think we wanted to enable sufficient investment back into the business. But you talk about margin. And I think it's important that we kind of take the actions necessary to get ourselves to what I would call a healthy structural margin that we can build a foundation for profitable growth from. I think we've threaded that balance right as we think about fiscal '27.

And our next question today comes from Leah Jordan with Goldman Sachs.

John, you talked about being in attractive categories with significant runway for growth, and we see you're leaning into investments in frozen and meat snacks today. But then you also talked about the potential to simplify your portfolio. So just looking for more detail around that. How do you think about the cyclical versus structural headwinds of the industry today? What does normalized category growth look like for you in your business? When do we get there? Which of your categories are better positioned long term?

Yes, Leah, I'm glad you brought up portfolio. And I want to start, and you heard my remarks. I really do believe today, as we look at the portfolio, it's been -- it's too large. It's been too complex for too long. And I think this is an area we definitely want to address. So portfolio reshape is going to be a meaningful part of our strategy moving forward. We're going to be very thoughtful and strategic about the approach that we take. And I will tell you a couple of things here.

One, I really like the growth categories that we've outlined. I think our frozen portfolio, I think we're positioned, we have a strong competitive advantage. We have scale. I believe frozen is on trend. We've got the right innovation. And so I think this is a segment that we want to continue to win in. And I believe permissible snacking is the same. I love our portfolio there with meat snacks, our seeds business, our popcorn business. And even some of our permissible sweet snacks are performing incredibly well. Those will continue to be the growth drivers. I think while we look at driving a portfolio that is more efficient and effective moving forward.

And our next question today comes from Nik Modi at RBC Capital Markets.

So just a quick follow-up to that question, John. I just want to clarify that no portfolio shaping has been embedded into the forward guide. I just wanted to clear that up. And I guess a bigger question is, just as you've been in the seat now for about 6 weeks and you think about the big picture. Obviously, I don't want to get ahead of any formal strategic updates. But just like when you look at the business, your observations, what are some of your highest conviction kind of observations in terms of the structural work that you believe needs to be done to get Conagra back on to a more sustainable growth track, whether it be cost structure, go to market. We just talked about the portfolio shaping. I would love to get your thoughts on that and kind of how you think about the sequencing of those initiatives.

Yes. Let me try to take those in order. I think first with the portfolio, and thank you for the clarification. We're going to take a very thoughtful and strategic approach as we think about portfolio. So yes, I think as you think about the long-term portfolio, that will be more of a mid- to longer-term impact. I think there's some opportunity we can do to clean up some of the portfolio in the near term. And you really think about that as a lot of SKU complexity. And I think there's some really nice opportunities we have to tighten up the portfolio that we have while we do the strategic review that I would call more of a mid- to long-term play as it comes to the portfolio.

I think as you think about the first kind of 45 days in the business, I think I want to start with the strengths. There are some things that really excite me about the business. We've got some great brands in some very attractive categories. I've been incredibly impressed with the innovation capabilities of Conagra, and I think we're really ahead of the ball when it comes to kind of developing an advanced foundation in both technology and AI. And maybe most importantly, we've got a deep talented team and a great culture to build on.

I think as I think through the opportunities, and you'll see those in the actions we've taken in '27. I do believe we're a bit out of balance today between this volume and margin. And I think finding that right balance between volume growth, it's also structurally profitable, it's important. And so that's why we've made the moves in pricing.

I don't believe we're investing enough in our brands and our supply chain, again, why you've seen a significant step-up and investment there. And this notion of complexity, I really believe complexity can be the enemy of execution. And so we're going to really get after simplification, both in our organization and how we get work done. Project Catalyst would be a nice enabler of that, but also as we think about the portfolio. And what I'm really excited about is we are planning, as you saw in the notes, the remarks this morning, Investor Day in early '27. That's where we'll be able to kind of fully review the strategic plan moving forward.

And our next question today comes from Peter Grom at UBS.

Welcome, John. So I guess I wanted to just more follow-up on kind of the outlook and just get some perspective on kind of the shape of the year from a margin and earnings trajectory. It sounds like 1Q is going to be under some pressure. So just kind of curious how we should be thinking about the improvement from there, just given the puts and takes around inflation and pricing?

Yes. Thanks for the question. So for Q1 op margin, we pointed that in the high single digits. That's really impacted by a couple of things. Number one, inflation. So inflation, as you know, picked up a bit as we got into our fourth quarter. That's going to take a little bit of time to flow through the P&L. So that will start to impact Q1 in a bigger way. We also have the tariff wrap that we called out of $40 million to the year. That's really lapping some of the mitigating items we had last Q1. So as you think about the $40 million, that's really going to over-index to the first quarter. And then the step-up in A&P. That's going to be really throughout the year, a piece in Q1 and a bit more back half weighted. So I think that's kind of how Q1 is shaping up.

And then we gave the full year guidance where the pricing will go in mid-second quarter. I think that's really where you're going to see the step-up in gross margin just from that price mix turning a bit more positive, especially in the frozen area where some of those pricing is concentrated.

And our next question today comes from Alexia Howard of Bernstein.

Great. Just to follow up on that about the pricing in Q2. Are you able to give us an idea of roughly how much that will be across the portfolio? And more importantly, what sort of price elasticity assumption are you making in terms of the impact on volumes as you take that?

Yes. Alexia, in our guidance, so we guided to volumes down mid-single digits for the year and organic net sales, I suppose if you use the midpoint of down 2%, gets you to a price/mix figure of roughly plus 3% or so. So I think that's probably a fair starting place as you just kind of evaluate those considerations. And then I'm sorry, could you repeat your second question?

No, it was really around the price elasticity. Just what gives you the confidence that the EPS numbers can come around so nicely in Q2? Is it mainly -- it's really just around the pricing?

Yes. Pricing is a big part of it. I think on the elasticity question, John mentioned, we've been very prudent in the assumptions that we put into the plan. I think for frozen, it's recognizing the current consumer environment. We've been a bit more -- we've leaned in a bit higher on the elasticities, maybe relative to historical standards, whereas Grocery & Snacks, I would say, is more on that 1:1 level.

So I think from an elasticity standpoint, we feel good about what we put in the plan. It's clearly going to be one of the items we're paying very close attention to as we go throughout the year. But that's just one piece of it. I think productivity at above 4% really reflects continued effort across our organization to find cost savings. We mentioned some of the in-sourcing initiatives that we have that give us better control of our supply chain while also removing costs. So I think it's a number of factors that kind of come together to make the year. But from a phasing perspective, I think the pricing is not insignificant. So that's when you'll see it is largely in Q2 and beyond.

And our next question today comes from Max Gumport with BNP Paribas.

So you're clearly prioritizing investments, but your prepared remarks suggest a bit of a pivot from a focus on stabilizing volumes to stabilizing margins. You discussed how past margin compression was partially driven by an emphasis on driving volume at the expense of margin, most notably in frozen. And we can clearly see that impact that's had on the business. Your operating margins have fallen from 16% just a few years ago to your guidance now calling for 10% to 10.5%.

However, at the same time, organic volumes are now expected to decline 6 fiscal years in a row. I understand you can't have margins keep falling. But outside of tobacco, I can't think of many CPG businesses that have thrived with consistent volume declines, particularly given high fixed costs. So why is this pivot the right approach? And how many more years of volume declines do you believe the business has the capacity to suffer through?

Yes. Again, I think this is -- this continues to be about balance, right? And we're managing both the impact on the consumer with our volume assumptions. But again, we have to have the right structural margins to fuel the future investments. I think we've been very, very thoughtful and deliberate about our pricing strategy.

What I can tell you is we're going to continue to be agile in our pricing to make sure that we find the right balance between the right structural margins and being competitive on the shelf in a time where we know the consumer is being very value conscious. I think one of the things that gives me a great confidence is the portfolio and the power of the portfolio, using frozen as an example. We've got a portfolio that really plays across the full value spectrum. And I think that also gives us some insulation as you think about these pricing moves. We've got places for the consumer to go within our portfolio no matter what the value challenges might be that they're facing.

And Max, I would just add. I think this environment that we've experienced the past several years is not necessarily normal in terms of the level of inflation that we've seen in our business. So the past several quarters, we've talked about the need to be agile. And if inflation is going to be persistent and elevated again, then pricing may be on the table. So I think the plan that you're seeing today reflects that while also balancing other investment needs in the business, including A&P, including CapEx. So I think, to John's point, balance is probably the key word there.

And our next question today comes from Chris Carey at Wells Fargo.

I wanted to go back to the complexity reduction part of your key priorities, John. So you said the portfolio has been too large and too complex for too long, but also that SKU rationalization or portfolio cleanup will be more of a medium-term endeavor. Nevertheless, can you give us a sense of where you see this complexity? Is it in SKUs that have become too plentiful? Is that in the structure of the portfolio at large? Does a dividend reduction allow you to consider larger transactions for bigger pieces of your business? Are there implications for your supply chain, which is already dealing with a bit of capacity issues?

I just -- I realize it's still early days, but I think investors would agree with the complexity observation and just a bit more detail on where you see that from product or portfolio segmentation or even your reporting segments? I'd love any additional color if you have it.

Yes. And I want to start with the positive. We have got some real gems in this portfolio. So I think a big part of the simplification and prioritization is to allow us to disproportionately focus our resources and our investments on the brands that we believe can really drive profitable growth for the portfolio. So I really look at this as allowing more focus and attention on the brands and the segments where we have a right to win, and we believe we can win.

And so I think to hit your question directly, I really think we're -- the right approach is to attack this from both a bottoms-up and a top-down perspective. And again, as I think about bottoms up, this really is taking a bit of a zero-based approach to our SKUs. We need to ensure that all of the SKUs in our portfolio are playing a key role in delighting our consumers and our customers, but they are also creating value for the enterprise. And again, I think looking at making each SKU, each item kind of earn their keep is going to be important. So we'll be doing a very robust kind of bottoms-up look at all of the items, all of our 5,500 SKUs across the portfolio to ensure they're doing that.

I think at the same time on a parallel path, we're going to take a very prudent top-down approach, and you heard me talk about we're going to be thoughtful and strategic here, but really starting with what do we want this portfolio to look like 5 years from now and how are we going to get there? And I think that's going to take some time. That's probably the piece that I would call more of a mid- to long-term perspective. I think we'll have a lot more to share on that strategic direction of the portfolio when we are at Investor Day in early 2027.

And our next question today comes from Matt Smith at Stifel.

John, I wanted to come back to the part of your plan around increasing investment in the supply chain. You called out improving resiliency and some investment to unlock savings. The guidance this year includes a step-up in CapEx. I think it's about 5% of sales at this point. When we think about the level of spending this year, is there a unique amount related to some capacity projects? Would you expect CapEx investment in the supply chain to kind of ratchet down in future years? Or do you think it needs to remain elevated as you pursue this resiliency and productivity savings?

Yes, Matt, I can take that one. So I think for CapEx, our long-term guidance is between 4% and 5% of net sales. This year is obviously towards the upper end of that. And part of that, some of the bigger in-sourcing projects that we have planned this year. We've talked about fried chicken in the past and more broadly, just our belief in protein. So that's a big project. I would say roughly $100 million of the year-over-year step-up in CapEx is related to that.

But as we go forward, I think resiliency is going to be one of the things that we continue to prioritize. So that 4% to 5% net sales range probably feels right going forward. But rest assured, our supply team is hard at work evaluating projects, ensuring we have a really strong foundation in our supply chain while also tackling some of these more modern manufacturing initiatives around technology, around AI and really trying to simplify the way we work even within our manufacturing facilities.

And our next question today comes from Scott Marks at Jefferies.

Just wanted to follow up a bit on that supply chain resiliency. I guess how should we be thinking about maybe just benchmarks along the way as you go through this investment phase? When should we be expecting certain milestones to be hit or what milestones are you looking for to kind of signal to the investment community that you guys are making real progress and you feel comfortable with where you are and how things are going?

Yes. The things that we'll continue to look at really is things like our service levels, right? And we want to continue to operate in that 98.5% kind of service levels. That's probably the cleanest indicator, are we delivering the product in the right specifications at the right time for our customers, that's probably the strongest indicator. And then I think it's trying to minimize any of those business interruptions that come from a supply challenge.

And so our goal is 0, right? We don't want any supply disruptions to kind of get in the way of delighting our consumers and our customers. So I think those are some of the key markers that we'll look at. But Matthew, anything to build here?

I think the last piece I would just highlight is inventory and working capital management, which for us has been a huge priority these past couple of years.

In FY '26, again, we took out a significant amount of inventories in terms of days and dollars which, as you think about our other priorities, really helps from a cash flow perspective, from a leverage perspective. So I think that's just one of those other areas of the supply chain that as we look to become more efficient and effective, our inventory balance and days of inventory will be another marker that we'll keep an eye on.

And our next question today comes from Steve Powers at Deutsche Bank.

Maybe stepping back a little bit, I guess, over these first 6 weeks, you've emphasized the importance of listening to external stakeholders, including retail customers and investors. Maybe reflecting on those conversations, was there a particular feedback that stood out or surprised you most? And where maybe did the feedback you received externally challenge assumptions that the organization may have held previously that leads to the plan you outlined today? And I guess, as an extension, what's been the buy-in on the plan you've outlined today as you've begun to present it internally?

Yes, thanks for the question because I think it's really important to reemphasize the first 45 days I've spent a lot more time listening and learning. Each of you have been incredibly helpful, but our internal team, customers, consumers, all of which have been really, really informative. I think a couple of things have really resonated. We've hit on these, but I think important to reinforce the importance of simplification and prioritization. I think that was a theme loud and clear that I've heard internally and externally, the need to simplify and prioritize as we think about our portfolio, but also even how we get work done.

And so I'm really excited about some of the portfolio work that we're going to continue to embark on. But also Project Catalyst, which is going to help us do work more efficiently and effectively. I would say, get our folks more time building the business than managing and tracking the business, and Catalyst will be a major enabler there. So I think that's the first one.

I think the second one is really -- it's about my words matter, but our actions matter even more. And I think this notion of restoring credibility by delivering on our commitments. And so I think what you'll hear today is a plan, then our job now is to go deliver that plan with no excuses. And I think you'll see high accountability from our team and delivering what we say we're going to do to the external world, I think, is another critical one.

I think the last one, and again, a theme that we've discussed throughout this session is the need to invest back in the business. And again, why we've created a plan that does create some of that flexibility, both in the balance sheet and in the P&L to invest back in ourselves. And I think that's really critical. So those are probably 3 of the top themes, and we've acted on all 3 of those in this fiscal year. But I would tell you, there's still a lot to learn. I'm going to continue to stay on the learning journey. And I think you'll see the full summation of what we've learned and how we're going to make our strategic pivots as we spend more time talking you through the strategic plan in early 2027.

And our next question comes from Priya Gupta with Barclays.

Great. As you talk to the rating agencies about some of the actions that you've taken around the dividend as well as your reinvestment for next year, what are their thoughts around your current ratings and outlook? And how should we be thinking about the time line to get back to that 3x target that you have and whether that's sort of been baked into the current outlook from the agencies as well?

Yes. Thanks for the question. We have really good relationships with our rating agencies. And as you can imagine, they're up to speed on our latest thinking, right? Obviously, the dividend cut from a credit perspective is probably seen as a positive there. And I think it really does help accelerate our path to getting back to that 3x number. And if you just look at the next 3 years or so, the level of the dividend cut will free up roughly $1 billion of incremental cash flow. A good amount of which will help us delever, continue to pay down debt.

I think the other thing I would also highlight is just the focus on cash flow at this company is across the board. We delivered free cash flow conversion of 119% this year. That's the third year in a row of above 115%, which really just reflects the focus company-wide on driving cash at this company. And I can assure you that we're not going to stop. That's something that's going to continue into next year. But overall, I think with the rating agencies, I think they understand the plan, they understand the need for balance and they understand our commitment to the investment-grade credit rating.

And our next question today comes from Brian Callen at Bank of America.

Just a quick follow-up question to that maybe on a shorter-term basis. How are you planning to handle the October debt maturities? Are hybrids considered in the 4x leverage guide or any incremental debt repayment that's embedded in the, I guess, the interest expense guidance? Just kind of what's baked into that interest expense and the 4x number?

Yes, I think what you'll find in the interest expense number is a continued focus on debt paydown. So with the dividend reduction this year, we'll get 3/4 of the benefit into fiscal '27. A good amount of that cash will go to continuing to delever. And then part of the cash, as we laid out in terms of the A&P investments and the CapEx investments will go to that as well.

So in terms of the refinancing, we do have some notes coming due here in October. I think right now, we're continuing to evaluate what our options are there. But I would say we have a number of options, whether that's commercial paper, whether that's term loans, whether that's public notes. So the teams are hard at work figuring out a plan to refinance either a portion of those or all of those, but I would say more to come there.

And that concludes our question-and-answer session. I'd like to turn the conference back over to Matthew Neisius for any closing remarks.

All right. Thank you so much, and thank you all for joining us today. Please reach out to Investor Relations if you guys have any additional follow-up questions.

Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

Good morning. Thank you for listening to our prepared remarks for the Conagra Brands Fourth Quarter Fiscal 2026 Earnings. At 9:30 Eastern this morning, we will 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.

In our presentation this morning, John Brase, our CEO; and Dave Marberger, our CFO, will be making some forward-looking statements. 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. GAAP to non-GAAP reconciliations and information on our comparability items are in our earnings release and presentation materials in the Investor Relations section of our website.

I'll now turn the call over to John.

Good morning, everyone, and thank you for joining us. I'm honored to be speaking with you today in my first earnings call as CEO of Conagra Brands. As CEO, I will be committed to transparency and accountability, both internally and externally. I view these calls as opportunities to speak clearly about where we are and where we're headed. While we delivered fiscal 2026 results within our original guidance ranges in a dynamic environment, our results also reflect the continued need to take bold action to unlock our full potential.

On our call today, Dave is going to unpack our fourth quarter and full year results in detail. But before I do that, I would like to share my early observations about the business, where I see opportunities for improvement and the actions we're taking to position Conagra for stronger, more sustainable value creation over the long term.

I may be new to Conagra, but I'm not new to the consumer products industry. I've spent more than 35 years working with many of the same customers, categories and consumers that this company engages with every day. This experience has given me great perspective and appreciation for Conagra. It has also given me the humility to recognize that the best way for me to be effective in this role is to take the time to listen to and engage with our employees, our consumers, our retail partners and our investors. That process is ongoing, but I've had the chance to hear from many of our stakeholders over the past 6 weeks. What I've learned is reinforced why I was excited to join Conagra.

Our portfolio holds real potential with distinct competitive advantages. We have iconic brands consumers know and trust, and we operate in attractive categories with significant runway for growth. And with the right focus and investment, our portfolio can be even stronger.

We have strong innovation capabilities with a proven ability to develop products that resonate with our consumers, strengthen our brands and expand our categories. I see an organization that has already established an advanced foundation in technology and AI. We can build upon this as we seek to drive productivity, simplify processes and enable faster, better decision-making. And finally, Conagra is fortunate to have a deep and talented team. I've been impressed not only by the capabilities across the organization, but also by the passion I see from our people.

While I'm encouraged by our strengths, I also see several areas where I believe we can be better. First, our focus on volume and margin has become imbalanced. We've reached an important inflection point where investments we've made over the past several years have improved volumes and strengthened our market position. The next phase is to translate that momentum into stronger profitability with a focus on restoring margin.

Second, we simply haven't invested enough behind our brands and our supply chain. That has consequences in consumer relevance, and service reliability and in our ability to compete. We are going to fix that.

Third, and you'll hear me talk about this often, too much complexity has built up across our portfolio, our supply chain and our organization. Complexity is the enemy of strong execution. It creates too many competing priorities and slows decision-making in an environment where speed, agility and focus are critical.

Finally, our current capital allocation limits our financial flexibility, and we must have better balance here. Dave and I will both provide more detail on this later.

None of these issues developed overnight and none will be solved overnight, but they are solvable, and we're going to take bold, decisive actions to address them head on.

I've identified 4 priorities that will guide our actions moving forward: stabilize and restore margins, increase investment in our brands and supply chain, simplify and reduce complexity within our portfolio and the organization, and rebalance capital allocation. These interconnected priorities are what we are focused on now and in the longer term and are how we will build a strong foundation for profitable growth. Let's take a closer look at each.

Starting with our focus on margin restoration. Over the past several years, we have sacrificed a significant amount of margin in our business. This has been driven by continued inflation and an emphasis on driving volume, sometimes at the expense of margin. This has been most acute within our frozen business. There are 2 primary levers to reverse this trend. The first is productivity, which will always be our initial defense against inflation. We'll focus on driving greater than 4% productivity while increasing the speed and agility of the organization.

The second is strengthening our price mix. We will implement strategic inflation-justified pricing actions where necessary with particular emphasis on our frozen portfolio. While these actions may pressure volumes in the short term, they are essential to restoring margins and funding the investments necessary to support the long-term health of our categories and of our business, which leads me to my next priority.

In fiscal '27, we're increasing investment where we believe it will create long-term value. That begins with our brands. We intend to increase advertising spend to approximately 3% of net sales this year with a focus on the categories where we have the greatest opportunity to win, particularly frozen meals and meat snacks. This is the first step in moving towards a more sufficient level of marketing support for our key growth brands. It's not a modest adjustment. It's an increase of 14% year-over-year. It's a deliberate commitment to give our brands enhanced support to win with consumers, and I'm confident we have the right plans in place to deliver.

We're also increasing capital investment in our supply chain. Modernizing our supply chain strengthens service, improves resilience and creates additional productivity opportunities. Strategy matters, but execution is what our customers experience. We have to get this right to improve reliability, avoid surprises and drive out costs.

Radical simplicity is the organizing principle for how we will run this company moving forward. I firmly believe complexity is one of the biggest barriers to growth. For me, radical simplicity isn't necessarily about making things smaller. It's about making them clearer. It's about prioritizing our time and our capital on the things that matter the most and being discerning about where we're placing our bets. I believe that we have operated with a portfolio that is too large and too complex for too long. We have significant opportunities to simplify, and I'm taking the time to do a detailed review with our teams to understand where we have the right to win.

Going forward, we'll actively manage our portfolio for better growth and stronger margins. Our objective is a simpler, more focused Conagra, one that concentrates our resources behind the brands and categories where we are best positioned. We'll also evaluate strategic options for noncore businesses. Through Project Catalyst, we also have opportunities to simplify how our work gets done by leveraging technology, including AI. Project Catalyst supports working capital reductions, strong free cash flow conversion and long-term sales and productivity targets. I've been encouraged by what I've seen so far, and I'm excited to share more on the opportunities here as I further immerse myself into work.

Radical simplicity will help our people spend less time on navigating complexity and more time creating value for consumers and customers. The simpler we become, the better we will execute.

The final priority is capital allocation. One of the most important responsibilities of management is deciding where every dollar creates the greatest long-term value.

You've already seen in our release this morning that after careful consideration, we've made the decision to reset the dividend. This is not a decision we take lightly, but one we believe is right for the long-term success of the company. This action proactively realigns our capital allocation, accelerates progress toward our leverage target, supports critical investments and strengthens our financial flexibility, including the ability to reshape the portfolio over time.

Our commitment to shareholders hasn't changed. Our objective remains a balanced approach to capital allocation with a dividend that returns meaningful capital to shareholders and can grow alongside earnings over time.

Finally, I'll walk through an overview of our fiscal '27 guidance, and Dave will provide more context shortly. For the year, we expect organic net sales to decline 1% to 3%, adjusted operating margin to be between 10% and 10.5% and adjusted EPS to be between $1.40 and $1.50. These ranges reflect the decisive actions to restore balance between top line and margin, invest in our brands and our supply chain, simplify the way we operate and return to a more balanced capital allocation, actions that I'm confident will build a strong foundation for long-term growth moving forward.

Thank you for your time, and now I'll turn it over to Dave.

Thanks, John, and good morning, everyone. Slide 13 shows our results for key financial metrics in the quarter and full year. For the fourth quarter, we delivered organic net sales of approximately $2.7 billion, flat versus the prior year. Adjusted gross margin of 24.5% and adjusted operating margin of 11.7% were both down versus the prior year, but sequentially improved versus Q3. And adjusted earnings per share were $0.47, down $0.09 versus a year ago, which I'll unpack shortly. For the full year, organic net sales declined 0.4% versus a year ago. Adjusted operating margin was 11.3% and adjusted EPS was $1.72, with all metrics landing within our original fiscal '26 guidance ranges.

Slide 14 shows our fourth quarter net sales bridge. Total Conagra organic net sales were flat versus the prior year, with volumes down 1.6% and price/mix up 1.6%. Foreign exchange was a 50 basis point tailwind to the quarter, driven by a stronger Mexican peso, and the divestitures of Chef Boyardee and our frozen seafood businesses together represented a 460 basis point headwind. We also had a 53rd week in the fourth quarter.

Slide 15 shows the composition of net sales by segment for the fourth quarter. In Grocery & Snacks, we delivered net sales of approximately $1.2 billion, with organic net sales up 0.5% versus the prior year, driven by growth in our snacks domain, partially offset by a decline in our grocery business, largely reflecting elasticity impacts from inflation-justified pricing actions.

Refrigerated & Frozen also delivered $1.2 billion in net sales, with organic net sales declining 0.5% versus the prior year. Volumes grew modestly, reflecting volume share gains in key categories such as frozen meals and vegetables, along with the benefit of lapping last year's supply constraints. These gains were partially offset by slightly negative price/mix as we resumed planned investments that were not in place a year ago.

In our International segment, organic net sales declined 2.4% versus prior year as growth in Mexico was more than offset by volume softness in Canada and global markets.

And in Foodservice, organic net sales increased 1.8%, marking the fourth consecutive quarter of organic growth as favorable price/mix more than offset slightly negative volumes.

Turning to Q4 consumption on Slide 16. Total Conagra shipments tracked in line with consumption as dollar sales were approximately flat and volume was down 2%. Frozen consumption remained positive in both dollars and volume, driven by volume share gains in single-serve meals and frozen vegetables, along with the benefit of lapping last year's supply constraints.

Snacks grew dollar sales by nearly 2%, again outpacing our snacking categories, led by strong performance in sweet treats and continued momentum in meat snacks. Volume declines reflected elasticities from pricing actions in our cocoa-related businesses as well as softness in the microwave popcorn category.

In Staples, we remain focused on maximizing cash generation with Q4 dollars and volume performance both reflecting the elasticity impacts from our midyear inflation-justified pricing actions, particularly within our canned products.

Slide 17 shows that adjusted operating margin declined 215 basis points over the previous year to 11.7%. Price/mix contributed 90 basis points to margin as inflation-justified pricing actions more than offset incremental merchandising investments. Total inflation, inclusive of both core inflation and gross tariffs remained elevated in Q4 at approximately 6.5%. We saw sustained inflation in areas, including beef and edible oil as well as more recent increases in areas related to crude oil and logistics.

Core productivity, including tariff mitigation, was strong at over 5% of cost of goods sold, including approximately $6 million of tariff refunds. Partially offsetting this was unfavorable operating leverage from lower internal production volumes, primarily due to elasticity impacts of pricing and continued action to reduce our inventory levels.

Adjusted SG&A, which includes advertising and promotion expense, was 70 basis points unfavorable, largely due to lapping lower incentive compensation expense last year.

