ConAgra Foods, Inc. (CAG)

CAG 
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ConAgra Foods (CAG)

Q4 2011 Earnings Call

June 23, 2011 9:30 am ET

Executives

Chris Klinefelter - Vice President of Investor Relations

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

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

Andrew Lazar - Barclays Capital

Jason English - Goldman Sachs Group Inc.

Ann Gurkin - Davenport & Company, LLC

Eric Katzman - Deutsche Bank AG

Robert Moskow - Crédit Suisse AG

Robert Dickerson - Consumer Edge Research, 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 Fourth Quarter Earnings Conference Call. This program is being recorded. My name is Jessica Morgan, and I'll 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, 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, 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 $0.62 as reported and $0.47 on a comparable basis, up more than 24% over last year's comparable amount from continuing operations, putting us at $1.75 on a comparable basis for the year. The quarter's EPS was challenging given 9% inflation in our Consumer Foods segment.

In the quarter, we faced accelerated inflation and experienced the customary lag between inflation and necessary pricing. It's tough out there, but we are making progress in key areas of our business and we're confident in our ability to manage through.

Net-net, Consumer Foods sales increased 1% as reported but declined a point after adjusting for the impact of acquisitions. Comparable operating profit was down 7%. In contrast, the Commercial Foods segment posted very good sales and operating profit growth.

A few details on each segments' quarterly performance. Consumer Foods sales growth was slightly positive as reported, including favorable price/mix of about 2%, about 2 points of benefit from acquisitions and a volume decline of about 3%. Organic sales were down about a point. We did have sequential improvement in price/mix. As you know, pricing increases have been and continue to be ongoing, given today's high inflationary environment. There are more net pricing actions to come.

The volume decline reflects the difficult market conditions, specifically weary shoppers and some impact of elasticity in light of our price increases. Despite that, we did have some brands that performed well during the quarter. Marie Callender's continued its terrific success, making gains in revenue, volume and share. We also saw excellent revenue, volume and share growth for Hunt's canned tomatoes and Reddi-wip and Slim Jim also performed well during the quarter.

Overall though, our Consumer Foods performance was impacted by the fact that we incurred 9% inflation for the segment this quarter. John will say more about that later. 9% was the highest quarterly rate of inflation we incurred in fiscal '11. We were able to partially offset these higher input costs with productivity, which came in at about $65 million for the quarter.

Of course, inflation and pricing are relevant to near-term performance, but I want to emphasize that we remain focused on the fundamentals, basic elements of our operations that are very meaningful for the long term and intended to grow share volume and net sales. We're confident in our long-term potential because of the stronger foundation we've built over the last few years in the core areas of the company, including innovation, marketing, supply chain and customer partnerships. And all of these things play important roles in our future plans.

We're comfortable that the stronger operating platform that we've built over our multi-year transformation period puts us in a good position over the long term for organic growth, as well as confidence in our ability to add assets to our base through smart acquisitions. That means we expect over time to return to high-quality share volume and net sales performance in our core existing businesses and also to leverage our resources to expand into higher growth adjacent categories. We have recent successes to point to along those lines, such as our Frozen and Snacks innovation, as well as our acquisitions over the last few years.

For example, Alexia, which is about 2.5x the size it was when we bought it 4 years ago and the Marie Callender's Dessert business, which posted double-digit top line growth in its first year under our control, thanks to leveraging our sales and marketing infrastructure. We also acquired just this month the Marie Callender's trademark which had been a license, which gives us even more opportunity to expand and grow a very large and core brand within our portfolio.

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