康尼格拉食品 (CAG) 2006 Q4 法說會逐字稿

Good morning.

My name is Dennis and I will be your conference facilitator.

I would like to welcome everyone to the ConAgra Foods fourth-quarter conference call.

At this time, all participants are in a listen-only mode.

Later, we will conduct a question-and-answer session.

Thank you.

I would now like to turn the conference over to Gary Rodkin, Chief Executive Officer of ConAgra Foods.

Please go ahead, Mr. Rodkin.

You may begin your conference.

Good morning.

This is Gary Rodkin, and I am here with Frank Sklarsky, our CFO, and Chris Klinefelter, our VP of Investor Relations.

I'm going to say a few words about the quarter and our outlook, and Frank will also give some commentary on financial items.

But before we get started, Chris will say a few words about housekeeping matters.

Good morning.

During today's remarks, we will be making some forward-looking statements.

And while we are making those statements in good faith and are confident about our Company's direction, we do not have any guarantee about the results that we will achieve.

So if you would like to learn more about the risks and factors that could influence and affect our business, I will refer you to the documents we file with the SEC, which include cautionary language.

Now I will turn it back over to Gary.

Thanks, Chris.

We just posted EPS of $0.21, including $0.11 of expense from items impacting comparability.

That means a $0.32 quarter excluding those items.

That was a solid finish to the fiscal year.

Earlier in the year, we commented that we expected our second half to show comparable year-over-year EPS gains, and that is exactly what happened.

I'm not going to go into a lot of detail on the numbers today because we gave you a fair amount of the information in the release, in the tables and in the Q&A document.

No doubt, you will view the release to be rather complex.

Unfortunately, this is unavoidable, and it's due to the requirements surrounding the reporting of discontinued operations, along with disclosures we are making related to items that impact comparability.

Hopefully, the combination of the release and the written Q&A document give you what you need.

And Frank is going to go through a number of items in the financials that we hope will provide additional clarity.

And if you still need more explanation, please feel free to follow up with Chris Klinefelter after the call.

I look forward to future releases that reflect the simplicity that we are shooting for.

Now I'm going to touch on a few points that I think are important.

We posted operating growth for three of our four segments, which means we're starting to move in the right direction.

Our segment reporting changed this quarter and it matches the way we are now operating the business, and we think it gives investors greater transparency.

Consumer foods, our largest segment, posted profit growth despite slightly lower overall volumes, and also increasing marketing investment to fuel future growth.

Brand performance was mixed.

Several major brands grew sales, including Chef Boyardee, Orville Redenbacher, PAM, Hebrew National, Egg Beaters and Reddi-wip, all of which are brands that have a lot of upside opportunity, as we said last March.

As we significantly improve our marketing effectiveness and get more aggressive in terms of innovation, we are confident we have a portfolio that will show meaningful growth over time and that results for key brands that have been underperforming will soon show better trends.

I am also confident about our ability to generate solid returns from our non-priority brands.

We've got different kinds of managers managing those brands -- for example, sales veterans motivated to find opportunities without spending marketing money, more like entrepreneurs on a shoestring.

I'm very pleased with what we're beginning to see here, particularly in non-measured channels like dollar stores, where value really counts.

In March, we told you that our highest-focus brands, those in the top two quadrants of our brand segmentation work, represented about two-thirds of our sales -- of our consumer sales.

And that includes brands like Banquet, Chef Boyardee, Egg Beaters, Healthy Choice, Marie Callender, Orville Redenbacher, PAM, Reddi-wip, Slim Jim, Hebrew National, Swiss Miss and others.

We will report on this high-focus group as such going forward.

As you know from our March presentation, all of our brand groups, all our segments, will have different levels of marketing investment, different strategies, managed by people with different experience and skill sets.

And the first quarter of fiscal 2007 will be our first full quarter managing our consumer business in this fashion.

The last point I will make about this segment is that productivity gains in the supply chain were key to the profit growth this quarter.

We will continue to aggressively focus on efficiency improvements, as we described last March.

For our Food and Ingredients segment, profits were up 22%.

Specialty potato products had a good quarter due to strong volumes, and our dehydrated garlic and onion operations also had a good quarter, with strong volumes and better pricing.

Profits for our Trading and Merchandising segment were down for the quarter, but still substantial.

The trading environment was not as favorable as it was a year ago or even a quarter ago.

This recent quarter showed a mixture of ups and downs, as energy and fertilizer declined, but agricultural commodities were up.

Volatility goes with the territory in this business.

And as we have said on many occasions, we will continue to manage with a longer time horizon.

International consumer brand profitability was up, primarily because of mix.

International consumer operations are a smaller piece of our Company, but have big potential.

