康尼格拉食品 (CAG) 2004 Q4 法說會逐字稿

Good morning, my name is Amy, and I will be your facilitator today.

At this time, I'd like to welcome everyone to the ConAgra Foods fourth-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 fourth-quarter 2004 results.

I'm Chris Klinefelter, Vice President of Investor Rrelations for the Company.

With me are Bruce Rohde, our Chairman and CEO;

Dennis O'Brien, who is the Chief Operating Officer of our retail product business;

Allan Lutz (ph) who's the Chief Operating Officer of our food product services, and Greg Hechtman (ph), who is Chief Operating Officer of our food ingredients business.

Today we released fourth-quarter earnings.

In our press release, you'll notice that we now have new segment classifications, retail products, foodservice products and food ingredients and those fit with how we now manage the business now that we have completed the major planned transformation of our Company.

In other words, our previous segment of packaged foods is now gone and has been replaced with two new ones --retail products and foodservice products.

So we now have three focused segments whereas, previously, we had two.

Today, in addition to hearing from our Chairman Bruce Rohde regarding ConAgra Foods overall, you'll also hear from the three Chief Operating Officers of these three segments.

Of course, Jim O'Donnell, who has been on these calls for years is retiring after 26 years with the Company so he won't be with us today; but we will fill in the details Jim would typically give you.

This morning, we released earnings of 40 cents per share for the fiscal 2004 fourth quarter.

Last year, we earned 28 cents.

Because of all the changes we've been making to improve our business model, there are several items that affect year-over-year comparability of the results.

Things like earnings from a joint venture we liquidated, divestitures in last year's results, costs related to implementing efficiency initiatives this year and, of course, an extra week in the quarter and a few other items.

We provide a detailed -- on those in the tabular format in our release so we won't verbalize those complex details now.

Admittedly this is one the more complex earnings releases we've done; but we trust you'll recognize this because, over the last two fiscal years, so many things have happened for the good as we carried out the strategic plan we told you about that we were pursuing.

That makes year-over-year comparisons complex, I believe.

When you boil it down to the core operating performance this year, adjusting for the items that affect comparability, overall, there were some solid trends in key areas of our business -- particularly in foodservice ingredients.

There are also some opportunities for improvement as well and you'll hear more about that from Dennis, Allan, and Greg in just a few minutes.

Our fiscal 2004 EPS is $1.66.

Last year we earned $1.46.

Because this year's results of $1.66 includes (indiscernible) pieces and as some of you may have questions we've done our best to summarize the main items that we think will affect 2004 and 2005 comparability and we summarize those in question number 23 in the questioned and answer supplement to the release.

You can find that supplement on our website under the investor section.

I will say just a couple of comments about the year's financials before I turn it over to Bruce.

Regarding the total year there are several areas that show overall straight.

Our $1.66 of earnings per share was a record and our gross margin, operating margins, and our net margins continue to show year-over-year improvements and are also records.

This has been a steady and consistent build as we have strategically repositioned ConAgra Foods through a number of planned actions.

We have made steady and consistent improvements in gross margins, operating margins, return on sales, capital expenditures, capital allocations and sales mix compared to the years gone by.

All of the arrows are in the right direction.

This is a situation where the numbers reflect the strategy.

As we start fiscal year '05, our balance sheet is solid.

The debt to total capital ratio is close to our target range of 50 percent at year end.

There's over $580 million of cash on hand.

Cash flows are very strong.

Annual capital expenditures and depreciation came close to offsetting each other this year, which is a trend we have developed during our strategic transformation.

And that is our expectation for most years going forward.

In addition, this year, we repurchased over 15 million shares of our common stock that was about $419 million and we plan to keep repurchasing it.

It has been a good way to allocate extra cash lately.

We've also paid out record dividends over 530 million this fiscal year and there is $1.04 at the annualized dividend rate as of year end.

So all things considered we ended the year and are starting our new year in a very solid position.

