Conagra Brands begins strategic reset with dividend cut and higher reinvestment

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

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

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

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

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