And finally, FX and M&A combined were a 20 basis point headwind, while the 53rd week added an additional 30 basis points to Q4 adjusted operating margin, in line with expectations.

Our segment adjusted operating profit and margin results are summarized on Slide 18. Year-over-year margin drivers of segment results are generally consistent with the total company drivers I just discussed, though Refrigerated & Frozen margins continue to be the most pressured from elevated inflation and investments to drive volume. Going forward, we see an opportunity to better balance the volume and margins, as John discussed. This includes implementing strategic pricing actions in several areas of the portfolio, including Frozen as we look to set a foundation for profitable growth moving forward.

The adjusted EPS bridge for the fourth quarter is shown on Slide 19. Adjusted EPS was $0.47 in the quarter compared to $0.56 a year ago, driven by lower adjusted operating profit as inflation exceeded productivity, lower adjusted equity earnings related to our Ardent Mills joint venture and reduced profit from divested businesses. Partially offsetting this was favorability in the tax rate and the benefit of the 53rd week.

Key balance sheet and cash flow metrics for the fiscal year are shown on Slide 20. In fiscal '26, we made significant progress reducing debt, lowering net debt by almost $1 billion versus fiscal '25. Our net leverage ratio ended the year at 3.83x, flat to Q3 and slightly ahead of our year-end expectations. We continue to target long-term leverage of 3x.

Capital expenditures totaled $423 million for the year, a 9% increase over the prior year as we made progress against our modernization and in-sourcing initiatives.

Free cash flow was $979 million, down versus prior year, primarily due to lower operating profit and lapping the accelerated receipt of a portion of our outstanding receivables, partially offset by strong progress reducing our inventories.

Free cash flow conversion of 119% came in ahead of our increased expectations, reflecting strong execution and continued focus across the enterprise on driving cash.

Finally, dividends paid were largely in line with fiscal '25 at $670 million, and we did not have any additional M&A activity or share repurchases in the quarter.

Turning to Slide 21. As announced in our press release today, our Board of Directors approved a quarterly dividend at an annualized rate of $0.70 per share, representing a reduction of 50% versus our prior dividend rate. The revised dividend is expected to provide approximately $335 million of additional discretionary cash on an annualized basis. We intend to deploy this across our highest priorities, including reducing debt, supporting strategic brand-building investments and funding key supply chain and modernization initiatives, as John mentioned.

From a balance sheet perspective, this action will accelerate progress towards our long-term leverage target of 3x while supporting our investment-grade credit rating. It also improves our overall financial flexibility, increasing our capacity to strengthen the portfolio and drive long-term profitable growth. We remain committed to returning cash to shareholders through the dividend. This action resets our dividend payout ratio near our long-term target of 50% to 55%, enabling the dividend to grow with earnings going forward.

Slide 22 shows our fiscal '27 guidance. For the full year, we expect organic net sales to decline in the range of minus 1% to minus 3%. Our outlook includes executing the strategic inflation-justified pricing actions that we previously discussed with the accompanying elasticity-related volume impacts. In total, we expect volumes to be down mid-single digits as we have assumed larger than historical volume elasticities, particularly within our frozen business.

We're also increasing our A&P investments to approximately 3% of net sales, a 14% increase versus fiscal '26 as we look to drive additional momentum behind key growth platforms.

Next, we expect adjusted operating margin between 10% and 10.5%. This assumes inflation remains elevated throughout the year, driven largely by increases in oil-related costs, logistics and animal proteins such as beef. Additionally, we expect to incur approximately $40 million in expense related to wrapping a portion of last year's tariff mitigation or roughly 0.5% of cost of goods sold. Partially offsetting this, we expect another year of strong productivity at greater than 4% of cost of goods sold as we drive cost savings initiatives across our supply chain. And SG&A, excluding A&P, is projected to be at roughly 10.5% of net sales.

And last, we expect adjusted EPS in the range of $1.40 to $1.50. Embedded in that outlook is equity income from our joint ventures of approximately $140 million, pension income of approximately $25 million, interest expense of approximately $360 million and an adjusted tax rate of approximately 24%. Additionally, the wrap of last year's 53rd week will result in a $0.05 headwind to fiscal '27 adjusted EPS.

And finally, Slide 23 outlines additional considerations for Q1 and the full year. In Q1, we expect organic net sales to decline low single digits, reflecting current category trends as well as the pricing wrap from inflation-justified pricing actions put in place during fiscal '26. Our new pricing actions are expected to be reflected in markets starting in mid-Q2.

We also expect inflation to be heightened in Q1 following oil and logistics pressure as we closed fiscal '26, as well as the tariff wrap, which will over-index to Q1. Taken together, along with the planned step-up in A&P, we expect Q1 adjusted operating margin in the high single digits.

Other fiscal '27 key assumptions include an increase in capital expenditures to approximately $550 million, reflecting increased investment in our supply chain to continue to advance modernization efforts, in-sourcing initiatives and Project Catalyst. We continue to make progress and to invest in Catalyst, and we expect most of the associated financial benefits to come in fiscal '28 and beyond. Additionally, we expect free cash flow conversion of greater than 90% and our net leverage ratio to be approximately 4x with a large majority of our discretionary cash allocated to debt paydown.

Before we wrap up, let me turn it back to John for some closing remarks.

Thanks, Dave. I'd like to leave everyone with a few closing thoughts. The more time I spend with this company, the more convinced I am that Conagra's best days are ahead of us. This is a company with iconic brands, talented people and strong positions in categories that matter to consumers every day. These are enduring advantages. Our company's responsibility now is to unlock more of its potential.

I've always believed that leadership starts with defining reality, inspiring confidence in the path forward and then delivering a plan that bridges the gap between reality and our aspirations. We've been transparent today about where we need to improve and the decisive actions we're taking because we want you to leave this call with confidence in where we are headed.

You'll hear me talk often about radical simplicity. That's because I believe simplicity creates speed, speed improves execution, and execution is ultimately what drives results. We're moving with urgency to strengthen our foundation, invest behind our brands, simplify our business and improve our financial flexibility. These actions are designed not simply to improve next quarter, but to position Conagra for sustainable growth and value creation for years to come. This is only the beginning. We're actively developing our longer-term strategic road map, and I look forward to sharing more with you at our Investor Day in early calendar 2027.

As CEO, my commitment is straightforward. We'll be honest about where we stand and what we need to do to deliver consistent and reliable results. Over the coming months, we'll continue to listen, learn and act decisively. We'll hold ourselves accountable for the commitments we make, measuring success by the results we deliver.

Thank you for your time today and for your continued interest in Conagra. I look forward to your questions.

Good day, and welcome to the Conagra Brands Third Quarter Fiscal 2026 Earnings Q&A Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the call over to Matthew Neisius, Senior Director of Investor Relations for Conagra Brands. Please go ahead.

Good morning, everyone, and thank you for joining us. Once again, I'm joined this morning by Sean Connolly, our CEO; and Dave Marberger, our CFO. We may be making some forward-looking statements and discussing non-GAAP financial measures during this Q&A session. Please see our earnings release, prepared remarks, presentation materials and filings with the SEC in the Investor Relations section of our website for descriptions of our Risk Factors GAAP to non-GAAP reconciliations and information on our comparability items. I'll now ask the operator to introduce the first question.

Our first question comes from Andrew Lazar with Barclays.

Great. Thanks so much. Good morning, everybody. Maybe Sean, to start off, I really like your thoughts on if the industry does end up facing another round of broad-based inflation, I guess whether you think Conagra and the industry at large would be able to count on pricing as but one lever to help offset it as it has in the past or this time is different. Just given consumers are particularly value conscious at this stage? And I ask it because I think some industry players clearly are needing to remain highly focused on debt pay down and protect profitability even if it prolongs sort of the volume recovery dynamic?

Yes. Great question. Here's how I would tell you to think about that. First, as a reminder, believe it or not, it was all the way back at the beginning of our fiscal '24 when we pivoted to a focus on restoring volume growth in frozen and snacks, even if it meant eating some inflation and enduring some margin compression, while that strategy has proven to be quite effective because you've seen our volume trajectory improve every quarter since with the exception of that brief period last year where we had the temporary supply constraints.

So we're very pleased and pleased to see our total portfolio growing again this quarter. As for what comes next, our plan at this point is to stay agile. If inflation is benign, you'll see us likely continue to focus on continued volume momentum. If for some reason, inflation was to go the other way, we'll keep our options open. After all, we are a company that is intensely focused on maximizing cash flow. And we've already proven that we can move the volume needle to growth in frozen and snacks when we need to. So net will be agile.

But right now, I would say it's too early to speculate on a particular course of action. There's 3.5 months to go before we guide for fiscal '27. Obviously, a lot can unfold by the hour these days, and certainly, a lot can unfold in the next 3.5 months. One thing we can be sure of is that we will drive a lot of productivity while we optimize all our other levers to mitigate any inflation that might come our way. And remember, we did take pricing this year on a bunch of products, our canned foods and our cocoa-oriented products and the elasticities have been quite encouraging.

So let's see how the dust settles. And then we'll take the smartest course of action to deal with whatever we're seeing at the time. But as I sit here today, I see a lot of positives. The business has strong momentum, especially in frozen snacks shares are excellent. Cash flow is strong, productivity is robust, and people are highly engaged in delivering some of the most exciting innovations we've had. So a lot to feel good about.

And then just, Dave, real quickly, maybe, I guess what sort of visibility do we have at this stage on costs going into fiscal '27? Just based on where you might already have some hedges in place. I'm not asking, obviously, for your overall inflation estimate or whatever for next year. But just how much visibility do you think you have or based on where you already know what you've got in place?

Yes, Andrew, let me give you a little color there. So for our fiscal '27, our material spend coverage is generally consistent with the prior years at this point. So we're roughly 60% covered, and this is total materials. 60% covered for Q1 and roughly 40% covered for the full fiscal year. Areas where we have a bit more coverage than historically would be steel freight, remember -- we contract line haul, that's a big percentage of our freight. And so that's on contract.

And then some of our crop-based ingredients, we have better coverage and then a little bit less coverage on diesel fuel. We're covered through the end of this fiscal year there, but not as covered as we've been in the past. And just as a reminder, proteins probably have the lowest coverage of anything. So for next year, we're only about 15% covered. We're more spot market when it gets to the animal proteins. So I hope that gives you a little bit of a feel.

Our next question comes from David Palmer with Evercore ISI.

Those were precisely my question. So let me just follow up on that a little bit. When you look at your portfolio, you've obviously been prioritizing volume over the last fiscal year and that has helped and there are some other notable companies in the space that have been aggressive in this prioritizing volume first, just like you. I wonder where we are now in terms of where you think your pricing power is? Do you feel like you're in a better spot now with regard to relative price points to private label in some of your categories versus main competitors and others in terms of your just volume momentum overall.

And I really am asking because in the past, you've said things like will be okay if inflation is not over 3% in terms of getting to our algo. And I just wonder if today, if we do go over 3% if you'll be able to drive profitable growth going forward.

David, it's Sean. First of all, private label, just since you brought that up, we under-index in terms of private label development in our categories, particularly in our -- almost nonexistent in our biggest business, which is frozen meals. But our strategy has been what I'd call the horses for courses strategy where our growth businesses have been focused on getting back to volume growth that's frozen and snacks, and that is happening. Our Staples business is focused on cash maximization. That's a lot of things like our canned food business.

And we have taken inflation justified price on those categories, and we've seen good elasticity. So it's a surgical approach that we've taken historically. And -- but -- but make no mistake about it, because we've dealt with the most protracted inflation super cycle that I've certainly seen in my 35 years of doing this. And after a few years of every company taking justified pricing, investors said, look, you can't shrink your way to prosperity, show us that you can get the volumes moving again. And we have done that. And our portfolio responsiveness, I think, has outpaced our peers, which shows you we are delivering good value, and we are delivering exciting innovation.

But as I mentioned to Andrew, as to what's to come, we'll see what the field gives us when we've got to snap the chalk line here. And if things settle down with the war and things like that and things look more benign, I think it makes sense to stay focused on keeping the momentum that we've got in volume. But if, for some reason, things broke the other way, and we're looking at a whole slug of new costs, we can pivot as well because to the degree you do take price and you sacrifice a little volume, it's more of a volume sabbatical than it is a permanent volume rebate and you tend to see the volumes come back when inflation moves again and you see those prices get rolled back.

So, as I said, we've got to stay agile, but feel really good to see that we have a portfolio that is responsive to proper pricing and wise investments and strong innovation we need it to be. But look, investors always want to see top line and bottom line growth. Sometimes the macro environment can make it challenging to do both at the same time. We'll stay agile, and we'll post you as we get to next quarter in terms of what we're seeing and what the exact plan is.

Up next, we have Megan Clapp with Morgan Stanley.

I just wanted to start with maybe a question on the fourth quarter. As you look at the third quarter, you obviously had some nice momentum, a return to Org sales. there were a lot of moving parts just with the retailer timing and some of the rare dynamics. So as we think about the fourth quarter, maybe you can just help us with some of the building blocks as we think about top line and should shipments generally match consumption. And then on the op margin line, can you just help us kind of understand the building blocks to the sequential improvement that's embedded as well.

Megan, it's Sean. Let me start by tackling the shipment versus consumption question because I saw a couple of early reports this morning that I think might have that wrong. I would not spend a lot of time overthinking shipments versus consumption because with our company, because of the supply interruption last year, and then some merchandising timing shifts in frozen this year out of Q2 into Q3. Our shipment patterns have moved around a bit compared to what they normally do.

But over fiscal '25 and fiscal '26 combined, we are basically shipping almost exactly to consumption, which is what we always do as a company. It's just been a bit lumpier quarter-to-quarter because of those dynamics. And so with respect to this quarter, I wouldn't get overly exercised around there's an implication in Q4. It's actually more the reversal of Q2 which was where we had a bunch of holiday shipments last year, those -- and merchandising shipments this year moved to Q3. So not a lot of drama there, and that's the shipment versus consumption piece of the year to go. Dave, do you want to tackle anything else?

Yes. And just to add to that, Megan, we do expect positive organic net sales growth in Q4. That's obviously implied with our full year guide to the kind of the midpoint of the range for organic consumption and shipments should be more in line in Q4, talking to what Sean just explained. And we have -- we're excited about our innovation slate, and you start shipping some of that innovation, so you start to see some of that in Q4.

So they're really the building blocks for the top line. As it relates to operating margin, yes, we expect an inflection from Q3 to Q4. Really the big drivers of that, A&P as a percentage of sales will not be as high in Q4 as it was in Q3. So it will be more in line with that kind of 2.5% average. The 53rd week actually gives some leverage in terms of overall operating margin. And then just some of the seasonality of trade, timing of productivity, timing of inflation, all those kind of things give us additional kind of benefit in op margin relative to Q3. So I would say they are the kind of the key building blocks.

Okay. That's helpful. And just as a follow-up, the op margin, you're now expecting at the high end of the guide. Could you maybe just talk about what's driving that? And as we look at the exit rate on the fourth quarter, I think it implies something above $12 million understanding there's a lot of moving parts right now, but if inflation kind of stays in this low single-digit range as you would hope it moderates to it normalizes over time? Like should we think about that exit rate as being informative of kind of a starting point going forward at this point?

Yes. Regarding the last part of your question, I'm not going to comment on fiscal '27. What I can say is -- and if you just look at when we gave guidance at the beginning of the year, 11% to 11.5% operating margin when there were so many things going on at that time. And since then, there have been so many dynamics I feel really good that we're actually now going to guide to the higher end of that range. And that all starts with our inflation call, which was core inflation and tariffs. We're pretty much on that call. Our productivity programs are really doing well. The investments we've made in our supply chain and technology and in process are really, really delivering.

And so they're really the key, as Sean talked about, we have taken price increases, particularly in our cans products. and the elasticities have been in line. And so when you kind of look at it, it's how we planned the year. There obviously have been some puts and takes, but generally speaking, we feel really good that we're coming in as we expected to on margin. And we expect that productivity to continue into next year.

Obviously, we have more work to do on inflation. There's a lot of dynamics, things are changing all the time. But I talked about the coverage we have. We are locked in on certain key areas, which is good for us. So we feel good that the building blocks for next year is an are there, but we have to wait the next 3 months to give specific guidance, obviously. And then it's not operating margin. But on the free cash flow front, we continue to feel really good. We took our conversion up to 105% from 100, and we took it up at CAGNY.

And this is all from focus that we have in this company on free cash flow. It's part of the culture. It's part of the incentive plan for everybody in this company that's compensated, free cash flow is in their incentive. And so we're very focused on it in areas like cash tax efficiency areas like Ardent Mills where although our equity profit is off $0.10. Our cash is on plan. So they're going to continue the dividend at plan despite the equity earnings being down and then inventory we build up inventory levels coming out of COVID. Our safety stocks were high, and we've continued to ramp that down. And if you look at our balance sheet, we have $2 billion of inventory and with project catalysts and us being able to leverage AI and other technology we think we have a long runway to keep taking inventory out and be more competitive.

So we're pretty bullish on that front. We'll talk more about that when we give guidance. But Obviously, that has a cost impact as well. So I would say they're the building blocks and foundations how to think about margin kind of ending this year going into next year.

Our next question comes from Peter Galbo with Bank of America.

Thanks for the question. Dave, maybe if I could just start on Ardent Mills, the change or the revision to that line item, I think it's the second one of the year. And historically, in that business, when there has been a lot of wheat volatility you've been able to take advantage. And I think in Q4, you're kind of calling that maybe it's the opposite. So just want to understand kind of what's happening there, particularly in the fourth quarter? And then just any early read on kind of how we might start to think about the run rate of Ardent for '27?

Sure, Peter. So just taking it from the top, as I've talked about, broadly speaking, Ardent has two sources of revenue and profit. They have their core business margin where they mill flower and sell that at a profit. That business is consistent and that business is tracking. And then they have what we call commodity trading revenue. And that's where there's a lot of activity, hedging and different arbitrage where Ardent can be in a position to make a lot of money. And what really drives the upside there, our overall wheat prices and the volatility of the markets.

And through the -- really through the first 3 quarters of this year, wheat prices have been low and there's been less volatility in the wheat market. So not as much opportunity for Ardent to take advantage on the commodity trading side. Obviously, with the start of the war wheat prices have gone up in the future and volatility has increased. And so you don't see those benefits immediately. And so with our forecast for this year, we've called the number where we are now. But clearly, there is more volatility that the Ardent team is working through now. We will work through it as well. Determine what kind of impact that could have on next year. We don't have line of sight to that at this time, but there is more volatility at this point since the war.

Okay. That's helpful. And Sean, I think on Dave's initial comments on inflation for next year, he mentioned a bit on contracting on certain crop-based ingredients, there's a lot of, I think, concern in the market just given where fertilizer costs have gone and you all are a pretty big procurer of vegetables. So just how you all are thinking through that, what the conversations are like with your growing partners and whether that's really an issue for this growth season or whether it's more of a 27% growth cycle event.

Well, fertilizer, it would be more of an F28 event than -- but I would say conversations are very productive. I think everybody is in the same boat, Pete. I mean it's kind of like the news and the hour around here that we're responding to. And so it's just super dynamic. We got to stay on top of it. It changes day to day, and you got to be agile. That's why I started my comments today to Andrew saying we will be responsive to the hand we are dealt and we will choose the smartest course of action. And that's just kind of the nature of operating in incredibly dynamic times. Thanks, Peter.

Our next question comes from Tom Palmer with JPMorgan.

Maybe I could just start off with a clarification on some of the inflation and freight commentary, you noted that you're covered in terms of contracts. I think in the past, when we've seen rates run up, not totally dissimilar to now, we have seen spot running well above contracted rates and maybe contracted rates not holding in the way that you might think of a contract holding. I guess to what extent you're seeing that now especially when I look at some of that margin pressure in the refrigerated business this quarter?

Yes. So spot was actually running low for a lot of our fiscal year. Spot has now spiked up and is above sort of contracted rates. A high percentage of our freight as we kind of look into next year is contracted linehaul. So a high percentage. So a smaller percentage is spot. That market has spiked up, like you just alluded to. But we've incorporated all that for our fiscal '26 guide. And then as I mentioned next year, we're covered through a good part of next fiscal year with our freight contracts, and that's a high percentage. We do have some spot, but a high percentage is contracted.

And then following up on Ardent, you mentioned earlier on the strong free cash flow conversion, some of that was aided by not lowering the distributions from Ardent even as earnings have maybe not come in quite the way you expected. If we think about a potential rebound next year in Ardent's earnings, to what extent should we think about that flowing through to free cash flow generation, so essentially increasing the distributions versus more just fully covering the distributions in terms of the earnings.

Yes. So, Tom, we look at this on a kind of a year-by-year basis. We have a lot of discussion with our joint venture partners on capital allocation priorities as a kind of a general rule, Ardent Mills does an outstanding job managing their balance sheet. They keep their leverage low and they're really efficient with their cash flow. So this year, they were in a position to be able to hold to plan despite some of the volatility I described earlier on the commodity trading revenue. So it is a general rule we set -- we have a sort of a payout ratio level that we set going into the year. And then we look at how the year plays out and then we modify from there. But generally speaking, we feel very good about the cash generation of Ardent Mills and getting timely distributions.

Our next question comes from Robert Moskow with TD Cowen.

A couple of questions. One, Dave, can you remind us what the tariff component of your cost inflation is this year? I think it's like 2% or so? And how should we think about it for fiscal '27? Does it lap? Will it turn to 0? And is that -- does that automatically get you some relief in your inflation for next year?

Yes, Rob. So generally, kind of going into the year, our overall inflation was 7%, 4% was core and 3% were gross tariffs before mitigation. And we track mitigation as part of productivity. And we estimated 1% in mitigation. And so as we look at -- and that's pretty much played out. There's been some volatility, obviously, with the EPA tariffs, but then we have the new tariffs that have come in. And so not a material change, I would say, to the original estimate, a little bit favorable. But then our core inflation has been a little unfavorable. So we're still at that kind of total 7%, call it.

As we look to next year, because we had mitigation that we're going to wrap there is going to be some headwind from a kind of RAP perspective in tariffs. And so we originally said 1% mitigation, which would imply $80 million of headwind we don't think it's going to be that much. It might be more like half of that, but we are going to have some headwind with tariff just because we're wrapping on the mitigation that we had this year that now flows -- won't flow into next year.

Okay. I'll follow up on that. And then more broadly, I mean, the retail consumption data, Sean, looks really strong on a 2-year volume CAGR basis for Frozen. But then when I just look at your shipments, and I try to do that same 2-year CAGR, just for refrigerated and frozen division, it's down on a 2-year basis, and that's trying to normalize for the supply chain disruption. Is that just because this division has like refrigerated brands that have been down over that 2-year period that you're not including in that Nielsen data?

I'm not sure exactly what you're looking at, Rob, but that could be a piece of it. I mean there are some of the refrigerated businesses that are nowhere near the strategic priority is our frozen business as an example. So we -- those could be categories where as we follow our horses for courses approach that it's more of a value over volume. But I would say, in general, on the core Frozen business, you've seen strength on a 1 year and you see strength on a 2-year and staggering market share data around 88% of that business holding or gaining share, which I know was a central focus for investors last year when we had the supply interruption.

It's like, will this bounce back, will bounce back strong, and it has bounced back. So our refrigerated businesses, some of those businesses are more about cash contribution. There are some particularly high-margin businesses in there. And so much -- some of those refrigerated businesses, we treat more like some of our center store businesses like cans, where we manage them for cash and not as much for volume growth. That's probably what you're seeing there. Dave, do you want to add to that?

Yes. Just -- Rob, just -- and I'll let you kind of follow up checking numbers. But if I just look at Mike, the Q3, obviously, this quarter for shipments for RNF volume was plus 3.9%, Q3 a year ago, it was minus 3%. So on a 2-year basis, volume is actually up in shipments.

Yes. I was referring to overall dollars are down. So -- but yes, I agree with you, Dave.

Our next question comes from Chris Carey with Wells Fargo.

I wanted to see if you -- maybe you could just take sort of a 2-, 3-year view on the margin trajectory for your key U.S. businesses. The grocery and stack business has seen pressure. But there's clearly been more pressure on the refrigerated and frozen side. When you kind of digest that past few years, what are the key challenges that have impacted the business? Obviously, there's been inflation, but I wonder if there are other things under the hood. And as you look out over the next several years, how tangible -- how is your ability to kind of claw back some of those margins and -- and maybe you can comment on your medium-term productivity initiatives as well. So I'd love any thoughts there.

Yes. Chris, let me give you my thoughts on that. We are the biggest frozen food manufacturer in North America, if not the world. And we have, as a company, seen in this now 5-, 6-year deep inflation super cycle, we've seen a massive increase in the cost of goods that we've had to deal with. And after about 4 years of taking inflation-justified pricing in order to kind of protect margins, that's where we sit on our growth business is you can't shrink your way to prosperity. And that's led by Frozen.

So we did pivot the strategy to stop taking at some point, all this inflation justified pricing in frozen to get volumes moving again. But that means we had to eat some of that higher cost. And as a result, that business in particular, because it's so strategic to us, we got volumes moving. They're moving extremely well again this quarter, but we've had to eat some cost. And a lot of that cost has been in animal protein because, as you know, animal proteins have been up. So that is exactly what has driven the margin compression in the frozen business. And if it was a choice we made to protect our leading market shares and protect our sales.

And if you looked at even the velocities across our portfolio that came out yesterday, I think we've got the best velocities by a good chunk in the group. So now the question comes, what's next? Obviously, we've got the war curve ball that we're dealing with. But as I said, last quarter. We absolutely -- assuming we can get some element of normalcy, we absolutely expect margin expansion going forward, particularly in frozen. And the building blocks haven't changed. It starts with productivity in fiscal '26 between core productivity and tariff mitigation. That number is just over 5%, which is very strong.

Second, at some point, we're going to get inflation relief, hopefully, back to our -- closer to our typical 2%, certainly getting the war behind us would help with that. Third, we've got the advancement of our supply chain resiliency investments, including the chicken plants, and that's going to enable us at some point to repatriate outsourced volume, which will be a good guy for margin. And then fourth, we are taking price and we have taken price surgically, and we've seen encouraging elasticities, and then the fifth thing is, as you've heard me talk in the last couple of quarters, we've kicked off this project catalyst, which is an ambitious initiative to reengineer our core work processes, leveraging technology.

And that's going to be a benefit to both the P&L and the balance sheet and the P&L, it will be a benefit to sales, it will be a benefit to profit. In the balance sheet, we see opportunity there in terms of reducing working capital, increasing cash and that's a real tangible and exciting opportunity. So yes, it's margin and it's more than margin. in that particular project. So put those things together, and we feel very good about the margin outlook from here. Obviously, it wouldn't hurt if the world settled down a bit. But we'll deal with that because that's not something we control. We got to respond to that.

Okay. All right. Great. And just Dave, the free cash flow conversion has been a really good story. You upped that CAGNY and a small increase again today. are we run rating at a new level for free cash flow conversion? Do you see a level of sustainability up here over 100%. And then just it's kind of a confirmation of a prior question. The dividends are staying on Ardent or I think that the cash component of Ardent has maintained despite the income statement component coming down. Does that get reset next year? Or can you maintain a level of dividends. And by the way, I know you're not guiding to Ardent nor am I suggesting but is there some sort of like mark-to-market that needs to happen there, so that's kind of just a quick follow-up cash.