We have plans to accelerate the operating performance of the business and to improve the quality of the earnings which we will say more about.

So now, I'll turn it over to Bruce Rohde who will make some comments on strategic matters and will follow that with Dennis O'Brien, Allan Lutz, and Greg Hechtman who will comment on their respective operating segments.

As a procedural matter, I will mention that we detailed the impact of this quarter's performance in our release and in the Q&A document that we posted on our website and I will refer you to those because we will not dwell on all the minor details that we discussed this quarter.

We will discuss only the major ones.

And during the discussion we will be making some forward-looking statements.

Although we are making those statements in good faith and we're confident about our direction as you know, like other companies, we don't have any guarantee about the results that we will achieve in the future.

I refer you to our notes and forward-looking statements in our press release and, also, if you would like to read more about the factors and risks which can influence and affect our business, I'll refer you to the documents that we filed with the SEC.

Having said that, we will get started and I'll turn it over to Bruce.

Thanks, Chris.

I want to start by saying that I'm very pleased we posted a record year in terms of earnings per share and that we ended the year with a strong balance sheet and strong cash flows.

I'm also pleased that our capital allocations discipline has allowed us to deploy about $1 billion this year directly toward our shareholders through a combination of dividends and share repurchases.

I expect we will continue to aggressively repurchase shares and of course to pay strong dividend because alternatives like further debt reduction simply aren't that attractive for us or available at the moment.

We're, of course, going to keep a trained eye out for acquisition opportunities that can benefit our shareholders and which can utilize the improved business platforms we have built to handle more volume.

We've been making some very significant strides in operations and logistics, as well as linking information systems in sales and marketing.

So we are going to be ready to on board some more volume in the not too distant future but we are also going to be very strategic and disciplined in evaluating any acquisition opportunities that might come our way.

In a few minutes, Dennis, Greg, and Allan will hit on their respective operating highlights.

And Chris has already given you the major financial highlights for the quarter and the year, so I will tag onto that and say that I'm pleased with all the progress across the Company that's contributed to the favorable trends on things like gross margins, operating margins as well as returns on sales and, of course, capital expenditures and sales mix.

These terms are impressive because they're steady and they're consistent and I would like to convey a big thank you to all the people across the Company who have really been working hard for the shareholders.

These people have made meaningful progress and while there's always some areas for improvement, this team of people has accomplished a great deal during a rigorous period of major transformation.

ConAgra Foods today is a greatly improved company in a very different marketplace environment when you compare it to five years ago and 10 years ago.

The customer base around us has changed dramatically so we had to do that as well.

We completed our planned transformation of the Company and we are now completely focused on branded and value-added food opportunities, which is exactly where we told you we wanted to wind up when we set out to transform this Company a few years ago.

We also made a number of organizational and functional changes that we told you about along the way.

And the three Chief Operating Officers will have their own comments about that in a minute.

The strategic goal we set for ourselves was to build America's favorite food company so that we are preferred by our consumers and trade customers alike.

That results in building a high-quality earnings stream and building a strong return on invested capital base.

The manner in which we're steadily improving our margins and returns is now a series of planned initiatives focused on the basics of mix, marketing, operating capabilities and cost.

I know I have mentioned those four things before, but I will keep mentioning them because they are important and they're meaningful.

With regard to mix, we dramatically changed our portfolio to remove volatile low-margin businesses and focus on more attractive and consistent opportunities.

We are also steadily improving our product mix with deliberate sales targets for specific brands and product lines, and we are paying particular attention to where the best margin opportunities reside, and we are rationalizing SKUs where that makes the most sense for us and our customers.

From a marketing perspective, our marketing group's instituting more rigorous practices to realize the potential of our brands and our specialty product equities so that we prioritize our marketing investments.

We are seeing some good progress here and we expect to see more as we apply these practices to a greater number of brands and product lines.

