ConAgra Brands, Inc.

Good morning, everyone, and welcome to the ConAgra Brands Q4 and Fiscal Year 2024 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 floor over to Melissa Napier, Head of Investor Relations. Ma'am, please go ahead.

Thanks, Jamie. Good morning, everyone. Thanks for joining us today for our live question and answer session on today's results. Once again, I'm joined this morning by Sean Connolly, our CEO, and Dave Marburger, our CFO. We may be making some forward-looking statements and discussing non-GAAP financial measures during this session. Please see our earnings release, prepared remarks, presentation materials, and filings with the SEC, which can all be found in the investor relations section of our website for more information, including descriptions of our risk factors, gaps to non-gap reconciliations, and information on our comparability items. We hope you all had a chance to listen this morning to our prepared remarks, and I'll now ask Jamie to introduce the first question.

And once again, if you would like to ask a question, please press star and one. Our first question today comes from Andrew Lazar from Barclays. Please go ahead with your question.

Great. Thanks so much. Good morning, everybody.

Morning. Morning.

Sean, you talk in the preparator marks about, you know, expecting a sort of gradual transition in fiscal 25 to a more normal operating environment as consumers adjust their reference prices. And I know you've talked a lot through the back part of this last fiscal year that consumers were increasingly ready to sort of engage in your categories and just needed to be nudged a bit. And it seems like that adjustment is taking longer, not just for ConAgra, obviously, but the industry at large. Why do you think that is, and is it going to require or is it requiring more investment than maybe you initially anticipated? And obviously I ask because that's one of the, if not the biggest debate in the space right now.

Sure, Andrew. Here's how I think about that. The operative word is transition. It's a process. It's not an event. And as we showed in our charts today for ConAgra, that process is working. You saw in the materials today steady positive inflection on our volume, which is the key metric for us, for the past three quarters. And that indicates that our investments to nudge volumes back toward positive territory are successfully engaging consumers. And importantly, We were able to expand our margins despite that investment. So I was particularly pleased to see volume consumption growth in Q4 in our snacks business, in our largest frozen business, which is frozen meals, in our refrigerated business, and in our international business. All of those posted positive volume growth in the quarter. Grocery has a couple of businesses that will get more support in fiscal 25, but those investments are baked into our plans. So overall, we have been nudging. The nudging is working. But it is a transition. It's a process. And we've moved the needle meaningfully. And that will continue to move positive. But it's a transition. It's not one of these events where we sprinkle a little money on the consumer and they forget that they ever experienced runaway inflation. It's a period of adjustment. And for us, that is clearly happening. Got it.

Thanks for that. You know, I know a good portion of the negative year-over-year pricing in refrigerated and frozen is, I think, more pass-through on some refrigerated items. But I guess I'm more curious on what the pricing and competitive environment looks like in the frozen space specifically and sort of how you see that playing out as we start the new fiscal year. Thanks so much. Sure.

Yeah, absolutely. Yeah, we invested in frozen as a result. Volume consumption in frozen overall is back to just about flat, again, with our largest frozen business, single-serve meals, already growing volume, and our shares there hit record highs, as you saw in the materials. Merchandising, advertising, and innovation have all contributed to that. So it's not been a situation where it's a price-based driver that is driving that positive news in the frozen business. It's all of those things. And with respect to the merchandising, for us it's really been about quality display, and it's been about frequency, not about deep discounting. I think what you're seeing in Frozen overall, and I called this out last year, is when we were at the peak of the inflationary period and people were having to make choices and tradeoffs to make their household balance sheet work, they moved some of their purchases of convenience-oriented items toward more scratch cooking, and they kept their leftovers and things like that. The challenge with that is that consumers don't really like planning for meals. They don't like preparing meals. They don't like cleaning up after meals. So the need for convenience, that's why I showed that 40-year chart in our materials today, is as strong as it's ever been. And after the consumer has to cut back for a while, they grow weary of those workaround behaviors, and they come flying back to convenience, which is why the investments we've made in frozen to nudge consumers have materialized, and we saw growth in our frozen single-serve meal business in the quarter. I would say, you know, this is a category of space that has a 40-year compound annual growth rate of 4%, which I think is the highest department in the grocery store. We went through a challenging period last year where we saw some trading down. We put some targeted investments against it, and now we've seen real positive response and, you know, knocking on the door of positive in our total frozen business overall with key businesses like Singles for Meals growing and Birdseye gaining share again, which is great to see as well.

