康尼格拉食品 (CAG) 2003 Q1 法說會逐字稿

Good morning.

My name is Gina and I will be your facilitator today.

At this time I would like to welcome everyone to the ConAgra Foods first 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 discussion of fiscal 2003 results.

I'm Chris Klinefelter, vice-president of investor relations.

With me are CEO Bruce Rohde and CFO Jim O'Donnell.

This morning we released earnings showing EPS of 43 cents for the quarter we just completed.

Earnings reflect solid performance from our packaged foods business and good expense control.

Details of financial performance are contained in our release and in our question and answer document we posted on our Web site.

The Q and A we posted answers detailed questions for those of you interested in them.

If you have not visited our Web site before and consulted these facts, we encourage you to do so.

It is a helpful tool for those interested in these details.

We won't dwell on the details here but will touch on highlights.

Over the next few minutes Bruce Rohde will comment on where we are in the company's agenda of strengthening our fundamentals and improving our margins and returns.

Jim O'Donnell and I will comment on the financial performance in the first quarter performance.

during this call, we will be making forward-looking statements.

Although we make these statements in good faith and are confident about the direction of the company, we have no guarantee about the results we will achieve in the future.

We are subject to the economy, competitive pressure and surprises like everybody else in the business.

I refer you to the documents that we file with the SEC if you are interested in those.

With that, we'll get started.

I'll turn it over to Bruce.

We reported strong EPS performance.

Packaged foods was our most profitable business.

It was solid.

Overall unit margins grew modestly and expanded as well.

Our folks are doing the right things and they have been for awhile with the ongoing initiatives of building brands, understanding consumers and customers so we can satisfy them.

At the same time continuing to improve on operating efficiently.

Our overall EPS performance also benefited from having all of our meat assets with us for the whole quarter.

When we originally made our earnings projections for this fiscal year we didn't expect to have the first quarter numbers because of the transaction that we had previously announced

But having that business and our numbers for the entire quarter helped us to come ahead of expectations.

I'm saying that now so people don't misread the results and get carried away and over anticipate earnings for the rest of the year.

We have been preparing to sell the red meat business for the strategic reasons we talked about.

I don't expect to have those numbers for the next three quarters

I would like to talk about the balance sheet.

I like the direction of our balance sheet.

Working capital and debt are moving in the right direction.

I also like the enthusiasm of our team as we started our new fiscal year.

There is some things, though, that I'm not satisfied with.

I want to see all of our businesses and not just packaged foods be ahead of last year.

It may be tough for that to happen this year because the overall markets are working against our agricultural and poultry business is.

There might not be a whole lot we can do about that in the short-term except run those efficiently and opportunistically.

We will show a strong profit gain in packaged foods and other segments will be profitable, but we expect a profit decline in other segments.

That's not news.

That is on target with what we previously said.

We are on plan with our projections in packaged foods.

I expect that this year we show more of what we saw last year, which is more brand and productivity gains, healthy investment for the future in terms of marketing, as well as new products.

We are continuing to make progress with our team selling.

And we are experiencing improvement in overall execution.

This activity should benefit packaged foods margins.

For the overall company, we are continuing to focus on debt reduction through better working capital management.

I am pleased again with those efforts.

For the overall company we had four performance mandates last year that kept us focused.

Those same four mandates continue to be our focus this fiscal year.

1st with sales and margin improvement. 2nd was better execution and coordination around manufacturing, marketing and sales. 3rd was team selling and fourth was debt reduction, which I just mentioned

Those four should serve us well again this year.

We still have plenty of work and opportunity on our plates for SKU management and gains.

We are making steady progress.

I want to mention we recently mailed out our fiscal 2002 annual report.

If you want it, you can get it on the Web site or call us and we will be happy to sends one

In there we talk about overall goals and direction as you expect us to.

And we talk about how we see some of the issues being discussed now, like options and pensions and also our culture and governance practices.

We did this because governance items are top of mind for a lot of folks today and they should be.

If you look at our governance principles, they are also posted on our Web site.

I encourage you to read them there or in the annual report.

We want everyone to know about the main items that set us apart from other companies.

Not giving loans to directors or executive directors, not repricing options, restricting executives and officers to not selling stock until six months after leaving the company.

Those are the kinds of things that align management with shareholders and it is the antithesis with the many practices that are under debate in the business world today.

These don't pertain to this quarter, they pertain to how we run this company.

We can't impact how other companies operate, but we can impact how we run this one

With that in mind I look forward to strong EPS this year.

You heard me say this before.

We are on the journey to become America's favorite food company, focused on and interested in the branded and value added side of the business.

Doing that through portfolio changes and operating improvements.

You saw this start to take shape over the last several quarters.

You will like the steady progress that should unfold as we move forward

We thank you for all of the interest and encouragement and support we have been receiving and look forward to reporting on our progress.

With that in mind I will turn this over to Jim O'Donnell, who led an excellent task force over the past 15 months in connection with the management and capital.

Okay, Bruce.

I'm going to say a few words about capital.

