康尼格拉食品 (CAG) 2002 Q3 法說會逐字稿

Good morning. My name is Judy, and I will be your conference facilitator today.

At this time, I would like to welcome everyone to the ConAgra Foods third quarter management discussion. All lines have been placed on mute to prevent any background noise.

At this time, we will begin the discussion.

Hello and welcome to ConAgra Foods management's discussion of third quarter results for fiscal 2002.

I'm Chris Klinefelter, Vice President of Investor Relations. With me are Chairman and Chief Executive Officer, Bruce Rohde, and our Chief Financial Officer and Executive Vice President, Jim O'Donnell.

Just a few minutes ago we put out a release showing EPS of a $1.11 for the first nine months of our fiscal year, and 31 cents for our quarter. We're pleased with that, and we'll say more about it in a minute.

The details of our financial performance are contained in our release, and in the question-and-answer document that we have posted on our Web site, so we'll not dwell on those details in our comments today. And over the next few minutes, Bruce Rohde will share his thoughts on our company, and then Jim O'Donnell and I will provide greater clarity about the quarter.

Before we get started, I need to mention that during this presentation we'll be making some forward-looking statements. Although we're making those statements in good faith, and we have confidence in our company's direction, we don't have any guarantee about the results that we'll achieve, so if you'd like to read more about the risks which can affect our business, I need to refer you to the documents that we file with the SEC.

Right now, I'll turn it over to Bruce.

First of all, I'm pleased with the quarter.

We hit the high end of our expectations, we're on our way to a strong year which we'll complete in May.

Our quarter's up 41 percent, a big number.

Keep in mind that we're comparing against a quarter last year that had some unusual conditions with energy, a softer economy and higher marketing costs, and all that made for a tough second half of fiscal 2001. So we're glad about being up 41 percent, but we certainly don't see that as a normal growth rate.

As far as this year's numbers go, the consensus estimate is presently a $1.42 per share for the year. We're generating strong earnings because of changes we've made over the last several quarters are starting to pay off, like improvements in our cost structure, more effective account management, and improvement in mix.

The impact's starting to show up in the numbers that we're posting. That gives us confidence, so we're raising our expectations today to modestly beat the consensus estimate of a buck 42.

Let me recap the four performance mandates. First of all, quality sales and earnings growth.

Second, continued improvement in execution. Third, menu and event selling, and fourth, debt reduction.

You'll note in that last one, we've improved our debt levels by over a half a billion dollars compared to last year's third quarter.

Progress with these four mandates is what gives us the confidence to take our yearly expectations up, so I look forward to reporting on our progress.

And now I'm going to turn this back over to Chris and Jim for more details.

Thanks, Bruce.

I'm going to say a few words about our segment performance and the drivers for that performance.

Let me start by saying that we now have four reporting segments. Previously, we had three segments.

We made that change last quarter, and the details on that are in this release as well as in the Q&A that's on our Web site. Historical information by segment is also out on our Web site.

Let's start with Packaged Foods. Sales for this segment were up three percent to reach 3 billion, and trends for several of our major brands are favorable.

We've posted these brands in our Q&A document.

For those of you who've been watching us for the last couple of years, you know that we've been focused on ways to grow our top line while improving our product mix.

Some of these things include new products, improving existing products, increased and improved marketing investment, and event-driven selling. Those efforts helped sales growth for the quarter, and trends are good for some important items, but we also have some brands that declined and need more focus, which is exactly what we're giving them.

Operating profits were $426 million, ahead of last year by 23 percent for the Packaged Foods segment. Profit growth came from a combination of volume gains, mix improvement, and effective cost management.

On a year-to-date basis, Packaged Foods sales have reached 9.2 billion, up 10 percent, and operating profit is 1.2 billion, up eight percent over last year.

The sales for our Food Ingredients business were $412 million, off slightly as we shifted mix toward more profitable items and more profitable customer accounts.

We also consolidated the flour mill earlier in the year that is making for some tough comparisons in our grain processing operations.

Profits were up for grain milling as well as for seasonings, blends, and flavorings.

Overall operating profit increased to $41 million as a result of lower input costs and better product and customer mix. Margins for the grain-milling environment are also more favorable than they were in the third quarter last year.

On a year-to-date basis, segment sales are up to 1.3 billion, and operating profit is up to 134 million.

Sales for our Meat Processing business declined to $2.3 billion.

The decline is due to lower input costs for some beef products, which in turn drove lower selling prices.

It's also due to some product and customer mix improvements. I'll also mention that demand for pork and poultry was strong, and they both showed sales gains.

Operating profits for this segment were up to $33 million. Pork and poultry showed gains, as did U.S. beef.

The industry dynamics for these businesses improved, and we're also striving to improve our product mix, customer mix, and efficiencies. The environment for our Australian meat business was difficult, and that business posted a profit decline.

For the year-to-date, this segment has 7.6 billion in sales, a slight decline from last year due to a plant fire. And operating profit is up to $205 million.

Sales for our agricultural product segment grew to $524 million, while operating profit declined to post a $38 million loss.

Profits were down for United Agri Products, which is our distributor of crop inputs, because of weaker mix, tough pricing environment and increased bad-debt expense. Quarterly operating profits for our merchandising group were up over the same period last year.

Year to date sales for this segment are flat, at $3.1 billion and profits are lower at $40 million for the fiscal year to date. Now I'm going to turn it over to Jim.

o'donnell: I'm going to say a few words about our resource deployment.

We're focused on several things to improve free cash flow.

Our agenda is to reduce working capital and pay down debt, to get our debt to total capital ratio more in line with an historical average of around 50 percent for our fiscal year end.

I'm pleased with our progress on working capital, which I'm defining as the net position of accounts receivable, inventory, and accounts payable and accrued expenses.

We've reduced working capital by over $500 million compared to the same period last year, and that in turn has reduced debt by over $500 million. We think in our fourth quarter we'll also reduction in working capital and debt.

We also want to keep property, plant and equipment increases roughly in line with annual depreciation, and so far we're on track. During the quarter we invested the $145 million in property, plant and equipment, while incurring $156 million in depreciation and amortization.

We also made $123 million in dividend payments.

In the third quarter, we redeemed $350 million of preferred securities.

We did this to take advantage of more favorable interest rates, and redeeming these securities had a charge of about a penny to EPS for the quarter, which will be offset by financing savings this fiscal year. We've already seen some financing savings this fiscal year, as third quarter interest expense was $94 million, which is 28 percent below last year.

This year savings are a combination of more favorable interest rates, and better management of working capital.

And I want to 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 branded and value added side of the food business.

We're on an agenda to improve margins and returns, and discipline with our capital allocation program is part of that agenda. With that, I'll let you wrap it up.

Just as a reminder, these remarks will be archived at 1-800-642-1687 for domestic callers and 1-706-645-9291 for international callers. The passcode is 3243322.

This call is also archived on the web at www.videonewswire.com/conagrafoods/032802 and at www.conagrafoods.com/investors.

That address is also the one where you can find the question-and-answer document relating to this release. As always, we're available for discussions at 402-595-4684.

This concludes our remarks, and I want to thank you for your interest in ConAgra Foods.

This concludes the management discussion. You may disconnect at this time.