Conagra Brands, Inc. (NYSE: CAG) stock traded lower Wednesday after the packaged-food company beat Wall Street expectations for both earnings and revenue in its fiscal first-quarter 2027 results.

Net sales fell 1.4% year over year to $2.596 billion, beating the $2.589 billion estimate. Adjusted earnings rose 5.1% to 41 cents per share from 39 cents a year earlier, beating the 28-cent estimate.

However, organic net sales fell 1.1%, while adjusted operating margin declined 33 basis points.

Inflation Pressures Margins

GAAP diluted earnings rose 5.9% to 36 cents per share, while net income increased 6% to $174 million. Adjusted net income rose 4.3% to $197 million.

Adjusted operating margin fell 33 basis points to 11.5%, while adjusted gross margin declined 62 basis points to 23.8%.

Productivity gains and $4 million in tariff refunds helped results. However, inflation, lower organic sales and unfavorable operating leverage more than offset those benefits.

Advertising and promotion spending increased 15.1% to $61 million.

Foodservice Outpaces Retail Businesses

Grocery & Snacks net sales fell 2.6% to $1.1 billion, while Refrigerated & Frozen sales declined 2.1% to $1.1 billion.

International sales rose 2.7% to $218 million. Foodservice sales increased 3.2% to $273 million.

Foodservice adjusted operating profit climbed 11.4% to $31 million. Adjusted operating profit declined in Conagra's other three segments.

Equity-method investment earnings surged 71.8% to $50 million. Conagra attributed the increase mainly to favorable conditions and management of wheat-market volatility at its Ardent Mills joint venture.

Cash Flow Weakens As Debt Falls

Conagra used $4 million of cash in operating activities, compared with $121 million generated a year earlier.

Free cash outflow widened to $128 million from $26 million. Capital expenditures totaled $124 million.

Net debt ended the quarter at $7.4 billion, down $193 million from a year earlier. The company reported a net leverage ratio of 3.99 times.

Conagra Reaffirms Fiscal 2027 Outlook

Conagra reaffirmed fiscal 2027 adjusted earnings guidance of $1.40 to $1.50 per share, compared with the $1.45 estimate.

The company also maintained its forecast for organic net sales to decline 1% to 3% and adjusted operating margin of 10% to 10.5%.

Conagra expects productivity above 4% and plans inflation-related pricing around the middle of the second quarter.

For the second quarter, the company expects organic net sales to decline about 2%. It also sees adjusted operating margin in the high-single-digit range.

Higher logistics and fuel costs, increased advertising spending and the timing of selling, general and administrative expenses are expected to weigh on results.

Consumer Pressure, Freight Costs in Focus

During Wednesday's conference call, CEO John Brase said the company's pricing actions were being accepted as planned, with "no surprises" compared with expectations.

Management continues to model roughly 2-to-1 elasticity for the year, including about 1-to-1 in Grocery & Snacks. The outlook does not assume competitors will follow Conagra's price increases.

Brase also said the consumer is "definitely pressured" and that productivity remains the company's best tool to limit price increases.

CFO Dave Marberger reiterated expectations for second-quarter organic sales to decline about 2%. Thanksgiving timing and shipments that may run below consumption are expected to weigh on sales.

Conagra said inflation pressures are intensifying, particularly in transportation. Marberger said transportation inflation is running at roughly twice the rate the company had assumed for the year, more than offsetting some relief in protein costs. As a result, Conagra now expects full-year inflation to land toward the high end of its 5% to 6% range.

CAG Price Action: Conagra Brands shares were down 1.98% at $13.84 at the time of publication on Wednesday, according to market data.