One of the main areas of focus has been debt repayment largely through working capital improvement.

We had another quarter of working capital redid, accounts receivables, less short-term trade liabilities including accounts payable, accrued expenses and advances on sales.

Improvement - by the way, when I say improvement, I mean improvement over the same quarter last year.

And not improvement compared to our most recent fiscal year numbers.

We were about $150 million this quarter compared to the same quarter last year.

Just as a reminder because of our business need we had a seasonal pattern to our working capital.

We show a use of cash in working capital investment in the front half of our fiscal year, which unwinds and generates cash in the second half of our fiscal year.

I expect that pattern to continue and I expect to seeing working capital improvement each quarter over the same quarter last fiscal year.

This year we expect to pay off additional $1 billion in debt.

The cash to do that will come from solid cash flows, better working capital management and proceeds from the sale of our meat business.

Our interest costs came in at $84 million this quarter which is lower than $104 million in the last year's first quarter.

And most of this improvement came from reduced debt balances and to a lesser extent more favorable interest rates.

I think CAPEX will come in in the neighborhood of $450 million in the year and for depreciation to be in the range of 425 to 450 million dollars.

we are not amortizing good will or other intangibles anymore due to the new accounting regulations.

This will increase our EPS by about 15 cents for the year, or about 4 cents for the first quarter.

This equates to about $35 million before tax for the quarter that we just ended

Our focus on capital discipline and specifically in working capital, capital expenditures and debt balances is a key part of our plan to boost returns on invested capital which we expect to show steady improvement as we move forward.

I am encouraged as we move into fiscal 2003 and I look forward to reporting on progress with initiatives like working capital and debt reduction in particular.

Chris now has some comments to make about the segments in the quarter.

Okay, Jim.

I'm going to briefly touch on some of the issues that relate to the segment performance.

The performance numbers are in our earnings release and brand details are out in the Q and A document on the Web site.

I won't spend time recapping the things you already have.

I will comment on bigger issues.

Our strongest performing segment was packaged foods.

Sales down 3 percent but operating profit was up 12 percent.

The sales decline is price related, not volume related.

As a matter of fact, volumes were up 1 percent for the quarter overall on packaged foods.

But the price decreases for cheese and processed meats, those are down due to lower [inaudible] costs.

That lowered segment sales but not profitability.

The real story is in the profit growth in packaged foods.

This is the result of more efficient operations and a better mix.

If you followed our company, you know that we have an agenda to build brands, connect better with consumers and customers and become more efficient.

That's what is happening in the packaged foods segment.

We did increase advertising and promotion as part of our plans to build for the future.

It's part of better consumer connections that help drive strong profit growth in future quarters.

We will increase investment as needed as part of a plan to fuel a profitable future growth.

We are asked a lot with respect to the packaged foods business, one question we are asked a lot, are retailers taking down inventories.

Yes, we are seeing that.

It is not significantly more pronounced than it has been in the recent past.

It's something we take in stride

Another question we are getting is how the trends are in food service.

Overall volume trends show modest single digit unit growth rate which isn't the best we have done, but not bad given the environment.

It's a tough environment now.

A lot of major establishments are showing weak results.

We will get through it by focusing on what drives the channel, which is new products, signaturized products, service and increasingly efficient operations.

as far as commentary about the other segments and food ingredient sales were flat and profits were down.

Overall volumes were white.

The profit decline is due to increased product costs for non-grain processing operation, meaning the seasoning brand of flavoring business.

We are comparing against a period of low cost in that business, so we'll see tough comparisons for the rest of the year for those operations.

For the grain processing portion of the segment, profits are up and margins are better.

For the meat processing segment, sales and profits are down due to the prices of commodity meats.

Pork and poultry showed significant profit decline.

Meat processing segment will be our poultry operations.

You will make note of that comparative change as we report second, third, and fourth quarters.

Agricultural product segment showed a decline in sales and profits.

Some of that was by design to make changes to the distribution business which is United ConAgra Products, UAP.

That business distributes seed and chemicals and fertilizer to the growing community.

We are disciplined in the selling function there.

The good news is that bad debt expense was reduced for this business.

They had a late planting season which moved some of their business across quarters making the first quarter a little light.

We are hopeful some of that business will show up in the second quarter.

The team there is set on turning that business around.

We think progress will start showing in the second half of this year

The other segment, the merchandising operations, they posted profit gain.

So across our company we are making progress with expense control.

We posted a lower SG and A expense this quarter, even with increased advertising and promotion.

Showing that our efficiency initiatives that we have underway are starting to get tracks.

Overall we are optimistic about fiscal 2003.

You have comments on our earnings per share expectations in the earnings release.

We look forward to reporting on them throughout the year

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

Pass code is 5210894.

The call will also be archived on the web at www.ConAgra Foods.com at invester relations; and at the First Call web address contained in today's release.

Our web address is also the one where you can find the question and answer document relating to this release.

As always we are available for discussions at 402-595-4684.

This concludes our remarks.

I thank you for your interest in ConAgra Foods.

Thank you for participating in today's session.

You may now disconnect.