Yes. Okay. Well, let me start with the free cash flow conversion. So we're not going to guide to that now. What I would say is we always target a 90% or better free cash flow conversion is the base. Given our earnings and our ability to convert that to cash just in the normal course, we feel 90% is the appropriate target. So to get above that, we need to find additional cash generating ideas. We've done that with cash tax efficiency this year with different planning that we've done that's really helped us there.

And the big thing has been working capital specific to inventory, and I talked about it earlier, we have a significant amount of inventory, and we believe we have great opportunity to really reduce that inventory in future years. We inventory increase coming out of COVID because we had a lot of demand, and we increased our safety stocks. And now we're methodically reducing it with our supply planning systems and our process. But when we leverage some of these new tools with AI now, we think that we can continue that acceleration of inventory reduction, and that's the kind of thing that's going to take you above 90%.

So again, I'm not going to specifically guide on that today. but we're laser-focused on inventory. And a big part of that, too, I've done this a long time to be able to take inventory down, you have to have alignment between supply chain, sales and finance. And it may sound simple, but sometimes that doesn't always happen. And we have great alignment here and it starts at the top in terms of a commitment to taking inventory out. So we're investing and we feel pretty bullish on our ability to take that out.

As it relates to Ardent Mills, I would just -- when we set at the earnings for Ardent, we always have a payout ratio on those earnings, and that's how we start the year. And that payout ratio is pretty high. It's not 100%, but it's pretty close. And then we go from there. And so this year, the earnings fell, but we kept the dividend to plan. So our payout ratio is above 100%. But you always reset it every year so that the dividend payment and the equity earnings to start the year are pretty much in sync and then we evaluate their balance sheet as we go each quarter.

Our next question comes from Scott Marks with Jefferies.

First thing I just wanted to get clarity on in terms of the volume growth of the business, wondering if you can help us understand how much of that was driven by some of the retailer inventory adjustments? And how much of it would you attribute to just recovery from the supply chain disruption in the [indiscernible]?

Well, we certainly under shipped last quarter, Scott, and we caught that back up because the merchandising events moved into Q3. And so the shipments associated with those moved into Q3. So we're -- on a 2-year basis, as I mentioned before, we basically shipped consumption, and there's not a material gap there at all. In terms of the takeaway portion of it, it's strong on a 1- and a 2-year basis. And if you look at the mix of TPDs versus velocities, the hero there has really been the velocity piece. And that's driven in large part by just the strength of the innovation we've seen. So very pleased with the consumer takeaway that we've seen, particularly in frozen and snacks, which is obviously you can see in some of the data has been quite strong.

Understood. Appreciate that. And then a follow-up just quickly. I know last quarter, you were talking about the new big chicken facility, talking about bringing in-house some production, and that had been on track. Just wondering if you can share an update on that, how that's progressing versus expectations.

Yes. We sell a lot of chicken and we use a lot of chicken in our products. And it's a combination of baked or roasted, whatever you want to call it, fried. Both have been strong. Both projects are tracking right where we need them to be. We still do have production on the outside that will continue for a little bit. But then at some point, when we're -- all our work is complete, we'll have an opportunity to bring that back in as a good guide to our margins.

Yes. And just on the baked side, we did complete that project, and we're starting to bring that volume back this year. And so as we go into next year, that should be a tailwind in terms of having full year on that. And then the ride, we've made investments, and that's going to go out longer.

next question comes from Carla Cassey with JPMorgan. It's open on our end, but I'm still unable to hear you.

I think that might be the last question. So why don't we go ahead and wrap today?

All right. This concludes our question-and-answer session. I would like to turn the call back over to Matthew Nisis for closing remarks.

Thank you, Bailey, and thank you all so much for joining us today. Please reach out to Investor Relations if you have any follow-up questions.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning. Thank you for listening to our prepared remarks for the Conagra Brands Third Quarter Fiscal 2026 Earnings. At 9:30 Eastern this morning, we will 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.

In our presentation this morning, Sean Connolly, our CEO; and Dave Marberger, our CFO, will be making some forward-looking statements. 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. GAAP to non-GAAP reconciliations and information on our comparability items are in our earnings release and presentation materials in the Investor Relations section of our website.

I'll now turn the call over to Sean.

Thanks, Matthew. Good morning, everyone, and thank you for joining our third quarter fiscal 2026 earnings call. I'll begin with our key messages for the quarter.

We returned to organic net sales growth in line with our expectations that we shared last quarter. We also saw continued upward inflection in our growth businesses, gaining market share in key Frozen categories while posting another quarter of strong growth in Snacks at a rate that exceeded our snacking categories. In Staples, we continue to take a different approach, managing the business for cash. Together, these results have us squarely on the right trajectory, similar to our performance prior to last year's temporary supply constraints when we delivered 6 consecutive quarters of volume improvement.

Next, we firmly believe our portfolio is structurally advantaged and built for today's evolving environment. I'll cover this in more detail in a minute.

Importantly, we are delivering strong free cash flow while maintaining capital allocation discipline. We're investing in the business, reducing debt and funding our dividend. That's the balance we've committed to. And finally, with less than 1 quarter to go in the fiscal year, we're updating our fiscal '26 guidance, narrowing our outlook within our original range.

Overall, I'm pleased that our strong progress was clearly visible in Q3 and that we continue to deliver on our commitments despite the challenges our industry is facing.

Now let's unpack the performance behind these key messages, starting with Slide 5. Total Conagra organic net sales grew 2.4% in Q3 with progress versus Q2 in each of our four segments. That growth includes strong in-market performance, particularly within our frozen and snacking categories, which I'll detail shortly. This reinforces the fact that we are gaining momentum, as expected, as we close out the fiscal year.

I know you're most focused on the performance we've been able to deliver in our growth businesses. As you can see on Slide 6, our investments in Frozen are clearly paying off. Frozen retail volume showed strong growth in Q3 on both a 1- and 2-year basis with an incredible 88% of the portfolio holding or gaining volume share over the same time periods. Frozen is a strategic priority, and it's delivering top line growth and strong share performance.

Here's a bit more detail on our Frozen share performance. As you can see on Slide 7, in key Frozen categories, we've restored market share following temporary supply constraints that emerged last year. Single-serve meals and vegetables both delivered share meaningfully above recent short-lived troughs, gaining share versus last year and 2 years ago, proof that our innovation and brand-building investments are working.

Moving to snacks on Slide 8. This business is also delivering standout growth. Our Snacks portfolio dollar sales grew and outpaced category growth for the fifth consecutive quarter, an important driver of our overall momentum and a clear growth engine for the company.

Within snacks, our on-trend protein offerings are especially strong, which you can see on Slide 9. Meat snacks were up approximately 9% in dollars and 10% on a volume basis and seeds are also showing healthy dollar and volume growth. These platforms align perfectly with consumer preferences for natural sources of protein and fiber in their snacks, positioning us for continued strength.

Turning to Slide 10. As we've previously discussed, there are certain snacking brands within our sweet treats portfolio, such as Swiss Miss and Snack Pack, where we implemented inflation-justified pricing given increased cocoa costs. Thus far, elasticities are performing better than historical norms. Dollar growth has been impressive with minimal impacts on volume, further emphasizing the relevance of these brands.

As you can see on Slide 11, for our Staples business, our priority remains maximizing cash generation. We implemented inflation-justified pricing across much of our canned portfolio in late Q2, and elasticities have been in line with expectations. We're also seeing positive trends in dollar sales in Staples which will help us fund investments in higher growth areas.

Our solid quarterly performance is not a surprise to us. As shown on Slide 12, we firmly believe our portfolio is structurally advantaged for the current evolving environment. Like I said at CAGNY, Superior Relative Provocativeness, or S.R.P., is what drives category and brand vitality. And winning the battle for provocativeness means optimizing your benefit bundle to have appeal across different consumer groups, tailoring taste, value, health and convenience to meet unique consumer needs.

Health and wellness continues to be a growing trend. Our portfolio of protein- and fiber-forward snacks and meals, healthy vegetable offerings and portion-control packages provide what today's consumers are seeking.

Additionally, the food needs to taste great. That's why we are always innovating and offering bold new flavors and contemporary cuisines that our consumers, especially Gen Z, are craving. And we have a portfolio of both established iconic brands as well as agile, insurgent brands in order to provide options that appeal to all shoppers.

Our approach allows us to reach a wide variety of households because today's consumer base is not monolithic, it's incredibly diverse. And we do have something for everyone. Our at-home solutions from premium to value products, sold through core and emerging channels, are trusted and used by 94% of American households.

But we also know we can't stand still. Our relentless innovation is what continues to drive the provocativeness that consumers require. On the left side of Slide 13, you can see that recent launches from Dolly Parton and Marie Callender's as well as our new brand, Sweetwood Ranch, are winning on shelf, giving us multiple #1 new platforms and strong new SKU performance in key frozen categories.

On the right, you can see our extensive innovation pipeline across the portfolio remains a competitive advantage and a key strategy going forward. We're excited to have these products available soon.

Turning to cash on Slide 14. We frequently discussed our intense focus on driving cash flow. It's part of our culture. Today, we are once again increasing our free cash flow conversion estimate for the year, now updated to approximately 105%, up from our 100% estimate at CAGNY and 90% estimate at the start of the year. Importantly, this will allow us to reduce net debt by approximately $800 million, above our prior $700 million estimate. This improved cash conversion underpins our ability to invest in the business, reduce leverage and return capital to shareholders.

Given we are more than 3 quarters of the way through the year, we are narrowing our fiscal '26 guidance within the original range. We expect organic net sales to be near the midpoint of our prior range, adjusted operating margin to be near the high end and adjusted EPS to be at the low end at approximately $1.70, which is not a function of the core business, but rather our Ardent Mills JV, which Dave will touch on in a minute.

But before I turn it over to Dave, I want to reiterate that we're pleased with our third quarter and year-to-date performance as well as the impact of our innovation. This is not an easy operating environment, but we have delivered on our expectations to date. We've returned the business to organic net sales growth, reflecting continued upward inflection in Frozen and Snacks and improved consumption and market share performance. Our portfolio of iconic and insurgent brands stands out as structurally advantaged, and we intend to leverage those advantages moving forward.

Now I'll turn it over to Dave to walk you through the financials. Dave?

Thanks, Sean, and good morning, everyone. Slide 17 shows our results for key financial metrics in the quarter.

As expected, we returned to organic net sales growth in Q3, delivering organic net sales of approximately $2.8 billion, a 2.4% increase versus the prior year. Adjusted gross margin of 23.7% and adjusted operating margin of 10.6% were both down versus the prior year, but in line with our expectations. And adjusted earnings per share were $0.39, down $0.12 versus a year ago, which I'll unpack shortly.

Slide 18 shows our third quarter net sales bridge. Total Conagra organic net sales grew 2.4% over the prior year, with volumes up 0.5% and price/mix up 1.9%. Foreign exchange was a 50-basis-point tailwind, and the divestitures of Chef Boyardee and our frozen seafood businesses together represented a 480-basis-point impact.

During the quarter, shipments modestly exceeded consumption, primarily in Refrigerated & Frozen, driven by retailer inventory changes around our merchandising events as well as the lapping of last year's unfavorable trade adjustment and supply constraints, all dynamics we anticipated. Overall, we remain pleased with the momentum in our consumption and market share performance.

Slide 19 shows the composition of net sales by segment. Three of our four segments returned to organic net sales growth in the quarter and all segment growth rates improved sequentially versus Q2.

In Grocery & Snacks, we delivered net sales of approximately $1.2 billion, with organic net sales up 1.8% versus the prior year, driven by strong Snacks performance and favorable price/mix, which more than offset lower volumes.

Refrigerated & Frozen delivered $1.1 billion in net sales with organic net sales increasing 3.6% versus the prior year, driven by nearly 4% volume growth, inclusive of the strong market share recovery following last year's Frozen supply constraints.

In our International segment, organic net sales declined 1.2% versus prior year, marking an improvement versus Q2. We saw growth in global markets, which was more than offset by volume softness in Canada, while Mexico's results were nearly flat.

And in Foodservice, organic net sales increased 3.6%, marking the third consecutive quarter of organic growth with volumes continuing to stabilize alongside favorable price/mix.

Slide 20 shows that adjusted operating margin declined 213 basis points over the previous year to 10.6%. Price/mix was a 130-basis-point tailwind as inflation-justified price increases more than offset incremental merchandising investments.

Total inflation remained elevated in Q3 and was in line with our expectations of roughly 7%, inclusive of both core inflation and gross tariff expense. We delivered strong productivity in Q3 with core productivity, including tariff mitigation at over 5% of cost of goods sold. Partially offsetting this was unfavorable operating leverage from lower internal production volumes, due largely to price elasticity impacts and planned actions to reduce our inventory levels as well as other supply chain investments.

Adjusted SG&A, which includes advertising and promotion expense, was 50 basis points unfavorable to a year ago due to lapping lower incentive compensation expense last year and a slight increase in A&P investment. And last, FX and M&A combined were a 10-basis-point headwind.

Our segment adjusted operating profit and margin results are summarized on Slide 21. Year-over-year margin declines across each segment moderated compared to what we saw in Q2 with the drivers of the segment results generally consistent with the total company drivers I just discussed.

The adjusted EPS bridge for the third quarter is shown on Slide 22. Adjusted EPS was $0.39 in the quarter compared to $0.51 a year ago, driven by lower adjusted operating profit as inflation of 7% exceeded productivity, lower adjusted equity earnings related to our Ardent Mills joint venture and reduced profit from divested businesses. Pension income, interest expense and adjusted tax expense remained roughly unchanged versus a year ago.

Key balance sheet and cash flow metrics for the first 3 quarters are shown on Slide 23. We continue to make progress repaying our debt with net debt lower by over $800 million versus the prior year and net leverage ending the quarter at 3.83x, ahead of our expectations. We remain committed to a balanced capital allocation approach and continue to target long-term leverage of 3x.

Year-to-date capital expenditures totaled $314 million and dividends paid were $502 million, both largely in line with the prior year. Year-to-date free cash flow was $581 million, down versus prior year, primarily due to lower operating profit and lapping the accelerated receipt of a portion of our outstanding receivables in the prior year. We did not repurchase any shares in the quarter nor did we have any additional M&A activity in the quarter.

Slide 24 highlights how we remain focused on delivering strong free cash flow to support our balanced capital allocation strategy. As Sean mentioned, we are once again increasing our free cash flow conversion estimate for the year to approximately 105%. Our progress reflects strong execution in areas including inventory management, cash tax efficiency and cash returns from our Ardent Mills joint venture. We remain balanced in our approach to capital allocation.

We're continuing to invest in the business to drive growth and productivity. In addition, we have reduced net debt by over $800 million versus last year and approximately $300 million during Q3 alone. And as announced yesterday, we are maintaining our dividend at the annual rate of $1.40 per share.

With one quarter left in the fiscal year, we are narrowing our projections for key fiscal '26 guidance metrics within the range we originally provided, shown here on Slide 25. We now expect organic net sales to be near the midpoint of our minus 1% to plus 1% range. We expect adjusted operating margin near the high end of our approximately 11% to 11.5% range. And last, we expect adjusted EPS to be approximately $1.70, at the low end of our $1.70 to $1.85 range, driven by a $0.10 headwind from Ardent Mills relative to our original fiscal '26 assumption.

And finally, Slide 26 outlines our additional fiscal '26 considerations. As Sean mentioned, we are lowering our estimate for adjusted equity earnings to approximately $140 million, driven by Ardent Mills. This updated estimate reflects lower prices and lower volatility in wheat markets through Q3, which has continued to pressure Ardent's commodity trading revenue despite their core flour milling business delivering results broadly in line with expectations. While recent geopolitical events have increased volatility across certain commodity markets, our Q4 projection for Ardent Mills assumes a similar earnings contribution to what we saw in Q3.

Finally, we expect higher free cash flow conversion to contribute to lower net debt and lower interest expense this year. Our projections for all other metrics shown remain unchanged.

That concludes our prepared remarks for today's call. Thank you for your interest in Conagra Brands.

All right. If we could just find our seats, we'll kick off our next presentation. We're thrilled to welcome back Conagra Brands to the CAGNY stage. Please first join me in thanking Conagra for again generously sponsoring yesterday evening's reception.

Conagra is in a very different place this year, having moved past much of the supply chain issues from a year ago, and now seeing underlying business momentum moving in the right direction. So too is the company intently focused on free cash flow and has put together several strong free cash flow conversion years as it looks to maintain the dividend and continue to pay down debt.

With us today are CEO, Sean Connolly; CFO, David Marberger; and SVP of Growth Science, Bob Nolan. Thanks for being here, and over to you, Sean.

All right. Thank you, Andrew, and good morning, everybody. Thank you for joining our 2026 CAGNY presentation. We are really glad to be here and really glad to have the opportunity to share this presentation with you. After we were all here last year, and it was a bit of the fellowship of the miserable, we figured you're probably ready for a little bit of positivity. So you'll be the judge, but at the end of our presentation today, I think you'll agree that at Conagra, we are successfully driving a return to growth.

This is our legal disclosure on forward-looking statements. If you have any more questions on this, please go to our website.

All right. Let's get down to business. This is our agenda for our presentation this morning. I'm going to kick us off with a brief presentation on who we are and where we stand in terms of business performance. Then I'm going to turn it over to Bob Nolan, our Senior Vice President of Growth Science. Bob has an interesting presentation teed up for you regarding how we will win the battle for what we call superior relative provocativeness. And then our CFO, David Marberger, will conclude today with an update on our financials.

For those of you who might be newer to our story, just a quick minute or 2 on who we are as a company. Conagra is $12 billion in organic net sales and virtually all of our revenue comes from the United States. We are squarely a domestic company with 92% of our revenue coming from the U.S. And we compete in highly attractive categories with a long-term history of growth like frozen food, where we're one of the biggest players in the world. And importantly, within the categories where we compete, private label is underdeveloped relative to the food average. And our portfolio is made up of market-leading brands. In fact, as you can see on the right-hand side of this chart, 81% of our revenue comes from brands that are #1 or #2 in their categories.

And importantly, our brands offer something for everyone. After all, consumers today are incredibly diverse. They have different preferences, different tastes, different priorities. And our goal is to maximize household penetration. So we have a variety of brands to offer them that meet their specific needs. We have premium brands like Healthy Choice, Reddi-wip, Marie Callender's, brands that are tailored to deliver great value like ACT II popcorn, Banquet meals, Snack Pack.

And we have a great stable of insurgent brands. These are smaller, high-growth brands that often appeal to younger people and consumers who shop in alternate channels who fancy themselves in being early adopters. So brands like our great FATTY Smoked Meat Stick, which was our most recent acquisition, Angie's BOOMCHICKAPOP popcorn, and a new brand you'll hear more about today called Rebel Roots. Bob will hit on that a little bit.

Why does this matter? Why do we want brands that offer something to everyone? Because the name of the game is maximizing household penetration. And if you have a very diverse consumer base, you need different brands that do different things for different consumers in different places. That's the way our portfolio is built.

Here's how I want you to think about our portfolio. We compete in 3 consumer domains: frozen, staples and snacks. We have a highly focused portfolio for $12 billion, but it's really built around 6 technical platforms. That's where our R&D team has built their expertise. At Conagra, brand building always begins with building superior food. You got a chance to taste some of that last night. And our portfolio is built to be highly competitive in an ever-important world of health and wellness.

Let's break these down real quick so you can get in a bit more detail. These are our 3 consumer domains: frozen, snacks, and staples. The first 2 are our growth domains, frozen and snacks. These represent about 70% of our revenue base. This is where most of our innovation investment is focused. This is where most of our A&P investment is focused.

The third piece of our business is staples. These are largely center store grocery products. Their goal is to be stable because they're very high margin, very high cash flow. And that cash flow is what funds our growth drivers in the other 2 pieces of the business of frozen and snacks. So that's how the whole portfolio comes together.

I already told you that it's a scaled portfolio of $12 billion and that we're focused in the United States, but the 6 technical platforms that our R&D team has built expertise in are as follows: meals, sides, protein, enhancers, salty snacks, and sweet treats. That's where we have technical expertise. That's what drives our innovation machine. Our top 5 retail customers account for about 60% of our total retail sales, and our top 15 brands represent about 75% of our total revenue.

Our playbook, we call the Conagra Way. It starts with being absolutely relentless about product and packaging innovation. This is where we leverage our great culinary team and our growth science capabilities. Then we partner with our retailers to secure premium placement for our products on shelf and premium quality merchandising. And then we invest A&P, largely in the social and digital realm because that's where consumers today learn about products, and that's where they vet products to get them into their consideration set and say -- conclude they're worthy of purchase.

Health and wellness has never mattered more in food than it does today. It is absolutely critical. And our products fit that bill. We are well positioned to navigate the current health environment. Take our Frozen business. We offer portion control. We offer high-quality ingredients like protein and vegetables. It's basically high-quality food that's flash frozen at the peak of freshness. That's what we do. And you might be interested to know that our Frozen business is already completely free of artificial dyes and the balance of our portfolio will be free of dyes by the end of next year.

And 65% of our portfolio would qualify as what you call clean label. Take FATTY as an example, our great Smoked Meat Stick. It's basically grass-fed beef, with a tiny bit of sugar and then it's smoked for delicious flavor. That's critically important, especially to today's young consumers.

So with this focus on health and wellness, we were very pleased to see that we developed peer-leading global nutrition index as measured by the esteemed Access to Nutrition initiative, as you can see on this page. Why is this important? Because it gives us confidence that we can continue to grow even in an evolving regulatory landscape.

Now I want to pivot to business performance a little bit. We are continuing to build momentum across our portfolio. On this page, I'm showing you volume sales and dollar sales over the past year. And you can see the trends are moving in the right direction. And in fact, we've returned to growth. What's key is that circle on the right. In our growth domains of frozen and snacks, 75% of our portfolio is holding or gaining share. That's a very strong number.

And if you want to isolate frozen in the absolute, here you go. Our investments in frozen are driving strong volume improvement. Some of you may recall that last year through our second quarter, we had strung together 7 straight quarters of improved volume trends and had returned to strong growth in frozen. We then ran into a supply interruption that we worked through the spring and into the early summer. We are now back to 98% service, and you can see the incredibly strong rebound in our Frozen business back to growth on a 1-year and a 2-year basis. And again, that circle on the right, a staggering 83% of our frozen portfolio is holding or gaining share. That's an outstanding number.

Take a look at snacks. 5.3% growth quarter-to-date, outpacing not only our snack categories, but even more the broader snack arena where you've seen people walk away from carbs and sugar. Excellent performance in our multibillion-dollar snack portfolio. Why? Because we sell protein and fiber, and that's what consumers are looking for in today's snacking environment.

So today, during the course of our presentation, we're going to focus in on answering 2 questions for you that we believe are critically important. Number one, what will separate the winners from the losers in the pursuit of growth? And two, how is Conagra Brands positioned to navigate this environment? And when we're done, these are the 4 conclusions that we want you to take away.

Number one, navigating change is not new for food, consumer packaged goods companies. In fact, that's what we've been doing forever. But not every company will perform equally. Two, superior relative provocativeness. That's the key to driving category growth and brand vitality. Lately, I've been reading a lot around a different type of SRP, suggested retail price and the notion that companies need to invest more to fix price points that ran up too high during the inflation super cycle.

Well, that is not the problem for Conagra. As you just saw in our numbers, our price points are just fine. That's because over a year ago, we elected to invest margin in the service of volume and make sure that our price points were working for consumers. And you know what, they are. But keep in mind, price value alone is not sufficient to get consumers to buy your stuff.

And that brings me to the third conclusion we want you to take away today. Winning the battle for superior relative provocativeness is about optimizing your benefit bundle using different brands across very diverse consumer sets. so that you can win with consumers. And Bob is going to break this down for you in just a minute. And finally, Conagra Brands is well positioned to return to growth. In fact, we're already growing on both a 1-year and a 2-year basis. So not surprisingly, we put out a release yesterday reaffirming our guidance.

With that, I'm going to turn it over to our Senior Vice President of Growth Science, Bob Nolan, to tell you a little bit more about superior relative provocativeness. Bob?

Thank you, Sean. Great to be back here in Orlando and see everyone again. I want to thank the chefs for some amazing food last night. I don't know about you, but I went back for a second help into that brisket, holy cow. That was absolutely incredible. My team works really closely with the chefs and our R&D folks to really convert what we see in the marketplace, what consumers desire into absolutely delicious food.

Hopefully, you all got a snack bag in your room, too, of all the Conagra snacks that we've been launched in the last couple of years. There's some great media in there. My team put together a couple of great publications. It's our third year of launching our Future of Frozen, kind of our view of what we see across the industry on frozen food and then our first year of launching the future of snacking. So hopefully, you'll have a great read night, and I'd appreciate any questions any of you might have around that content.

So let's get started with today's slide. So how do you win this battle for superior relative provocativeness? I'm going to unpack that, so everybody can kind of digest it. So first of all, we need to understand the consumers at a very granular level because they're changing more rapidly than ever before. We've got to create solutions with our innovation, with our marketing, with channel strategies that help us reach these changing consumers. And we've got to break through in the clutter in the marketplace. Everybody is competing for attention. We've got to make sure we're amplifying the impact of all the work we're doing so consumers know what Conagra is all about.

So let's start with the consumer. So consumers are diverse, okay? That's nothing new. That's news everybody knows on there, but it is changing more rapidly than before. The last 5 years since the pandemic have really changed the acceleration curve for [ behavior ] and pushing consumers to try new things, shop new places, buy new categories that they have never bought before.

We strive to understand what's behind this, what's driving these changes? What are the forces in their family lives, the problems they're trying to solve with their food every day. And then we try to convert this quickly into marketplace solutions that meet all of the needs that consumers have.

We've been building for the last [indiscernible] engine, really we think gives us a competitive advantage. And it's not based on the old research of the past. We're not doing focus groups. We're not doing surveys. Consumers are -- they'll give you answers, but they are not reliable, predictable. We think that looking and analyzing real human behavior is the absolute key to winning in the marketplace. We've been getting and collecting everything you can imagine around these large data sets [indiscernible] [ customer data ] can do consumer apps and what they're saying about our products and then all of the digital conversations, videos and pictures people are posting. This is a lot of data. And it's been at the heart of our engine that drives our innovation in the last few years, but the data has been growing at the levels that you can imagine.

So we've been employing AI for the last few years to data to [ mine this data set. ] To see the connections between the data sets that humans can no longer observe and then really do it way faster than we have in the past, so we can get it into the market much quicker.

So from this engine, I'm going to give you a little taste of what we're seeing right now, who the consumers are, how their eating, needs have been changing and then where are they starting to shop.

So let's start with the middle class. The middle class has been shrinking for the last 50 years. You see this in the headlines quite a bit, 10 points lower percent of representation than it was 50 years ago. But I think what's even more important on this slide is it's about 20 points of buying power, right? So the middle class is shrinking and the dollars they have to spend have been shrinking. And the growth is driven by the ends now of the spectrum, right? It's driven by these lower income consumers and upper income consumers.

