Conagra Brands, Inc. CAG is seeing improving consumer demand across key categories, but profitability remains under pressure as elevated costs continue to weigh on margins.
In third-quarter fiscal 2026, the company’s adjusted gross margin declined 112 basis points to 23.7%, while reported gross margin contracted 141 basis points to 23.6%. Adjusted gross profit decreased 6.3% year over year to $659.5 million, while reported gross profit fell 7.4% to $657.7 million. The pressure on margins came despite the company’s return to organic sales growth during the quarter.
Organic net sales increased 2.4%, supported by a 1.9% improvement in price/mix and a 0.5% rise in volume. The company also gained volume share in categories, including frozen single-serve meals, frozen vegetables, frozen handhelds and appetizers, meat snacks, hot cocoa, seeds and pudding. However, the higher cost of goods sold inflation, unfavorable operating leverage and lost profit from divested businesses more than offset the benefits of higher sales and productivity gains.
The pressure was visible across segments. Refrigerated and Frozen, which has been central to Conagra’s volume recovery strategy, posted a 3.6% increase in organic net sales, though segment adjusted operating profit declined 15.4% to $104.8 million. Grocery and Snacks reported 1.8% organic sales growth, but adjusted operating profit fell 10.6% to $216.7 million. Adjusted operating margin for the overall company contracted 213 basis points to 10.6% in the quarter.
Image Source: Zacks Investment Research
For fiscal 2026, Conagra expects the cost of goods sold inflation to remain elevated at roughly 7%, including both core inflation and gross tariff expense before mitigation actions.
CAG’s third-quarter fiscal 2026 results underscored that recovery is becoming increasingly volume-driven, while margin recovery remains elusive. Although demand trends improved across frozen and snacks, elevated input costs and operating inefficiencies continued to erode profitability. The quarter showed that rebuilding sales momentum alone may not be enough if Conagra’s gross margins remain under sustained pressure.
Shares of this Zacks Rank #5 (Strong Sell) company have tumbled 37.6% over the past year compared with the industry’s decline of 24.9%.
Stocks to Consider
The Chef's Warehouse, Inc. CHEF, a specialty food distributor serving restaurants, hotels and hospitality customers, sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for The Chef's Warehouse’s current financial-year sales and earnings indicates growth of 8.3% and 24.7%, respectively, from the prior-year reported levels. CHEF delivered a trailing four-quarter earnings surprise of 28.9%, on average.
Darling Ingredients Inc. DAR transforms food and animal byproducts into sustainable ingredients for essential uses. DAR carries a Zacks Rank #2 (Buy).
The consensus estimate for Darling Ingredients’ current fiscal-year sales and earnings implies growth of 10.3% and 567.7%, respectively, from the year-ago reported figures. DAR delivered a trailing four-quarter earnings surprise of 16.1%, on average.
Tyson Foods, Inc. TSN operates as a leading protein company producing chicken, beef, pork and prepared food products. TSN currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Tyson Foods’ current fiscal-year sales calls for growth of 4.5%, while the consensus mark for earnings indicates a 0.5% increase from the year-ago reported figures. TSN delivered a trailing four-quarter earnings surprise of 18.1%, on average.
Zacks' Research Chief Names "Stock Most Likely to Double"
Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.
This top pick is a little-known satellite-based communications firm. Space is projected to become a trillion dollar industry, and this company's customer base is growing fast. Analysts have forecasted a major revenue breakout in 2025. Of course, all our elite picks aren't winners but this one could far surpass earlier Zacks' Stocks Set to Double like Hims & Hers Health, which shot up +209%.
Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Conagra Brands (CAG): Free Stock Analysis Report
Tyson Foods, Inc. (TSN): Free Stock Analysis Report
Darling Ingredients Inc. (DAR): Free Stock Analysis Report
The Chefs' Warehouse, Inc. (CHEF): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).