ConAgra Brands, Inc.

Good morning, everyone, and welcome to the ConAgra Brands Fiscal 21 First Quarter Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Brian Carney, Investor Relations. Sir, please go ahead.

Good morning, everyone. Thanks for joining us. I'll remind you that we will be making some forward-looking statements today. While we are making those statements in good faith, we do not have any guarantee about the results we will achieve. Descriptions of the risk factors are included in the documents we filed with the SEC. Also, we will be discussing some non-GAAP financial measures. References to adjusted items, including organic net sales, refer to measures that exclude items management believes impact the comparability for the period referenced. Please see the earnings release for additional information on our comparability items. The gap to non-gap reconciliations can be found in either the earnings press release or the earnings slides, both of which can be found in the investor relations section of our website, ConAgraBrands.com. Finally, Please note that we expect to report our second quarter earnings in early January this fiscal year. We will issue a press release with the specific details later this calendar year.

With that, I'll turn it over to Sean. Thanks, Brian. Good morning, everyone, and thank you for joining our first quarter fiscal 2021 earnings call. I hope that you and your families are continuing to stay safe and healthy. Today, I'm going to unpack the quarter for you and then share our perspective on how the evolving consumer environment is shaping longer-term demand for our products. So let's get started. Building upon our impressive momentum at the end of last year, we're off to a strong start in Q1. We exceeded our expectations and saw broad-based strength across the portfolio. As we will detail today, we believe our business is well positioned to continue to deliver strong results, both in the near and long-term. The transformation we've undertaken over the past five years by following our ConAgraWay playbook to perpetually reshape our portfolio and capabilities for better growth and better margins has proven critical in enabling us to respond to the changing dynamics in the current environment. Our modernized portfolio, commitment to innovate, and agile culture have allowed us to respond to the increased consumer demand and changing preferences today and position us to deliver meaningful growth into the future. Our robust performance has also helped us to get ahead of our expected deleveraging cadence. As Dave will detail later, we expect to reach our net leverage ratio target of 3.5 times to 3.6 times by the third quarter of fiscal 2021. Paying down debt has been a capital allocation priority in recent quarters, But you also know that we are committed long-term to a balanced capital allocation approach. Given our progress on deleveraging, and because we remain confident in the long-term outlook for our business, our board has increased our quarterly dividend by 29% to $1.10 on an annualized basis. And, as I'll discuss more, we also continue to invest in the business. Our performance reflects the great work our team has accomplished during these challenging times. In particular, I want to recognize the thousands of hardworking ConAgra team members on the front lines. Your extraordinary efforts in simultaneously keeping employees safe and maximizing our supply have made it possible for us to continue to meet the needs of our communities, customers, and consumers, and I couldn't be prouder of them. Let's get into the business update. As the table on slide seven shows, Our execution in the quarter enabled us to exceed our expectations across the board. We delivered organic net sales growth of 15%, adjusted operating margins of 20.2%, and adjusted EPS of 70 cents. We ended the quarter with a net leverage ratio of 3.7 times compared to 4.0 times at the end of Q4. During the first quarter, we continued to drive significant growth in each of our three retail segments. Total ConAgra retail sales grew 12.9% year over year, driven by double-digit growth in snacks, frozen, and staples. Importantly, our higher margin, non-promoted volume contributed significantly to this growth. Not only did we grow at a great rate, we expanded our presence with consumers and gained share. We increased household penetration by 100 basis points and category share by 30 basis points. Slide 9 demonstrates how our investments in e-commerce over the last several years continue to yield results in the quarter. Strengthening our e-commerce capabilities has been an area of focus for us, and we're seeing the fruits of our labor. Our e-commerce retail sales have recently demonstrated impressive growth, and over the past five quarters have consistently outpaced total industry e-commerce growth. The first quarter also saw continued strong innovation momentum, Our steadfast commitment to the ConAgra Way playbook has enabled us to consistently exceed our goal of having 15% of total retail sales each year come from products launched within the past three years. And of course, as our overall sales continue to increase, this percentage of sales represents a larger absolute dollar amount. Even during these challenging times, we remain committed to delivering innovation to our customers and consumers. Our growth is rooted in innovation, and we are driving category performance. Slide 11 highlights two examples in big growth areas, frozen and snacks. Let's take a look at