So who are they? So lower income consumers are made up of 2 large groups, the majority of them. It's younger consumers just getting started, right? Like when I graduated college, you're on your own for the first time. You don't have a lot of money coming in. You're trying to make ends meet with your budget. Retired consumers make up the other large group. And then that's folks that are on fixed income, right? They're trying to stretch their dollars, they're trying to make sure their food and nutritional needs are met.

I think this may surprise some folks. The majority of folks in the low-income bucket are not on government assistance. They're not getting SNAP. They're using their own hard earned dollars to stretch out their meal needs. And because these dollars are short, they shop really basket to basket or even meal to meal. They buy much smaller baskets and they buy a lot fewer items as they're trying to stretch out till the next paycheck comes in.

We'll flip it around to the other side. When you think about upper-income consumers, they're in another book. They've got some money to invest. This is something that may also amaze you, is this is the group that buys the most on promotion, not middle income, not low income because they have the money to invest, right? They've got the ability to invest when there's deals to buy 10 of something on sale. And they also have the ability to store this, right? They've got larger pantries. They may have a second freezer in their homes. So these are the folks that invest in shopping in the club channel and buying larger sizes. So as they say, sometimes you have to have money to make money, and this is kind of what this group falls into.

And then Gen Z. So Gen Z, I get a lot of people always ask me, hey, isn't this just another generational change, just like it was from Gen X to millennials. And I would say the data says no. These folks aren't on the same normal curve at 15% different than the previous generation. They're eating spicy and bold foods, international flavors at 3x the rate of previous generations. They're eating way more handhelds and on-the-go products. And they have a whole new definition of what health and wellness is for them, and they want this all bundled together for on-the-go lifestyles.

But families with kids have always been the heart of the food industry. They drive the most sales, right? They're in peak food years, we would say, right? They've got kids, the kids are on the go. They're eating more. They got teen friends coming over. They're spending more than any other group, and they're really busy, right? They're some working households. They're trying to crunch their time and make the most of their food. They buy lots of snacks, they buy lots of frozen because it adds convenience to their lives. But they're getting really adventurous with the foods they're eating.

When my kids are growing up, we fed them a lot with chicken nuggets and mac and cheese. They ate it, they loved it. That was awesome. I talk to the younger parents on my team today, and they're talking about their kids eating sushi, eating ramen, eating in empanadas, things that I only discovered in the last few years myself.

Aging adults. So this is pretty predictable. This one -- this will be the fastest-growing cohort of consumers for the next 30 years. And yes, there's consumers that are kind of falling the traditional what you would think about with seniors. They need support from their doctors to give them advice on what to eat, what not to eat, and they're kind of slowing down a little bit. That's not where the growth is going to come from. Growth is going to come from active adults. These are folks that are retiring with the most money of any generation in the past. They want to live and act like they're Gen Z. They want to go surfing. They want to go mountain climbing. They want the food to be portable. They have all new definitions of health and wellness. This is really different than any generation before.

So that's a little glimpse of who the consumers are. But where are they shopping? Where are they getting foods that meet their needs in their lives. Well, when COVID happened, it kind of changed and disrupted the scheme. E-comm has been growing for years. But all of a sudden, people said, "Oh, I don't want to go out to the stores. I want to stay at home." So they started ordering a lot more e-comm. And I don't just mean the young generation that was already experimenting with that. I mean every generation started buying online and have delivery to their house.

But that quickly pivoted to hyperinflation. Prices started going up and consumers started to say, wow, I'm going to stretch my dollars to meet my needs. I need to explore other options. I need to look at the dollar channel. I need to buy maybe more at club. I need to try value grocery for the first time to meet my food needs.

And then in today's world, we call it the age of virality. And consumers are discovering products, especially younger generations in whole new ways. It used to be you discover a product on the shelf, maybe see some advertising. Maybe on e-commerce, this next generation is discovering products on TikTok and on YouTube, where people are showing and demonstrating the products, how they taste, their friends are talking and reviewing those products. And you really have to get their attention to get your products noticed.

And of course, these emerging channels are driving lots of growth, right? They're up over 3 points over '23. And the traditional channels are starting to shrink as consumers find new choices and new places to get their foods. It's driven by just who you think it would be: Gen Z, young families, upper-income folks. They have choices and they want new experiences when it comes to buying their food.

E-comm has been driving over half the growth over the last year. Not a surprise, and it's really moving away from click-and-collect back to delivery, the ultimate convenience where the food comes to your door. Yes, Gen Z and millennials and single persons are driving this. But you might be surprised that lower-income folks are the group that indexes the most for e-comm.

And so there's a couple of key driving reasons for that is, one, it lets them have many choices where they can see the prices and choose the best bundle for their products. But also, they get to manage the total spend before they hit that button that they end to buy, right? So it's great for them to kind of make sure they're not over their budgets.

So that was just a taste, the tip of the iceberg of what we see around consumers. But what do you do with this when you're trying to build this [ innovative ] bundle to achieve the superior relative provocativeness we're talking about, right? So let's talk about how you convert that to solutions.

So we've created kind of an engine for us, a process, a formula that helps us digest this wealth of insights, but then turn it into the right solution for the right time, with the right benefits for every consumer group that we serve, right? It's all about taste. It's all about economy or value. It's about convenience and it's certainly about health in today's world. And finding this right balance lets us compete in the marketplace and get that attention and provocative is consumers are looking for. Let's talk about each of these a little bit.

The taste has always been king in the food industry, right? We all strive as food manufacturers to get somebody to like our product and then buy it a second time. It's a repeat rate, very common. But I would tell you what consumers of today's generations are demanding from taste is really different, right? Like I talked about with some of the trends earlier, global dishes, international foods are growing at 15% in a flat food world. Bold flavors is up 20%. And even comfort recipes, things that you remember from your past growing up at [ Southern ] are growing at 8%. People want their food to be an experience, not just a sustenance.

And then economy and value really depends on who you are, how you invest in your lives, right? If you're lower and middle income, people are still having it in meal stretchers, right? They're buying ingredients. They're investing time, their own time to save a little bit more money. They're prioritizing some of the value channels like dollar and they're looking for affordable options within the categories. But if you're upper income, you might be shifting to premium items, right? You're eating maybe out at best restaurants, but you want that high level of quality food. You're stocking up because you can, right? You're maximizing your deals in store. You're investing to save more money.

Convenience has been key, I would say, for the last 100 years since the invention of the first general store, consumers all of a sudden could get their goods brought to them across the counter. And in today's world, people are time crunched. 77% of meals are made in less than 15 minutes, really fast. A lot of people don't even know what that meal is before they start preparing it. They're looking for quick solutions that are easy cleanup. Frozen category lends itself to great solutions in this area.

And then consumers are looking for way more things on the go. As they have busier and active lifestyles, they want their snacks to be portable and go with them wherever they're at, whether it's the gym or it's on the way to school. But they have higher demand for these. As Sean mentioned earlier, they don't want snacks just to taste great. They want them to deliver value nutrition to fit their new active lifestyles.

And then health is the overall [ goal ]. It's a behemoth in terms of size, $324 billion, growing at double digits. And a lot of you, when you were thinking about your breakfast today, probably prioritized some of these attributes, things like high protein, fiber, no seed oils, zero sugar, grass fed, focused on weight loss, portion control. These are the attributes that have been really driving change around food.

But when you're talking about health, you can't avoid talking about GLP-1. It's certainly been in the headlines with the new [ pills ] that are coming. Penetration is under 8% today for [ U.S. adult ] consumers. We track them really in detail to understand which categories they're buying, which categories they're moving away from to understand the moving demand. We think it's going to be double digit in the very near term and then go [ get from ] from that. And it's not just about diabetes like [indiscernible] or even weight loss.

Every day, there's a study in the newspaper talking about a new [ element by GLP-1 ], brain health or heart health or everything else you can imagine [ under the sun ]. And when you're on GLP-1, you're taking in less calories. So every calorie has to work harder to deliver the nutrition you need. People are focused on their portion control, certainly high protein, fiber-rich, more fruits and vegetables in their diet to keep their systems still working overall.

In the data we've been analyzing around GLP-1 years, we've seen certainly advantages in the frozen space, a lot more portion control and yield of protein, a lot more frozen appetizers and certainly a lot more nutrients for snacks.

So that's a little bit of taste of the insights, what we see, what we think is important, our engine, our TECH engine to optimize this provocativeness in the marketplace. It drives everything we do, innovation, our channel strategies, our PPA, our marketing. It really is the heart of how Conagra works.

So let's start to pivot and talk about our innovations coming. In today's world, it's harder than ever to break through and get consumers' attention. Consumers are distracted. They're looking at 2, 3 screens at a time. They're not seeing it. They're filtering out the advertising in the world, and they're focused on what they care about and what they're interested. Viral trends rise and fall in seconds on TikTok.

And consumers today are really starting to experiment and getting their food in new ways. They're not even going to the store. They're seeing the recipe made on TikTok, not just a beautiful image, but how it's cooked and how it's prepared, and they're getting the option to buy those ingredients and ship them right to their house without ever visiting any e-commerce site of any kind. So you've got to get their attention to break through in this world. And you need iconic brands, like Conagra has many of. You've got to make sure, though, with those iconic brands that they're relevant. They have the right attributes, they have the right flavors.

Consumers don't want you to sit still. They still expect you to modernize that part of the portfolio. But you need in surgent brands. You've got to create new brands to reach these new channels and these new customers that curate their assortment and don't carry the breadth of items that previous retailers used to. So you need both of these to be successful in today's world.

And innovation for Conagra has been at the heart of our success for the last 8 years. We've driven well over $1 billion in sales in the last few years, and we're trying hard to make it even more impactful each year. It's not just about sheer number of items, it's about items that perform and will stay on the shelf or on the website for the long term. There's many pictures we have up here of what we think are provocative items that have reinvented some of these categories.

I'm about to pivot and start showing you what we're looking forward to in the next year. I'm going to be moving pretty fast through this, but I think you could all agree based on what I just said with about the consumer, that's what they demand of us.

There's been no more provocative brand in our portfolio than our MEGA lineup in Banquet. It's inspired by QSR flavors that are unbelievably impactful for younger generations, and it skews much younger than our other brands. But consumers want more. They want more satiation. And guess what, you're going to hear this for 5 days. They want more protein in their diets, right? And this example has 46 grams of protein to fill consumers up with the flavors they love.

And when it comes to provocative solutions, you think about the chicken wars and all the attention in the media. We launched our MEGA Filets that brought that same great quality to your home on demand from your freezer, but done at a great value for you. We actually saved some money. And we're moving to the very next step in the chicken wars, which is our MEGA Tenders lineup.

How do you do that even more provocative and safe? Well, you can't walk in a store or look at anything online without hearing about pickle craze. Everybody is talking about pickles and sour flavors. Sour flavors, by the way, are growing even faster than spicy flavors with younger generations. So we combined our Vlasic plan with our MEGA Filets to create really what we think is [ a different and ] a delicious taste [indiscernible].

And then what about breakfast? Our MEGA Breakfast Bowls deliver high grams of protein, 30 in every calorie -- 30 in every serving with absolutely delicious hot flavor that's convenient out of the microwave. And then Tennessee Pride has got a whole snacking size sandwiches smaller than a regular sandwich would be, which gives them a lot of versatility to fill a meal about 1 or 2 to be on-the-go, on the way to school or as a snack just to hold you over between meals.

Marie Callender's is tapping into this need for value, right? Consumers value is 2 things. It's how much I spend, but it's also does everybody in the family love what they eat, right? And these meals are our famous delicious recipes in family-sized quantities that everyone, including the kids, will eat. And when you're trading down from restaurants, maybe you're grilling at home more, steaks and chicken. Why should you have to compromise on the sides that go with that? So Birds Eye launched a lineup of steakhouse sides that have that same delicious quality you might get from your favorite restaurant. And then how about getting more from your sides, right? People want their food to work harder to fit their lifestyles, and they want to get protein from as many foods as they can. So Birds Eye launched a lineup of protein sides, all the delicious flavors you would expect with significant amounts of protein.

And P.F. Chang's Japanese-style Barbecue Crispy Chicken is tapping into the Japanese barbecue trend. Some of my favorite restaurants where I lived in Chicago are Japanese barbecue, where you get delicious tasting food that's delivered in a very provocative way also when you're cooking on your own. This taps into that trend, and it's great right out of the air fryer.

And then Frontera Empanadas tap into this idea of I want more portable flavors, but I don't want to compromise. I want authentic [ Mexican ] and to be done the right way. And that's what Frontera is doing with our Spicy Chipotle Chicken bowl and a whole lineup of other great flavors, high protein with bold spicy flavors that the younger consumers are looking for.

Evol has always been known for clean food done the right way. It's kind of the invention of the brand. So we're launching a line of no seed oil protein bowls with no artificial ingredients, as you would expect from Evol that have incredibly high levels of protein. We just shared these with our sales force at the national sales [ meeting ] a couple of weeks ago, and people went absolutely wild. This food is incredibly delicious.

The next couple of [ slides ] are really for folks that are seeking more plant-based diets, not just veg and vegetarian, but folks that maybe are just trying to reduce a little bit of their meat intake. So Purple Carrot all have been about delicious taste, no compromise because it happens to be needed, right? It's all the famous flavors you would love in a convenient bowl. And then Gardein has been known for the best tasting imitation chicken in the category, right? It's all about deliciousness. And then we're taking that to a whole new -- with really a drive-thru style nugget that is made with no soy, as consumers continue to push the edges on what they expect from their food.

Dolly's had a couple of record history the last couple of years. We've launched cheesecakes, cobblers and pies, and they've all been absolute stars with our customers and with consumers. But what about an everyday treat, something you can reward yourself after work. You don't always want a pie to share with others. You want a little treat for yourself while you're watching TV and taking a relaxing control on the couch in the evening on there. Of all the items I'm going to show you today, this is my personal favorite. These are unbelievable tasty and they're so convenient.

And Marie Callender's Hand Pies, having these ideas I want a hot treat, but I don't have time to make it in the oven with the pie. So these are baked out of the microwave, 90 seconds. And the most amazing part is our chefs and our culinary team have developed this dough, so it's crispy and brown out of the microwave, just like you would get if you're in a restaurant.

We partnered with the leading Indian chefs across North America to develop a lineup of Marigold frozen meals, authentic Indian flavors, absolutely delicious with the convenience from the microwave, and a lineup of sauces to give folks a quick head start if you're feeling like cooking from scratch.

Another new brand. Sweetwood Ranch. Our sliders just launched during the Super Bowl. So just a few weeks ago, we launched these items. They taste just like you would get from your favorite pub at the street. They're out of the microwave, unbelievably delicious. It's been such a hit with our customers and with our consumers that we're really enthusiastic about what new brands can do to bring excitement and provocativeness to the category.

The next few items I'm going to show you are all from our Meat Sticks portfolio. We've got multiple brands to reach different consumers. The Meat Snack category has been growing at unbelievably rapid rates, double digits as consumers shift from traditional snacks into more nutrient-dense content. And this -- our Cheese Mode is pairing up the 2 most famous snacks, right? Everybody loves to have cheese and meat together, but wouldn't it be amazing if it was at one convenient stick.

I announced here at CAGNY last year, our partnership with Buffalo Wild Wings to build bold new flavors to drive excitement in the category. It's been a real hit for us. And of course, we're launching a new flavor, honey barbecue and in short sticks that are perfect for lunch box. Duke's grass-fed beef. Duke's has been known for craft and quality since we've acquired the company, really delicious. And these are made with bone broth to infuse even more protein into every serving.

Our FATTY acquisition happened a little over a year ago. Since we bought the company, we've doubled the size. We're getting new distribution, launching new flavors and sizes across channels. It's been incredibly shaping the category and the category for this number is consumer desire for cleaner food done better.

Bigs has always been known for the best flavors in seeds, but young consumers want even more. Not just the regular flavors aren't enough. So we're launching a triple blast seeds lineup with really provocative flavors like Pickle Ranch or Spicy Sweet Chili. Angie's BOOMCHICKAPOP popcorn is tapping in the cinnamon churro craze that's pretty much everywhere, I think churros whether it's at the state fair or it's at my favorite food truck. And then Angie's has always been about popcorn and done right. So we're building a solution that's made with avocado oil, also no seed oil and done all the right ways with absolutely delicious taste.

My wife's from Texas. We've moved all over the country. We've always had a hidden case of Dr Pepper in the fridge. She can't get by without it. And she was absolutely thrilled when I told that we're bringing Dr Pepper to the snacking category with a portable, delicious that iconic Dr Pepper taste, the #2 soda brand now in the world.

And how do I get more from my snacks, right? They have to be delicious, yes, but I want them to be functional and deliver to my diet. So we've developed a line of Snack Pack Protein. And our Snack Pack Splash is all about no artificial colors, no added sugars, all made from real delicious fruit.

America's favorite blonde is Dolly Parton. So we've teamed up with what seems -- may seem obvious to everyone that we're launching a line of Dolly Parton Blondie Bars for the baking category. I grew up watching Peanuts. It's one of my favorite memories as a kid, and so did my kids and really their generation loves Peanuts. It's kind of timeless. And we've teamed up with them to develop a line of baking mixes, some of the iconic names and flavors like Peppermint Patty and Charlie Brown-ie.

And Sean mentioned Rebel Roots. So this is really tapping into this tallow fat craze. Tallow fat has been on fire in terms of growth because people want it done the right way. They don't want the seed oils and they want that delicious taste that everybody [ fries ]. So this is our brand lineup for Rebel Roots Tallow Snacks Fries.

P.F. Chang's is delivering delicious Chinese barbecue that's perfect as a topping or an ingredient. Stubb's is known for authentic Texas barbecue. We've developed a lineup of sides using their famous flavors. And our Wendy's Chili has been a home run that's really premiumized and turned around the chili category. So what's is more iconic than their Baconator flavor, and we're combining that into Wendy's Chili.

That's just a taste of the provocative innovation we're launching. But you've got to break through in today's marketplace and get people's attention, right? So how do you do that, right? You've got to win in-store, right? You got to show up and kind of disrupt people in their shopping patterns. You've got to win online and get their attention and make sure you show up on all the relevant searches.

You've got to have the right sizes, right, for any format, whether that's large formats and club sizes, but you've got to have small format for immediate consumption, especially if you're in the Snacks business. And you've got to make sure your promotions are working hard to solve problems in people's lives. So as people are centered and focused on value, you've got to make sure they get affordable solutions and they realize that your products really solve this need in their lives. We've been partnering with Palantir to develop an optimization tool that helps us allocate all of our promotional dollars, and it's helping us drive even larger lifts.

And you've got to be provocative in retail, tap into cultural moments, disrupt people with displays in the store and then create brand relevance. So young consumers are talking about your products online. And our whole strategy is about meeting consumers where they're at, right? They may be on different platforms. Older consumers may be watching streaming, television or linear TV, and younger consumers like my kids are on YouTube and TikTok. You've got to create content that breaks through and catches their attention. Let's see what that looks like with the video.

[Presentation]

Love there, Dolly Parton. She really is a handful, really amazing. So how do you know if this SRP approach, driving the superior relative provocativeness is working in the marketplace, right? It's a slow growth world. We think the best measure of our success in this is are we holding or gaining share in our categories. Are we getting consumers attention, right? And for Conagra for the last few years, that's really been our recipe. It's really driving results, while keeping consumers engaged. I've shared with you a little bit of our whole process and kind of how it works for us to create these solutions that are provocative. But what does it mean in the results?

Let's bring up David Marberger, our CFO, to talk about that.

Thank you, Bob. Good morning, everybody. It was good to see some of you last night. I'm going to start with a brief summary of how we're positioned to finish fiscal '26. We expect our top line momentum to continue, building off of the momentum we saw as we exited Q2. We're delivering on our supply chain commitments. Our service levels are on plan and our cash savings program is on target. We continue to be very focused on cash flow. You saw yesterday, we had a press release that said we're taking our free cash flow conversion up this year. And we continue to deploy capital in a balanced and disciplined way. All of this serves as the foundation for driving growth.

Sean talked about how we continue to build momentum across the portfolio with sequential improvement in our volume sales and our dollar sales for all the periods shown. And 75% of our Frozen and Snacks portfolio is holding or gaining share in the last 13 weeks.

Pivoting to supply chain. Our top priority this year was to restore our service levels after supply disruptions last year, and we've done that. Year-to-date, our service levels are over 98%. And we continue to progress with our cost savings programs. This year, we're forecasting 5% cost savings as a percentage of cost of goods sold, 1% of that coming from tariff mitigation. When we look long term, we expect to deliver about 4% cost savings annually.

We are relentlessly focused on cash flow at Conagra. In fact, free cash flow is a metric in our annual incentive plan that affects all employees in the company. The last 3 years, our cash flow has been very strong, driven by reduction in inventory, driven by an improved efficiency and conversion for Ardent Mills, our important joint venture, and improved cash tax efficiency. As I just mentioned, we're now forecasting 100% cash flow conversion for this year, putting our 3-year average at 115%, which is industry-leading. We are focused on 90% or better free cash flow conversion annually going forward.

So this free cash flow forms the foundation of our balanced approach to capital allocation. If we operate at a 90% free cash flow conversion, we can invest in the business, we can pay down debt, and we can maintain our strong dividend. We have been very clear that our priority is to strengthen our balance sheet and maintain our investment-grade credit rating as we target 3x leverage.

And this illustrates how we've deployed capital over the last 12 months. Paying down debt is our priority. And you can see the biggest usage of cash the last 12 months has been paying down debt. But we've also been investing in the business. In fact, we've increased our CapEx to support growth and productivity projects, and we're continuing to allocate attractive returns to our shareholders with our dividend. You can see on the right side of the chart that capital return to shareholders as a percentage of net income for Conagra is 74% and in line with the peer companies.

So as we announced yesterday, we're reaffirming our guidance for fiscal '26. We expect organic net sales in the range of minus 1% to plus 1% versus fiscal '25. We expect adjusted operating margin in the range of 11% to 11.5%, and adjusted EPS in the range of $1.70 to $1.85.

So as we look towards fiscal '27, our focus is clear. Now we are not giving fiscal '27 guidance today, but we expect our top line momentum to continue. We see opportunities for margin recovery with a continuation of our productivity and a normalization of inflation. We expect our free cash flow strength will continue next year.

And we expect Project Catalyst will be the enabler to modernize how we work at Conagra. So let me spend another minute on Project Catalyst. Sorry, I forgot lost my train of thought. So catalyst -- so Project Catalyst is a multiyear effort focused on going to drive -- we expect it to be accretive to revenue, be accretive to profit margin and be accretive to cash flow. We've been investing in technology and in data foundation for years. We have one ERP platform globally, which not many companies can say. And we've been investing in our data foundation since Sean has been the CEO here.

So we look at Catalyst being able to leverage that in order to leverage today's AI capabilities so that we can drive this financial performance. So we have a multiyear effort starting with senior leadership involved looking at our work processes end-to-end to see how we can leverage AI to drive performance. So we will provide more color on this when we give fiscal '27 guidance in our Q4 earnings.

Today, we're affirming that our long-term algorithm remains unchanged. We're confident that we can deliver the financial performance that's summarized in this algorithm.

And in conclusion, you heard Sean talk about how Conagra is well positioned to navigate change in this incredibly dynamic environment. You heard Bob talk about superior relative provocativeness as a framework to win in the marketplace. And with that, we believe we're well positioned to deliver on the financial metrics we talked about today.

That concludes our presentation. We're now going to go to the breakout room for Q&A.

Good day, and welcome to the Conagra Brands Second Quarter Fiscal Year 2026 Earnings Q&A Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Matt Neisius. Please go ahead.

Good morning, everyone, and thank you for joining us. Once again, I'm joined this morning by Sean Connolly, our CEO; and Dave Marberger, our CFO. We may be making some forward-looking statements and discussing non-GAAP financial measures during this Q&A session. Please see our earnings release, prepared remarks, presentation materials and filings with the SEC in the Investor Relations section of our website for descriptions of our risk factors, GAAP to non-GAAP reconciliations and information on our comparability items.

I'll now ask the operator to introduce the first question.

Our first question is from Andrew Lazar with Barclays.

Happy holidays, everybody. Sean, maybe to start off, you've mentioned in the prepared remarks that you're seeing some of the delayed shipments materialize in December. On top of this, you've got easier comparisons starting in frozen, a return to full merchandising and a full innovation slate that you've talked about, and then some pricing in staples brands with so far expected elasticity. So I guess all in, would you be expecting positive year-over-year organic sales in fiscal 3Q? Or are there other things in the third quarter that we need to keep in mind?

All right. Let me break that down for you. Yes, I like what I'm seeing so far in December, as we mentioned in the prepared remarks, and I like where we sit going into the second half here with some momentum. We don't provide formal quarterly guidance, but I will say that overall, we do expect organic net sales growth in the second half. And as for the quarterly flows, if you incorporate the information we're sharing today into your models, you will get a more accurate balance between Q3 and Q4.

Dave, do you want to add any color to that?

Yes. I mean, Andrew, I think you hit it with the shift in the kind of the trade inventory from Q2 to Q3, wrapping the supply constraints from the prior year and then wrapping the unfavorable Q3 trade adjustment a year ago. They are the 3 big things.

Great. And then earlier this week, Sean, another food company mentioned a higher cost of volume as shoppers are increasingly sort of waiting to buy more of their needs on promotion. It's not that depth or frequency had changed much, it's just amount of product being sold on deal. And it's partially for them at least seems to be coming at the expense of base or sort of full price volume. I'm just curious if you're seeing the same thing at this point or expect to. You have some vagaries, obviously, because you're getting back to full merchandising in the back half that you didn't have last year. But just trying to get a sense of what you're seeing more broadly in the industry with regard to that sort of dynamic.

Yes. Good question. I saw that. Regarding cost of volume, we have not seen what you just described. Recall, we built our plan to invest margin for continued upward volume inflection in frozen and snacks. And coming into the year, when we built the plan, we fully understood the cost of that inflection from last year when we strung together 6 straight quarters of consistent volume progress prior to running into those temporary supply constraints in frozen that we've talked about previously. So what we're seeing this year is unfolding very consistent with our expectations, which, of course, was based on last year's experience in terms of both costs and lifts.

Our next question comes from Tom Palmer with JPMorgan.

First, I just wanted to, I guess, clarify on the annual outlook. You reiterated sales and operating margin. You did take down Ardent. I think the $30 million is around $0.05 to EPS, if I'm doing the math right. So I guess I'm just trying to bridge, I know there is a range here, but is there something that kind of helps to -- elsewhere in the P&L that helps to make up for Ardent?

Yes, Tom, this is Dave. As you can see, through the first half, our operating profit and our operating margin performance is good. Now there's a lot of kind of puts and takes in terms of the performance both for this quarter and the first half, but we feel good about the momentum. We've had some favorability with the tariff timing that was more Q1. We've had some favorability in chicken inflation, although we're seeing some offsets with beef and pork. And importantly, our core productivity programs are really on track. So we feel good about that, and we feel good about the second half, and Sean just talked about we're forecasting positive organic sales growth for the second half.

We do have some headwinds from absorption. We talked about that in the call, and that's just simply us being really diligent in managing our working capital and our inventories, because we're really tracking well on cash flow and we want to make sure that we deliver those numbers. So just given the momentum we have, Tom, and kind of how we plan the year, we think that we can cover the shortfall in Ardent and still stay in the EPS range.