Thanks so much.

Our next question comes from Ken Goldman from JPMorgan. Please go ahead with your question.

Hi, good morning and thank you. I wanted to first better understand the comment about the outlook being prudent. You know, on the one hand, your sales and EPS guidance, you know, lower than the street expected. I think that's helpful in, you know, certainly setting a lower bar. On the other hand, you know, as Andrew mentioned, your outlook requires volumes to accelerate, especially on a two-year basis. And, you know, you're relying on the consumer getting used to higher prices, as you mentioned, and we just haven't seen that yet. So I guess I'm just trying to dig in a little bit on where you think you're being most conservative in your modeling as you plan out.

You know, Ken, I think it's important to, because you just say we haven't seen that yet. And And look at the charts we demonstrated today. We absolutely have seen that. We have seen three straight quarters of volume trend improvement in our businesses. And in this most recent quarter, we saw snacks volume consumption that was positive. Our frozen meals consumption grew. Our refrigerated business volume consumption grew. Our international business grew. So we absolutely have seen traction. and we expect to see continued traction from here. We do not have one of the portfolios out there that some have where there just have been investments and there has not been movement and inflection in the volume line. We have had steady inflection, and a fair amount of the portfolio is already either close to flat or turning positive. So that's an encouraging thing, and it indicates that our investments are doing a good job of nudging the consumer along and engaging them. With respect to the comment that the guidance is prudent, it's prudent in that it recognizes that consumer adaptation is a process and it's not an event. And therefore, it embeds some conservatism around consumer buying behavior, but also some flexibility for us to continue investing behind volume growth, which, by the way, as we've said from the beginning, is our top priority in terms of nurturing the long-term health of the business. So, you know, given the slope of our volume trends for the last three quarters, We think the outlook is a prudent outlook. We had no desire to try to be heroic with our guide for fiscal 25. I think, you know, if you really just digest the progress we've made on these discrete businesses where we've placed investment, I think you can only conclude that it's a prudent play.

Thank you for that. And then for my follow-up, I wanted to clarify the first quarter outlook. Is the messaging first that the gross margin is on an absolute level will be down or will be the lowest of the year or is that year on year? I just wanted to clarify the gross margin comment. And then more broadly, you know, you talked about volume, gross margin, tough SG&A lap. It certainly seems like consensus of 65 cents or so may need to come down a bit. So understanding you don't provide quarterly specifics, just trying to get maybe a slightly tighter sense of where you think some of the puts and takes in 1Q will be, just so maybe investor expectations are properly aligned with yours.

Yeah, Ken, this is Dave. Let me give you some color on that. So if you look at Q1 a year ago, that was the last quarter where we had significant price mix, right, so around the mid-single-digit period. So we're wrapping on that quarter. So if you break it down, if you look at our domestic retail business, we expect improvement in volumes, but they're still going to be down year on year. but we expect improvement versus where we came in at Q4 in terms of volumes. Our international business, we actually expect to be lower. We called out some supply chain issues in Canada, and that will impact some of the business in Q1. So we expect Q1 sales year-on-year growth in Canada to be lower than it was in Q4. A couple of things in terms of the margin side, SG&A, we're going to have much higher SG&A in Q1 this year versus last year. Last year, we had an accrual to take down our incentive compensation. So year on year, that's a bounce back, and you're going to see that in expense. And that obviously is going to depress operating margin. And then on the gross margin side, Q1 is a lower sales quarter for us than other quarters. So you do normally get a little bit of drag from fixed cost relative to the other quarters. And we have the higher trade investments kind of rolling in from the end of last year. But as we said, and Sean said in his comments, we expect gross margins to be stable for the full year. So, you know, we're pleased with the productivity. We expect that to continue. Inflation we called for 3% net for the year. So, you know, the benefit there helps us fund the additional investment that we're going to make. So all those things together, that hopefully gives you some color on RQ1. Thank you very much.

