ConAgra Foods' CEO Discusses Q3 2012 Results - Earnings Call Transcript - TheStreet

ConAgra Foods (CAG)

Q3 2012 Earnings Call

March 22, 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

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

David Palmer - UBS Investment Bank, Research Division

Robert Dickerson - Consumer Edge Research, LLC

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

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

Kenneth Goldman - JP Morgan Chase & Co, Research Division

Eric R. Katzman - Deutsche Bank AG, Research Division

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



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Good morning, and welcome to today's ConAgra Foods Third 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 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 our fiscal third quarter performance and share our thoughts on the balance of the fiscal 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 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 will 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, our 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 $0.65 as reported and $0.51 on a comparable basis. Comparable EPS was up just slightly from last year. For the full fiscal year, we're committed to our goal of low- to mid-single-digit growth over the last year's comparable EPS.

Our improved capabilities have helped us deal with this very challenging environment. I'm specifically talking about our pricing progress in both segments and our continued success generating strong Consumer Foods cost savings.

Macroeconomic conditions continue to be difficult, and that weighed on our third quarter results. As you've seen across the industry, retail volumes are soft and inflation for Consumer Foods during the quarter was the highest we've seen all year at 11%.

While inflation for some commodities has eased, other areas like proteins, packaging and fuel have continued to rise dramatically. And as we've shared previously, shoppers continue to be very value-oriented and price-sensitive. So while the headwinds have been intense, our focus on the fundamentals has remained strong, and our fiscal 2012 goals remain intact.

Now I'll move on to specific segment results. Top line for the Commercial Foods segment increased 14%. That reflects pricing needed to deal with inflation and the pass-through of higher wheat costs along with good potato volumes. Segment profits were essentially equal to year ago amounts on a comparable basis, but that overall flat profit number does not reflect what we feel is important. This is a very strong growth for Lamb Weston being offset by a meaningful decline at ConAgra Mills.

Lamb Weston is making great progress capitalizing on global growth opportunities. Lamb had a standout quarter. They've successfully priced to offset inflation and have improved plant efficiencies while pursuing growth. We expect more good things to come from Lamb Weston for all the reasons we shared with you at CAGNY. It's a great business with great prospects, and we're particularly excited about our growing international presence as well as mix improvement opportunities with higher-margin products such as Sweet Potato Fries.

More than 25% of Lamb Weston's commercial reach, and I'm including unconsolidated joint ventures in this statement, is international. We're in nearly 100 countries, and we're the market leader in many of them. We're growing at a double-digit pace internationally, following the expansion of well-known foodservice customers around the world.

Within our milling operations, the first thing I'll note is that year ago profits were very strong, very much above what we would call normal. So we had a tough lap this quarter. On top of that, volatility in the grain markets did not give us the same profit opportunities we've had in the recent past. On a positive note, things are already improving for our milling operations given market conditions, and this bodes well for a better fiscal fourth quarter from this segment. Aside from any short-term issues, we continue to have an outstanding customer base, good milling assets and leading positions in growth segments like whole grains and ready-to-eat flour, so we continue to feel very good about the long-term prospects for our milling operations.

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