Tom, it's Sean. Just to remind everybody of one other factor. We guided to a wider range this year than we normally do, because we were very clear-eyed that it's a volatile environment and there can be things that unfold that are very difficult to predict. That's one of the reasons we put out a broader range this year, so that we could navigate things like what you've seen in Ardent and the trading piece of the business and still hit our guidance. So we like where we are.

Okay. And look, I appreciate more coming here in calendar '26, but I did want to just ask on Project Catalyst. As we think about its potential impact and implementation, should we be thinking about like in some past programs, you've had very clear cost savings targets? And then any sort of like stepped-up spending, be it CapEx related or other types of investments that we should start thinking about?

Sure. Let me give you just some more color on Catalyst. So in CPG, you've got big core business processes that for the better part of a century have been heavily manual in nature and therefore, not perfect, let's put it that way. Now with technology kind of being democratized for even industries with our margin structure, the access to technologies to automate a lot of these business processes is kind of in an unprecedented place. And that's a pathway to more effectiveness and more efficiency going forward.

So we've got a fully dedicated team led by some of my most senior leaders to make sure that we implement this. And it's basically a reengineering of core business processes using especially AI for more effectiveness and more efficiency. There undoubtedly will be time to complete the project, there will be cost to complete the project, then there will be a return on the project. And based on what we're seeing after being at this for several months, we're very excited about the potential. And during calendar '26, we'll unpack this in more detail for our investors.

Our next question comes from David Palmer with Evercore.

Great. Just one big picture question. Just looking across your big 2 retail segments, consumption trends on a 2-year basis would seem to imply a return to growth in the second half of this fiscal year, but then again, a modest decline in the first half of fiscal '27. And I only mentioned that because, obviously, I'm trying to sort through the noise of supply chain, not just for your shipments, but for your consumption trends as well. So I guess I'm interested in whether you think multiyear trends can improve, or just maybe point to the things that you're working on to improve that setup into fiscal '27, because I'm looking now and the Street is anticipating some organic sales growth in fiscal '27, but also some earnings growth in that year as well. And any thoughts there?

Sure. Well, David, the 2 growth domains for our company, as you know, are frozen and snacks. And so snacks is already, as you saw in the numbers today, growing very robustly and benefiting from things like the bounce back in C-store with gas prices. So we're already at extremely strong growth on snacks, and we've got a very strong snacks marketing plan in the back half of the year to continue the momentum we've got, especially on Slim Jim and FATTY. So that's already growing robustly.

Frozen, I know you've had a write-up recently on frozen, and you could see in our prepared materials today, I wouldn't pay too much attention to Q2 year-on-year in frozen, because we had a blockbuster frozen quarter in Q2 last year. And our goal this quarter in frozen was to reclaim the market share that we basically loaned out to a competitor when we had supply constraints beginning last winter. And as you can see in the market share charts today, we've clawed back almost all of that. And our biggest business, frozen single-serve meals, we're almost up to 53%, which is pretty much the high watermark for us there. So on a 2-year basis, when you factor out the fact that we had a huge quarter last Q2, and we didn't repeat the same promotions this quarter, it's actually a very impressive quarter with good upward momentum.

And as you look at the back half of the year on that business on frozen, you're going to have more high-quality promotional activity than we had last year, because we were basically out of business on promo last year. And the baseline is looking good as well. And we've got good advertising and innovation and things like that. So we've got good momentum in the underlying trends on our frozen business. Vegetable, I think, is back to a record share, and we've got really good program in the second half. So that all bodes -- obviously, it's too early to talk about '27 right now, but we're going to have very good momentum on frozen as we go into '27, and snacks is already, as I said, growing at near mid-single digits.

Our next question comes from Peter Galbo with Bank of America.

Sean, I just wanted to get your perspective. You've now had 2 of your largest peers not only talk about but start to enact price cuts. And just asking kind of for your crystal ball into the back half of fiscal '26 and even into early '27, just what that potential activity from some of your largest peers could mean for the group and how you think it translates to some of the actions you all may need to take, obviously, considering that you've announced some pricing in some of the staples portfolio. So would just love your perspective on that, please.

Sure. I'll try to give you some color on that, Pete. We don't have a tremendous amount of overlap with some of the other big food companies that you've seen. And in frozen, we're far and away the market leader in our big business. And in our specific snacks categories like meat snacks and seeds, we really don't interact with a lot of the other big food companies. But the way to think about pricing with respect to Conagra is that we have not rolled back price in order to move volume. What we effectively have done on frozen and snacks is we did not take pricing, inflation justified pricing to protect margins, we kept pricing where it was so that we could then layer on a very reasonable and high-quality promotional business that's consistent with what we've done in years past and get those businesses to growth, and that's what we've seen.

So we've seen the desired inflection and in some parts of the business, we're already back to growth without lowering list price. We just deferred taking inflation-justified pricing because we were focused on moving volume. So it's a little bit of a different nuance than lowering prices in order to move volume. And when you look at our percent volume sold on deal and you look at depth of discount, you do not see anything beyond what we've done historically. If anything, we're more conservative than what we've done historically. So I guess the net of that is, I would say the volume inflection we're seeing is very efficient. And that's good, and that makes me feel good about this cost of volume concept and how we feel about our guidance for the balance of the year.

What part of your question did I miss, Pete?

No, I think you hit it, Sean. Thank you. Very, very comprehensive. Dave, I was hoping to ask a follow-up around just the inflation guidance. I think you talked about maybe -- and apologies if I missed it, but you talked about some favorability in the quarter. You've mentioned things like chicken. Just where is inflation running? Like where did we run in the first half and maybe in the second quarter specifically? And then how we think about that in the context of the 7% for the year?

Yes. Sure, Peter. Just as a refresher, so we had talked about our core inflation, our guidance for the year, our core inflation a bit above 4% and then gross tariff inflation of approximately 3%. So 7% has been our total gross inflation guidance for the year. We're still on track with that, Peter. We have seen some kind of puts and takes. Like I said, we've seen favorability in chicken, but we're forecasting increased cost in beef and pork. And so we have some offsets there. We see some favorability in tariffs. But remember, more than 50% of our tariff exposure is on tin plate, and there's been no change to those tariff levels. And also the areas where we've seen some of the tariffs come down, our mitigation has come down as well. So it's not a significant impact on the overall year. So I would say our original kind of inflation guidance of 7% and net of 5.5% is still where we are.

And Dave, just -- sorry for clarification, you ran at about 5% gross inflation in the second quarter, if I look at Slide 24?

Yes, it was closer to 7%, because that's the margin impact that you see on the bridge. So we were -- puts inflation around a little bit south of 7%.

Our next question comes from Max Gumport with BNP.

Your prepared remarks mentioned that 3Q operating margins are expected to be below 2Q levels due to A&P and then also some absorption headwinds associated with reducing inventory. I realize you've framed A&P is going to over 3% of sales in 3Q. But is there any way to size the magnitude of the absorption headwind that you'll see in 3Q?

Yes. What I would say is if you look at gross margin, Q3, it will be similar to where we landed in Q2, maybe a little bit better. But again, there's a lot of puts and takes with absorption and absorption timing. So we don't like to get too specific on the quarter. The big impacts, if you look at Q3 operating margin relative to Q2 is over 3% A&P and SG&A as a percentage of net sales will be higher than Q2 as well. So they're really the 2 drivers. Gross margin is going to be pretty much in line with what we delivered in Q2.

Great. And then longer-term question, just looking back at your gross margin over time. Clearly, it was running in the high 20% pre-COVID. It looks set to end this year around the 24% level. So several hundred basis points below historical levels. And I recognize there's reasons for that. There's investments you've made this year that you're -- and there's also a meaningful inflation that you're not offsetting with price given the consumer environment. I'm just wondering, as we look out over the next several years, is there anything that you're seeing that would prevent you from getting back to a high 20% gross margin level?

Well, we plan on clawing our way north on gross margin. So we absolutely expect margin expansion going forward, particularly in frozen, and the building blocks have not changed. It starts with productivity. So our productivity is running now at about 5%, which is very strong. At some point, we're going to get inflation relief here, hopefully back to a typical 2% level. The third piece is the advancement of our supply chain resiliency investments, including our chicken plants. And over time, we're going to have the ability to repatriate the outsourced production, which will be another tailwind to margins. And we are taking pricing in certain categories, as you saw in our documents today. And then the last thing I'll point to is Project Catalyst. This reengineering of our core business processes using technology will be another meaningful contributor. So between those actions and the ongoing efforts to reshape the portfolio for faster growth and better margins, we do expect good margin expansion following F '26.

Our next question comes from Robert Moskow with TD Cowen.

Dave, I wanted to ask about the assumption of a 100 basis point headwind in 2Q and the extent to which it can reverse in third quarter? Because some of it, it sounds like it's the thought that retailers are just not ordering as much in relation to consumption. Then they're going to do it in the third quarter because they don't have to worry about the SNAP issues or other issues. But retail inventories have been notoriously difficult to predict. Is there a risk here that retailers just decide to go forward with less inventory than normal for the rest of the year just because they want to be more efficient? And if so, is it maybe more so in the frozen area than the shelf stable?

Rob, it's Sean. I'll give you my color on this. So the way to think about our company, our portfolio is we've got a baseline of volume that is pretty steady across all 12 months of the year. But we also then, on top of that baseline, starting usually in the fall, there is another line, which is the seasonal promotional build, because we have a lot of seasonal products in the Conagra portfolio, products that are huge traffic builders at our retailers. So the retailers have that promotional seasonal volume build in terms of what sells, what scans through in their base. And every year, they are determined to wrap that successfully, meaning at least achieve what they delivered a year ago, if not grow a year ago. And promotions are absolutely essential during the seasonal period to get to that level of absolute volume.

So the promotional volume always comes. The seasonal inventory build always comes. It's usually just a dynamic of does that build fall into Q2 or does that build fall into Q3? And sometimes it's linked to Thanksgiving timing and whether or not Thanksgiving is in Q2 or Q3. Sometimes it's linked more to the promotional calendar and is the promotional calendar queued up so that it's earlier, like it was last year where we had our heavy promotions in frozen in Q2, those big promotions in frozen this year are disproportionately moved to Q3.

So the way I think it's pretty simple to think about it is, retailers have to start the holiday seasonal kind of inventory build at some point. Whether or not they started earlier or later is a function of when is the promotion, and this year, uniquely, a function of the government shutdown and kind of the SNAP pause, because what I believe it happened with some retailers is anticipating a slowdown in consumer takeaway because of the SNAP pause, they manage their working capital, too, and there's no reason to build inventory if you've got a pause on the near-term horizon, you can build it later. And so we've already got most of December in the books here. And so we've had a chance to see how orders are shaping up, and it's unfolding in a manner very consistent with what I just described.

Our next question comes from Alexia Howard with Bernstein.

Can I ask about innovation? Firstly, are there any numbers you can put around where you're at? And I assume that you're now significantly above where you were a few years ago during COVID. Are you now at a sort of level that you feel comfortable with maintaining? Or is there more increase to come? And then sticking with the innovation theme, I wanted to ask about how you're leaning into the health and wellness trends. It seems as though there's a lot of health and wellness themes going on out there. Walmart has said that they're going to eliminate 30 additives from the whole of their private label portfolio. We've got potential food labeling, front of pack legislation coming in, dietary guidelines coming up as well. I remember you talking about GLP-1 on-pack labels. How is that going? And what are the priorities from here?

Yes. Great question, Alexia. The innovation performance over the last several years has just gotten better and better and better every year, and it was good to start with. So we've wrapped really good innovation years. And each year, we make progress in innovation, both in terms of TPDs that we're able to secure, but also velocity per TPD has gotten better and better. And this year is better than last year and last year was better than the year before. So I'm very pleased with where we are on innovation, and we'll continue to share more about some of the success stories that we've had with innovation.

But I think your second question speaks to also what's driving a lot -- not all, but a lot of the innovation success. There is undoubtedly a lot of consumer focus these days on health and wellness and has been the case for 50 years. Kind of the definition of what does good health and wellness food look like in 2026 is different than it looked 10 years ago, which is different than it looked 20 years before that. So right now, health and wellness is heavily, as everybody knows and can see, heavily about protein. So the presence of protein in products is hugely important to consumers. That's a major part of our benefit bundle that we've baked into a lot of our innovations.

I would say, secondly, clean label continues to be really important as well as vegetable nutrition. So if you think about our portfolio with brands like Birds Eye Vegetables, which are just awesome vegetables flash frozen at the peak of rightness, you think about protein meat sticks as well as seeds and you think about our frozen businesses like Healthy Choice, which are incredibly clean label, incredibly healthy, high in protein, low in sugar, low in carbs, things like that, it's very well positioned. And so I probably feel like our portfolio is as well positioned today as it's been to compete in a world that's very focused on health and wellness.

And one of the things I find most interesting about the double-click on that is it's young consumers. Young consumers, which we over-index with, are more focused on health and wellness than I've seen in a while, and it is playing right into some of our tailwind businesses like our protein-focused brands. And that's a real positive. And you see it in categories outside of food, like they're drinking less, things like that. And so you get a good return when you can secure young consumers, because you keep them around a lot longer. And we've had really good progress with our young consumers. And that's helping us because, obviously, young consumers also tend to be lower income consumers, because they're just -- they're getting started in their career, and we have a lot of good value products.

Our next question comes from Leah Jordan with Goldman Sachs.

So you're stepping up your A&P spend in the back half. Just any color on how we should think about the balance between the 2 quarters? And with the step-up and the fact that you're calling out that consumers are still value seeking, has anything changed in your approach for this spend, be it across categories, channels or frequency, anything there?

Well, that's a very insightful question, Leah. One of the things you will see us incorporate into our advertising this quarter is an increased emphasis on relative value. We always talk about the quality of our products. That will go unchanged. But the relative value of our products versus things like quick-serve restaurants, things like that, is undeniable. And sometimes you have to remind consumers of that because while prices might be higher today than they were 3 years ago, relatively speaking, it's hard to beat the value and the quality that our products offer. And that value message is really value as a priority area is being very woven into our innovations themselves. Some of our innovations coming this year will be more value-oriented and our marketing messages will be value-oriented. And we think, given the inflection we've already got, that will continue to push some of the lapsed users back into the franchise and continue to help drive our organic sales growth.

Okay. Great. And then I guess I had one quick follow-up on the weather piece in the quarter, specifically around -- related to the slow start to winter. Now that we've shifted to much colder weather across the U.S., just seeing if there's any color commentary around quarter-to-date trends. Have those normalized with your expectations or anything to think through there?

Yes. The weather outlook certainly changed, didn't it, in the last couple of weeks. That's great for us. As I mentioned, just to put a fine point on this, there were 2 weather things in the quarter that we noticed, and they're tangible. So we'll just kind of unpack them. One is this hurricane thing. You're probably wondering what is this hurricane thing? Well, we've had hurricanes for 10 years that hit Continental U.S. And when we have hurricanes hit the Continental U.S., we sell a lot of food in Florida, particularly canned food, also along the Gulf Coast, sometimes the East Coast. And so that's kind of captured in our base. And last year, we had an unusually high hurricane quarter. We did not plan for that this year, we planned for a normal quarter. We didn't get any hurricane. So that's fortunate for the people along the coast line, but it was a little different than we planned. So that was a bit of a headwind.

And then the question around when does the cold weather kind of roll in tends to affect when do we start to see that seasonal ramp-up in our canned food cooking ingredients portfolio like tomatoes or even canned chili. And so it always comes. It's a question of is it going to come early October, is it going to come November? So it came a little later than normal, but obviously, since the quarter has turned, you've seen very cold weather, and you already know what that does to businesses like cocoa and canned tomatoes and chili. So yes, that's another timing factor.

Our next question comes from Megan Clapp with Morgan Stanley.

I just had a quick follow-up to Tom's question earlier on the EPS outlook. You mentioned you seem confident on offsetting the shortfall from Ardent. The range is still quite wide. Sean, you mentioned it was wider than normal coming into the year. So can you just help us understand what are kind of the key swing factors or uncertainties that remain that justified keeping the EPS range wider now that we are halfway through the year rather than narrowing it?

Yes. I wouldn't overthink keeping it wider, we are just at Q2. So when we narrow the range historically, it's usually in the back half of the year as we move toward the end of the year, it's usually not in the first quarter, even after the second quarter. So I wouldn't read much more into that other than we're just now finishing up second quarter, and we got the second half to go, and we'll update that range again next quarter.

Okay. And then maybe just another follow-up on I think it was Andrew's question at the beginning. So you talked about in the slides and in your prepared remarks the 2-year consumption trends in Refrigerated & Frozen inflecting back to positive. We know that the reported numbers are pretty noisy. And I know you don't want to provide guidance. But as we look to Q3 and just consider the momentum you're seeing in consumption on a 2-year basis and all of these timing shifts and what we'll see in terms of the shipment timing benefit, would you expect that 2-year reported trend in R&F to accelerate versus the first half? I'm just trying to get a sense because the Street does imply a bit of a deceleration. So just trying to understand how to think about that segment in particular given the noise.

I think you can expect a good second half in frozen. It's not a lot more complicated than the underlying trends are inflecting northward. Our market shares are either already back to the high watermark or very close to it. The programming that we've got in the marketplace in the next quarter will be stronger than we've had not only in the last quarter, but significantly stronger than a year ago, because a year ago, we were basically out of business in the quarter on promotions because of the supply constraints. So all of that lends itself to high-quality underlying momentum in the second -- in the third quarter and in the second half.

Our next question comes from Chris Carey with Wells Fargo.

Just regarding the inflation for this year, like there's some puts and takes, but it's basically tracking to where you thought. Is there any reason why it shouldn't be back in that 2-ish percent range going into next year based on what we can see today? Are there anomalies with the timing of some of the pork and beef inflation that you're seeing? Or is there going to be tariff carryover into next year with inventory? I think the comment was we'd like to get back to that range over time, but I just wondered if there were anomalies that you're thinking about that would prevent you from getting there going into next year?

No, Chris, I feel like I'm more cautious on prognosticating about inflation now than I probably have ever been. But we've looked back 100 years at these inflation super cycles. And when you hit these kind of peaks on any individual commodity that have been unprecedented, you usually see a downward slope on the other side of that hill. We just have not, as an industry, experienced that yet. In our case, it's been a bit more challenging than some portfolios in that we're heavily skewed toward proteins, which, of course, remained high, but proteins go up and they usually come down. And obviously, different proteins have different timetables for that delta. So at some point, it's going to normalize here. At some point, very soon, we're going to have a lot of this stuff baked into our base already. So you could really start to see some relief in the P&L if things start to break our way.

Okay. We'll see how it goes. Just from a portfolio standpoint, a little bit bigger picture. We've seen a ton of activity in the food sector with portfolio changes, separations, combinations and actually in broader staples as well even outside of food. When you think about what's going on in the environment right now, can you just give us the latest on Conagra's approach to its portfolio, how you think through portfolio opportunities one way or the other, and just how the balance sheet and your leverage targets factor into your medium-term objectives? Just any context would be helpful.

Sure. Well, first of all, just to remind the listeners on the call, we have done probably more M&A than most of the companies in our space over the last 10 years, and that includes inbounds and a lot of divestitures, even separations. So we're quite familiar with that. And of course, prior to being here, I was at Sara Lee, where we had a split and we stood up 2 independent companies and had a good outcome. So Dave and I and the Board are always thinking of everything under the sun in terms of ways to create value for our shareholders. And we are not the slightest bit entrenched in any way. If there is a clear path to creating value, we will pursue it, and we have done that in the past.

So reshaping has always been part of our game plan, and that has included inbounds from time to time. I don't see us doing that anytime soon because we're focused on debt reduction. But it's also included outbounds. And we only recently completed the divestiture of Chef Boyardee. And while we sold some EPS with that, we felt like it was the right thing to do for the portfolio long term. So we'll continue to look at our options there. And if we see a clear pathway to value creation, we are always eagerly in pursuit of that.

Our next question comes from Scott Marks with Jefferies.

I wanted to ask about the completion of the baked chicken facility. Can you just remind us how you're thinking about the cadence of repatriating some of that production and how we should be thinking about the magnitude and cadence of the margin improvement from those actions?

Sure. I'll make a quick comment, and then I'll flip it to Dave. But it's amazing. Chicken has always been an important part of our portfolio, but chicken has just been on fire over the last several years. And our historic business was mostly kind of roasted or baked chicken, and that's where we ran into some of the supply challenges last year. We got some quality inconsistencies. We've fixed those. That's done. So the baked chicken project is complete, and we like the way that looks, and that's great.

But as you know, we also, in the last year, had some tremendous success with our new Banquet Mega Filets, which is a fried chicken product that basically looks a lot like a Chick-fil-A product. And that's an area where we've had limited capacity going forward. So we've elected to make some additional investments there to increase our capacity. It will take some time to build that out, but that's super exciting because chicken as a protein has just been on fire, in part because beef has been so expensive for the consumer.

But I would say, even overall, when you look at foodservice trends and the success of Chick-fil-A and Raising Cane's, things like that, it's just been undeniable. So we're very excited about that being a continued tailwind for us, and getting those capabilities in-house enables us to make these products in the most efficient way possible with the best margin.

Dave, do you want to add to that?

Yes. So as we communicated at the beginning of the year with our guidance, we had estimated completing this line, this production at the end of the second quarter, which we have. So now we're in transition of bringing volume back in from the third party. As you can imagine, there's a transition there, and we build inventories and we deplete inventory. But all of that was built into our guidance, our margin and profit forecast for fiscal '26. So we're on track, and that's incorporated into what we've guided to.

Understood. And then just quickly, second question for me. There was a pretty sizable impairment charge taken in the quarter. I don't believe I saw any details in the press release. So I wondering if you could just share any insight around that.

Sure. So we obviously have had a sustained decline in our stock price and market cap. And so the way that you do impairment accounting, if there is a triggering event, and this would qualify for where if your stock and market cap over an extended period of time is lower, you have to go back and do all the analysis you do for goodwill impairment and brand impairment. So we always do this work in our Q4 every year. So the last time we did it was at the end of our third quarter or our fourth quarter last fiscal year. So we had to do that in the second quarter. And when we went through that process, given the macro backdrop, which has impacted the stock price, obviously, we made the decision to increase our discount rate.

So a lot of our forecasts were the same. And as you see, we're holding our guidance. So we feel good about where the business is going. It's in line with expectations. But because we changed our discount rate, that drove the impairment. So it's really just marking kind of book down to the fair value.

At this time, there are no more questions. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning. Thank you for listening to our prepared remarks for the Conagra Brands Second Quarter Fiscal 2026 Earnings. At 9:30 Eastern this morning, we will 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.

In our presentation this morning, Sean Connolly, our CEO; and Dave Marberger, our CFO, will be making some forward-looking statements. 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. GAAP to non-GAAP reconciliations and information on our comparability items are in our earnings release and presentation materials in the Investor Relations section of our website.

I'll now turn the call over to Sean.

Thanks, Matthew, and happy holidays, everyone. Thank you for joining our second quarter fiscal 2026 earnings call. Let's begin with the headlines for the quarter on Slide 4. As expected, the macro environment remained challenged, with a few new twists emerging this past quarter. In this dynamic environment, we're executing a tailored portfolio segmentation strategy, drive volume growth in frozen and snacks, while maximizing cash in staples. And though there was quite a bit of noise in Q2, both in the scanner data and our P&L, the underlying story is clear, our in-market execution is working and momentum is building.

We're seeing continued upward inflection in our growth businesses of frozen and snacks, where we're strategically investing margin to drive volume performance. In addition, we're on track in our cash businesses, largely in our staples portfolio, where we've taken inflation-justified pricing to protect margins.

Our supply chain delivered another quarter of impressive performance with record service levels and strong productivity. We also launched Project Catalyst, a major initiative leveraging AI, data and other new technologies to unlock significant value across our operations. You're going to hear much more from us on this in calendar '26, so stay tuned.

Based on our first half performance and everything we're seeing in the marketplace, including underlying consumption trends, inventory dynamics and our robust investment slate, we have high confidence in our plans to deliver a return to organic net sales growth in the second half, and are reaffirming our full year guidance.

Before I get into the business performance, let me provide some context on the macro environment on Slide 5. As I mentioned earlier, consumer sentiment remained fairly weak in Q2. Household budgets continued to be strained, and value-seeking behavior persisted, with these pressures weighing most heavily on low and middle-income consumers. We also saw some unanticipated dynamics this quarter, many of which we expect will be timing related. The government shutdown spanned about half the quarter along with the related pause in SNAP payments.

There were also two noteworthy dynamics related to weather. First, we had our first October in 10 years without a hurricane hitting the continental U.S. We had planned for a normal hurricane season. We also saw a slow start to winter. Finally, during our Q2, we often see retailers begin to build inventories ahead of the holiday season. However, this year, we shipped behind consumption, which we believe is due to two discrete timing factors. First, the government shutdown and pause in SNAP payments led some retailers to slow down ordering near the end of the quarter. Second, several of our large customers made timing shifts on their promotional calendars, particularly impacting our frozen business, which moved their inventory build into our Q3.

Given those dynamics, there was an unusual amount of noise in our top line, both in the scanner data and the P&L. In the P&L, under-shipping consumption shaved about 1 point off of our Q2 net sales. We have since seen these shipments start to materialize in December. As for the scanner data, this chart illustrates the unusual volatility in the quarter, mostly tied to the aforementioned weather dynamics and the pause in SNAP payments. So to parse out the noise and provide a clearer view of the underlying state of the portfolio, let's look at our business at a category level.

Starting with frozen on Slide 7. As you can see on this chart, in Q2, we were wrapping an exceptional quarter a year ago where volumes were up 3%. You can also see the ensuing drop-off tied to last year's temporary frozen supply constraints we've discussed previously. This year, our focus has been on restoring our frozen momentum, and it's working. In Q2, while year-over-year growth softened due to lapping the very strong year ago period I just mentioned, we drove strong growth on a two-year basis, sustaining the positive inflection we saw in Q1. And importantly, 90% of our frozen portfolio held or gained volume share over the same period. This tells you that our strategic investments are working and we're winning with consumers. As for performance versus the record year ago period, we're pleased with where we are, particularly given the timing shifts of some major frozen promotions to Q3.

Speaking of promotions, Slide 8 shows our frozen promotion recovery also continues to inflect in the right direction. We're pleased with this trend and look forward to further progress in the second half of the year.

Now let's take a look at our largest frozen business, single-serve meals, on Slide 9. On the left, you can see the continued upward inflection of our volumes across the last year, quarter and most recent 5-week time period. You also see that trend versus 2 years ago. Why show the 2-year look? Again, it's because in Q2 a year ago, we delivered extremely strong performance that we did not expect to exceed this year, having recently emerged from our supply impacts. The timing shifts of some of our major frozen promotions into Q3 further support this point. And even with the promotion shifts, when you look at the trend versus 2 years ago, you can see we've returned to solid growth at plus 1% in the latest period.