Our next question comes from David Palmer from Evercore ISI. Please go ahead with your question.

Thanks. I wanted just to ask you about the challenging environment comments. You made that comment a few times during the prepared remarks, but sometimes we can assume what you mean by that, but I would assume also that there's going to be some differences in the types of challenges you see per category. I sense that you might have more category issues, for example, in entrees. You speak to price gap issues, perhaps in vegetables, for example. So could you speak specifically to what those challenges you're talking about and the types of investments that you're making, whether that's just price adjustments through promotion, display, or other activity?

Yeah, David, sure. You know, today in our material, as an example to your point, I shared the consumption trends for our frozen business, and I showed a line chart that showed our consumption in Q1 was a minus 7.5, and in Q4 it was almost flat, and it's pretty much a straight line from Q1 through Q4. So the volume decline in that business is virtually gone over the course of three periods, and that did not happen by accident. You'll recall that after Q1, We made some, I'll call it test investments in Frozen to try to nudge the consumer along to see if it would work, and we got a great response to that in Q2. We expanded those investments in Q3. It was a combination of everything from advertising to merchandising to more support for our innovation, and it all had the desired effect. I think the types of merchandising that you'd look at really, as I mentioned earlier, were high-quality displays, As we say almost every quarter, the overall merchandising level in the last couple of years was down substantially versus pre-COVID. Now it's moving back in line with kind of where we've been historically. But the type of promotion is – and I'd say in the industry in general has been pretty high quality. It's been – I would describe it as reasonable. You know, there are – we always have a keen sense for what are the – more than price gaps in frozen products, David, it's price thresholds. What thresholds can we hit that drive maximum lifts? And we know where those are. We've hit those. That's why we've basically wiped out the volume declines in the frozen business because we know what thresholds are particularly important. And, you know, the reason the consumer is ready to be nudged in the frozen business, as an example, is because that 40-year chart shows it. People rely on high-quality products. good-tasting prepared foods that don't require any prep time and don't require any cleanup. When they're forced to, they might have to trim those purchases a little, as we experienced a couple of years ago in the last year. But they typically come roaring back, and that's kind of what's happened on the business. And that's the strategy that we'll have across the portfolio is we'll look, to your point, category by category around what are the key thresholds that we need to hit to maximize our engagement. Some categories are more price gap-oriented, and those tend to be categories where there are really just a couple of competitors. So canned tomatoes is a good example where that's more of a price gap type of category than others. But most of our categories are more about a high-quality display and hitting the right thresholds.

And just one follow-up on – thanks for that, by the way – On A&P margin, do you imagine that being close to the 2.4% level this year again? And maybe is this the type of year that maybe advertising isn't as much of a priority, but maybe that starts to step up in future years? How are you thinking about advertising in the path going forward?

About the same, yeah.

Thanks very much.

Our next question comes from Peter Galbo from Bank of America. Please go ahead with your question.

Hey, guys. Good morning. Thanks for taking the question. You know, Dave, just kind of going through your comments, if we take kind of the productivity savings, none of the inflation, right, it's roughly, I think, $85 million that will kind of get reinvested back into brand investment or price. Can you just, A, verify that that map kind of checks out on your end, and, B, just give us a sense maybe – You know, this being kind of incremental investment, where in the segments it's going to hit? You know, is it more weighted or refrigerated or more weighted to grocery? Any kind of color there would be helpful.

