ConAgra Foods, Inc. (CAG)

F4Q10 (Qtr End 05/30/10) Earnings Call Transcript

June 24, 2010 9:30 am ET


Gary Rodkin – CEO

Chris Klinefelter – VP, IR

John Gehring – EVP and CFO

André Hawaux – President, Consumer Foods


David Driscoll – Citi Investment Research

Doug Ernst – Bank of America

Ann Gurkin – Davenport

Andrew Lazar – Barclays Capital

Vincent Andrews – Morgan Stanley

Eric Katzman – Deutsche Bank

Robert Moskow – Credit Suisse

Alexia Howard – Sanford Bernstein

Robert Dickerson – Consumer Edge Research


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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. All audience lines are currently in a listen-only mode. However, our speakers will address questions at the end of the presentation during the formal question-and-answer session. 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. This is Gary Rodkin. And I'm here with John Gehring, our CFO, and Chris Klinefelter, VP of Investor Relations. Over the next few minutes, John and I will provide our views about the strategic operating and financial aspects of the quarter. 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 these 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 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 most directly comparable measures for Regulation G compliance can be found in either the earnings press release, the Q&A 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 Rodkin

Thanks, Chris. We had a very good year. As planned, we delivered $0.39 of diluted EPS in the fourth quarter, making the year $1.74, excluding items impacting comparability. That’s just sigh of 15% comparable EPS growth for the year and a high quality performance when you take into consideration the core top and bottom line growth in the Consumer Foods segment, the dollar and unit market share gains for that segment on a full year basis, and the generation of $1.4 billion of operating cash flow through strong earnings and excellent working capital management. Supply chain productivity, innovation, and marketing, all played key roles. That’s part of building a strong base to drive sustainable profitable growth for years to come. I’ll talk about that more in a few minutes.

First, here is the overview of how our fourth quarter shaped up. Diluted EPS came in where we planned, at $0.39, excluding items impacting comparability. Comparable operating profit for consumer increased 10%. Excluding the estimated 7% benefit from the extra week last year, sales were up about 3% for Consumer Foods.

Our Commercial Foods sales were down 6% and operating profit was down 26%. The extra week a year ago contributed to these declines as well as product cost issues and a cost allocation process change we discussed earlier in the year. Our milling performance was strong, but last year was unusually so creating a tough lap for this year. Net-net, as we indicated to you last quarter, we expected these results. And as we look forward, we’re confident in the underlying operating capabilities of Lamb Weston and ConAgra Mills and expect this segment to deliver overall growth in fiscal 2011.

Let me give you some more detail about the segments, starting with Consumer Foods. As I just mentioned, we finished the year with a very good fourth quarter performance, both in comparable sales growth of 3% and comparable operating profit growth of 10%. That’s a continuation of strong results all year for the few notable full year highlights. Topping the list is dollar and unit market share growth for the aggregate portfolio on a full year basis. Our top 15 categories, which is most of our business, grew significantly faster than our overall average.

We also delivered strong supply chain productivity savings. These exceeded $300 million for the year, higher than we originally planned, which more than offset modest inflation. We increased marketing investment to build for the future, and this all resulted in strong operating margin expansion, ending the year at almost 15%, which is more than 250 basis points of improvement over last year on a comparable basis. That combination of elements demonstrates a high quality year, one that we are all proud of. And it demonstrates a strong foundation for continued profitable growth.

I’d like to spend just a few moments talking about some of the initiatives that have and will continue to strengthen the foundation in the Consumer Foods segment. Innovation is a key strategy for the Consumer Foods segment. Over the last few years, we’ve made tremendous progress building a strong innovation pipeline. We are focused on platform opportunities with staying power and growth potential.

I’m very pleased to say that new products represented about 5% of Consumer Foods’ top-line for fiscal 2010. That’s up substantially over where we were just a few years ago, demonstrating how far we have come and the growth potential we are unlocking in our portfolio. We’ve told you about our recent wave of innovation, including Healthy Choice, Mediterranean Steamers, Banquet fruit pies, and Marie Callender's Signature bakes.

Those are great items that for the most part we expect to have reached full retail distribution by late summer. But I also want to highlight new Healthy Choice Lunch Steamers, another new product line that we are getting ready to ship. We are heavily skewed toward dinner in our frozen portfolio. So a significant opportunity exists for us to pursue lunch more aggressively.

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