In terms of capabilities, we have been retailing several areas of the Company like unified sales forces in each of the channels; like strategic logistical locations and services; like pursuing shop for programs in all of our manufacturing facilities; like linking a wealth of information systems together and building consolidated committed and confident customer service expertise.

All of these things are designed to make us an even stronger competitor, because we are serving an increasingly sophisticated trade customer base who expect best-of-class capabilities out of us.

We aim to provide that to them.

And all these capabilities are helping us prove (ph) cost, efficiencies, and service and they impact how we are received by our customers.

So the four things -- mix, marketing, operating capabilities, and cost are all a very big part of our action plan right now and all are important drivers of our growth.

Dennis, Allan, and Greg are each leading their channels in that regard and are making good progress so they've got my vote of confidence.

It is hard work but it's paying dividends.

So with that I'm going to turn this over to Dennis O'Brien who began leading our retail product segment during the fourth quarter and, as I do, I want to thank all of you for your interest in ConAgra Foods.

Thank you.

Thanks, Bruce.

I appreciate the opportunity to spend a few minutes reviewing with you last year's performance and outlining what our key focus areas are in the new fiscal year.

As I take on my new assignment, I am very positive about the profitable growth potential of our businesses.

We have a great array of brands, many of which have nice growth trends, and others which are not yet operating at full potential.

We have a significant opportunity for profitable future growth for all of our brands.

Let me first talk about the year just completed.

As you saw in the earnings release, the retail segment posted sales of 8.4 billion, a slightly modest growth of the prior year.

Operating profits were 1.2 billion, a slight decline on a comparable basis.

The specifics on how those comparables were determined are included in the release.

I will not attempt to detail them here.

These results were mixed.

We saw strong results from many of our key brands and we underperformed in other segments.

Brands which demonstrated share and sales growth included key franchises like Chef Boyardee, the Banquet meals, Pam cooking spray, EggBeaters, and Slim Jim meats along with others you'll see detailed in the release.

Segments which did not meet our expectations included our lunch meats and popcorn businesses, and I will talk to what we will do to improve those going forward.

Our plan in fiscal 2005 calls for an acceleration of results on businesses which grew last year and executing product improvement in our program adjustment where we underperformed.

There are three key initiatives in place to make that happen.

Let me outline them and provide more specifics on each.

First, improve the consumer value proposition of our existing core brands.

Second, introduce new products which are on trend.

And, third, develop sales momentum behind our strength and selling organization.

First, to improve the consumer value proposition in our core businesses, we are focused against better planning and execution of the fundamentals.

Those fundamentals include having a precise definition of target audience and a relevant brand point of business effectively communicated to the consumer.

This means insuring the right shelving and assortment at retail.

None of this is revolutionary thinking.

However, as we look at our businesses, where we profitably grew, we had these fundamentals in place.

Our intent is to apply these basics in a disciplined and consistent way across the entire portfolio such that we successfully and consistently drive the total business not just parts of it.

Secondly, we have multiple new product initiatives going to market right now.

The introduction of Life Choice frozen meals which appeals to the carb conscious consumer is well underway with early results strong.

We also have begun shipments of new Banquet Crock-Pot Classics.

These items take advantage of the insight that over one-quarter of American households use a crock pot, because it's an easy way to have a home-cooked meal that their family can eat at any time because you prepare it ahead of time.

It is convenient because not everyone in the family is always sitting down to dinner at the same time and the Crock-Pot makes it possible for on-demand eating.

Where crock pots are traditionally a hassle in the preparation -- you usually had to shop for and prepare all the ingredients, including the meat -- Banquet Crock-Pot Classics takes the time and hassle out of the process because all the ingredients, including the meat, are in there.

The time from opening the pouch to turning on the Crock-Pot is only five minutes.

When you get home, the meal is virtually ready.

We are now shipping six flavors like beef stew, chicken and dumplings, Stroganoff with beef and noodles and three other varieties.