Yeah, why don't I hit that, and then I'll let Sean fill in any blanks. So, yeah, from a high level, we're really pleased with our productivity. We talked about expecting 4% productivity and inflation. We estimate around 3%, so clearly there's some benefit there. And we expect stable gross margins for the full year. That allows us to make investments. Those investments will be continued investment in certain trade merchandising, which obviously impacts margin. And Sean just described how we go about that. Obviously, frozen and snacking are our priorities, but we also have select opportunities in grocery that we're evaluating that we think are important. But we also have other investments that we make that hit cost of goods sold in terms of continue innovation and product quality that we build in, other investments that we're making in the supply chain, those do hit cost of goods sold and then are part of that whole margin basket. So, you know, high level, we feel really good about the efficiency of the operation right now where we can invest to get the volumes continuing to go in the right direction and maintain the gross margin that we finished fiscal 24th.

Got it. Okay, that's helpful. And then, you know, Sean, just kind of thinking about, you know, the productivity number, and it's a question that's being asked of your peers as well, I guess just what's the risk that, you know, we start to push the productivity lever too hard, and, you know, does that create, I don't know, you know, lower ingredient quality or potential issues just as you're kind of getting maybe too productive? You know, I think it's a question that we face a lot as well. So thanks very much.

Yeah, I think our investors should know that that's like the third rail for us. We would not cut quality of our products and worsen the consumer experience to drive productivity. In fact, if you look, Pete, over what we've done over the last 10 years, it's exactly the opposite of that. We have infused tons of money into our food quality and our packaging to to modernize this portfolio, to make it the kind of stuff that people are willing to pay more for and conclude that it's a better value than when it was lower quality and lower price. And so that is precious for us. That is central to our innovation success that we've had. And that is not the kind of productivity we're talking about. We're talking about really a lot of what we've been doing is not only just getting our service levels back and our labor pool stable, but investing in technology and harnessing technology so we can run our plants more efficiently and and really kind of do the opposite, which is have zero loss and no waste and be as high quality as we can be. So rest assured that's not part of the playbook.

Thanks, Sean. Thanks, guys. Our next question comes from Matt Gumport from BNP. Please go ahead with your questions.

Hey, thanks for the question. I might be reading a bit too much into it, but it feels like while you're still encouraged by the direction of the volume recovery, you're maybe a bit less optimistic on the pace of that recovery than you were just last quarter when it felt like you were moving towards that Mendoza line of flat to positive volumes. If that's right, just give us an update on sort of what's changed over the last three months in terms of what you're seeing in the consumer environment. Thanks.

Yeah, that's not right, Max. That's not how I feel at all. In fact, if you look at the trends of the consumption that we've shown, there has not been a business that has stalled. We've had steady upward trajectory from Q1 through Q4, just virtually everywhere in the business. Now, as Dave points out, there's plenty of noise in this year's Q1, so I get that we've got to be helpful for you guys and understand Q1. For example, part of that is not just on on the stuff that impacts margin, but we've got some significant merchandising events in Q1 of last year that we've shifted to Q2 this year to take more advantage of holiday and the lifts we get there. So I feel like what we're seeing here is, as I mentioned to Andrew and Ken, a process that's unfolding in a fairly linear way, X the noise, in terms of just the underlying trend line. And I think that's going to continue. And I think, you know, as we've These are discrete investments that we put business by business, and where we've done that, we've seen a response. So we'll do that against more businesses, you know, as we go into fiscal 25 here, and I think we'll see a continued response. And meanwhile, while we're doing it, if you think about our two most critical strategic businesses in the portfolio, Frozen and Snacks, we held or grew market share in 80% of that combined business. That is about the best you're going to find in the industry. So these are not only bending the volume line in a very predictable way, but we are gaining share, and that just shows you how well our brands are resonating vis-a-vis their competitors and how well our innovation is resonating with consumers as well.

Great. Then on food service with volumes down 10% in the quarter, you called out the QSR weakness as well as some actions to eliminate a low-profit business. I was just curious if you could disaggregate for us the magnitude of each of those two impacts and also what you're seeing on the QSR side in terms of how that weakness could progress over the coming year. Thanks.