What's particularly encouraging, and you can see this on the right side of the chart, is that our 52.9% market share remains far and away the market leader and very close to last year's outstanding level. We're seeing a similar story in frozen vegetables on Slide 10. Birds Eye continues to perform very well. On the left, you can see strong momentum building across all time periods, with the most recent data showing more than 3% volume growth versus a year ago and more than 9% versus two years ago. On the right, you can see we've recovered the share we lost in the wake of our supply challenges. In fact, we're now above 19% share and up 130 basis points versus two years ago. Our strategic execution is working. We've invested behind the brand, restored our supply and are winning with consumers.

Moving to snacks on Slide 11. Once again, our snacks business delivered strong performance in Q2, significantly outperforming the snacking categories in which we compete in both volume and dollars. In fact, this represented the fourth consecutive quarter of dollar sales growth in our snacking categories. We have exactly the right snacks business for today's consumers. Our portfolio of protein-centric, high-fiber foods is in demand and on-trend. In an environment where some of our competitors are struggling with snack portfolios weighted toward salty and sugary carb-heavy products, our snacks are resonating strongly with consumers. This is a strategic advantage that positions us well for sustained growth.

This is highlighted by our protein-centric snacks on Slide 12. Our meat snacks business, including Slim Jim, Duke's and FATTY, posted 5% volume growth and 4% dollar growth in the quarter. In fact, FATTY, our most recent acquisition, is on track to double in size in fiscal '26. Our seeds business, including David and BIGS, posted 4% volume growth and 4% dollar growth. Protein is exactly what consumers are seeking, and we're delivering.

On Slide 13, I want to highlight an important dynamic that's benefiting our Slim Jim brand. Compared to our broader portfolio, Slim Jim is disproportionately represented through the convenience channel, which includes the C-stores attached to gas stations. Accordingly, consumer traffic for this channel is correlated to gas prices. When gas prices are high, people filling their tanks tend to save money by reducing the number of trips inside the convenience store. This weakness in C-store traffic impacted Slim Jim performance in recent years. With gas prices having moderated, the trend has reversed exactly as we expected. C-store traffic has improved and so has Slim Jim's performance in this channel. Importantly, as you can see on this chart, Slim Jim's volume performance in broader, multi-outlet channels has remained positive throughout.

Now let me talk about the sweet treats side of our snacks portfolio on Slide 14. Two of our sweet treat businesses, Swiss Miss and Snack Pack, experienced unusually high costs due to cocoa inflation. We raised prices to offset that inflation, and because of the strength of these brands, the impact has been very encouraging. We're seeing the desired effect on dollars, Swiss Miss up 14% and Snack Pack up 8%. We're also seeing volumes hold up despite the incremental pricing, with Swiss Miss up 5% and Snack Pack up 1%.

Turning to Slide 15 and our canned products. As I mentioned earlier, we planned for typical hurricane activity during the quarter, only to experience the first fall in 10 years without a hurricane reaching landfall in the U.S. This, combined with the later start to winter, impacted consumption. In addition, we've taken inflation-justified pricing on these businesses due to rising steel costs. The early elasticities are on track with our expectations. What's most encouraging is what you see on the right. We exited Q2 with positive trends in several categories. Canned tomatoes improved from minus 3% to plus 3.5% dollar growth, and chili improved from 3.6% to 12.3% dollar growth, as we effectively manage these businesses for cash.

Our supply chain is also performing strongly. As outlined on Slide 16, we delivered exceptional service levels of approximately 99% in Q2, the highest sustained levels of service we've achieved as a company. Our first half productivity came in at approximately 5%, which is very robust and keeps us on track to reach our full year target. We also completed our baked chicken modernization project during the quarter, which will enable us to in-source previously outsourced production at lower costs going forward.

Now let me introduce a new initiative, Project Catalyst, a multi-year comprehensive effort to leverage AI, data and other new technologies to unlock significant value across our organization. We're reimagining ways of working, transforming end-to-end processes and connecting our people with cutting-edge technology in ways that will drive efficiency and effectiveness. We have senior leaders mobilized across the organization, are seeing real opportunities emerge and are getting increasingly excited about its potential. You'll hear more from us about this initiative in calendar 2026, including specific targets for the value we expect Project Catalyst to unlock.

So let me bring this all together on Slide 18. Based on everything we're seeing, the underlying consumption trends, the inventory dynamics that we expect to normalize and the robust investment slate we have in place, we are highly confident in our plans to deliver a return to organic net sales growth in the second half. We've recently debuted on-trend, in-demand innovation and have more coming to market.

You can see some examples on this slide. Our new Banquet Mega breakfast bowls marks this brand's entry into the highly attractive breakfast category; Slim Jim is expanding into chicken with its Buffalo Wild Wings chicken sticks; Dolly Parton is extending into single-serve frozen meals with delicious varieties like this beef pot roast; and Vlasic is building on the success of its pickle ball platform with the introduction of new Spicy Vlasic Pickle Balls. We have more merchandising planned for the back half compared to the first half, particularly in frozen, as we expect promotional levels to continue to improve. And we intend to increase advertising and promotional spending in the back half relative to H1 to support our growth businesses.

As a result, we are reaffirming our fiscal 2026 guidance today, as you can see on Slide 19. Our team is executing well and creating positive underlying momentum. We're seeing continued upward inflection in our growth businesses, and we are on track in our cash businesses. Supply chain service levels and productivity are strong. And we have confidence in our ability to deliver in the back half.

With that, I'll turn the call over to Dave to walk you through the financials in more detail. Dave?

Thanks, Sean, and good morning, everyone. Slide 21 shows our financial results for key metrics in the quarter and the first half. As a reminder, we entered the year with plans to invest margin to drive volume. As we mark the halfway point in the year, we've made solid progress against our objectives and our first half results were largely on track to our expectations. For Q2 specifically, Conagra's organic net sales were approximately $3 billion, a 3% decline versus the prior year. Adjusted gross margin of 23.4% and adjusted operating margin of 11.3% were both down versus the prior year, but slightly better than our expectations, which I'll provide color on shortly. Adjusted earnings per share were $0.45, down $0.25 versus year ago. On the right-hand side of the page you'll see our first half results, including organic net sales of $5.6 billion, a 1.9% decline versus the prior year.

Slide 22 shows our second quarter net sales bridge. Total Conagra organic net sales declined 3% over the previous year, with volumes down 3% and flat price/mix. Foreign exchange was a 10-basis point tailwind, and the divestitures of Chef Boyardee and our frozen seafood businesses together had a 390-basis point impact.

Sean discussed earlier the noise impacting the top line during the quarter. The largest driver impacting organic net sales was a reduction in retailer inventories related to the timing of our merchandising activities. We estimate this was a 100-basis point headwind to the quarter, resulting in a gap between our shipments versus consumption. We expect these shipments to occur in Q3 ahead of the planned merchandising events, and we are already seeing that play out in recent weeks. In addition, we saw a 60-basis point headwind due to lapping favorable trade timing in the year ago quarter, in line with our expectations. And as Sean discussed, unseasonal weather had a modest impact on results. While our shipments and consumption can be impacted by these timing items, we remain confident in the underlying momentum in the business.

Slide 23 shows the composition of net sales by segment. In Grocery & Snacks, we delivered net sales of $1.2 billion, representing a 1.5% decline in organic net sales versus the prior year, as lower volumes and unfavorable mix were partially offset by inflation-justified pricing actions. Our Refrigerated & Frozen segment delivered $1.3 billion in sales, with organic net sales down 5.1% versus the prior year. This was driven primarily by lower volumes, inclusive of the impact from the retailer inventory dynamics I just discussed, which slightly over-indexed to this segment, as well as approximately 140 basis points of unfavorable mix due to lapping certain promotional events in the year ago period.

In our International segment, organic net sales declined 2.9% versus prior year, an improvement versus Q1. We saw organic growth in our Mexico region, while Canada and global markets experienced volume softness in response to inflation-justified price increases. Organic net sales in our Foodservice segment posted a second consecutive quarter of growth, with organic net sales growing 0.2% over the prior year. Volume declines were generally in line with Q1 results and were more than offset by favorable pricing.

Slide 24 shows that adjusted operating margin declined 406 basis points over the previous year to 11.3%. Price/mix was a 10-basis point tailwind, as our targeted price increases more than offset the recently discussed trade timing headwind and unfavorable mix. Total inflation remained elevated in Q2, but came in slightly favorable to our expectations. We saw some favorability related to moderating chicken prices, though proteins, including beef, pork and eggs continued to be key areas of cost pressure. Gross tariff inflation for Q2 was in line with expectations. As Sean highlighted earlier, our productivity efforts remained strong in Q2 with core productivity, including tariff mitigation, at approximately 4.5% of cost of goods sold. Partially offsetting this was unfavorable operating leverage from lower internal production volumes, as we focus on optimizing working capital.

We also completed our baked chicken facility project in Q2, an important milestone in modernizing our supply chain. Adjusted SG&A, which includes advertising & promotion expense, was 70 basis points unfavorable to year ago, including higher incentive compensation expense as we expected. On a stand-alone basis, A&P was also slightly higher than year ago from increased investment, but favorable to our expectations.

Our segment adjusted operating profit and margin results are summarized on Slide 25. Overall, the drivers of the segment results are generally in line with the total company drivers just discussed. The adjusted EPS bridge for the second quarter is shown on Slide 26. Adjusted EPS was $0.45 in the quarter compared to $0.70 a year ago, driven by lower adjusted operating profit, lower adjusted equity earnings, a higher adjusted tax rate and reduced profit from divested businesses, which more than offset favorable pension income and lower interest expense.

Key balance sheet and cash flow metrics for the first half are shown on Slide 27. Compared to the year ago period, we've made solid progress repaying our debt, with net debt lower by nearly $850 million. We ended the quarter with net leverage at 3.83x, which was favorable to our expectation. We remain committed to a balanced capital allocation approach as we continue to target long-term leverage of 3.0x. Capital expenditures totaled $219 million and dividends paid were $335 million for the first half, both largely in line with the prior year. As expected, free cash flow in the first half was impacted by our seasonal working capital build, including building inventories ahead of planned merchandising events and lower operating profit. We did not repurchase any shares in the quarter, nor did we have any additional M&A activity in the quarter.

Shifting gears, I want to provide a quick update on our joint venture, Ardent Mills. Ardent has performed extremely well over the years, and they play an important role for us through their contributions to our earnings and to our cash flow. The core flour milling business for Ardent has continued to deliver solid results. However, lower prices and lower volatility in wheat markets have negatively impacted Ardent's commodity trading revenue this quarter. Incorporating our updated projections, we now expect adjusted equity earnings to be approximately $170 million versus our prior expectation of $200 million.

As Sean mentioned, we are reaffirming our fiscal '26 guidance for key metrics shown here on Slide 29. We continue to expect organic net sales change of minus 1% to plus 1% versus fiscal '25, adjusted operating margin of approximately 11.0% to 11.5% and adjusted EPS in the range of $1.70 to $1.85 per share.

Slide 30 provides a bit more color on our expectations for the remainder of the year. For the second half, we expect to return to overall organic net sales growth driven by the wrap of our frozen supply constraints, our recent inflation-justified pricing actions and the robust investment slate we have planned. Next, cash flow remains a top priority, including reducing our inventory to optimal levels. This opportunity is made possible, in part, by the supply chain investments we've made and the strong service levels we've achieved this year. We expect to make meaningful progress reducing inventory in the second half, though these actions come with short-term absorption headwinds, which will impact year-to-go margins. In addition, we expect A&P to increase in the second half relative to the first half, peaking at over 3% in Q3. These activations, alongside the innovation and merchandising planned, further our priority of investing to drive volume in frozen and snacks. Taken together, these actions are expected to result in Q3 adjusted operating margin below our Q2 result.

For the full year, our estimates for total inflation, including tariffs and total productivity, are largely unchanged at approximately 7% and 5% of cost of goods sold, respectively. While more recent changes to tariff policies are generally favorable, the impact to Conagra is limited given our primary exposure to tin plate steel. On an absolute basis, we continue to expect tariff expense net of mitigation to increase sequentially as we progress through the remainder of the year. We also continue to expect full year A&P at approximately 2.5% of sales and adjusted SG&A, excluding A&P, at approximately 10% of sales, both unchanged versus our prior expectations. And last, as I mentioned, we expect adjusted equity earnings to contribute approximately $170 million.

And finally, Slide 31 outlines our additional fiscal '26 guidance metrics. Aside from the change to adjusted equity earnings, our expectations for each of the other line items shown remain unchanged versus Q1.

That concludes our prepared remarks for today's call. Thank you for your interest in Conagra Brands.

Hi. Thanks for joining us today. I'm Tom Palmer. I cover the food space here at JPMorgan and thrilled today to have with us Sean Connolly, CEO of Conagra Brands; and Dave Marberger, the CFO.

Conagra Brands is a U.S. packaged foods company that sells a wide range of frozen, refrigerated and shelf-stable products. Its biggest categories include frozen entrees, frozen vegetables, meat snacks and popcorn. Sean has been CEO of Conagra since 2015 and Dave CFO since 2016.

Sean, it's been an unusually challenging period for volume growth for large packaged food companies. Among other considerations, we've seen the rise of GLP-1 drugs, a growing awareness, I think, of smaller brands, more scratch cooking, more price-sensitive consumer following a period of elevated inflation.

You've seen a lot in your career. To what extent do you think there's been a structural change in demand for packaged food versus perhaps more transitory impacts?

Sure. Well, thanks for having us, Tom, and good to see everybody. And for those online, thanks for tuning in.

I don't think this is really as complicated in hindsight as it might seem. If you look at the group in our industry over the last, call it, 5-plus years, you've seen somewhere in the neighborhood of 40% to 45% cost of goods inflation, which then triggered matching pricing actions for the vast majority of that 5- to 6-year period. So cumulatively, what we've got is a consumer who is strained and when the consumer is strained, it tends to show up in the volume line.

Now if you look at the scanner data that was released yesterday, I think for the past 4 weeks, our volumes were 1.5 points. So it's not as if we're a country mile off of our -- the midpoint of our long-term algorithm, but we're off and we're off because consumers are making some of these behavior shifts in response to that massive amount of cumulative inflation.

Now as to the money question that I know many investors are asking right now, which is this cyclical or is it structural? It'd be nice if we could give a simple answer that speaks to everything and say the answer is one or the other. It's not. I would say the answer varies by category, and therefore, your analysis needs to be done by category.

If you're looking at a category where the behavior shift that you're studying is tied to value-seeking behavior response to consumer searching for more value. My experience would say that is it likely to be a transitory behavior shift. Why? Because that is not a behavior shift that the consumer left to their own devices would choose to make. They would rather not make that shift. They are making that shift because they are trying to live within their budget and they're making a switch to something that they would rather not do, but feel like they're compelled to do.

After a period of time, usually not long, fatigue in terms of that purchase behavior sets in and they revert to their previous behaviors. So that's typically what we would see. It's not terribly different from Yo-yo dieting. People aren't happy with where they stand in terms of health and wellness. They might go on a diet, they don't really like the choices that they're switching to fatigue sets in and then they switch back.

We see similar types of behaviors when consumers make purchase behavior shifts that are compelled by the march toward value. On the other hand, if you're looking at a category where the behavior shift is tied to a fundamental change in consumer preference, that's one I think that manufacturers have to study more closely. I look at what's going on right now with less alcohol consumption, less sugar consumption, less carb consumption. There seems to be just more of an overall focus on health and wellness, particularly among younger consumers, that could prove to be a stickier behavior.

So fortunately, we don't compete in a lot of those categories. But when I do see something like that, it makes me think of manufacturers needing to change their innovation priorities and tailor them to what consumers are looking for today, which after all, frankly, is what we do in the consumer packaged goods business anyway. We're constantly responding to changing consumer desires and tastes. So I don't think it's a simple answer as to whether or not it's structural or cyclical, but I would say the vast majority of the behavior shifts we've seen have been in response to this significant run-up in cost of goods, which then triggered pricing, which then triggered value-seeking behavior, and that tends to be transitory in nature.

And I think that does explain a lot of the private label share gains that we have seen in certain categories. But recently, we have also seen a bit more from larger brands -- sorry, from larger brands losing share to smaller, maybe perceived better-for-you brands.

What are your thoughts on how large food companies and maybe how you are currently responding to that environment and maybe what's to come?

Sure. Well, it's a really interesting dynamic because historically, when we've seen a run-up or growth in smaller boutique brands, 1 of 2 things or both have to be in place. The first is just a fundamental lack of innovation from the major manufacturers. I don't really think that's happening right now. That was happening, what I'll call in the height of the 3G era when everybody was focused on SG&A reduction and not focused on innovating that created vacuum. The smaller brands filled that vacuum created a bit of a cottage industry, the Expo West industry, as I call it, was born. I don't really see that going on right now.

The second one, though, has been happening which is, again, back tied to the runaway inflation over the last 5 years and consumers in the pursuit of value, that has led to channel shifting in shopping behavior. And so the second dynamic that we've seen historically is when you see shoppers switching channels in the pursuit of value and the channels they are shifting to happen to be retailers that purposefully feature more smaller brands and less larger brands, take the club channel as an example because they want to create a treasure hunt environment, you might -- and by the way, when that happens at the same time at other channels are weak like c-store over the last few years, you can see a mix shift across channels, and that mix shift also is connected to a shift in the kinds of brands that are merchandised.

So we've seen that in a couple of our categories. We actually saw it in meat sticks. And we say, all right, we've got to have a response to this. And our response in that case, was an acquisition, and we made the acquisition of FATTY Smoked Meat Sticks because we believe that FATTY Smoked Meat Sticks can compete with any smaller boutique brand on the planet when it comes to meat sticks because it offers the exact same health and wellness benefits, but a measurably superior taste benefit.

So we've done that. We've been thrilled with the performance of the business in the year we've owned it. We've significantly increased the size of the business. And frankly, we're just getting warmed up. So at the end of the day, a big company like ours is going to have a combination of large brands that compete primarily in well-developed large channels, but also a mix of some smaller boutique brands that play in alternate channels because that's what those merchants want to carry in terms of their mix.

So we've got a bunch of stuff going on there. Some of it, by the way, is acquired. Some of it is built and we've built some things from scratch. We have a new snack [ bit ] business right now that we built organically that basically operates like a boutique brand right now, and it's called Vlasic Pickle Balls. And it was pretty simple logic. The fastest-growing sport in America the last 3 years has been Pickleball. We happen to be the leading pickle producer in the United States. Vlasic, Pickleballs, you put it together, and we've got a winner that happens to work in some of these alternate channels the way I just described.

Right. Switching over to frozen entrees, I mean that has been one area where maybe you've had heightened investments here ongoing. You've got the baked chicken line, I think, coming online here soon and then later this year, fried chicken or I guess, later this fiscal year.

Maybe we could cover just what drove the need for this expansion, get an update on kind of where we stand in progress. And what are the benefits maybe that we might see through the P&L as we think about these facilities coming online in coming periods?

Sure. Let's take it from the top, frozen and then talk about chicken -- the importance of chicken within frozen. We are the largest frozen manufacturer in North America. We're probably the largest manufacturer in frozen food in the world. And so it is a major strategic priority for us. And frozen is great because it's just a temperature state. If you -- I'd like to say, if you can dream it, we can freeze it. It is fresh food that it can be incredibly healthy for you incredibly clean label, loaded with protein, loaded with vegetable nutrition. And then we flash freeze it at the peak of freshness.

So strategically, one of our priorities is continuing to preach the benefits of frozen because it's in your freezer. It's on call ready when you are. It's not going to spoil. We've got to preach it so that the world kind of understands that frozen food is just a temperature state, and it's perfect for your busy lifestyle.

And so that's what we want to do. We want to continue to drive household penetration into frozen year in, year out. Last year, we had an interruption in our service. We were growing our frozen and refrigerated business. I think by the end of Q2, we were north of 3% volumetrically, which is a good number. We had 7 straight quarters of volume pickup as we kind of started seeing the consumer getting ready to get back to a convenience behavior and get back out of scratch cooking.

And this year, our focus has been covering our service after the interruption we had in February, and we've been doing that. So we've got our service levels now back north of 98%, which is very encouraging. If you double-click layer down and you say, what's growing the most within frozen, one of the things that is hard to miss is chicken-based.

Protein in general, I think you all have heard the news, is on fire right now. That shows up in snacks. It shows up across all different types of protein from plant-based to animal-based. But within the animal-based protein world, chicken is absolutely on fire.

Historically, most of our capabilities in chicken are in what I would call baked/roasted. So we had tremendous capability there. We had a major capital project queued up for this summer to modernize that facility given the incredible strain we had on that facility strong demand. We didn't quite make it to the finish line on that. We ran into some quality and consistency issues just a couple of months before we were to start that. But now that's up and running and it's very far along.

Last year, we also saw that fried chicken absolutely exploded. And it shouldn't be a tremendous surprise to everybody because if you look at the world of QSRs and the success of Chick-fil-A and Raising Cane's, all of that type of stuff, fried chicken is one of the most beloved forms of food in America that should carry over to the grocery store. We created a product called Banquet Mega Filets last year, which basically mimics what you could get at some of those QSR names I just called out. And we had absolutely awesome results. Our velocities were way in excess of what we predicted. And frankly, we ran out of capacity.

So historically, we had much more capability internally and baked and roasted a little bit in fried. The growth of demand in fried has led us to have to reconsider everything from what we've got internally to the partners we have on the outside network is underway as well.

Thanks for that. I think one of the extensions maybe of what we saw a year ago when, as you noted, the very strong volume performance was aided by merchandising and promotional activity. I know you've been asked a lot on your views on promotional activity over the years, but maybe an update on where we stand today in terms of ramping back up to promotional levels that you would like to target to drive that volume growth and the response you're seeing maybe across some different categories?

Sure. I shared a chart at the end of last quarter that you all can find online that showed us and the industry, and it's really uncanny. Everybody is in a very tight bandwidth in terms of percent volume sold on deal. And I basically call it pre-COVID levels.

Everybody is pretty spot on to pre-COVID levels of percent volume sold on deal. And encouragingly, depth of discount has not been deeper than pre-COVID, meaning people aren't giving away the farm in order to try to stimulate volume. It looks pretty rational overall. So that's been the environment. As far as we're concerned, we're not quite there yet because we had the service interruption. And when you have a service interruption, it takes -- you have to rebuild confidence with your customer that you're going to be able to fulfill the amount of product that's needed for those events. So our goal was to get that trust back in place before we got to this holiday season. I feel good about where we stand right now, but we're kind of inching our way back.

So we saw progress last quarter. We still have some room to go. I think the thing that you all read about every day is our lifts right now in response to promotion as strong as they've been historically. And the answer is not no. The answer is it varies by category. And so if you look at our Q1 as an example, we had precisely the same lift in our last quarter Q1 that we had in the year ago period.

So we haven't seen any diminishment in terms of lifts for our particular categories. In fact, last year, before we had our service interruption, we had outsized lifts on a lot of our categories and frozen, in particular. And I attribute that to fatigue from the consumer doing scratch cooking for the previous year and basically saying I've had enough of all the prep and clean up and everything associated with scratch cooking, even if it's a better value.

So I think lifts are specific to the category, and it kind of comes back to my first statement around is the state of the union in any given category, structural or cyclical, if it's tied to value-seeking behavior and there's fatigue setting in on that behavior shift, I think you have a chance of a very good lift in terms of your merchandising right now. I think you'll see that in our holiday business coming up.

But if you are participating in a category where the behavior shift is tied to a change in consumer preference, it wouldn't surprise me that you would see a lower lift because they're buying something different. And snacking is a good example where there's been a massive behavior shift away from the high sugar, high carb, snacks and sweet treats to more protein snacks, and the beneficiary of that in our seeds business and in our meat sticks business.

Maybe switching over to the margin side. This year, excluding tariffs, main sources of inflation as it relates to protein. You've indicated, I think, that roughly 12% of your COGS basket would be protein exposed maybe within that basket, any update on trends that you're seeing and kind of what the key protein types and within it, maybe the key protein cuts that we should be thinking about?

Sure. So just to ground us in our guidance. We've guided to 7% overall inflation for this year, 4% core inflation, 3% tariff related. We're expect to mitigate about 5.5% of that. So within the core inflation, as you mentioned, the material -- our materials are about 60% of our total cost of goods sold.

We're seeing double-digit in our overall protein basket, right? So that's beef, that's chicken, that's turkey, that's pork. So they're really the big drivers. We've been asked a lot recently, we're starting to see chicken prices come down, and that's true. We're seeing that, but we're also seeing beef prices go up, more port prices go up and turkey prices going up even further.

And so there's a lot of puts and takes. And so our guidance is with kind of where we were in the beginning of the year. But these are -- a lot of these categories, particularly beef, are at historic highs. Herds are at lows that we haven't seen in supply since the '50s so this is just a supply-demand dynamic. And so we're continuing to manage it tightly. We take positions. We can freeze amounts of our proteins, which we do when it's advantageous for us. But generally, we're on the spot market with this by.

And so we're managing through it. We talked about the chicken supply. We are paying a premium right now because we have to go to a co-man for the baked chicken as we make the investments in our plant, but we're pleased that's on track. And so the second half of our fiscal year, we should start to see the benefit of bringing more of that production in-house and not having to go to the third-party co-man for that.

On the tariff front, I think that's been another source of inflation you've called out. Maybe just an update on where we stand today? Are you seeing pockets of relief as we see early trade deals come across? And I know that the main exposure is China where maybe less likely to see near-term relief, but just an update, I guess, on where we stand here.

Yes. And so as I said, 3% roughly was our estimate for tariffs for this year, gross before mitigation. More than 50% of that is related to tin plate and steel for our can good. We have a lot of canned good businesses with Hunt's our Chili business. We don't see those tariffs coming off. At least there's nothing now that indicates that that's the case.

And then we have different impacts based on some of the other tariffs and different but that's spread out kind of across several different countries, different supplies that we bring in. And so again, there hasn't been a material change in our current estimates. We're hopeful that, one, we can continue to mitigate the gross tariffs and maybe have some opportunity there. We're working every day on that.

And then every day, there are changes that are taking place, so we just monitor it closely. But no material change to our guidance as we sit here today.

So the -- I guess, the extension of all this would be the pricing actions and maybe offsetting pricing actions down the line as potentially some of this inflation eases. So what is your view on, one, pricing for these inflationary items over the last year or so? And two, your view on whether there might be some give back or some maybe incremental promotion to stimulate demand if we do see a more favorable cost environment?

Sure. I think to answer that, you got to kind of consider the last 5 years, and how the inflation environment and pricing environment has played out for our company. So we're in the fifth or sixth year of outsized inflation I would say we -- on principle, we priced to offset that inflation for the first, call it, 4.5 of the 6 years. And then as investors know about a year or so ago, A lot of the feedback from investors was, hey, it's time to get volumes moving. You cannot shrink your way to prosperity as a CPG, let's get the volume line moving.

And so we were one of the first companies to say, we agree with that. We think that long-term cash flows will be best served by our brands, having a strong relationship with consumers and volumes being strong. So we began investing in strategic parts of our business in order to move volume, specifically in frozen and in snacks. And we saw 7 straight quarters of linear responsiveness to that resulting in volume growth by the time we exited Q2 of last year. That's when we ran into the service interruption in frozen. So we've been working our way back from that right now.

But we went into this fiscal year with a plan of prioritizing volume in our frozen and snacks business so we could see consistent recovery there and prioritizing margin protection and dollar sales in our certain parts of our grocery business, where we were experiencing the most acute inflation, namely our can business, where we have these major tariffs impacting our COGS line.