It is early in introduction but so far, the results are outstanding.

Our third key area of focus is to leverage the capability of our unified selling organization.

During the last fiscal year we moved to consolidate separate selling organization into one team as we transitioned from a broker to direct at the customer headquarters level.

Given the order of magnitude of the change the transition, obviously, had some rough spots which most affected our processed meats businesses.

That transition is now behind us and the selling organization is fully focused on building depth and quality of distribution, improving our shelving, and driving more effective in-store merchandising.

We are now seeing the positive impact of these efforts on our share and sales performance and expect those results to accelerate in the upcoming months.

I should also mention one other area that is getting our focus this year and that is higher input cost.

Like many other food manufacturers, we are facing higher costs across a wide range of raw material, packaging, and energy input.

In addition to cost reduction programs in place, we have implemented price increases and will continue to evaluate and take appropriate actions where warranted.

Net, net.

We are excited about the growth prospects this fiscal year.

We are accelerating what worked last year in terms of getting our core brand marketing and merchandising fundamentals right.

We have multiple new products in market which meet real consumer needs and the power of the selling organization will make a big difference going forward.

Thank you and let me turn it over to Allan Lutz, chief operating officer for our food services business.

Thank you, Dennis.

As Dennis mentioned, I'm Allan Lutz, I run the foodservice business.

And I would like to spend a few minutes summarizing how I view the foodservice group's yearly results and why I think next year will be strong.

Before I get started, I will provide a little background.

I was named President and Chief Operating Officer of the foodservice group about a year ago after spending over 20 years in the foodservice industry.

Now that I have a year under my belt, I have assessed our opportunity at ConAgra foodservice.

And I think we have a great future ahead of us and I will get into why in just a few minutes.

Let me start by spending a couple of minutes on the year we just finished.

As we detailed in today's earnings release, the foodservice segment posted 3.7 billion in sales for fiscal 2004.

Organic or comparable year on year growth was +4 percent, once you adjust for the items mentioned earlier.

Operating profit came in at 321 million below last year as reported but up 2 percent on a comparable basis.

So we showed good results this year and next year, we should show solid growth in sales and profits as well.

Our performance reflects strong customer demand for our products and a focused approach to cost management.

Over the last year we made significant organizational changes that resulted in about $30 million in cost but which should pay back quickly by making us more efficient and even better connected with our customers.

And we detailed those costs in the release.

So all in all, we are pleased that in a year when we made significant organizational change, we still posted solid sales growth and I congratulate our team on that performance.

Now let me explain a little bit about the organizational changes.

Our sales efforts are now focused in three major product lines -- Specialty potato, seafood, and culinary.

Specialty potatoes is a major potato -- french fries and specialty potatoes for food service.

Our foodservice brand is Lamb Weston.

Seafood markets value-added frozen seafood products under the Singleton and Lewis Camp brands.

Culinary is a new formation.

I probably need to say a few words about it for those of you who haven't heard me talk about it before.

Culinary entails a broad line of products.

It includes branded retail products sold in the foodservice channel as well as prepared lunch meat, desserts, cheeses, pizza, tomato products, Mexican food items, frozen entrees and other items.

Previously, these businesses were in different ConAgra foods operations.

We integrated these businesses because, collectively, they provide a very strong presence in the marketplace, very strong customer relationships and, together, they can conduct business more efficiently and more effectively.

We combined five separate businesses to create the Culinary group and expect to create value as a team by serving the customers better, strengthening our product development and sales practices to gain more business and, at the same time, taking cost out of the Company.

A few minutes ago, you heard from Dennis about various sales and marketing initiatives taking place in retail.

We have similar initiatives in foodservice, meaning that we are implementing a disciplined approach to marketing our products and allocating marketing resources where we feel there is a lot of upside.

Just like in retail, we are also unifying sales and customer service teams where it makes sense to do so.