I'll leave it there. I'll just make a quick comment here, and Dave, you can add whatever you want. But our food service, I think everybody knows as a channel of weakened in the last several months. The traffic's been down, and no company, I think, has been exempt from that. So we've had a bit of that, but that's really kind of not the big part of what you're seeing in our food service business. We have had a very serious margin expansion philosophy on our food service business, where in the last year, we exercised a fair amount of value over volume strategy, and So that negatively pressured our volumes, but I think our operating margin in food service is up a massive amount, Dave. I don't know if we want to quantify that, but 400 basis points. So we've gotten the impact we were looking for from our value over volume. The top line part is a little bit soft attributable to the traffic piece that we've seen elsewhere, but the overall takeaway around top line food service, the primary driver is our value over volume strategy, and that has had a very material expansion on our operating margins there. Anything else you'd add to that?

Yeah, no, I was just going to say majority of the volume decline is from the discontinuation. It's been mostly in pop, like bulk popcorn and some tomato businesses. We're just, we're not, just weren't making the money that we wanted to make. So we get out of those businesses. Great.

Thank you very much.

Our next question comes from Robert Moscow from TD Talent. Please go ahead with your questions.

Hi. Thank you. Sean, you have a lot of brands that skew more heavily towards lower-income consumers. You have a lot of brands that skew the other way. Are you seeing any differences in terms of how those brands are performing, like low-income versus high-income? Look, there's a lot of – when food companies are asking why things are slowing, they tend to point to that cohort – And you have a pretty broad portfolio.

So do you see more in one versus the other? Yeah, I think any large diversified food company is going to sell products to pretty much every income level. And I think the headline in the last year is that value-seeking behavior is was not exempt from any income level. And part of that was just grounded in reality. People had to make their household balance sheet work for them. Part of it was principle. Even higher income consumers just on principle didn't like the new price points they were seeing in the basket, and they would trim their normal purchases. So to get to your point, it's things like, you know, when we looked at SNAP and some of the sunsetting of the excess payments, did we see any material impact in the business? Not really. A little bit, but not much. So I would say that the value-seeking behavior we saw in the last year really was across income cohorts. You're always going to have more sensitivity for the lowest income bracket, and that's where you tend to see those thresholds that I talked about a little earlier with Dave matter the most, Rob, because if you are going to invest in a high-quality merchandising event, and you can get to a meaningful threshold for that lower income consumer, it tends to manifest itself in high lifts. And where we've done that, we have seen higher lifts than we've seen on average kind of in the last 10 years. And I think what that tells you is people who have trimmed their buying rate are ready to get back to that buying rate. They just need a little bit of that nudging. And I think those those thresholds probably mean the most to the people who need them the most. Great. Thank you.

Thanks.

Our next question comes from Nick Modi from RBC. Please go ahead with your question.

Thanks. Good morning, everyone. Maybe I can just follow up on Rob's question, you know, from a different angle. And, Sean, I'd love your perspective on this. I mean... I'm wondering if there's a mismatch between, you know, where the consumers are versus how you're spending. I mean, Conagra's been very on the forefront of digital, you know, marketing for many years, but it seems like a lot of older consumers, you know, tend to over-index to your categories. And I'm curious if you think there's a mismatch between where you're spending the money, which is more digital, versus kind of more traditional media, which is where some of these older consumers tend to traffic. Any thoughts on that?

Well, if you think about what I'll call our brand building spend in total, by far the biggest investment we make is in new product innovation, product and package. So it's actually right into the COGS line. And if you look across the food space, you won't probably find the breadth of innovation that we do around here. Why does that matter? Because that The consumer spends the bulk of their time, you know, shopping, whether it's shopping online or shopping in the store, and we want our products to be arresting at the point of purchase. We want our products to be provocative, to look modern and contemporary, because we believe that appeals to all age groups, young, middle, older, it doesn't matter. So that's our biggest spend. And then we also invest with our customers. We invest in high-quality display. We invest in the proper shelving, the right eye level. And, again, that's the kind of investment that is agnostic to age group. And the smallest piece of it is the A&P piece of it, which is heavily focused on the social media realm. And the reason for that is because we're trying to drive virality. We're trying to get word of mouth about our products. And just because virality may start online in TikTok or on Instagram, it doesn't end there. The point of those types of investments is they get consumers talking. And when you get consumers talking, they talk to their friends, they talk to their families, they talk to their moms and their dads. And that's how you drive brand saliency, top of mindness and intrigue in the new innovation. So we have investments all across the board from product to in-store. It's online, and we're highly confident we're reaching every demographic. And, frankly, if we weren't, you would not have seen the types of volume inflection that we've seen across each of our consumer domains.

