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ConAgra Foods (CAG)
Q2 2013 Earnings Call
December 20, 2012 9:30 am ET
Gary M. Rodkin - Chief Executive Officer, President, Executive Director and Member of Executive Committee
Chris Klinefelter - Vice President of Investor Relations
John F. Gehring - Chief Financial Officer and Executive Vice President
André J. Hawaux - President of Consumer Foods
Paul T. Maass - President of Commercial-Foods Business
Andrew Lazar - Barclays Capital, Research Division
David Driscoll - Citigroup Inc, Research Division
Bryan D. Spillane - BofA Merrill Lynch, Research Division
Kenneth Goldman - JP Morgan Chase & Co, Research Division
Jonathan P. Feeney - Janney Montgomery Scott LLC, Research Division
David Palmer - UBS Investment Bank, Research Division
Akshay S. Jagdale - KeyBanc Capital Markets Inc., Research Division
Thilo Wrede - Jefferies & Company, Inc., Research Division
Ann H. Gurkin - Davenport & Company, LLC, Research Division
Eric R. Katzman - Deutsche Bank AG, Research Division
Robert Moskow - Crédit Suisse AG, Research Division
Christopher R. Growe - Stifel, Nicolaus & Co., Inc., Research Division
Alexia Howard - Sanford C. Bernstein & Co., LLC., Research Division
Previous Statements by CAG
» ConAgra Foods Management Discusses Q1 2013 Results - Earnings Call Transcript
» ConAgra Foods Management Discusses Q4 2012 Results - Earnings Call Transcript
» ConAgra Foods' CEO Discusses Q3 2012 Results - Earnings Call Transcript
Gary M. Rodkin
Good morning. Welcome to our second quarter earnings call. Thanks for joining us today. I am Gary Rodkin, and I'm here with John Gehring, our CFO; and Chris Klinefelter, VP of Investor Relations.
This morning, we'll talk about our strong second quarter performance, offer a few comments on the strategic rationale of the pending Ralcorp acquisition and then we'll open up the call for your questions. At that point, André Hawaux, President of Consumer Foods; and Paul Maass, President of Commercial Foods, will join us.
Before we get started, Chris has a few remarks.
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. If you would 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 to the most directly comparable measures for Regulation G compliance can be found in either the earnings press release, Q&A document or on our website under the Financial Reports and Filings link, then choosing Non-GAAP Reconciliations.
In regard to Ralcorp, I'll remind you that we are still some time away from closing and finishing our plans for an integration timetable. Many of the financial details will need to be shared at a later date. That will be after we close -- that will be after we close the transaction, of course, complete our planning work. We won't have any new details on those matters today, and we do look forward to updating you on those in the future.
Now I'll turn it back over to Gary.
Gary M. Rodkin
Thanks, Chris. I am very pleased with our second quarter, where we've posted good growth for both operating segments. EPS on a comparable basis was $0.57 for the second quarter, up 16%. The overall quality of the quarter was high, with strong profits even as we increased marketing investment for the base business by 18% as part of long-term brand building. We're raising our fiscal 2013 expectations to comparable EPS of at least $2.06, which includes a strong increase in marketing for the full fiscal year. That estimate does not include any fiscal 2013 benefit from the pending Ralcorp acquisition. That benefit will be determined after the transaction closes.
In terms of our operations, let me start with the Consumer Foods segment, where sales were up 11%, driven by acquisitions. Organic volumes were down 4%, and price/mix was favorable by 4%. On an unrounded basis, organic volume improved sequentially from Q1 by about 60 basis points. We expected overall organic volumes to be down given consumer purchasing trends in the still challenging economy and importantly, the pricing we took in recent quarters to combat inflation is also a factor. In addition, we have been very disciplined with our pricing architecture and, in some cases, we've deliberately chosen to improve profit margin instead of growing volume.
Acquisitions drove the overall sales growth, but several of our brands also posted good organic results. We expect volume trends to continue to improve sequentially throughout the remainder of the fiscal year as we more fully lap last year's price increases and as the benefit of the recent innovation, marketing and Customer Connect initiatives continue to accelerate.
Frozen, as you know, is a big and important retail category. We continue to innovate here, building on our strength in frozen single-serve meals and increasing our presence in strategic adjacencies such as multi-serve meals and desserts. We're also investing in more marketing in frozen to help bring more growth to the category.
With regard to the quarter, once again, the Marie Callender's brand performed well overall. Single-serve and multi-serve frozen meals showed very good growth in dollars, volume and share. The Marie Callender's Baked platform that allows the consumer to get oven-baked quality in much shorter time in a microwave is doing well, and we've taken that innovation to the Healthy Choice brand, and the baked entrées are doing well there, too.
We have a strong adjacency story in Marie Callender's dessert pies. We're off to a good start in the holiday season in terms of both volume and share, and our Healthy Choice Greek Frozen Yogurt, whether you look at that as a dessert or snack, has performed well since we launched that a few months ago.
In other parts of the store, Reddi-wip and PAM, both leaders in the marketplace, posted very strong growth in share, dollar and unit sales. PAM's innovative new no-residue recipe focuses on its strong competitive difference. We're communicating about that now on air, and it's clearly driving sales.