ConAgra Foods, Inc. (CAG)

CAG 
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ConAgra Foods (CAG)

Q1 2012 Earnings Call

September 20, 2011 9:30 am ET

Executives

Chris Klinefelter - Vice President of Investor Relations

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

John F. Gehring - Chief Financial Officer and Executive Vice President

Paul T. Maass - President of Commercial-Foods Business

André J. Hawaux - President of Consumer Foods

Analysts

Jeff Kanter - UBS O’Connor

Robert Cummins - Shields & Company

Todd Duvick - Bank of America Corporation

Presentation

Operator

Good morning, and welcome to today's ConAgra Foods First 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 would like introduce your host for today's program, Gary Rodkin, Chief Executive Officer of ConAgra Foods. Please go ahead, Mr. Rodkin.

Gary M. Rodkin

Thank you. Good morning, and 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. 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 to the most 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 M. Rodkin

Thanks, Chris. As you can see from the release, EPS from continuing operations was $0.20 as reported and $0.29 on a comparable basis. Last year's comparable amount was $0.34.

As we communicated before, we plan for a year-over-year decline this quarter, principally due to the timing of pricing and inflation. Our full year guidance remains intact. We expect low- to mid-single-digit growth in EPS for fiscal 2012 and operating cash flows to exceed $1.2 billion.

While we planned for a year-over-year EPS decline, our first quarter was slightly lower than we originally expected due to weak market dynamics in the Commercial segment. I'll start with some segment highlights. Our Consumer Foods segment grew net sales by 4% with flat volume. That means 4% price mix contribution which grew as the quarter progressed. As we said we would we took pricing during the quarter, but the environment continues to be very challenging. That means our 4% price mix increase plus our robust cost savings were not enough to overcome 11% COGS inflation. As you'd expect, it's typical for a lag to occur between price increases and inflation in our industry. Of course, that hurts margins in the short term.

During Q1, we announced net price increases for a number of our brands. We now have increased net prices either through trade or list price increases on most of our portfolio. We feel good about that progress, but we need to do more. Overall, our volumes have held in line with our range of expectations at this point in the process and we're taking further price actions as increases to our input costs warrant. Clearly, this is our focus. In fact, because pricing is so important to our long-term growth, we've built a new function around it. We call this revenue growth management. This team will bring more rigor and timeliness to our pricing models. I'm pleased to say this team is in place and already making a difference. How? By enabling the application of a consistent pricing methodology and providing more robust analytics. For example, a better understanding of how price change will impact our customers' business as well as our own.

We're approaching this with heightened rigor and precision and will drive pricing actions that makes sense for all stakeholders. I want to make it clear that even after we implement responsible and necessary price increases, our portfolio still represents outstanding value.

In the U.S., spending for food and home as a percent of household income is at an all-time low since tracking began at 6%. We understand the current difficult conditions facing everyday consumers, our consumers, and those conditions impose practical limits on what we can and should do through pricing. We get that. The main point is that even after responsible pricing our products, including hundreds of meal SKUs for less than $3, are still a really strong value for consumers.

So that's pricing; one important lever for top line growth. Innovation is another very critical growth driver for us. We are growing through innovation and we continue to benefit from the innovation pipeline we've created over the last several years. Orville Redenbacher's Pop Up Bowl is a great example of an innovation that's resonating with consumers. During the quarter, the brand made good progress with sales, volume and share gains. Our new Pop Up Bowl is bringing energy to the category and we're pleased to see that. You might have seen our advertising featuring magician Criss Angel. This marketing is a terrific showcase of a true breakthrough in microwave popcorn.

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