ConAgra Foods, Inc. (CAG)

CAG 
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Industry: Consumer Non-Durables
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ConAgra Foods (CAG)

Q3 2011 Earnings Call

March 24, 2011 9:30 am ET

Executives

Chris Klinefelter - Vice President of Investor Relations

Paul Maass - President of Commercial-Foods Business

John Gehring - Chief Financial Officer and Executive Vice President

Gary Rodkin - Chief Executive Officer, President, Executive Director and Member of Executive Committee

André Hawaux - President of Consumer Foods

Analysts

William Sawyer - Crédit Suisse AG

Alexia Howard - Sanford C. Bernstein & Co., Inc.

Andrew Lazar - Barclays Capital

Vincent Andrews - Morgan Stanley

Ann Gurkin - Davenport & Company, LLC

Terry Bivens - JP Morgan Chase & Co

Eric Katzman - Deutsche Bank AG

Eric Serotta - Wells Fargo Securities, LLC

Bryan Spillane - BofA Merrill Lynch

David Driscoll - Citigroup Inc

David Palmer - UBS Investment Bank

Presentation

Operator

Good morning, and welcome to today's ConAgra Foods Third Quarter Earnings Conference Call. [Operator Instructions] My name is Kerry Steeling, and I will be your conference facilitator. [Operator Instructions] 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

Good morning. Welcome to the call, and thanks for joining us. I'm Gary Rodkin, and I'm here with John Gehring, our CFO; and Chris Klinefelter, VP of Investor Relations. This morning we'll talk about the strategic, operating and financial aspects of the quarter and then take your questions. But before we get started, Chris will say a few words about housekeeping matters.

Chris Klinefelter

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'd like to learn more about the risks and factors that could influence and affect our business and cause our results to differ from expectations, I'll refer you to the documents we filed 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 directly comparable measures for Regulation G compliance can be found in either the earnings press release, the Q&A or on our website under the Financial Reports and Filings link, and then choosing Non-GAAP Reconciliations.

Now I'll turn it back over to Gary.

Gary Rodkin

Thanks, Chris. As you can see from the release, EPS from continuing operations was $0.50 as reported and on a comparable basis, up 16% over last year's comparable amounts from continuing operations. That's a change from what we saw in the first half of fiscal '11.

We expected this improvement, and we remain in position to deliver on our full-year guidance as we told you last month at CAGNY. All the work we've done, strengthening the foundation of the company over the past few years has put us in a position to better navigate difficult times like these. The insights we've developed in these challenging economic conditions, particularly over the last few quarters, have helped us develop realistic plans and a better sense of what to expect, as we go forward.

While this continues to be a tough business climate, we're taking the appropriate actions to work through it. And I'll say more about those actions in a minute.

Highlighting the segment performances. Organic sales growth in Consumer Foods was about flat year-over-year for Q3. Reported sales for that segment were up 2%, driven by our acquisitions. Sales in Commercial Foods were up 7%. Operating profit for each segment was up modestly versus last year on a comparable basis, again better than what we saw earlier this year.

I'll touch on the main points for each segment starting with Consumer Foods. Inflation pressures continue, and we're battling them with pricing actions underway, continuing supply-chain cost savings, reduced advertising and promotion expense and lowering incentive compensation expense. It goes without saying that pricing is top of mind for everyone. The recent and continued inflationary environment has made it necessary to take prices up responsively.

I'll remind you that in this industry, from a timing standpoint, pricing lags input cost inflation. We have implemented price increases either in terms of lower trade promotions or higher list prices across almost half of our portfolio. Although the increases did not round to a full percentage point of top line benefit in Consumer Foods sales in the third quarter, there were some positive price-mix contribution. And most importantly, this represents sequential improvement in price-mix from what we saw earlier this fiscal year.

So for timing reasons, the pricing actions we have already taken will be more apparent in upcoming IRI numbers and in the components of fourth quarter net sales. That said, we continue to focus on providing strong value to consumers even as our prices for our products go up a bit. Looking forward, we expect inflationary trends to continue, and we will take additional net pricing actions over time as the situation demands it.

Even more important for building long-term strength, however, is staying focused on the fundamentals, meaning growing share, volume and net sales over the long term. To that end, we posted sales growth for a number of key brands this quarter. For example, Banquet, Healthy Choice, Hebrew National, Manwich, Marie Callender's, Peter Pan, Slim Jim, Snack Pack, Wesson and others. We do continue to experience softness in some of our categories like shelf stable convenient meals where consumers have continued to reduce their stock-up behavior.

We're focused on growing our large and important categories within the Consumer Foods segment such as Frozen, where we posted 7% organic volume growth and 8% organic sales growth in the third quarter. What drove Frozen's growth in the third quarter? Well, all of our large brands, Banquet, Healthy Choice and Marie Callender's, had good results.

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