Great. That's helpful. And then just maybe you can give us an update on Slim Jim. Some of the channel work would suggest there's some pressure there, some kind of encroaching competitors like Batty's. I'm just curious if you have any perspective on kind of how that brand is faring right now.

Yeah. kind of wrap your mind around Slim Jim. You got to think Slim Jim enjoyed absolutely explosive growth through the pandemic, which saw the business increase in size dramatically. That led to some capacity constraints for us. And so between this past year, between the capacity constraints and the tough comps, you know, those are things we had to deal with in fiscal 24. But now with good investment, good innovation and capacity available to us again, the business is already growing again volumetrically, and I would expect that to continue. Slim Jim is a billion-dollar juggernaut, and that's not going to change.

Great. I'll pass it on. Thank you. Thanks.

Our next question comes from Tom Palmer from Citi. Please go ahead with your question.

Thanks for fitting me in. I just wanted to clarify on promotional activity and other types of brand building that you've referenced. How does the response of consumers compare to historical norms and relative to what we might have seen, say, in late 2023? And then are you seeing much response from your competitors based on your actions?

I would say on the categories that where we've invested, the lifts have been better. And the way I describe that to folks is there's kind of a longing for some of these businesses if you've cut back on them. So, you know, if your normal buying rate when you go to a store for a frozen meal is 10 and you cut that back to 8, that means that after you run out after 8, you know, people in the household are opening the freezer expecting there to be two more. And instead, they've got to make a sandwich from scratch or they've got to cook something. And that grows frustrating. And so, What happens then is if we can get to the right price threshold and get a high-quality display, people are like, oh, thank goodness, now I'm going to replenish it in my normal cadence. And that's kind of what we've seen. So it shows up in better lifts. You know, in terms of competition across the category, look, everybody, I think, in the industry is trying to get volumes north again. And so I think everybody has had room to do more promotion. And that's fine. You know, that's fine because the consumer needs some help, and I think they're getting it. But, you know, not everybody has equal brands, so you're not going to get equal lifts. And Frozen, as an example, you know, we've got – look at our market shares there. We're at all-time record market shares. We're the biggest Frozen player there is, and that's in large part in all the category growth in the last 10 years is because of the quality of the innovation, which, frankly, is just difficult for anybody to match.

Thanks for that. And then just a quick one on Ardent Mills. The language in the release or the prepared remarks at least referred to it as moving towards a more normalized level of operations. I just want to make sure I understand this. Could we think about that $150 million outlook, which is kind of consistent with how you started off last year as well, as a more normalized rate? Or is that like normalizing and we should look for maybe a glide path slightly lower over a series of years?

Yeah, Tom, let me try to give you some color on that. I did spend a little time in the remarks on Ardent Mills. It's really, you know, split into two basic businesses, just the flour business that they sell at a margin, and then this business that I call commodity revenue type business. And this is, you know, things like, you know, them hedging, you know, flour transactions, you know, storing wheat, you know, based on futures curves, you know, speculating on feed prices and wheat and corn futures. So, all that kind of trading activity, that is very difficult to forecast with precision, right? And Ardent Mills, they have significant capability in the area. And so the way that we're going to do this with Ardent Mills is we're going to give you guidance on what the number is based on our latest estimate from management. And then each quarter, we're going to update on it because it can ebb and flow. But over the course of the year, right now, the guidance we gave is our best estimate. Okay, thank you for that.

Our next question comes from Chris Carey from Wells Fargo. Please go ahead with your question.

Hey, thank you very much. So I just wanted to maybe clarify, or not clarify, but get a bit more context on the pricing comments in the presentation around tomato-based pricing will be lapping, and then you'll be taking new pricing on some cocoa. I guess when you think about those two things, does that net out neutral for the year? And then how would you see overall pricing trending perhaps X those items? for the broader business, specifically APTA in the context of the stable gross margin, despite some of these investments. And then I have a quick follow-up.

