Conagra's operating cash flow went negative last quarter. I walked the 10-Q line by line to see how bad that is.

Two weeks ago I posted a walk through Conagra's FY26 10-K and asked what the Q1 print would say about whether last year's cash was the floor. I also missed that they had already halved the dividend, which someone here caught. Q1 came out Wednesday, so this is the follow-up, and this time I read the release first.

Short version: operating cash flow was negative $4.2 million, against positive $120.6 million a year ago. That looks ugly, and it's the first negative Q1 I can find going back to 2016. But before working capital the business brought in more cash than last year. The whole drop is working capital.

The walk, from the cash flow statement in the 10-Q (13 weeks ended August 30). Net income was $174.3 million, up from $164.5 million. Add back depreciation and amortization of $97.9 million and stock comp of $14.3 million. Take out $32.2 million of equity-method earnings they booked but didn't receive in cash, and about $3.3 million of small items. That's $251.0 million before working capital. The subtotal is mine, not the statement's. A year ago it was $227.7 million.

Then working capital took $255.2 million, against $107.1 million last year. The big line is inventories at $248.6 million. They build inventory every summer, and last year's build was $207.4 million. Accrued payroll took another $102.9 million, against $29.9 million. That lands on negative $4.2 million. Less capex of $123.7 million, free cash flow was negative $127.9 million, against negative $26.2 million a year ago.

On top of that they paid $167.5 million of dividends, the last payment at the old $0.35, and bought back $44.0 million of stock. By my count net debt is up about $338 million since May. The release says it's down $193 million, but that's against a year ago. They issued $500 million of 5.40% notes, and $762.5 million of older notes come due this month, which the 10-Q says they'll pay with commercial paper and cash.

My read: one quarter doesn't settle the floor question. Last year started at negative $26 million and finished at $979 million. What gets closer is the guide they reaffirmed. Adjusted EPS of $1.40 to $1.50 with free cash flow conversion above 90% works out to roughly $600 to $650 million on about 480 million shares if they land right at 90%. That's my arithmetic, not their number, and 90% is a floor. It's still a third or more below last year. And leverage went from 3.83x in May to 3.99x now, with the guide at about 4.0x for year end. So the dividend was cut in half and leverage still isn't guided down this year.

What I couldn't resolve. The 10-Q says operating cash fell mainly because of litigation payments and lower operating profit, and I can't make that add up. Litigation is about a $38 million swing by my count. Operating profit fell $79 million, but $42 million of that is last year's gain on selling Chef Boyardee and the frozen fish brands, which was never operating cash. The two biggest swings are taxes, about $89 million, and accrued payroll, about $73 million. Taxes I can half explain: the tax note says they booked $62.8 million of tax on that sale last year, and my guess is it hadn't been paid yet at quarter end. Payroll is partly the comparison. That line falls every Q1, but last year's drop was the smallest in at least ten years and this year's is the biggest in nine. The filing doesn't say why.

Can someone check my walk? And if you know what's behind the payroll line, or how you read a $44 million buyback in the same quarter as a dividend cut, I'd like to hear it.