In addition, we are also implementing specific customer development strategies to place our most significant high-margin items in accounts where we are under represented.

This is a way of harnessing all the power of ConAgra foodservices for the benefit of our customers and our shareholders.

We think there is a great deal of opportunity in this respect.

I think fiscal 2005 will be a solid year for us.

When you consider what we bring to the table in our industry and how we are preparing to leverage it more powerfully, it is pretty significant.

We are the largest provider of value-added foodservice products in the country; we have great relationships and a very developed business space with all the major restaurant operators and distributors in the industry; and, most importantly, we have strengthened our culinary services and menu development capabilities to become the go-to company for menu solutions.

So all the initiatives you have heard our Company talk about with regard to better marketplace activities and more efficient operations -- whether it be in sales, marketing, supply chain or information systems -- are very much a part of our plan for profitable growth.

We have a great deal of opportunity and I expect fiscal 2005 to show progress to further validate our potential.

And I now will turn it over to Greg Hechtman (ph) who is chief operating officer for food ingredients.

Thank you Allan.

As Allan mentioned, I'm Greg Hechtman.

I run our food ingredients business and I'd like to spend a few minutes summarizing how I view the year we just posted and why I think our future will be strong.

I'll also give some background on myself.

I was named Chief Operating Officer of food ingredients about a year and a half ago.

Prior to that, I ran our input merchandising group and I've been with ConAgra Foods for 20 years.

Let me spend just a couple of minutes describing our food ingredients business.

We produce a variety of specialty food ingredients that are used by the food manufacturers, foodservice operators, and other ingredient companies.

Examples include natural spices, seasoning blends, savory flavors, dehydrated onion, garlic, and capsicum (ph) as well a broad portfolio of wheat flour, and oat and barley products.

With these products we have some very strong brands.

Brands that are well known and preferred in the food ingredients trade.

And this is the portion of our business we see growing the fastest in the future.

The other types of products and activities in this segment are ingredient distribution services and merchandising of input.

For fiscal 2004, our sales were 2.4 billion, ahead of last year, and our operating profit was 197 million.

That was significantly ahead of last year.

All components spoke to profit increases for the year but the biggest profit improvement was in our specialty ingredients products.

We have been working very hard to improve efficiency in that area of our business and we we made significant progress this year as the results show.

The garlic and onion portion of our business had an extremely difficult year in fiscal 2003.

We wrote down some inventory due to changing market values that year.

But this year, we improved management of our supply chain and operation.

And those issues did not repeat.

Our input merchandising operations also showed good sales and profit growth, driven by volatility and opportunities in those markets.

Going forward, our single biggest opportunity is to capitalize on the power of ConAgra food's portfolio of businesses and customers meeting our retail foodservice sources to expand our specialty line of ingredients with focus on our value-added ingredients and services.

Our customer plans are to provide solutions together with other ConAgra food products and resources, develop a larger and more profitable base of business in our highest margin items.

We made some progress in the past but there's much more we can do and we plan to go after it full force.

We view this as our biggest opportunity for profitable future growth.

With regard to the initiatives that Dennis and Allan spoke to around marketing, sales, operations and information systems, all designed to grow the top line while improving customer service and making us more efficient, these initiatives are very much a part of the food ingredients business as well and they are helping us connect with our customers and create more efficiency.

We are convinced there will be substantial benefits from implementing these initiatives and our food ingredients team is very determined to reach our full potential.

Thank you and now I'll turn it back over to Chris.

This concludes the business portion of remarks.

Just as a reminder, these remarks will be archived at the telephone number shown in today's earnings release.

This call will be archived on our web at www.ConAgraFoods.com in the section for investors.

Our web also has the question-and-answer document that is a supplement to today's release.

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

This concludes our remarks and thank you for your interest in ConAgra Foods.

Thank you for participating in the ConAgra Foods' fourth-quarter management discussion.

You may now disconnect.