the frozen single-serve meals category. As compared to our fiscal 17, this category experienced a $575 million increase in retail sales during the 52-week period ended August 30th. Our innovation in frozen single-serve meals over the past three years is unmistakable. We've generated almost 100% of that category's growth over the same period. We've applied this proven strategy to our snacks portfolio and are seeing similar category-driving growth. Slim Jim has consistently gained share and has the top position in dollar sales for meat snack innovation. And to top it all off, our new Slim Jim Savage Thick has the number one velocity in all meat snacks. Given this track record, our innovation success has earned tremendous credibility with our customers. And our most recent slate of innovation is enabling us to further enhance that credibility. Slide 12 shows some of the highlights, offerings packed with modern food attributes and bold on-trend flavors. Some of these began launching in Q4 and were pleased with their early in-market performance. We will continue to roll these out throughout the year. We're also excited about the innovation shown here on slide 13. We're using our broad portfolio to extend high-growth brands beyond their legacy forms. By leveraging our existing capabilities, we're extending Gardein and Healthy Choice into attractive categories with large profit pools, soups, jerky, and salad dressing. And these two success stories are even going one step further. co-branding single-serve frozen meals. Slide 14 shows some examples of what else we have on deck for the balance of fiscal 21. Clearly, we are not slowing down on our innovation agenda. I'd now like to take a moment to touch on recent performance in our three domestic retail domains, starting with frozen. Slide 15 shows our impressive performance in total frozen during the quarter. This business is over $5 billion in annual retail sales and it grew 13.5% in the quarter, with double-digit growth in single-serve meals, multi-serve meals, and plant-based meat alternatives. With respect to frozen vegetables, recall that last quarter we were supply-constrained in bird's eye. Demand was in excess of our available capacity, exacerbated by a brief plant shutdown to keep our employees safe and healthy. I'm pleased to report that during the first quarter, our bird's eye plants were at full capacity And as the quarter progressed, we qualified external manufacturers to supplement our capabilities. While our consumption in frozen vegetables grew 0.7% in the quarter, our shipments grew at a much faster rate as retailers started rebuilding inventories. Sitting here today, Birdseye, which holds the number one position in the category and has over twice the category share compared to the closest branded competitor, is very well positioned as we enter the important holiday season. Turning to snacks, the snacks business delivered another impressive quarter of growth, 14.6% versus the previous year and 22.7% on a two-year basis. In meat snacks, we are working to maintain our growth and capabilities by investing in expanded capacity at our Troy, Ohio plant. To be clear, this investment is not a reaction to the near-term environment, but a decision made pre-COVID and rooted in our longer-term outlook for the business. Our meaningful Staples results, as shown on slide 17, demonstrate that this domain remains extremely relevant. Our Staples business grew retail sales 11.6% year over year, with strong performance across our portfolio of iconic brands. I'd now like to turn to our perspective on the evolving environment and what we see going forward. While we hope and expect that the most acute and severe impact of COVID-19 is behind us. We believe that recent shifts in consumer behavior, coupled with macroeconomic trends, suggest that at-home eating will remain elevated for some time. We also believe that we are very well positioned to capitalize on this opportunity. I'll unpack these points a bit more, but we see consumers experiencing and making lifestyle changes driven by COVID-19 that suggest the arrival of a sustained shift in eating habits. We also know from prior recessions that an economic downturn typically leads to a permanent increase in at-home eating, even when economic growth returns. These consumer trends affect everyone in our industry, but we believe that ConAgra is uniquely positioned to benefit substantially from this environment. Our portfolio is well developed in the eating occasions that have seen the most significant and sustained shift to at-home eating, and our portfolio delivers against the cooking behaviors that consumers are adopting. We're attracting more new buyers than our peers, and consumers are choosing to stick with ConAgra and come back for more. With our proven track record of innovation, we believe we will continue to attract new consumers and deliver food that meets their evolving needs. Let's drill down on some of the proof points that underpin these expectations, starting with why we believe at-home eating will remain elevated. As you know, the vast majority of our sales are sourced from the United States, and unfortunately, the U.S. economy has been greatly affected by the pandemic. Unemployment in the U.S. remains high, the pace of new job growth is decelerating, and many U.S. households have limited savings. To understand how this recession may impact Americans' eating habits going forward, we looked back at how behavior changed in the wake of the last recession. Slide 20 