ConAgra Brands, Inc.

Good morning and welcome to the ConAgra Brands' fourth quarter and fiscal 2022 results 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 on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over to Melissa Napier, Head of Investor Relations for ConAgra Brands. Please go ahead.

Good morning. This is Melissa Napier, Head of Investor Relations for ConAgra Brands. I'm here with Sean Connolly, our CEO, and Dave Marburger, our CFO. Today, Sean and Dave will discuss our fourth quarter in fiscal 2022 results and provide some perspectives on fiscal 2023. We'll take your questions when our prepared remarks conclude. On today's call, we will be making some forward-looking statements. And while we are making those statements in good faith, we do not have any guarantee about the results we will achieve. Descriptions of our risk factors are included in the documents we filed with the FCC. We will also be discussing some non-GAAP financial measures. These non-GAAP and adjusted numbers 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 GAAP to non-GAAP reconciliations can be found in the earnings press release and the slides that we'll be reviewing on today's call, both of which can be found in the investor relations section of our website. I'll now turn the call over to Sean.

Thanks, Melissa. It's great to be working with you again. Good morning, everyone, and thank you for joining our fourth quarter fiscal 22 earnings call. I'll start with what we would like you to take away from the call this morning. Throughout fiscal 22, our team took decisive actions to offset inflation and invest in our business. We faced heightened costs throughout the year, but inflationary pressures were especially high in the fourth quarter. As a result, we implemented additional inflation justified pricing actions to help offset the impact. We continued to make deliberate strategic investments in our business to better serve our customers and meet the strong consumer demand for our products as physical availability is an important part of maintaining and building trust and loyalty. I'm pleased that our brands continue to resonate with consumers demonstrated by broad-based share gains within the portfolio, particularly within our most strategic domains of frozen and snacks. We are continuing to drive growth, gain share in attractive categories, and we remain disciplined in executing the ConAgra way to create lasting connections with consumers. As we've communicated throughout the year, the external factors I touched on a moment ago, as well as investments we made to maximize service, and product availability in the face of supply constraints all contributed to increased margin pressure. We continued to pull levers to manage these factors, and we were pleased to see margin improvement materialize in the fourth quarter in grocery and snacks as well as food service. This represents an important inflection point that we expect will extend to our refrigerated and frozen and our international businesses within fiscal 23. I also want to highlight the strong fourth quarter performance of our joint venture, Arden Mills, which effectively managed through recent volatility in the wheat markets and continued to prove an effective hedge against inflation. Looking ahead to fiscal 23, we expect to see continued strength in our sales driven by strong innovation, the impact of pricing actions, and progress in the supply chain to help offset continued inflation and elasticities. While we expect elasticities to increase incrementally from fiscal 22 levels as more inflation-justified pricing comes to market, we believe they will remain below historical levels. These expectations are reflected in the fiscal 23 guidance we're providing today. With this expected macroeconomic backdrop, we are lowering our long-term leverage target, which Dave will discuss later. As you know, maintaining a strong and flexible balance sheet and keeping our investment-grade credit rating remain important to us. With that overview, let's take a look at the results. While we had planned for high inflation, it was higher than we anticipated. Slide 7 shows our cost of goods increased 16% in fiscal 22, far higher than the 9% we anticipated at the time of our fiscal 21 fourth quarter call a year ago. was particularly acute during the fiscal 22 fourth quarter when our cost of goods sold were 17% higher than the year-ago period and 24% higher on a two-year basis. The elevated levels of inflation we experienced in fiscal 22, particularly in the fourth quarter, required decisive actions in response. A critical part of that response included the inflation justified pricing we implemented throughout fiscal 22. On slide eight, you can see the change in on-shelf pricing by quarter. On-shelf prices for our brands rose across all three domestic retail domains compared to the same period a year ago and also increased in Q4 as we experienced additional inflationary pressures. We closely monitor the impact of these pricing actions on volumes. We've been pleased that price elasticity has remained below historical levels. Slide 9 demonstrates the unit sales have stayed