So that was kind of the plan. So I'd call it a horses for courses year, meaning our strategic businesses need to continue to demonstrate strength volumetrically. And our cash flow businesses need to do just that. They need to maximize cash, which means we will price there to offset inflation. And we are doing that, particularly in our canned food business, which starts at the end of Q2 and mostly in the back half of the year.

In terms of potential deflation the horizon on commodities like meats, would that result in a rollback of prices because it's a pass-through category. For us, the answer is primarily no. because we didn't roll them up to begin with. In the last year or so, we've continued to experience inflation in things like chicken and meats -- other meats, as Dave has discussed. But we've not increased the price of our frozen business, on average, because we've been prioritizing volume. So our retailers know that. They know that we didn't price to offset that. We basically invested margin in those businesses in the service of volume. And therefore, if we get relief, which we expect we will, we've always got it.

And historically, on the other side, you would not expect a commensurate rollback in pricing. If anything, what it's really going to mean to us is significant margin help.

Thanks for that. We started off our discussion a little bit recap over the last couple of years and maybe some volume trends broadly and the root causes. Today, I think we're in a bit of an evolving environment. So when we think about the current quarter and what we're seeing October into November, maybe an update on consumer behaviors that you're seeing just with some of the timing of SNAP, the hurricane laps and kind of how you see that playing out as we look towards the conclusion of your second quarter?

Yes, I would say it's probably a little bit lumpy in the first part of the quarter because you got the hurricane in the year ago. You've got cessation of SNAP payments for a short period of time this year. We'll see how in weeks how that plays out. But as I mentioned in our last quarterly call, our outlook for the second quarter was that the persistent consumer weakness, specifically value-seeking behavior, particularly among the lower-income households, which frankly translates to younger people mostly, would persist into Q2 and beyond.

And so we've continued to see that and you hear about it every day. when you put on Squawk Box in the morning, whether it's a food service operator, it's a manufacturer, it's CPG beyond food. It's the exact same thing, which is you've got lower income households whose real wages have not kept up with the cost of the stuff they're buying. And so they're compelled to continue to struggle to make these trade-offs to operate within their budget. And that has continued, but we also expected a lot of that.

What's unique to us in the quarter is that we pushed some of our major merchandising events later in the quarter this year than we did last year because we've been rebuilding supply we also had a big beginning of Q2 last year when we had hurricane hit at the exact same time, we had major merchandising events, which drove outsized lifts. So we didn't have that this year.

Now we've got SNAP cessation for a period of time, which I think it's real cash. I think what it will show is just a deferral of purchases until once those get paid, but I don't anticipate any net-net changes in that overall. So it's a challenging environment. It needs to improve, but ultimately for it to improve the consumer has got to get some relief somehow. They've got to get some relief either in terms of their real wages and their cash flows or they've got to get some relief in terms of the cost of goods.

In terms of the implications to manufacturers should this consumer pursuit of value persist, I think the first place it affects us is we think about the innovation pipeline. If you look at the innovation pipeline, among major CPGs in the last 10 years, a lot of what's been most impressive and innovated, I would say, is on the higher-end scale. It's a lot of clean label, a lot of organic, very sophisticated ethnic meals, things like that.

If value becomes a priority, I think you'll see some of those benefits continue to resonate with consumers, but it will have to show up within a price pack architecture that prioritize value.

So I think the way we think about it is we have to track this, we have to see how sticky some of these behavior shifts are, and then we have to be agile. And if it means we've got to shift some of our innovation pipe building from being more premium products to more value-oriented products, we can do that all day long.

So that's what we do as manufacturers and we've got to respond to what the market signals are telling us in terms of consumer desire.

In the back half of this fiscal year, there is embedded a bit of an improvement in terms of some underlying volume trends. And I think specific to Conagra, A portion of that is the lapse from a year ago and some of the pullback in merchandising and then a portion of it maybe is taking a bit of a view on how the consumer environment progresses.

So one, maybe get a kind of overview of how you're seeing those 2 items. And as we think about the back half, the main swing items that might put you more to the high end or low end of your outlook?

Yes. I break it for us into kind of 3 parts. Frozen, snacks and then grocery. Frozen, we're going to have easy comps in the back half of the year because we had supply interruption last year. So that is clear. We're going to have merchandising back in. That should be strong performance.

On snacks, I think the most noteworthy thing versus a year ago is C-store is performing well again. And our Slim Jim business is really doing well again. FATTY is growing at something close to 100%. So that's positive. Popcorn remains -- we're having Angie's. We moved our timing on our major event. And that went from a negative comp because we didn't do it in the last quarter positive this quarter. And things like our seeds business is very strong. So I think you'll see continued very strong performance out of our protein snack business.

Within grocery, it's a bit of a different strategy. That's where our canned foods reside. Those we will price. We will -- we understand that, that will have an elasticity effect, probably close to a minus 1, and that's baked into our plan as well. So there, it's more about dollars and margin recovery than it is about volume.

Okay. Look, I know it's early. But I will ask on very early thoughts, I guess, on fiscal '27. I think one thing you've laid out here today is the potential for some outsized earnings growth should inflationary really ease and you get a swing the other direction.

As we think about kind of the progress you expect to see in the '26, what carries over into 2027? And what can you kind of build on as we move into '27 above and beyond what we expect to see in the back half of '26?

Well, the first thing that will carry over is strong innovation performance. We had very strong innovation performance last year. Our innovation performance so far this year is outperforming that, which is super encouraging. And we've got a lot of it has the programming really yet to hit. We also have some recovery in some of our key categories, not the least of which is meat snacks, where we're the largest player in the world. So that's important.

And we've got meaningful recovery on the horizon in frozen, where we had major momentum through the second quarter of last year, and we're clawing our way back, and we're starting to see that momentum build again. So those are all positive.

We also have new capabilities going forward in chicken, which feeds a major part of our frozen portfolio that we haven't had before, and that will be helpful not only with the service element but it will be helpful with the margin element as well because we've had to go out of our normal playbook with higher cost solutions to serve a lot of -- to create a lot of the products that we've been serving over the last 6 months. And so that will abate over time as well.

And then I think the wildcard is what happens on the cost of goods line. And if we get meaningful relief, any kind of relief on the cost of good line, that will help us claw back a lot of the margin that we've invested in the name of volume stability this year.

Anything I missed, Dave?

Just we will be wrapping on some pricing that we're taking, particularly with the cans in the second half and some of the sweet -- kind of the cocoa and sweeteners that we've priced on.

And then a thing that has impacted us the last 2 to 3 years has been fixed overhead absorption as volumes have been down, that impacts us, particularly in our frozen business. So the throughput just aren't like you have in a grocery business. And so as volumes start to come back and ramp up, there's the flip of that, you get some real tailwinds from that. So again, that depends on timing and inventory. But that should be a tailwind for us if the volumes come back in '27.

Yes. And the only other thing that I mentioned before that I think is a dynamic that we'll all have to continue to watch is there's been just an unusual amount of channel switching from shoppers all the way back to the start of COVID.

At the beginning of COVID, you saw a lot of shoppers shift from the big box retailers to local mom-and-pops because they thought it would be safer and they can avoid COVID, if they shop at a small grocery instead of a giant supercenter.

More recently, as people are pursuing value, you've seen the opposite happen. You see people go back to the larger places because they think they're going to get a better value there or maybe they'll go to club channel or maybe will go to hard discounters. So that's been a very dynamic environment. And it's hard for your innovation to keep up with that dynamic because we build our innovation so that we can talk to retailers about it, show them what we've got, and they slot it in to go into the planogram sometimes a year later.

And well, what happens if there's changes within the year and their channel needs, and that channel is more important today. So agility, there's a premium on agility for innovators like us. And I think we've now had an opportunity to say, okay, if some of these channel shifts going to be sticking with us, let's build some winning solutions for some of these customers that in the past, maybe were not beneficiaries of a lot of innovation. And so I think that's going to be an interesting dynamic to see as well because we're kind of agnostic to who we build it for.

It might look a little differently because different merchants have different priorities in terms of the design of the stuff they want to put on their shelves. But we can -- we have -- I can assure you, we have all kinds of stuff within our portfolio from really cool boutique brands to marine calendar and something that will service major grocers. So we can tailor our mix based on where the poll is.

Okay. Shifting over a bit to capital allocation. Your net-debt to EBITDA running a bit higher than your long-term target. Your dividend payout, and I know free cash flow is probably going to be meaningfully higher than EPS this year. But the dividend payout is running higher than you've seen in the past and I think probably higher than you would target over time.

How do you balance targeted debt reduction with the desire to maintain the dividend? Because it seems like, at least for this year, the decision leads to maybe a little bit less debt reduction. Is this largely contingent on seeing some earnings recovery in coming years? Just any update there?

You want to take that?

Yes, let me take that. So it all starts with capital allocation. Sean and I discussed this all the time. We discussed this with our Board at every meeting. And it's just something that it's a top priority for us.

We always talk about a balanced approach to capital allocation. What does that mean? That means investing in the business, managing your debt, providing an attractive return to shareholders and if there's M&A opportunities that depending on the timing. That's what we balance. And we balance that, and we will continue to do that. So when I look at each one of those investment in the business, if you look at this fiscal year, we're increasing our CapEx 16% in our forecast. We're increasing our trade merchandising. We continue to invest in innovation. We expect our A&P to be up. We are making significant investments in the business.

When you look at debt, our leverage ratio has gone up, and that's been solely because we rebased our earnings based on inflation, right? So the debt, we paid down $1 billion in debt the last 12 months ended last fiscal year, and we're forecasting to pay down another $700 million debt this year. So again, we're not at that leverage ratio target, but we continue to pay down debt.

And we held our dividend flat, which is providing consistent returns and attractive returns to our shareholders. We're not doing any opportunistic share repurchase. That's the one give there in terms of the shareholder. But we felt like we are balancing the capital allocation approach. I understand the question that comes up because of the dividend yield. But the fact of the matter is, is that we're very balanced in our approach. And if you look at -- and our kind of estimates are that we will grow back into our payout ratio.

We do expect our profits to go up going forward. Just to get everyone grounded with our guidance this year, we took our EPS down $0.25 versus last year just from net inflation. The inflation that we could not cover. That's $150 million of operating profit. And so that just hit us this year we called it out. We put it in our guidance, but we expect over time that we're going to call that back.

And if we do get some benefit of lower than sort of historic inflation in the last few years, then that could accelerate. And so that's how we look at it. We feel very comfortable with that approach. We talked to our board about it all the time, Sean and I talk about it every day.

Sean, I don't know if you want to...

Yes. We just had a long conversation around animal proteins, and animal proteins are particularly high right now, and we have elected to not take broad-based pricing in our frozen meals business because we're prioritizing a return to volume growth. So that's -- in the short term, that's going to pressure our margin is going to pressure our cash flow. But we don't think that's a structural dynamic at all. In fact, as we just discussed, animal proteins are cyclical.

They go up, they come down. And because we have not taken price in response to them going up, we would not anticipate reducing price in response to animal proteins coming down. So that will be margin flow back when that happens, that will be an improvement in our cash flow as that occurs. But right now, on certain businesses, frozen and snacks, our priority remains on that very strong connection between our brand and our consumer and getting volumes north of the Mendoza line as I've been calling it.

Sticking to capital allocation for a moment. We have seen both opportunistic acquisitions in recent years, such as the FATTY acquisition, also tactically some divestitures in certain businesses like we saw with Chef Boyardee.

As you look forward, how do you feel about the portfolio composition today? Are there categories where it might make sense to be more tactical with kind of adding brands to areas that you're maybe already strong, but could fill in from maybe a positioning standpoint?

Yes. Well, certainly, over time, we've done a lot of inbounds. We've done a lot of outbounds. So we're open to all of the above. I think right now, as Dave pointed out, our focus in terms of capital allocation is on paying a healthy dividend investing in the business and paying down debt. So we're really not in the market.

We bought FATTY last year, but our primary focus is on what we've already discussed in our plans. Going forward, we sold Chef Boyardee. We sold fish recently. So that has -- that was part of the earnings rebase as we build that. I think going forward, what you should expect from our company is that every 5 years, a meaningfully larger chunk of our total portfolio sales will be focused in frozen and snacks, and that means that our grocery business will decline.

And so we're open to additional actions. I know there's a lot of conversation these days around what's happening with 1 of our competitors and splitting the company into 2. I've got loads of experience liberating either specific businesses or splitting whole companies like when I was at Sara Lee. And what I would say is sometimes those types of actions can create value, 50% of the time, they destroy value.

So you have to be very cognizant of what you're working with. If it's -- when it typically those types of transactions create value is when both parts end up getting acquired at a premium. When 1 part gets acquired at a premium and the other part has multiple weakness, you might be lucky to get back to breakeven. If neither get acquired, you can actually destroy value.

So the data would suggest in those deals, about half of them work, half of them don't work, we're certainly open-minded to anything that creates value for shareholders, but we're also very thoughtful in our analysis because at the end of the day, we want to create value. We don't want to roll dice. And so we're open to all of the above in the pursuit of value creation, and we're very thoughtful about whether or not it's going to create value for our shareholders.

Maybe I'll follow up quickly on that last topic and ask a bit differently. How intertwined -- you have multiple temperature states in your business. How intertwined are the 2 sides of that business, the shelf stable versus the Refrigerated & Frozen from a supply chain standpoint?

When you're a single company operating within a single geography, there's a lot of entanglement not just in supply chain but in terms of how you go to market. Usually it's the same sales force. You've got the same people working on these businesses across the board. It's very different from when I was at Sara Lee as an example where we had a European coffee business, and we had a U.S. food business and the 2 were not entangled in any such way.

So for a company like ours, there can be lack of entablement in a supply chain. You might have a frozen plant that's separate from a shelf-stable plant, but there are plenty entangled in terms of how you go to market.

What that means is simply when you separate those assets, there are several things you have to consider. One is there are onetime costs associated with standing up a new organization. Two is there are dis-synergies associated with both parts that you then separate because you no longer have the procurement scale that you had when you were together.

Three is costs move around. Some costs that previously had been allocated to 1 business by virtue of just allocation will actually move in an activity-based way and potentially flow to the other piece of business, which could change the margin structure on each of the parts. And then there's a wildcard as to what happens with multiple when you have these assets separated.

So those are all things that you have to factor into your analysis as you consider whether or not it's going to turn out to be the 50% winning camp or the 50% value destruction camp.

Wanted to ask on Ardent Mills. It's a business where we have seen -- I think it doesn't necessarily fit in with the rest of what you do, but it also does generate a good bit of earnings for you and we've seen quite a bit of earnings improvement in recent years relative to where it might have been 5 or 6 years ago.

How do you view the role of Ardent Mills within Conagra? What's kind of the future for that business? And as we think nearer term about its earnings profile, should we think about it as and I guess, consistent with guidance, it's more consistent with recent years versus still opportunity there for growth.

Sure. Dave, do you want to talk about that?

Yes, sure. So Ardent Mills is a little over a 10-year-old business now, joint venture with us in Cargo and CHS. Operationally, the business continues to do very well, right? They're the kind of share leader in the U.S. in terms of flower millers. They have great kind of geographic placement of their mills and their supply.

Their customer service is outstanding. And so they really have a point of difference. But there's really 2 parts to that business. There are sort of the kind of the milling flower and selling it at the margin to customers. And then there's the commodity revenue where they can make money on all the arbitrage and trades and them understanding those markets.

And that part of the business is all driven from volatility. It's all -- and that's correlated to wheat prices. So when we prices are low, not as much volatility when there's more spike in prices, that can drive more volatility for a lot of reasons. And that's opportunity for Ardent Mills. And so we always sort of look at the center line and because we can't estimate that sort of commodity part of it.

So we just kind of go with what we think the center line of the estimate is in our guidance, and then there can be some volatility around that. And so that supports the guidance for this year. We've done a lot of work in working with them. We have a Board structure. So I'm one of the 3 Conagra members on that board. And I work closely with Sean. We have a great CEO that just went in over a year ago. And the free cash flow conversion on Ardent has improved significantly over the last 3 years. And so we're really aligned there, and that's. We've been pleased with that.

Yes. It's not lost on us that as investors look at our portfolio, you see a branded pure play company with this JV attached to it, that's a milling business that is different. It's a different animal. And listen, it's been a very nice hedge during the volatile time since COVID and it's performed extremely well. We're open-minded in the future as to that business, whether or not that remains part of us or not.

The only thing I'll say is it is a joint venture. So don't assume that it's a snap of a finger to kind of exit a joint venture, and it's more complicated that. When joint ventures are built, they're often built so that they are going to be there for a lasting period of time. Otherwise, it can be hard to draw joint venture partners into it. So this is one that predates me joining the company. It has been a very good performer for us. We'll stay open-minded as to the role it plays going forward.

Sean, Dave, thanks so much for being with us today.

Thanks for having us.

Thank you.

And thanks, everyone, for joining.

Good morning, everyone, and welcome to the Conagra Brands Q1 Fiscal Year 2026 Earnings Q&A Conference Call. [Operator Instructions]. Please note, today's event is being recorded. At this time, I'd like to turn the floor over to Matthew Neisius, Head of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us. Once again, I'm joined this morning by Sean Connolly, our CEO; and Dave Marberger, our CFO.

We may be making some forward-looking statements and discussing non-GAAP financial measures during this session. Please see our earnings release, prepared remarks, presentation materials and filings with the SEC, which can be found in the Investor Relations section of our website for more information, including descriptions of our risk factors, GAAP to non-GAAP reconciliations and information on our comparability items.

I'll now ask the operator to introduce the first question.

[Operator Instructions] Our first question today comes from Andrew Lazar from Barclays.

Sean, Conagra expects to return to positive organic sales growth in the fiscal second half, but also mentioned recent consumption trends been pointing to a low single-digit decline expected in the second quarter. What's driving the fiscal second half inflection? Or is it really just easy year-ago comps and do recent consumption trends that you mentioned sort of give you any pause, particularly in light of the planned tactical pricing actions that you're taking? And I guess, to what do you attribute the recent consumption weakness?

All right. Good morning, Andrew. Let me tackle that in reverse order. First, I wouldn't overly read into any recent consumption trend data. To the degree you saw any softening at the end of Q1 that was tied primarily to the 2 things I mentioned in my prepared remarks, which is the shift of a major Angie's BOOMCHICKAPOP promotional event to Q2 and the initial planned elasticity effect of the inflation-justified pricing that we took on Duncan Hines due to cocoa costs. So that's kind of the Q1 concept.

This quarter, in Q2, some of our major frozen events are planned about a month or so later than a year ago based on our supply ramp-up. So pretty consistent with what we would expect in the full year just a little bit of a shift in timing. So not much else to really discuss there.

As for the basis of our expectations for further sales progress in the second half, it will be a combination of volume momentum on Frozen, where we wrap last year's supply constraints, plus continued volume momentum on growing businesses like Protein Snacks. And then you have to also add what I'll call, dollar momentum on inflationary businesses where we're taking price. That combination of factors reflects the horses for courses plan that we built. And what I mean by that is we are investing to drive volume in Frozen and Snacks, while maximizing cash via inflation-justified pricing in staples.

Got it. And then fiscal first quarter came in ahead of expectations. Fiscal second quarter was moderated a bit in terms of your outlook. Net-net, do you see fiscal first half as potentially coming in a bit better than originally planned? And then Dave, how much was the benefit from trade expense timing to organic sales growth in the quarter?

Yes, Andrew. So taking the last part first, it was about 50 basis points of benefit in Q1, the trade timing and then that will flip to Q2. So 50 basis points in terms of sales. So in terms of first half, I would say, given the kind of the flip and timing of that, given the fact that Q1, we had some benefit in inventory, where we delayed some of the tariff costs and now they're going to be coming in Q2.

I would say, generally, we're still on track with our original plan for the first half. There's kind of different pieces. We talked about in our guidance, we're a little favorable in interest expense, but our tax rate is a bit higher. So there's obviously some puts and takes. But I think we're pretty much on our first half plan.

Yes. And I would say, Andrew, that what I was looking for this quarter really were 2 things. #1, can we get the service issues behind us and getting to 98% check. I'm feeling good about that. And second, once we did that and could start to resume our merchandising activities and rolling out our innovation are we getting the consumer takeaway, and are we seeing inflection on key businesses and check, we saw that.

So the consumer is certainly not out of the woods yet. We're still seeing value-seeking behavior. We're still having to deal with inflation and tariffs. But after 1 quarter, I think we're feeling good about the setup for the balance of the year.

Our next question comes from Peter Galbo from Bank of America.

Sean and Dave, I just wanted to maybe touch on the updated core inflation outlook that you gave. I know you talked about some of the moving pieces within kind of the Animal Proteins. But maybe you can just remind us, a, kind of how your bought for the remainder of the year on some of those items? Are you kind of locked in now for the rest of the year, just given that some of these cuts are very volatile that have moved, particularly chicken over the past month has maybe moved more favorably. So just want to understand the flex in that inflation guide as we get in the back half?

Yes. So Peter, our original guidance, our overall inflation was approximately 7%. That split 4% kind of core inflation and then 3% gross tariffs. Then we had mitigation, obviously, on tariffs of about 1% to 1.5% on that. And then we have our productivity, which helps us offset our core inflation.

As we've gone through this quarter, we're seeing more pressure on the core inflation. There's been a little bit of movement on the tariffs. But generally, that's immaterial. So the 3% gross tariffs we estimated at the beginning of the year about are the same. The increase in the overall inflation for the year is really coming from the core inflation, and that's really driven by the Animal Proteins.

And so particularly beef, pork, turkey and then, to some extent, eggs, relative to our original forecast. To your question about kind of where we are from a kind of overall coverage perspective, for Q2, we're about 85% covered. Certain commodities are fully covered, but then the Animal Protein, which has been a pressure point, that's more spot market overall.

We do take positions and freeze them, so we have capability to add coverage through freezing proteins, but generally, that's more market and spot based. And so about 85% covered Q2. And then for the full year, 60% to 65% coverage overall. But again, those proteins were exposed. If there's additional inflation or if the inflation moderates, we'll see a benefit from that.

Great. Very helpful. I wanted to pivot maybe to the balance sheet and the cash flow, Dave. I know you called out that there would be some debt down in the quarter. I've gotten a few questions this morning just on the cash flow generation in the quarter. It was a bit maybe lighter than expectations than some of the inventory build. So maybe you can unpack both the debt paydown, how we should think about that in 2Q and the remainder of the year? And then just anything around kind of inventory build that happened in the quarter?

Sure. So let me kind of start from the top. When we gave our guidance we had forecasted that we would pay down $700 million in debt for fiscal '26. That's from both the proceeds from the divestitures as well as $100 million from cash flow from operations to pay down debt. So we're still on track with that.

Actually, we included in our materials that we're going to have additional favorability from the tax legislation. We are estimating that at $75 million. So we haven't built that into our specific free cash flow forecast yet, but that's clearly going to be a benefit.

As it relates to Q1, yes, we have -- and this is just solely timing, we built more inventory in the first quarter because remember, we were coming off supply disruptions. And so we had to get back to service levels. So that was a priority. We built our inventory, so our normal seasonal build affects Q1, then we leaned in to make sure we had the right safety stocks on the areas, where we had disruptions. And so you normally will see that in Q1. It's a little bit more. So our inventory on hand, we have more days on hand, but that's been planned, that's timing, and we still feel comfortable about our full year forecast as it relates to inventory.

So I would say we are on track. Q1 is the normal build. And in the first quarter, our net debt is down about a little over $400 million versus where we finished at the end of fiscal '25, and as we said in the comments, on a rolling 12, we've reduced our net debt by $1.1 billion. So we feel really good about cash flow generation, both where we are and how we're forecasting it for fiscal '26.

Just one other piece of perspective on that inventory build. Several of the peers in center store grocery have really struggled in the last year to generate consumer pull against their brands, even when investing. We have not had that problem. So you may recall we had 6 or 7 quarters of straight line top-line improvement as we invested -- in the pursuit of volume last year, and we returned to growth in Q2. So we've got clear evidence that the brands and the innovation are working for consumers.

But we ran into the supply interruption, and we had to pull a lot of our merchandising. So now that we've got service levels back, armed with that confident that we can generate consumer pull because of these products, we are absolutely convinced, having inventory in place, so we don't fall out of stock again and fail to keep up with consumer demand, particularly going into holiday season is absolutely the right thing to do.

Our next question comes from Tom Palmer from JPMorgan. [Operator Instructions] And just to confirm the speaker room. Are you able to hear me?

Yes. We can hear you. It looks like we've got Palmer #2 in the queue. So why don't we go there and we'll come back to Tom in a bit.

Our next question comes from David Palmer from Evercore ISI.

Okay. Frozen entrees, obviously, it's been a great long-term category for Conagra. Just looking at the recent data. And I know there's reasons for this, maybe some overhang, some of the past supply chain stuff. But wondering what is your state of the union with that category?

It looks like you guys are losing share and the category is declining for years, you guys were driving the majority of growth in the category that was oftentimes growing at least a little bit. So I wonder what your Frozen outlook is, frozen entree in particular, outlook is through the rest of the year? And I have a quick follow-up.

Sure. All right, David. Our outlook is positive. The simple way to think about Frozen Meals is the category goes as Conagra goes. That's been the rule for the last 7 or so years. When we didn't innovate back in the day, the category didn't grow, when we committed to innovating Frozen, the category grew steadily for a long, long time.

So including, by the way, in our Q2 last year, I think our Frozen business was up in the ballpark of 3%. So we're coming off of a back half of last year, where we had major service interruptions in that business. We walked away from major merchandising and that hands our merchandising to competitors, who then get in the plans, customer plans for a period of time, while we're working to get service levels back. That contributed obviously to us being a shared donator, which is the first time that's happened in years and years and years, but that's obviously a temporary phenomenon tied to our supply interruptions.

So what you're seeing now is our innovation is rolling into the marketplace. Our service levels are back to 98%, and we're getting kind of back in the queue on these major events and feel extremely bullish about it. We've got some absolutely fantastic innovations that we rolled out last year that were interrupted. We're rolling out new ones this year, and they're already off to a particularly strong start.

I will draw your attention to the new Dolly Parton frozen meals and frozen desserts, that are new in the marketplace and performing extremely well. And what's encouraging about that as well is they're not only performing well. That's a premium price product. So that's a good mix for us, too.

So I have tremendous confidence in our Frozen business to win in Frozen, you got to have scale and you've got to have an innovation machine, and we've got the best in the business. So we're looking forward to continued momentum on that business as we go through the year and wrap some of the weak spots in the last year second half.

And just a very general big picture question. You're going to have those easier comparisons in the second half of the year, and you're going to be more on your front foot. I'm wondering what are some -- I don't know, if there's an exact metrics you can share, but what are the things you're going to be looking for in the second half that will really tell you that you get back to balanced sales and profit growth in fiscal '27, if that is -- the goal here is to get back to it on Algo in '27. What would kind of let you know you're there, not clearly growing against some of these comparisons may not be enough for that. So perhaps give us a sense of it, what you think would be good enough in the second half to show us, you're really on track again?

