ConAgra Foods FY 2Q16 Earnings Call Notes

ConAgra Foods’ (CAG) CEO Sean Connolly on Q2 2016 Results

Spinning off into two companies

“Last month, we announced our plans to pursue the separation of ConAgra Foods into two independent public companies, ConAgra Brands and Lamb Weston, through a tax-free spin-off, which we expect to complete by fall of calendar 2016. ”

There’s an undeniable need for frozen foods

“I think the first big picture point on frozen is the consumer need state for frozen food is absolutely undeniable. If you look at income levels in this country, cash flows in this country and the perishability associated with fresh foods and the fact that people have need states most often during the week and frankly it’s the majority of occasions where they are eating by themselves off major kind of breakfast, lunch and dinner hours. The ability to have frozen food that stays ready when you are on hand is absolutely undeniable. ”

Diet frozen foods have struggled the most

“What’s fascinating about when you peel back the onion and look at it is far and away the largest piece of the weakness within the frozen section is stuff that I will describe as diet foods. Brands that have historically had trademarks and positioning that were associated with weight loss. And they wore that weight loss diet positioning on their sleeve. Those are the products that disproportionately have struggled and have struggled for some time.’

Companies are refocusing on what the definition of wellness means for a new generation

“I think companies are refocusing on quality and they are refocusing on what the definition of wellness means and for kind of a whole new generation, including us. So, if you look at our Healthy Choice franchise as an example, it’s kind of a mixed bag. We have got in the last few years a major thrust away from the old what I will call kind of ice cube tray type of frozen dinners that have been around forever and into a much more innovative product that we brand as Café Steamers. ‘

Conagra 4Q14 Earnings Call Notes


“I am delighted to be here with you on my first call since joining ConAgra Foods. As you know, I’ve been in deep study on our business, our capabilities and our culture since I walked in the door on March 3rd. My detailed review of the company has largely confirmed the perspective that I had coming in. The crux of which was if the company is prepared to move quickly and to take bold actions on a number of fronts, there is meaningful value to be created.”

The Board wants change

“before I started the Board made it clear to me they fully understood the misstep that had occurred at ConAgra and assured me that I would have the latitude to make the moves that I felt were necessary to best drive value creation. They made it clear that they wanted me to bring change. They have given me their full support to pursue any path following appropriate due diligence that will create long-term sustainable value for our shareholders”

CHange is needed

“Change is needed and we have a responsibility to perform better in the market place. We know that the inconsistency of our past performance is totally unacceptable. And we need to raise our game such that when we make a long-term commitment, we deliver it. We are highly confident that we can implement the changes operationally and culturally that will enable just that. It will of course take time.”

This is similar to when I joined Sara Lee and Hillshire

Frankly, aspects of the situation are not all that different from when I joined Sara Lee and led the transformation into Hillshire brands. There we turned in aging and underperforming food company into a more energized, agile performer capable of creating significant value as a standalone company.”

Four pillars

“that plan has four pillars. One; divest our Private Brands business for greater focus. Two; aggressively pursue SG&A reductions and productivity improvements to drive margin expansion. Three; grow our Consumer Foods and Lamb Weston businesses through portfolio and capability improvements. And four; maintain a balanced capital allocation philosophy. ”

There are reasons to be optimistic

“I have been pleasantly surprised by the organic prospects of ConAgra Foods and believe we have reasons to be optimistic. In fact, some good works were already underway when I arrived. For example, we begun the SG&A reduction process and we started on portfolio segmentation in the branded consumer business.”

Divesting Private Brands business

“That said let me preview some of the most critical elements of our plan for remaking ConAgra Foods into a focused, higher margin, more contemporary and higher performing company. As I mentioned earlier, the first step in our plan we will be the divesture of our Private Brands business. While we are taking the right steps to improve our execution and began restoring this business to previous levels, we believe the better investment of our resources is on other priorities where our capabilities are more mature.”

Intensive SG&A reduction effort

“On SG&A, we are well into mobilizing an intensive SG&A reduction effort that is aimed not only at offsetting stranded cost associated with a Private Brands divesture, but moving ConAgra into the top quartile of SG&A efficiency in our space over time. ”

We would benefit from further acquisitions given emerging scale and capabilities

“we believe ConAgra Foods would benefit from further acquisitions in the consumer branded space given our scale and emerging capabilities. But this point speaks to the need for us to maintain a strong balance sheet with ample fire power as we seek to balance returning capital to shareholders with investing back into the business and on strategic acquisitions.”

I’ve been under the hood and decided that we need to focus

” I have been under hood on every single piece of this company to try understand where the opportunity is and how resource intensive the work would be in order to accomplish what we see as the opportunity in those different parts. And our conclusion is that there is significant opportunity with this company to create value but we need to be focused and we need to have our resources squarely lined up against areas where our capabilities are more matured, where we can get the most impact on the fastest possible timetable, and ultimately that led me and the Board to make a decision that we need to focus”

Question: why did you do this so quickly? Answer:

“Well, we haven’t gone public with it; you probably would have found out about it anyway one way or another. So we thought it would just be best part our shareholders to understand the big picture of our plan. ‘

We haven’t spoken with Jana yet

” We have not yet spoken with the folks at JANA. But clearly we welcome their feedback as we would with any of our shareholders who are focused on long-term value creation. I think that is common ground that we have with JANA with other investors.”