ConAgra Brands, Inc.

Good morning and welcome to the ConAgra brand's first quarter fiscal year 2024 earnings conference call. All participants will be in 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 then one on your telephone keypad. To withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Melissa Napier, Senior Vice President, Investor Relations. Please go ahead.

Good morning, and thanks for joining us for the ConAgra Brands' first quarter fiscal 2024 earnings call. Sean Connolly, our CEO, and Dave Marburger, our CFO, will first discuss our business performance, and then we'll open up the call for Q&A. On today's call, we will be making some forward-looking statements. And while we are making these 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 SEC. 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 Shawn.

Thanks Melissa. Good morning everyone and thank you for joining our first quarter fiscal 24 earnings call. Let's start with what we want you to take away from our presentation shown here on slide five. At an industry-wide level, macro dynamics have clearly impacted consumer behavior across the board. I will cover this in more detail shortly, but ultimately this behavior shift has elongated the volume recovery period across the industry which is reflected in our Q1 top line results. As we've navigated these macro dynamics, I'm proud of the team for delivering another quarter of strong margin improvement and EPS growth. We also continue to strengthen our balance sheet, improving our leverage ratio during the quarter while investing in our business and returning cash to shareholders. Our team's execution supported a strong supply chain recovery during the quarter, hitting pre-pandemic service levels as we exited Q1. Looking toward the remainder of the year, we will work to drive volumes and top-line growth through targeted and disciplined investments behind prudent merchandising and continued support for our strong innovation. Finally, we are reaffirming our guidance for fiscal 24, reflecting confidence in our plans, people, and agility as we navigate a shifting consumer environment. As I mentioned a moment ago, the timetable for volume recovery has been elongated across the industry due to near-term consumer behavior changes. After three years of unprecedented inflation, along with other macro dynamics, consumers have felt increased financial pressure and used a variety of strategies to stretch their balance sheets. This resulted in a near-term reprioritization of their typical purchase behaviors in order to make their budgets work. We've seen shifts like this before and expect these near-term changes in behavior to also be temporary. In fact, recent trends suggest this is already underway. Let me provide a bit more color on the kinds of behavioral shifts we've observed. As you've seen for some time now, with the notable exception of summer travel, discretionary purchases have been down almost across the board. Consumers have also been actively reducing remnant household inventory from the pandemic. Within food, convenience-oriented items, typically a top consumer priority, have lagged as shoppers have turned to more hands-on food prep to get additional bang for their buck. And as they've done this, not surprisingly, they have shifted from meals for one to meals for many, even if not everyone is home at the same time to eat together. And the last shift I will mention is a reduction in wasted food and an increase in the use of leftovers. Collectively, these short-term behavior shifts act as a sort of cheat code to help these consumers spend within their means. Slide 8 demonstrates the elongated volume recovery across the industry. As you can see, through the four-week period ending August 26th, the entire peer group was showing volume performance within a very tight band, with ConAgra in the middle of the pack. As I mentioned a minute ago, more recent trends are showing the first signs of improved performance. With that backdrop, let's dive into our results shown on slide 9. As you can see, in the quarter, we delivered organic net sales of approximately $2.9 billion, which is down slightly compared to last year as a result of the slower volume recovery we've discussed. Adjusted gross margin of 27.6% was up 272 basis points from last year. Adjusted operating margin of 16.7% was up 297 basis points compared to last year. And adjusted earnings per share of 66 cents increased almost 16% versus last year. Diving further into our top line performance by retail domain, you can see on slide 10 that sales in our staples domain were flat compared to the prior year. As consumers shift toward more stretchable meals, our staples categories, such as canned chili and canned tomatoes, are well positioned and have gained unit share compared to last year. Despite the macro headwinds, our snacks domain has continued to grow as shown on slide 11. We're building unit share as consumers continue to respond positively to our microwave popcorn, and ready-to-eat pudding and gel brands. Looking at slide 12, you can see that our frozen domain has been the most significantly impacted by recent shifts in consumer behavior, particularly in areas like single-serve meals, given the headwinds we discussed a moment ago. As we look at the frozen domain, it's worth noting a few key points. First, despite the recent impact on volume, we continue to gain unit share in important frozen categories like single-serve meals. This dynamic demonstrates the relative strength and strong position of our brands. Second, the year-over-year performance figures do not properly represent the broader trend within frozen food. In fact, if you look over a four-year period, ConAgra's frozen retail sales have increased 22%. Frozen meals has been one of the fastest growing categories in in-home consumption over the past 40 years. It's 4% TAGR, is in the top tier of foods growing in at-home consumption. This expansion has been fueled by the long-term, sustained consumer demand for convenience, as well as the addition of innovation and quality ingredients. This 40-year trend demonstrates the critical role that frozen plays in providing convenient, high-quality foods for every occasion, which consumers have come to increasingly rely on. This is central to why we believe the current softness is temporary. Turning to slide 14, I'm pleased to share that we continue to advance our supply chain initiatives during the quarter, allowing us to return our service performance back to pre-pandemic levels. Our productivity initiatives remain on track, and we plan to maintain and capitalize on this strong recovery during the rest of fiscal 24. That's a key piece of our action plan for the remainder of the year, as outlined on slide 15. In addition to our ongoing supply chain execution, we will continue to focus on executing our ConAgraWay playbook as we make targeted and disciplined investments behind our brands. To help protect share and drive the top line, we're focused on investing behind quality, high ROI merchandising, and A&P to support our brands. We'll also continue to prioritize reducing our debt and improving our net leverage ratio. We are reaffirming our fiscal 24 guidance that we shared last quarter, including organic net sales growth of approximately 1% compared to fiscal 23, adjusted operating margin of 16 to 16.5%, and adjusted EPS between $2.70 to $2.75. Overall, we remain confident in our plans, people, and agility as we continue to navigate is shifting consumer environment.