Well, let me start, Sean. You can fill in. So, you know, all of our pricing is inflation justified. So we've obviously taken significant pricing over the last two to three years. But you look in fiscal 24, there was significant inflation in tomatoes. So we took pricing during fiscal 24. So, you know, we will wrap on that in fiscal 25. And then, as you know, there's been significant inflation in cocoa. So with our Swiss Miss business, we have pricing that will be effective Q2. So that's, you know, it's all based on inflation. So they're really the two big areas right now. In terms of the impact on price mix, there are obviously tailwinds to price mix, right? So when you take prices, you're going to get benefit from that. But then when we increase investment in trade merchandising, that's within the net sales line. So that shows up as more of a headwind in terms of the overall impact. So those will net. So as we go into fiscal 25, you'll start to see kind of price mix play out for our grocery and snacks business. As Sean mentioned, you know, we see some select opportunities in grocery where we want to do some investment. And so, you know, that will play out as fiscal 25 moves on, and that will be reflected in the price mix line. So we're not going to give specific guidance, you know, on price mix by segment, but they're the general dynamics that should help you. Okay, great.

I said it would be a quick follow-up. Maybe it's a bit more than that, but we'll see. So, you know, 80% holding or gaining share on the strategic frozen and snacks, clearly very good share momentum in those areas where you're focused. You did, however, mention that Staples is a work in progress. Can you just comment on the areas where you are seeing competitive encroachments and perhaps specifically how you see private label developing in some of these areas, given the setup retailer focus. Just any context on this that comes to mind is helpful. Thank you.

Yeah, as I mentioned, we've seen value-seeking behavior now for a couple of years, and it really is in every category that people buy, in food and beyond food. We've tackled much of that in the portfolio, There are still some places that we haven't pursued that. So we've got a couple of canned food businesses, as an example, with tomatoes and canned pasta, where we haven't put a lot of attention. Those are categories where they're not like other categories. They're not exempt from a trade down if your price thresholds are not right, if your gaps are not right. So, you know, we've got a vast portfolio. We've got a handful of spaces, not many that we haven't really – put energy against, that we'll put some investment against. That's baked into the outlook that we gave you today. And we know on those businesses, they are the kinds of businesses we talked about earlier where when you get your fundamentals in the right spot, be it a gap or be it a threshold, and you get the right kind of display support, you tend to see outsized lift. So there are a few spaces there. But overall, I mean, if you think about the peer set, you know, our strategic spaces are back to pretty much flat. We're already growing volumetrically. I don't think you're seeing that in a lot of other portfolios. And I also don't think that you're seeing in other folks' key strategic domains 80% of that portfolio holding or gaining shares. So, you know, I want to make sure we emphasize that because we have been, we were one of the first companies to say that we were going to, we said overtly, we're going to target our key strategic domains for investment, since we believe the consumer was ready to be nudged. And we have seen tremendous response. We're back to pretty close to that Mendoza line, and in some cases already in positive territory there. So between that and our share performance in those strategic domains, you know, I like the setup as we go into the fiscal year. You know, we'll deal with the noise in Q1, but the fundamentals look pretty solid to my eyes.

Okay. All right. Thank you both. Thanks.

And our next question is Rob Dickerson from Jefferies. Please go ahead with your question.

Great. Thanks so much. I guess, Sean, just to come back to the grocery, maybe more staples business, there does seem like it's lagging a little bit for the various reasons. you mentioned and, you know, a bit more, you know, investment going in there as we get through the year. Um, but I, I am just curious kind of, you know, much more broadly speaking, you know, as we, if we go back kind of to pre COVID, right. Kind of, as you entered the company and we looked through all the different, you know, brands, um, and segments there, there did seem to be, you know, kind of a, you know, a bit of a, of a potential, you know, divestment, you know, um, on some of those grocery brands just to kind of focus the overall portfolio, right? And then we come back and say, okay, well, 80%, you know, holding, getting share in the strategic domains, you know, this is our focus. So, you know, I'm just curious, you know, as you think forward, you know, the next few years, like I guess why not just kind of step away, you know, from some of those brands kind of in line with what you've been speaking about on the food service side? Thank you.

