ConAgra Foods, Inc. (CAG)

CAG 
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ConAgra Foods (CAG)

Q1 2013 Earnings Call

September 20, 2012 9:30 am ET

Executives

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

Analysts

Andrew Lazar - Barclays Capital, Research Division

Kenneth Goldman - JP Morgan Chase & Co, Research Division

Robert Dickerson - Consumer Edge Research, LLC

Jonathan P. Feeney - Janney Montgomery Scott LLC, Research Division

Akshay S. Jagdale - KeyBanc Capital Markets Inc., Research Division

David Driscoll - Citigroup Inc, Research Division

Jason English - Goldman Sachs Group Inc., Research Division

Thilo Wrede - Jefferies & Company, Inc., Research Division

Ann H. Gurkin - Davenport & Company, LLC, Research Division

Alexia Howard - Sanford C. Bernstein & Co., LLC., Research Division

Eric R. Katzman - Deutsche Bank AG, Research Division

Rachel Nabatian

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 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 M. Rodkin

Good morning. Welcome to our first quarter earnings call. Thanks for joining us today. 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 our strong fiscal 2013 first quarter performance and our upwardly revised outlook for the remainder of the year. 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 opening remarks.

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 result 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 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, the question-and-answer document, 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.

I'm very excited about our strong start to the year. EPS on a comparable basis was $0.44 for the first quarter, a strong year-over-year improvement. The overall quality of the quarter was high. Specifically, I'm talking about the fact that both of our segments grew comparable operating profits, while we increased marketing investment at a double-digit rate.

Given the strong start to the year, we have raised our full year expectations for comparable EPS to the range of $2.03 to $2.06, which is approximately 10% to 12% comparable growth. And that's including a significant increase in brand-building investment, which we view as good for the long-term health of our business. It's clear that our operating capabilities, strategic initiatives and the recent acquisitions are generating strong EPS benefit for our shareholders and allowing us to post high-quality performance in the midst of difficult marketplace conditions.

Before I go on to the segment highlights, I'll also emphasize that we raised our dividend today to $0.25 per share, starting with the upcoming December payment. The annualized dividend is now $1 per share. We generate strong cash flows as a company, and we're confident that we can continue to provide a top-tier attractive dividend to shareholders while pursuing a balanced approach to capital allocation, including organic investments, M&A, share repurchase, and our commitment to a strong balance sheet and investment-grade credit rating.

Now I'll move to the Consumer Foods segment. Sales were up 8%, driven by acquisitions. Operating profit increased 20% as reported and 14% on a comparable basis, including a double-digit increase in marketing investment. Overall, this segment posted a very good quarter.

A few remarks on the sales performance. Acquisitions contributed 8 points of sales growth. You know from our comments over the past year or so that we've completed 6 transactions, strategically adding to our portfolio, and these are helping drive stronger top line and bottom line performance. I'll say more about this in a minute.

Organically, 5% favorable price/mix offset a 4% organic volume decline, and foreign exchange weighed on sales by 1 point. The favorable price/mix was the result of prior pricing actions taken to combat inflation. The volume decline reflects the elasticity of those actions and the difficult consumer environment. And in some situations, it's the result of deliberate decisions that came with a trade-off. For example, we anticipated that the pricing actions for Banquet, our largest Consumer Foods brand, would negatively impact volumes. And in this situation, we chose favorable mix and margins over volume, and the actions have resulted in net profit growth for the brand as we intended. We expect the Consumer Foods volume performance to improve sequentially throughout the fiscal year for reasons I'll touch on in a minute.

We again saw very strong results from the Marie Callender's brand. Single-serve meals, multi-serve meals and desserts all showed very good growth in dollar, volume and share for the quarter. We aim to keep this kind of growth going with strong levels of new advertising that's on the air now, continuing with the Time to Savor campaign that's worked so well for Marie Callender's over the past couple of years.

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