康尼格拉食品 (CAG) 2002 Q2 法說會逐字稿

Good morning. My name is Michael and I will be your conference facilitator. I would like to welcome everyone to the ConAgra foods second quarter discussion. All lines are placed on mute to prevent any background noise. At this time, we'll begin the discussion.

Hello and welcome to ConAgra Foods. I'm Chris Klinefelter. Vice president of investor relations. With me are Bruce Rohde, our chief financial officer and executive vice president James O'Donnell. We put out a release of earnings per share showing 80 cents for the fiscal year and 44 cents for the quarter. This gives us a first half that matches the record first half that we spent last year. The 44 cents earned during the second quarter was on the high end of our expectations. Several of our key brands are performing well and we like the way things are shaping up. Bruce and Jim will have more to say on this shortly. The details of our financial performance are contained in our release and in a question and answer document we've posted on the web site, so we won't spend a lot of time on these matters. We'll comment on our results and where we are in our fiscal year. But I need to remind you that during this, these comments will be forward looking statements. While we're making these statements in good faith and we have confidence in the company's direction we don't have any guarantee about the results. So if you would like to read more about the risks that can affect our business, I need to refer you to the documents that we file with the S.E.C.. Right now, Bruce is going to make some comments about where we are in our year. Bruce?

Thanks, Chris. When we last reported earnings we were in the very early days of the aftermath of September 11th. At that time we reported that the results of our first quarter came in as we'd expected on plan and no surprises. We said then that despite the uncertainty of the time, our expectations for our second quarter hadn't changed from the beginning of the year. Those quarterly plans were strategic, they were well thought out. We knew then and we mentioned at the time that in our second quarter we'd be hurdling the strongest numbers and while we faced an uncertain economy we still believe we delivered the first half expected. We're now 100 days after September 11th, just weathered what may be a series of the most difficult quarters in years probably decades, marked by war, a recession, yet as a company we're here to report that our second quarter results came in as expected. In fact, to the high side. But I say as expected in the sense that there are no surprises. In spite of all that's going on in the world, our news is good news. Our results are attributable to a number of things. Some simply reflects a return to basic values by people who want to be close to home and who want to be with family and friends. As we provide a wide variety of comfort foods this return to basic values complements our business. But at the beginning of this quarter, as everyone grapples with understanding the events of September 11th, many felt the bottom would fall out of service venues. But from our position in food service, we can report that has not been the case. Our food service business delivered just as we expected. That, by the way, was planned below last year in this particular quarter regardless of September 11th. So we planned for that in our numbers. As a result, at this point, we're on target and we have no surprises to report. Overall, our first half results have given us a good degree of confidence as we head into the last half of our fiscal year. We're on track with sales. We're ahead of last year in net income. And our diluted earnings per share for the first half of fiscal 2002 are 80 cents matching the company record that we set at this time last year. We remain committed to marketing investments. We perceive this recessionary period as a window of opportunity to grow our brands. So in that regard, we're very encouraged that four of our megabrands drew more than 5% in this quarter. That gives us added confidence. In addition, the remainder of our fiscal year should benefit from operating improvements that are taking hold at a very opportune time. Fundamental to our success are the four performance mandates we set at the beginning of this fiscal year. First, growing quality sales through value added products and drive consumer demand. Second, making continuous improvement to the coordination of manufacturing, marketing and sales. That's key to our execution. Third, intense passion for service and merchandising and fourth, reducing debt largely through better use of our working capital. We're encouraged by our results here today. We think our future looks bright relative to our industry and especially relative to remaining other industries. So with that, there are a number of specific details I know folks will be interested in. I'll leave that to Chris and Jim to articulate.