shows the percent of eating occasions that have been sourced at home in the U.S. since 2007. As you can see, the 2008 recession was a catalyst for a 200 basis point increase in at-home eating occasions from 80% to 82% over the course of four years. Importantly, that rate held steady long after the recession ended, even when the economy returned to growth and employment hit record levels. With the COVID-19 disruption, we've already seen another 200 basis point increase to 84% in just the four months from March to June 2020. History is a guide. The increased percentage of at-home eating occasions should persist, even when economic growth returns. And, as slide 21 shows, as consumers are saving money in their food budgets, they are using their dollars and time differently. They're preparing to be at home for an extended period of time. Consumers are investing in their houses, their home gyms, their entertainment systems, and their kitchens. In the chart on the right, you can see that consumers are also spending more time cooking. Data is showing that consumers are tackling more complex meals. In other words, they're upgrading their culinary skills. We don't expect these upgrades to homes, at-home entertainment, kitchens, and cooking skills to go away anytime soon. This all leads to one conclusion, more time at home, and as a result, more consumption of food at home. The pivot to remote work is also a meaningful development. Significant workplace disruption we've experienced over the past several months has given way to a new normal remote workforce. The chart on the left of slide 22 shows how even baseline projections see office vacancies remaining elevated over the coming years. Furthermore, on the right, we can see how remote workforce adoption has significantly increased. More working from home means more lunches eaten at home and real opportunity for a portfolio like ours. And while we're well past the initial spike of stock-up behavior when COVID first emerged in the U.S. in March, at-home eating occasions have remained elevated, even increasing over the most recent two weeks of data. As the chart on slide 23 shows, we're continuing to see a double-digit percent increase in total industry sales at retail versus the prior year. During our first quarter, food and beverage industry sales rose an impressive 14%. While we don't know exactly how these growth rates will trend going forward, we do know that we're entering the cold and flu season and that winter weather could limit the appeal of outdoor restaurant dining in many parts of the country. All of these factors give us reason to believe that the elevated levels of at-home eating should persist. We also believe that ConAgra is uniquely positioned to benefit. Let's start with slide 24. Total at-home meals have increased almost 6% in the three months ending July 2020. That's almost 7 billion meals. When you take a closer look at this growth by day part, the increases in meals and dollars are skewing toward lunch and dinner. And as you know, ConAgra is well-developed in both of these day parts. The chart on the right shows that, in fact, our portfolio over-indexes in dinner and is almost at parity for lunch compared to the overall mix. And whether a consumer wants to cook from scratch to put those newly developed culinary skills to the test or heat and eat, ConAgra's diverse portfolio can deliver a solution for every need in every day part. So we are very well positioned for when and how people are eating more at home. On slide 25, you can see the benefits. Over 80% of our categories have been growing in line or faster than the industry. And, as I mentioned earlier, we've been gaining share within those categories. This is further demonstrated by slide 26, which shows we're attracting new buyers at a faster rate than any of our peers. Slide 27 shows that the buyers we're attracting over-indexed to the coveted millennial Gen X generations. As you might expect, we're seeing substantial millennial expansion in frozen, but just as importantly, we're seeing their expansion in snacks and staples as well. Because of this, we're creating the groundwork for future growth above the category and above our peers. We're attracting younger generations and building superior consumer lifetime value. And not only are more consumers trying our product, they're liking them and coming back for more. Take a look at the chart on slide 28. New trier repeat rates for our consumers whose first trial was in March or April have remained steady at above 50%. That stickiness can be seen further in the chart on slide 29. Not only are repeat rates sustaining, but the depth of repeat is improving. More consumers are choosing to repurchase a ConAgra product two or more times compared to where we were a year ago. When you compare us to our peers, we are at the front of the pack. Slide 30 shows that we rank above nearly all of our peers in the total percentage of repeat purchasers, demonstrating the improved stickiness of our brand loyalty. So in summary, executing our disciplined ConAgraWay playbook over the last five years has grown our portfolio, grown our capabilities, and positioned us to meet the evolving needs of our consumers while earning the confidence of our customers. We believe that at-home eating will remain elevated for some time as consumers seek affordable and convenient meals that meet the needs of their new normal. And we are confident that ConAgra is well-positioned to see sustained benefit. With that, I'll turn it over to Dave.