ConAgra Foods, Inc. (CAG)
Q4 2009 Earnings Call Transcript
June 25, 2009 9:30 a.m. ET

Executives

Gary Rodkin – Chief Executive Officer
John Gehring –Executive VP & Chief Financial Officer
Chris Klinefelter – VP Investor Relations

Analysts

David Palmer - UBS
Bryan Spillane - Bank of America/Merrill Lynch
David Driscoll – Citi Investment Research
Jason English – JP Morgan
Edgar Roesch - Soleil Securities
Robert Moskow – Credit Suisse
Ann Gurkin - Davenport & Company
Chris Growe - Stifel Nicolaus
Alexia Howard - Sanford Bernstein
Andrew Lazar - Barclays Capital
Eric Serotta – Consumer Edge Research
Karen LaMark – Federated Investors

Presentation

Operator

Good morning and welcome to today''s ConAgra Foods fourth quarter earnings conference call. (Operator Instructions) This program is being recorded. My name is Jessica Morgan and I’ll be your conference facilitator. All audience lines are currently in a listen-only mode However, our speaker’s will address your questions at the end of the presentation during the formal question-and-answer session. At this time I''d like to introduce your host for today''s program, Gary Rodkin, Chief Executive Officer of ConAgra Foods. Please go ahead, Mr. Rodkin.

Gary Rodkin – Chief Executive Officer

Good morning. This is Gary Rodkin and I''m here with John Gehring, our CFO, and Chris Klinefelter, VP of Investor Relations. Over the next few minutes John and I will provide our views about the strategic, operating, and financial aspects of the quarter, but before we get started Chris will say a few words about housekeeping matters.

Chris Klinefelter – Vice President of Investor Relations

Good morning. During today''s remarks we will make some forward-looking statements and while we''re making those statements in good faith and are confident about our company''s direction, we do not have any guarantee about the results that we will achieve. So if you''d like to learn more about the risks and factors that could influence and affect our business, I''ll refer you to the documents we file with the SEC, which include cautionary language.

Also, we''ll be discussing some non-GAAP financial measures during the call today, and the reconciliations of those measures for Regulation G compliance can be found in either the earnings release today or on our website at www.conagrafoods.com under the Financial Reports and Filings link and in choosing Non-GAAP Reconciliations. In reference to the Regulation G, I will note that our reported diluted EPS from continuing operations of $0.39 has $0.02 of net expense from items impacting comparability as detailed in the press release, resulting in an EPS of $0.41 on a comparable basis for the quarter. On that same basis, the $0.17 of diluted EPS from continuing operations reported in the prior year quarter contained $0.01 of net expense from items impacting comparability, resulting in EPS of $0.18 on a comparable basis. Lastly, as detailed in the press release, Consumer Foods operating profit of $271 million was up 53% as reported and up 40% on a comparable basis.

Now I''ll turn it back over to Gary.

Gary Rodkin

Thanks Chris, and good morning. We’re very pleased to be able to report strong results today. As you see in the release we posted significant gains in profits for both of our segments this quarter. We told you that we expected a strong finish to the fiscal year and that’s exactly what happened. EPS from continuing operation more than doubled this quarter on a comparable basis and as reported reflecting very strong and balanced performance and also some benefit of an extra week. We have many bright spots in terms of brands, product lines, supply chain cost savings, moderating inflation, and SG&A cost focus all of which put us on a very strong foundation as we entered fiscal 2010.

Let me start with a few words about our consumer food segment. Volume was up 7%, sales grew at 14%, and operating profit improved 53% as reported. Profit was up 40% excluding restructuring charges last year. The extra week helped us at the top and bottom line but even after adjusting for that we posted strong results. I couldn’t be prouder of the turnaround our team has made in this segment. We posted this growth despite absorbing hedge losses, fighting foreign headwinds, and increasing marketing investments. The top line progress shows the traction we’re getting with this year’s innovation, specifically strong results from the frozen transformation we discussed earlier in the year which included great products from Healthy Choice, Marie Callender’s, and Banquet. To call out just a couple of these, our Healthy Choice Naturals line is a big win. Sales there are ahead of expectations.

We’re confident this is the right product for the target audience and the connection with consumers is very strong. Another significant win is Marie Callender’s Pasta Al Dente, Restaurant quality pasta offerings with the convenience of microwave cooking. This line uses our proprietary tray-in-tray steaming platform for perfect Italian cooking every time and the consumer and customer feedback has been fantastic. As an aside, I know there’s a fair amount of discussion out there about the competitiveness of the frozen category. Keep in mind that every day consumers buy more than three million of our frozen products and that we’ve gotten much better at monitoring and understanding what’s happening in the marketplace.

The promotional environment has remained tough. We commented earlier in the year on that, and it hasn’t significantly improved yet, and while we promote and merchandise with a disciplined ROI based approach to balancing the mix between volumes, sales, and profits, much more importantly our main approach to fighting through the challenges in the frozen category has been to bring real news to the category with powerful innovation and great marketing. That should be apparent from the examples I just described. Market shares for these new items are right where we had hoped they would be at this point. We achieved terrific acceptance on our new products from Healthy Choice and Marie Callender’s, where we’re seeing good velocities on these products as they hit the shelves. Our marketing behind the Healthy Choice re-launch has generated a lot of very positive feedback. I believe many of you have seen the commercials on TV and on the web. These funny and memorable pieces featuring Julia Louis Dreyfuss are a great demonstration of how far we’ve come in improving our marketing.

We also continue to make significant progress with Healthy Choice Café Steamers, and Asian Steamers, which are now more than $150 million in annualized sales and with shelf stable Healthy Choice Fresh Mixers. Consumer pull for our products is the lifeblood of our business and we’re really excited about the strength that many of our brands are showing. We have good takeaways from many other brands throughout the portfolio including Chef Boyardee, Orville Redenbacher’s, Snack Pack Pudding, Hebrew National, Hunt’s, Alexia, Peter Pan, Reddi-Wip, and others, as you see listed in our supplemental information. The key to our success with these brands is improved quality and smart and targeted marketing programs including an emerging strength in shopper marketing where we bring shopper insights to retailers for them to use customized in-store programs. As an aside, our Shopper Marketing program was just named the best of the best by a leading marketing publication, jumping from number nine to second place right behind P&G. There’s another key success factor I’d like to point out. As you’ve heard us say before we’re also very well aligned with the fastest growing channels in the industry, many of which are not tracked by syndicated data services. While we’re pleased that recent syndicated market share trends have improved, the story is even better across unmeasured channels.