David, you once had a good piece of wisdom for me and said your hero businesses got to be heroes, meaning Frozen & Snacks need to grow. And I think that is well said. I think for this company, Frozen & Snacks are clear growth categories. It represents about 70% of our retail business. We've had tremendous momentum on both of those businesses leading up to the supply challenges we had last year. And by the time we exit this year, I want to see real momentum and inflection on those businesses. We've already got it within the key strategic snacks businesses.

For example, Slim Jim, right now is tracking really well. Sea-store is coming back, that's very encouraging. And our new innovation on Slim Jim, which is our new Buffalo Wild Wings, Buffalo Chicken Slim Jim is performing really well out of the gates. That's a very positive sign.

On Frozen, it's all about getting back in the queue on merchandising events with customers and then making sure that it's innovation that we work so hard to build performs. And so far, it looks good. So those businesses with a positive trajectory as we move through the year, I think, is a very, very positive sign for next year, when we've got some of these margin clawback opportunities in front of us. So that will be a combination of good looking top line and an improving gross margin line as well, and I'm looking forward to that.

Our next question comes from Bryan Adams from UBS.

Maybe just first a quick housekeeping one, following up on David's question there. So 1Q volume performance for Refrigerated & Frozen came in a lot better than I think maybe scanner trends would have suggested. And I think in the prepared remarks, you said volumes for Frozen itself were up like 3% or so. Was there any like elevated shipments in the 1Q as you were finishing up restoring supply shelf? Or is this pretty consistent with that the consumption trends that you were seeing?

Bryan, the 3% number that was -- I was referring to Q2 last year, when we -- Frozen was back growing strongly in Q2. So shipments were a little bit ahead in the quarter, which is pretty typical at a time when you've been out of stock and you're kind of replenishing.

I wouldn't overthink this because if you look at our company on kind of a rolling 4-quarter basis, shipments and consumption are almost always equal. So for us, it doesn't really amount to much. So I wouldn't overthink that piece. Anything to add to that?

The only thing I would say just if you're -- just really looking shipments to consumption within the quarter for R&F that Hebrew, obviously because prior year shipments were really strong. So there's a little bit of benefit shipments versus consumption related to Hebrew within Q1 for R&F.

Awesome. Yes, not my best reading comprehension, I guess. On the margin clawback opportunities that you just actually spoke to. Can you kind of just like run through those high level for us as we think about '27? Because some of the stuff -- like some of the costs you've had this year, like tariffs, like that's not necessarily something you can assume goes away, but then I also know you have some work in process on the chicken and then I'm not really sure the puts and takes on SG&A. Do you mind just running through those, Sean, as you've seen today?

Sure, absolutely. Yes, I'll tick off five things that I mentioned last quarter that remain intact. It starts with productivity. So in fiscal '26 this year, between core productivity and tariff mitigation, that number is just over 5%, which is very strong. And by the way, Q1 came in right in -- above that level, which is a super strong quarter. So that will continue supply chain team is doing a nice job.

Second, at some point, we're going to get inflation relief. Somebody mentioned proteins a little bit ago, hopefully back closer to our typical 2%. If you look back 100 years as we have, any time we've had these kind of runaway inflation cycles like this, there's always been relief on the other side of the hill. So at some point, that will happen. We obviously can't call exactly when.

Third, the advancement of our supply chain resiliency investments, including the chicken plants will enable us to repatriate some of that outsourced production going forward at lower cost.

Fourth, we are taking pricing in certain categories. So after you get past the initial lag of inflation hits and you wait 90 days or so to get pricing in, you get -- start to get the benefit of that.

And then fifth, I mentioned last quarter, we were kicking off an ambitious initiative to reengineer our core work processes, leveraging technology, including AI, we have kicked that work off to accelerate growth and lower costs. We'll have more to report on that going forward, but that's an exciting possibility. So between those actions and our ongoing efforts to reshape the portfolio for faster growth and better margins, we do expect good margin expansion following fiscal '26.

Our next question comes from Robert Moskow from TD Cowen.

I have a phasing question about 2Q volume, Dave and Sean. Just looking at comparisons versus a year ago on volume. And it would appear that the volume growth comp would get tougher in 2Q compared to 1Q, because of the Hebrew comparison and also because you had a lot of frozen vegetable volume in 2Q. So should I assume that volume growth is -- or volume declines are similar in 2Q as in 1Q because of those comps? Or is the merchandising activity enough to provide some sequential improvement in volume?

Rob, this is Dave. We have obviously a ton of brands. And so there's a lot of moving pieces, a lot of dynamics on merchandising. Generally speaking, the volume that we had in Q1 should be similar in Q2. And when you net it all together for total company.

In terms of growth...

In terms of volume year-on-year growth.

Yes. And just for perspective, Rob, on the year-to-go basis, we had strong investment profile and merchandising last year, we had to pull back on some of that in the second half. We have a very strong investment in merchandising behind this innovation for the year to go period as well.

And as I mentioned, some of those innovations, we just are getting growing now are already performing quite well. So we're looking forward to that. And you saw in the promotion chart I shared in the prepared remarks that while we've -- we've had some of the merchandising restored in Q1. There is room to go as we move through the back half of the full year.

Our next question comes from Megan Clapp from Morgan Stanley.

I wanted to start with maybe a follow-up, Sean, to Andrew's second question at the beginning just around how the quarter played out and how you're tracking so far. You made a comment last quarter that you view the fiscal '26 guidance prudent given the operating environment. And you talked about a lot of encouraging things that you saw in 1Q. At the same time, consumer sentiment suite. You talked about value-seeking behavior, cost inflation is a bit higher.

So just putting all those puts and takes together, I guess when you think about the fiscal '26 guide today, you reiterated it. Would you still characterize it as prudent and maybe where is the guide in your mind, the most conservative?

Well, I think it remains prudent. As I mentioned to somebody this morning that. The 2 things I was really looking for in this quarter is we got to get service back, right, because we had a lot of momentum that momentum was very materially interrupted in the back half of last year because of service, and we've got confidence if we get service back, we will get the consumer takeaway. And so we got service back to 98%. That's good.

And the fact that the innovation is off to as stronger start this year, actually stronger than what we had last year. So we had a very strong innovation performance last year in terms of not only customer acceptance, but the velocity of that innovation right up to the point, where we pulled our merchandising, particularly in Frozen, and so it's good to see the innovation out of the gate this year performing even higher level in terms of units per store per week, velocity, things like that. So that's a positive.

And between that and the plans we've got calendared-out for the balance of the year, I think the outlook is prudent and we're pretty optimistic about building that momentum that I talked about with Dave Palmer a few minutes ago as we moved through the year.

Specifically, this is a horses for courses annual operating plan that we built. There are some businesses where we've planned out the year to invest to drive volume growth, specifically Frozen & Snacks. We're seeing movement in the right direction there. I expect to see more of that as we get to the back half.

There are other businesses that we are facing more acute inflation because of things like tinplate tariffs, where we're taking more inflation justified pricing, there it's of dollar. So between the volume plans that we've got and the dollar plans that we've got, I think it comes together and puts us in a prudent position.

Okay. Great. And that's a good segue to my follow-up, which is as you think about implementing tariff-related pricing, which I think you said will come on late in the second quarter, have your views on elasticity and the expected elasticity change at all? Just given you're still seeing some value-seeking behavior with the consumer. And if we just think bigger picture around the macro, the consumer is going to be seeing a lot of -- it seems like inflation-driven pricing start to roll in around the same time.

Good question. We track elasticities weekly, and we've kind of built-in historical elasticity expectation in categories as we build the plan. Specifically, what we've seen is within categories. Conagra average elasticity is a bit better than our competitors across channels.

And then further at a company level, if you look at just total pricing versus total volume change, you'll also see that our elasticity has been a bit better than most peers over the past year. So I don't feel like we are assuming anything heroic in terms of elasticities going forward, even in the face of the pricing actions that we've got.

Our next question comes from Max Gumport from BNP Paribas.

Sean, I'm curious for an update on the value-seeking behavior that you're still seeing. It's been a few years now. So I'm just wondering how you see this cycle playing out and how you're positioning Conagra to come out of this cycle in a better place?

Yes. I mean it's -- I think you're probably hearing the same thing from just about everybody in consumer packaged goods on this is -- it is kind of this barbell economy, where you've got higher income consumers and that are showing more resiliency and they're still spending. You've got lower income consumers across different age groups that are being more discerning. They are absolutely doing what they've got to do to kind of maximize their household balance sheet. So we've got to deal with that.

But clearly, there is more value-seeking behavior that is evident in the lower income group. So our job is to give those consumers the value they're seeking. And with the portfolio scope that we have, there are a lot of great value choices, and that's a big part of why sales are improving and so our shares. So going forward, we'll continue to put that value lens on our innovation and marketing effort because it matters. And you weren't seeing this kind of behavior. I think you look at our innovation slate over the last 10 years, you've probably seen it skewed toward more premiumized products.

But when you have a large cohort of consumers that are value oriented, you take a different lens around your innovation for both price pack architecture and the kinds of innovation that you want to deliver. Why? Because the benefit of superior relative value is a benefit that's going to move the sales line. And so you should imagine that we not only have a good slate of great value offerings already out there. It does inform our innovation pipeline going forward to make sure that we've got products that are very provocative, not because of maybe an ultra-premium benefit, but because of a value benefit.

Great. And then as a follow-up, it was nice to see service levels get back to 98% and then that enabling a recovery to some degree, in quality merchandising and improved volume share performance as well. As we look to the remainder of the year, is there any color or guardrails you could provide on how you expect your promotional levels and your volume share performance to progress from here?

Yes. I'll point to some data that I shared last quarter, which is if you look across the group and specifically the near-end kind of center store peers, what you've seen is that promotional levels in terms of percent of total volume sold on promotion has kind of migrated back to just about pre-COVID levels. It's uncanny. It's almost pre-COVID levels company by company.

And so we're a little lower than that because we're so -- we're recovering from supply interruptions, but moving back toward that. But I have not seen promotional levels go above that kind of pre-COVID norm. So that's a positive sign, I think.

And then the second metric we track is kind of depth of discount. Are we seeing this more broad-based desire to have a return to volume growth now lead to deeper discounts. And the answer is no. We've not seen that, and that's been that way for several quarters running. And I think that's positive because I think what it shows is that it's a rational environment. Everybody is, to some degree, investing margin in the service of volume.

And I think that kind of keeps your feet on the ground here. So it's been a rational environment, and I think there's room for us to do more in terms of [ merch ]. We moved back in the right direction, but we're not back to where we were, but obviously, do it in a very rational way. So that's our intent.

Our next question comes from Scott Marks from Jefferies.

Sean, Dave. First thing I wanted to ask about coming back to some of the recovery of the supply chain disruption from earlier this year, you've spoken about, obviously, recovery in your own service levels, rebuilding of your own inventories as well. Wondering how you're seeing it from the retailer side? In terms of their inventory levels relative to where they were prior to the disruption on Frozen Vegetables and some of the chicken products.

Good question, Scott. It's probably not a lot of drama in the answer, though. We're not seeing anything particularly noteworthy. So I would say pretty typical and nothing I can report that would really be of any real news. Anything you'd add to that, Dave?

No. When we use the term service levels, there's very specific metrics in terms of where they are with their levels and inventory. And so customers are kind of back where they need to be, generally speaking.

Got it. And then a follow-up question just on some of the chicken facility modernization I know you made the comment that you're still expecting the bake chicken facility to be completed in Q2. I think you're still working through a fried chicken modernization that's a little bit later.

How should we be thinking about maybe cadence of recovery of the margin, let's say, I know you spoke about some benefits in H2, but just trying to gauge how we should be thinking about the restoration of margin from that perspective?

Sure. Well, the baked chicken project is that's the one we kind of started with. So that's far along. And then the fried chicken is kind of a newer development because the demand for fried chicken has just exploded in the last couple of years, and we had tremendous success last year with our Banquet MEGA Filets.

So that's an investment that will go on a little bit longer. And in the meantime, it will be an investment that moved some of that production out of house, which has kind of a double whammy in that we lose the absorption of not producing it ourselves and we pay a tolling fee for that. But that will correct as we go forward as well.

So baked comes on first in terms of the benefit and fried will follow that. I mean the good news here is -- we sell a lot of healthy meals in Frozen. And these days, the ones that contain protein are the ones that not surprisingly people are really buying. Unfortunately, it's also been the inflationary part of the basket.

So we've got -- that's where we had a decision to make in terms of what are we after short-term volume or margin? And we fundamentally believe that the best thing for future cash flows of our Frozen business is to keep that consumer pull strong and keep our market share strong, and that's why we're investing some margin in the short term to really get that volume cranking.

And our next question comes from Tom Palmer from JPMorgan.

All right, a third Palmer on the call. I wanted to just ask on the timing of inflation and kind of how it plays out over the course of the year. It's -- I think from the materials, it seems like to start off the year, maybe it was a little bit favorable to that kind of 7% plus. Is 2Q just given what we're seeing with protein maybe heightened or just, I guess, any help in kind of the cadence over the next 3 quarters as you see it today?

Yes, Tom, it's Dave. The Q1, the real favorability there was for tariffs and timing on tariffs. The core inflation was kind of where we thought it would be actually a little bit -- tad bit higher. So when you kind of look at Q2 through Q4 and you look at overall inflation, it's pretty consistent from a percentage perspective to the full year guide of slightly above 7%. There's no material change in the year-on-year percentage of the inflation.

Understood. And then, Sean, I just wanted to kind of clarify, I guess, one item, and I know it's been asked about already a little bit, but -- it seems like you are seeing benefits from promotional activity, but at the same time, as you have kind of taken some pricing initially, maybe you noted a little bit lower elasticity than you might see in the past.

I mean, look, I get some of this is maybe we're talking about different products, where these 2 are applied. But I guess in the current environment, are you guys kind of baking in that 1 of these 2 sides shifts a little bit to converge?

I think what we're baking in, Tom, is that as we roll out our innovation and our marketing support, including our advertising and our major merchandising events, click, we're going to have the kind of consumer pull that we've seen in the past. So that's on the more volume-oriented businesses.

And then on the more dollar oriented businesses, I think we've baked-in a historically accurate elasticity level. Usually, that's around a minus 1. And we have not seen any elasticities to suggest that, that is an overly optimistic point of view at all. So I think in total, the outlook for both sides of the horses for courses concept is that it's prudent. And I expect good consumer response in the areas where we're investing to drive volume on Frozen & Snacks as the year progresses.

And I expect there will be an elasticity effect on canned goods and some other things that we're taking price on, but they'll be -- they should be fairly predictable effects consistent with history.

Ladies and gentlemen, at this time, we'll conclude today's question-and-answer session. I'd like to turn the floor back over to Matthew Neisius for closing remarks.

Thank you, Jamie, and thank you all for joining us today. Please reach out to Investor Relations with any additional questions. Have a great day.

And ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.

Good morning. Thank you for listening to our prepared remarks for the Conagra Brands First Quarter Fiscal 2026 Earnings. At 9:30 Eastern this morning, we'll hold a live separate 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.

I'm joined this morning by Sean Connolly, our CEO; and Dave Marberger, our CFO. We will be making some forward-looking statements today. 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'll now turn the call over to Sean.

Thanks, Matthew, and good morning, everyone. Thank you for joining us today for our first quarter fiscal '26 earnings call. Let's begin on Slide 4.

Our first quarter performance demonstrated that we're on track with our priorities across our portfolio. Our strength in top line and improved market share reflect the resilience of our brands and the work we've done to restore service levels. We executed well against our frozen, snacking and staples strategies. Our supply chain delivered on key objectives, and we successfully completed our Chef Boyardee and frozen seafood divestitures using those proceeds to reduce net debt.

As we look to the balance of the year, we expect inflationary pressure and weak consumer sentiment to persist. We remain focused on strong execution and operating with agility to drive sustainable success, including maintaining a disciplined approach to capital allocation. Amidst this evolving landscape, we are reaffirming our fiscal '26 full year guidance.

Today, I'll walk you through our Q1 performance and provide an update on our outlook for the remainder of fiscal '26 as we continue navigating a dynamic operating environment. Let me start by unpacking our Q1 consumption performance. As you've heard us discuss in prior quarters, we've been strategically investing behind our brands to drive volume recovery in the face of a challenging consumer environment.

This slide demonstrates the continued effectiveness of our investment playbook. Q1 consumption trends in both volume and dollars improved meaningfully over Q4 fiscal '25 levels as we recovered from supply chain issues impacting our frozen meals containing chicken and frozen vegetable businesses. The service recovery efforts we've been focused on are clearly translating into improved in-market performance.

On Slide 8, you'll see 44% of our portfolio held or gained volume share in Q1, an improvement relative to Q4 fiscal '25. We're getting products back on shelves and consumers are responding.

Turning to our frozen domain on Slide 9. Our frozen portfolio delivered solid progress. Volumes improved 3.2 points in Q1 compared to our Q4 fiscal '25 growth rate, aided by our service recovery. We're particularly pleased with our share gains across key categories with frozen vegetables, frozen meals and frozen prepared chicken all up in the quarter. Part of what's enabled this frozen performance is our restoration of quality merchandising activity.

Last quarter in Q4, our volume sold on promotion was down 25% compared to the prior year. However, we made significant progress closing that gap this quarter in Q1, trailing the prior year by only 10%. With our supply issues now behind us, there is still some room to go as we approach more normal levels of brand support. And encouragingly, we continue to see a rational environment in terms of depth of discount, which has remained consistent for Conagra since fiscal '24.

Moving to our snacking domain on Slide 11. Our snacks business performed in line with expectations. We saw strong volume in our strategic protein snacks categories with meat snacks up 4% and seeds up 2%. And as expected, we experienced discrete impacts from merchandising timing shifts in Salty Snacks and pricing-related elasticity in Sweet Treats. Specifically, Angie’'s BOOMCHICKAPOP declined 19% due to a shift in promotional timing to Q2, and Duncan Hines saw a volume decline of 8% due to elasticities following our inflation-driven cocoa pricing actions.

When you look at the total snacks picture on Slide 12, even with our pricing actions and promotional timing shifts, our volume performance slightly exceeded the categories in which we participate. In addition, our dollar growth was strong at plus 2.2% versus plus 0.5% for our categories, reflecting the benefit of our strategic pricing actions and favorable mix.

Turning to Slide 13. In our Staples portfolio, Hebrew National had a strong recovery as we lapped our out-of-stocks in the year ago period. Additionally, we are gaining volume share in categories such as chili, tomatoes, and refrigerated whipped toppings. We continue to see value-seeking behavior from consumers that has impacted this domain, but we remain focused on managing our margin levers, including the steel inflation-driven pricing that we expect to implement late in Q2.

Moving to Slide 14. Our supply chain performance was a key success story in Q1. We were highly focused on our service metrics, and we're extremely pleased with the results. We achieved 98% service levels, ensuring our products are on shelves and available for our consumers. In addition, we delivered strong productivity gains in excess of 5% of cost of goods sold. We've made good progress in both our core productivity programs as well as our ability to navigate the volatile tariff environment, which Dave will discuss shortly.

And last, we remain on track with our supply chain modernization efforts, including the baked chicken project that will be completed in Q2.

Turning to Slide 15. We successfully completed our Chef Boyardee, Van de Kamp's and Mrs. Paul's divestitures in Q1. We used the proceeds to reduce net debt by more than $400 million in the quarter. Now let me shift to our outlook for the remainder of the year. Looking ahead, we continue to navigate a challenging environment as we're still dealing with persistent inflation and tariffs, both of which have drifted higher than our original expectations.

Our previous outlook for core inflation was approximately 4%, but that has moved slightly higher, primarily due to increased costs in animal proteins, such as beef, pork and turkey. On tariffs, while we still expect our gross exposure to be approximately 3% of cost of goods sold, changes to country-specific tariff rates have nudged our estimate higher. Our larger exposures to steel, aluminum and China-related tariffs are unchanged. Combined, our total inflation was previously approximately 7%, but has now nudged higher to be in the low 7% range. Against that backdrop, consumer sentiment remains weak, and we still see value-seeking behavior.

We continue to focus on a balanced approach to capital allocation. Slide 18 shows we're investing in the business with approximately $450 million in CapEx planned for this year, in line with our initial expectations. We're also returning capital to shareholders as we expect to maintain our $1.40 annual dividend rate.

As always, we continue to look for ways to sharpen and strengthen our portfolio as proven by our recent divestitures. And as I mentioned, we reduced net debt, a key focus area by over $400 million in Q1.

Turning to Slide 19. Our strategic priorities for the year remain unchanged. We're focused on growing frozen and snacks. We're increasing investment in supply chain resiliency. We're implementing targeted pricing, largely in our canned products, but also on select Sweet Treats within our snacks portfolio, where we're dealing with sustained cocoa inflation, and we're highly focused on delivering strong productivity and cash flow.

Overall, we're encouraged by our performance in Q1 and the improvement we've seen in our top line. Today, we're reaffirming our fiscal '26 guidance outlined here on Slide 20. For fiscal '26, we continue to expect organic net sales growth of negative 1% to positive 1%, adjusted operating margin of approximately 11% to 11.5% and adjusted EPS of $1.70 to $1.85.

With that, let me turn it over to Dave for more financial details.

Thanks, Sean, and good morning, everyone. Slide 22 shows our financial results for key metrics in the quarter. Conagra's organic net sales were $2.6 billion, a 0.6% decline versus the prior year. Adjusted gross margin of 24.4% and adjusted operating margin of 11.8% were both down versus the prior year, but slightly better than our initial expectations, which I'll unpack shortly. Adjusted earnings per share were $0.39, down $0.14 versus a year ago.

Slide 23 shows our first quarter net sales bridge. Total Conagra organic net sales decreased 0.6% over the previous year, with volumes down 1.2% and price/mix up 0.6%, partially driven by trade expense favorability that we expect to reverse in Q2 and favorable product mix.

Foreign exchange was a 10 basis point headwind and the divestitures of our Indian joint venture, Chef Boyardee, and frozen seafood businesses together had a 510 basis point impact.

Slide 24 shows the composition of net sales by segment. In Grocery & Snacks, we delivered net sales of $1.1 billion, representing a 1% decline in organic net sales versus the prior year, with lower volumes being partially offset by higher price/mix. Our Refrigerated & Frozen segment also delivered $1.1 billion in net sales with organic net sales up 0.2% versus the prior year as higher volumes were partially offset by lower price/mix. We saw strong volume improvement following a return to normalized supply as well as a benefit from lapping the prior year's constraints on our Hebrew National business.

In our International segment, organic net sales declined 3.5% versus the prior year as elasticity-related volume declines more than offset price increases in each of our regions. Organic net sales in our Foodservice segment returned to growth in the first quarter, increasing 0.2% over the prior year. Volumes improved versus Q4, benefiting from stabilizing commercial traffic trends in addition to favorable price/mix.

Slide 25 shows that adjusted operating margin declined 244 basis points over the previous year to 11.8%. Price/mix was a 20 basis point headwind, driven by unfavorable product mix, partially offset by select price increases across our segments and the favorable trade expense timing that I previously mentioned. Inflation remained elevated in Q1 at approximately 7%, inclusive of both core inflation and gross tariff costs.

Proteins remain the largest headwind as we continue to see double-digit inflation in areas such as beef, pork, chicken, turkey and eggs. Our productivity was strong in Q1, as Sean highlighted earlier. The combination of core productivity and tariff mitigation came in at over 5%. Tariff mitigation was favorable to expectations with inventory positions allowing us to offset more tariff costs than projected. Partially offsetting this was unfavorable operating leverage from lower internal production volumes. We remain on track to complete our baked chicken facility modernization in Q2, with the benefits of in-sourcing production being realized largely in the second half.

Adjusted SG&A, which includes advertising and promotion expense, was 50 basis points unfavorable to a year ago, primarily due to higher incentive compensation expense and slightly higher A&P spend, in line with our expectations.

Our segment adjusted operating profit and margin results are summarized on Slide 26. Grocery & Snacks adjusted operating margin declined 97 basis points as favorable price/mix was more than offset by higher inflation and adjusted SG&A, inclusive of A&P. Refrigerated & Frozen adjusted operating margin declined 402 basis points, primarily driven by elevated protein inflation as well as by transitory sourcing and absorption headwinds related to our supply chain modernization projects.

Despite the elevated input cost pressure we're facing, our priority of investing margin to drive volume in frozen remains unchanged. International adjusted operating margin improved 394 basis points, driven by price increases and favorable FX comparisons to a year ago.

And finally, Foodservice adjusted operating margin declined 269 basis points as price increases and productivity were more than offset by higher inflation and unfavorable mix. The adjusted EPS bridge for the first quarter is shown on Slide 27. Adjusted EPS was $0.39 in the quarter compared to $0.53 a year ago, driven by lower adjusted operating profit, a higher adjusted tax rate and reduced profit from divested businesses, which more than offset higher pension income, lower interest expense and favorable foreign exchange rates.

Key balance sheet and cash flow metrics are shown on Slide 28. During the first quarter, we utilized our divestiture proceeds to reduce net debt. Compared to the year ago period, we've reduced net debt by nearly $1.1 billion and ended the quarter with net leverage at 3.55x, a slight improvement versus both a year ago and last quarter. We remain committed to a balanced capital allocation as we target long-term leverage of 3x.

Capital expenditures totaled $147 million and dividends paid were $167 million for the quarter, both largely in line with the prior year. As expected in Q1, free cash flow was impacted by our seasonal working capital build in addition to rebuilding inventory from our recent supply constraints. We also repurchased $15 million of shares during the quarter to offset dilution from our share-based incentive compensation plans.

As Sean mentioned, we are reaffirming our fiscal '26 guidance for key metrics shown here on Slide 29. We continue to 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 $1.70 to $1.85 per share.

Slide 30 provides a bit more color on our expectations for the second quarter and the full year. For the second quarter, we expect organic net sales to decline low single digits, driven by recent consumption trends and a shift in trade expense to Q2, which was formerly expected to impact Q1. From a profit perspective, we were able to mitigate a large portion of our tariff costs in Q1 than we initially projected. However, in Q2, we expect our net tariff cost to be higher than Q1 as we have largely utilized pre-tariff inventory.

With this, in addition to the trade timing mentioned earlier, is expected to result in Q2 operating margin moderately below our full year range. For the full year, we continue to expect organic net sales growth in the second half as we wrap supply constraints in our frozen business from last year and our pricing actions take hold, partially offset by pricing elasticity impacts.

As discussed, we now expect full year inflation in the low 7% range. This is slightly higher than our original projection of approximately 7%, with the modest increase to be largely offset by higher productivity and tariff mitigation, inclusive of the amount mitigated in Q1.

We continue to expect A&P at approximately 2.5% of sales and adjusted SG&A, excluding A&P at approximately 10% of sales for the year, both unchanged versus our prior expectations. And last, we expect our fiscal '26 cash tax payments to be favorable to our prior estimates by approximately $75 million due to recently passed legislation.

And finally, turning to Slide 31, you can see our additional fiscal '26 guidance metrics. We now expect our full year tax rate to be approximately 24%, up from 23% due to the higher rate we saw in Q1 and interest expense to be approximately $390 million, down from our prior estimate of $400 million following the $1 billion of new bonds issued in July. Our expectations for each of the other line items shown remain unchanged.

That concludes our prepared remarks for today's call. Thank you for your interest in Conagra Brands.