largely consistent on a three-year basis, even as the on-shelf prices for our brands have increased. Even in Q4, as more significant inflation-justified pricing took effect, the increase in elasticity was relatively modest and below historical norms. As we monitor the impact of our pricing actions on volume, we look at the relative impact between branded foods and private labels. While private label is gaining some share more broadly in food, we have not seen notable migration toward private label in the heavily branded categories in which we compete. The superior relative value of our products continues to resonate with our customers and our consumers. And the resiliency of our portfolio means we are well positioned to take additional action in fiscal 23 if we continue to experience incremental inflation. As a result of our decisive actions, we're beginning to see the expected recovery in our margin performance. As I mentioned earlier, the fourth quarter represented an important inflection point as we saw margin improvements materialize in grocery and snacks and food service, which helped drive fourth quarter operating margin improvement for the total company. As I already noted, we expect our refrigerated and frozen and international segments to deliver operating margin improvement as fiscal 23 progresses. As you can see on slide 11, our team delivered solid Q4 results in the face of a highly dynamic and challenging operating environment. Compared to the fourth quarter of 21, organic net sales for the fourth quarter increased at just under 7%, with growth in all four segments. Importantly, adjusted operating margin increased approximately 100 basis points, and adjusted EPS was up over 20%. I'd like to briefly detail our performance across our three retail domains, starting with our frozen business on slide 12. Frozen continues to be one of the strongest businesses in our portfolio and offers modern attributes, convenience, and quality to make it the perfect fit for today's consumer. In Q4, we continue to deliver strong growth on both a one-year and three-year basis. And within this consumer domain, we've seen growth across key categories. highlighted by more than double-digit year-over-year growth in both plant-based protein and single-serve meals. Now let's talk about snacks. As shown on slide 13, we've seen a meaningful acceleration in retail sales growth in our snacks business over the last three years. In the fourth quarter, our snacks business grew 11% year-over-year. That equates to 34% growth over the same period in 2019. In this domain, we've driven growth in key categories including meat snacks, hot cocoa, microwave popcorn, and salty snacks. Our retail sales of ingredients and enhancers and shelf-stable meals and sides have also been growing meaningfully over a three-year period, and that trend continued in the fourth quarter. As you can see on slide 14, this business grew 5% year-over-year and 10% on a three-year basis. In particular, we saw a large increase in the retail sales for syrup, which was up nearly 20% in Q4 on a two-year basis. As we execute our ConAgraWay playbook, innovation has remained a key to our success across the portfolio. Slide 15 shows the impact of our disciplined approach to delivering new products and a modernized portfolio. During the fourth quarter, Our innovation outperformed the strong results we delivered in the year-ago period. And once again, our innovation rose to the top of the pack in several key categories, including with toppings, single-serve meals, and plant-based protein. Looking at slide 16, you can see that we continue to grow sales on both a one- and three-year basis. Total ConAgra retail sales were up 15.8% on a three-year basis for the year. We also continue to gain share in the important frozen and snacks categories with our category-weighted share growth up both on a one-year and three-year basis. With that context, for fiscal 22, let's turn to our outlook for fiscal 23. We expect our strong brands, on-trend innovation, effective pricing, and strengthened supply chain to drive top-line growth and margin improvement. Continued inflationary pressure in fiscal 23 is expected to result in incremental increases in elasticity, which overall we anticipate will continue to remain below historical levels. Our outlook also reflects our expectation that we will have higher capex and interest expense in fiscal 23, lower pension income, and that the elevated performance from Ardent Mills in fiscal 22 will moderate. We look forward to sharing more details about our expectations for the year at our upcoming Investor Day. In 2023, we expect organic net sales growth of 4% to 5%, adjusted operating margin of approximately 15%, adjusted EPS growth of 1% to 5%. Before I turn the call over to Dave, I'll remind you that my team and I are looking forward to hosting in Investor Day on July 27th to discuss our plans for the future. In response to feedback, we've decided to hold our event in a virtual-only format to best accommodate our investors and analysts. Registration, dial-in, and Q&A details for the virtual event are available on our website. Dave, over to you.