I'll talk about our segment performance, then James O'Donnell will talk about our capital allocation. We now have four reporting segments. Previously we had three. The details of those changes are posted in the release and q & a document on the web. And some historical information so you can get comfortable. But I'm going to start with packaged foods. Sales were up 6% to reach $3.3 billion. We're seeing progress with the initiatives we have in place to grow our top line. Sales for many of our core items are going strong. 17 of our top brands grew for the quarter. Nine of those had a double digit rate. So we're encouraged by the way things are shaping up. For those of you who have been watching us, you know we've been focusing on new products, on improving the existing products, on increasing our marketing investment and the mix, and also some event driven selling. We're getting some with these objectives and things are looking good from the standpoint of volume. We've gotten details about specific brand performances on the web and I'll refer you to that. I won't go into that right now. Operating profit for this segment was up to $756 million. As planned, operating profit for the quarter has declined to $429 million. That difference from prior years, one is food service product which are comparing just a strong period last year. That business is a strong one. Even in the midst of a tough economy. But last year was unusually strong. So on the wrong end of a comparison for the quarter just ended. The second main reason for the difference is part of our strategy for future growth by increasing our marketing investment and the planned concentration of marketing allocations. This is to fuel the growth for our branded items. By and large, Trends for several of our major brands are healthy and we think the outlook is bright. On a year to date basis, packaged food sales have reached $6.2 billion increase over last year. Operating profit of $76 million which is also more than last year. Sales for our food ingredients business rose in this quarter. Which includes spice, flavorings, the profit results were mixed. Operating profit was up $92 million. As planned, however, for the quarter, operating profit declined to $47 million. Our seasonings, spice and blend business showed profit growth during the quarter. Some of this was due to an acquisition which is not yet in the numbers. Profits for the milling business declined because margins were tighter for flour in the industry. Our third reporting segment is meat processing. Sales there declined a little bit to $2.6 billion. That decline is due to lost sales because of a plant fire we had last fiscal year. Operating profits for the segment are up substantially to $92 million. Profits in beef, pork and chicken. Chicken had a large improvement because we're running that business better and the balance between supply and demand has improved. Our pork profits are also improved this quarter by a pretty large percent. For the year to date this segment has $5.3 billion in sales, a slight decline from last year due to plant fire. And operating profit is up substantially to $171 million. Sales for our agriculture product segments declined to $1.1 billion. Operating profit declined here as well reaching $2 million. That is below our plan in this segment. Profits were down for United Agri Products. Because of a tough pricing environment and because of the tough state of the farming economy. Keep in mind that UAP had a strong first half last year. We faced tough competition for the quarter. Profits for our agriculture merchandising group was lower than normal but that was as planned. We need to remind everybody that we are comparing it to a very strong year for them last year. In fact, a record year. Year to date, sales for this reporting segment are off slightly to $2.6 billion. And profits are down to $78 million. So given the tough comparisons we've faced for the company overall, our results came in at the high end of our expectations. We think that our EPS for the year will continue to grow. And as for any problems due to a changing economy, were looking to modestly beat this current EPS consensus estimate of $1.40 for the fiscal year. That means that we'll post a double-digit increase over the $1.24 earnings per share that we reported last fiscal year. Now, over to you, Jeff.

Okay, Chris. Let me update you on our capital policy. We have several initiatives under way to improve pre-cash flow. The key aspect of our agenda is to pay down debt. This will be done primarily by reducing trade work and capital. As we accomplish this, our debt to total capital ratio will be more in line with our historical average of around 50%. We still have some work to do but we're well on our way. Overall, on a year-over-year comparison we have reduced trade working capital by $350 million. Trade working capital is the net position of trade accounts receivable, inventory and current operating liabilities. This improvement in working capital is one of the factors that contributed to posting a debt reduction of over $500 million for this quarter. We also target our property, plant, equipment investments that left an annual depreciation. So far this year, we're on track during the quarter, we invested $123 million in property, plant and equipment. While incurring $154 million in depreciation and amortization expense. We also made $242 million of dividend payments to our shareholders so far this year. Let me also mention that at the beginning of our current quarter our third quarter, we redeemed $350 million of high-rate preferred securities. We did this to take advantage of more favorable interest rates. And by redeeming these securities we will have a noncash amortization charge which will be offset by finance and savings during this fiscal year. I'll wrap up my comments on capital allocation by saying that as we go forward our intent is to deploy a bigger and bigger percentage of our capital behind the best returns areas of our business. This is all part of our agenda to build a richer business model by improving our margins and returns and keeping our discipline in regards to capital allocation. With this I'll turn it back over to Chris.

Thanks, Jim. Before we conclude, I want to spend a little bit of time talking about housekeeping matters. We made some changes to our segment reporting this quarter. We made those changes to reflect how we now manage our business. We've been going through some changes and we have changed our segment reporting to show how we now think about how we now manage our business. The question and answer document posted on our website offers historical financial information in this new format. You can use that question and answer document as a resource to have comparable data. I'll quickly summarize the changes in the segment reporting. Previously, we reported three segments -- Packaged foods, refrigerated foods and agriculture products. We now report in four, packaged foods, ConAgra food ingredient, meat profits and agriculture products. We no longer use a refrigerated foods segment. We've moved our processed meat business which was previously in the refrigerated food segment to the packaged food segment. That means that those products are contained within the packaged foods segment. We've broken out our food ingredients business separately. It was part of the agricultural foods segment. It includes grain milling operations as well as our dehydrated vegetable, seasonings blends, flavorings and other products. Our meat profit segment now reflects the results of fresh meat, pork and poultry operations. The agriculture product segment now reflects our crop distribution business as well as our agriculture merchandising business. I want to mention that the descriptions of these new segments are contained in today's press release as well as in the Q&A document posted on our website. As a reminder, today's remarks will be archived at 1-800-642-1687 for domestic callers and at 1-706-645-9291 for international callers. The pass code is 2461047. These remarks will also be archived on the web at www.videonewswire.com/ConAgra Foods/122001 and at www.ConAgraFoods.com. That is where you can find the question and answer document relating to this release. We're available for discussions at 402-595-4684. This concludes our remarks. I'd like to thank you for your interest in ConAgra foods.

This now concludes the discussion.