Yeah, there's a bunch in there, Rob. Let me just mention real quick on the first part in terms of what we call our staples domain, which are basically staple products. For us, that's a combination of refrigerated businesses and some grocery businesses. And we invested in some of the refrigerated businesses in Q4 and actually saw our refrigerated brands grow volumetrically. In our grocery business, We had some businesses that were wrapping an easy comp because of some supply chain challenges last year. They grew meaningfully in Q4. And then we had some other businesses that I just mentioned a couple that we've got to get to. So there's a lot that goes in there. We also undershift consumption in that grocery at Saks business in Q4. So that was really a part of what you saw in terms of where we stood versus consensus in the quarter. But to your broader point, you know, if you go back to the deck we shared at the last CAG meet, I don't know that there's been a more active portfolio in the last nine or so years in terms of reshaping the portfolio for better growth and better margins, including divestitures. We've done as many spins or divestitures as I think about anybody. So we're always open to that. I think what I would want investors to assume is anything that's not strategic for us where somebody else would offer us something that is above the intrinsic value of the asset, why wouldn't we be open to that? Of course, we have been in the past. We would be again in the future. But we also have to have sharp pencils in terms of how much overhead do those assets absorb? What is the economic value we would lose if we were to exit them? And are we going to be paid for that? So you won't find any entrenchment here against the concept, but we have to be very buttoned up in terms of does it create value or does it destroy value for our shareholders? Because Over time, I think what you'll see is we invest in the businesses we own. We'll add bolt-ons that are additive to our growth and to our margin, and we'll divest stuff that is a drag either on growth or margin and not a strategic fit. I think that's always been our playbook, and I don't think that will change over time.

Got it. Yeah, fair enough. And then just maybe quickly for Dave, you know, I normally don't ask about impairments. But clearly, you know, called out this quarter, and I think, you know, some have been called out previously. You know, while I understand, you know, changes in rates, what have you, like are there certain areas that we should just be aware of or certain brands that maybe have been driving a bit more of those impairments? And that's all. Thank you.

Yep. No, Rob. So, yeah, obviously, you know, the fourth quarter, we go through our impairment testing. We do it every year. I mean, we really look at impairment both at the brand level and for goodwill, which is based on a reporting level, which means there's several different brands that come together that then go against goodwill that's been allocated to those. So it's two different types of impairment. This quarter, we actually had impairments both in brand and in goodwill. And as I mentioned in my comments, there were three key drivers, the higher interest rates, which obviously impact discount rates, because you're basically doing discounted cash flows when you do impairment on goodwill, and you're using royalty methods, which essentially is a discounted cash flow type concept. So obviously discount rates have an impact, and they're up based on interest rates. You also, when you do goodwill, you look at the industry market multiples. And that is something that impacted this year as part of the impairment. When you look at the food industry and you look at it as an average, we have much lower industry market multiples. So that actually impacted us and was part of our impairment that we took. And then the third piece is assumptions we have on net sales. And obviously in this environment where, you know, volumes are down, we're investing, you know, that does impact your short-term forecast on net sales. And, you know, when you do that, that can impact any particular reporting unit or brand, depending on kind of where it sits. So, you know, we feel great about our business. We talk about our business, you know, very openly. And you guys have a very good feel for what our strategic priorities are. This is the standard analysis that we go through. But, But more than 50% of the impact is really from the interest rate and the lower market multiple.

All right. All makes sense. Thank you so much.

Thanks.

And, ladies and gentlemen, at this time, in showing no additional questions, I'd like to turn the floor back over to Melissa Napier for closing remarks.

Thanks, everyone, for joining us for our live Q&A session today. Investor Relations is around and available to take any follow-up questions that you may have. Have a good day, everyone. Thank you.

Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending. You may now disconnect your lines.