These numbers are branded consumer revenues outside the U.S.

They do not include international sales of Lamb Weston potato products outside of the U.S., as those are part of the Food and Ingredients segment.

There is a lot more we can do to grow our consumer portfolio outside of the U.S. over time, but after we get our domestic foundation solidified.

Discontinued operations had a more profitable quarter on packaged meats and cheese.

Once you adjust for the divestiture gain for the tax items we described, the basic operations were more profitable this quarter than a year ago.

We are executing better, and declining protein prices helped our margins.

Looking ahead, we have raised our EPS expectations by $0.02 for fiscal '07 because of the shares we repurchased this quarter.

As we receive additional divestiture proceeds in the future, you can expect us to deploy capital in a way that creates value for our shareholders.

As far as how we think 2007 EPS will shape up across quarters, we're up against a very tough comparison from our trading group in the first quarter.

In fiscal '06, that segment had a tremendous first quarter, which is unlikely to be repeated in fiscal '07.

We have built our annual plans with this in mind.

So in the release today, we told you we expect the first-quarter EPS from continuing operations to be below prior-year amounts.

That is due to the trading comparison, but it doesn't change our view of the full fiscal year.

As we look to the rest of the year, with respect to comparable EPS growth, keep in mind that we are now carrying overhead that will be trimmed.

A big chunk will be eliminated quickly following the sale of our meats business.

As you know, accounting rules require a number of expenses fairly but not directly allocable to meats to be counted as expense within continuing ops.

More importantly, as we move through fiscal 2007, productivity initiatives will gain traction and will become more efficient and achieve cost savings in the supply chain and in the administrative functions that are independent of the meats business, though the second, third and fourth quarters should show a healthier EPS performance, and our plan is for the year to come in at $1.12 to $1.17, excluding any items impacting comparability.

Are there ways that it could turn out better?

Sure, if we got cost savings ahead of schedule, or we get some top-line moment more quickly, or receive divestiture proceeds early and buy back more shares, but that is not how we are calling it right now.

If that changes, we will let you know.

Before I close, I want to comment on one other item.

As you know from a press release we put out two weeks ago, Frank Sklarsky is planning to leave the Company.

Frank has been a great asset for us as we've set up the transition from the old ConAgra Foods to the new one.

The Board and I sincerely thank him for his efforts in improving our systems, cost structure, capital discipline, upgrading our finance team and building more productive relationships with the external community.

Frank is fully committed to being part of our team through the transition period, assisting where necessary, and of course, completing this year's 10-K.

We've got a search underway for his successor, and we will update you when there is news.

In any event, we wish Frank all the best.

That concludes my comments today.

Thanks for your interest in the Company, have a good holiday weekend, and now I will turn it over to Frank.

Thanks very much, Gary, and good morning, everyone.

As Gary stated, we had a solid fourth quarter and made progress on a number of fronts related to both ongoing operations as well as with divestiture activities.

This improvement is, however, just the start, and there's a lot of progress still to be made.

Going forward, the team will certainly be working to further drive initiatives to grow the top line and improve our margins and overall cost structure.

Before I continue, I do want to again point out that we are now reporting our results based on a new segmentation for all periods presented.

The segments include Consumer, Food Ingredients, Trading and Merchandising, and International.

Just for reference, once again, Food and Ingredients includes our Lamb Weston potato business, formerly in Foodservice.

The remainder of the Foodservice business is included in the Consumer segment.

The International business was formerly part of our Retail segment.

And Trading and Merchandising, now separate, was part of the former Food Ingredients business.

This year's fourth quarter did show improvement on a comparable basis.

These improvements were a result of continued strong performance from some of the brands, as outlined in the press release, our Lamb Weston potato business, and from the Company's dehydrated garlic, onion and vegetables operations within Food and Ingredients.

Trading and Merchandising had another good quarter, although not to the extraordinary level as in the prior-year Q4.

We'd like to make sure all of you understand the split between continuing operations and discontinued operations, so we will summarize that.

As we said last quarter, consistent with the accounting rules governing the reporting of discontinued operations, we have allocated to those businesses only those direct selling, general and administrative costs that would go away immediately upon divestiture.

In addition, there were a number of comparability items in the quarter that impacted both our profit before and after tax and our overall tax rate.

These items were specified in the press release issued this morning, and we will describe their overall impact today.

So let me now briefly summarize some key elements of our fourth-quarter results.

As we stated in the release, and as Gary mentioned, the Company reported diluted earnings of $0.21 per share, including $0.11 of net expense from items that impact comparability.

Those items are detailed in the release.

Excluding items impacting comparability, third-quarter EPS was $0.32.

Of the $0.32, continuing operations rounds to $0.27 and discontinued operations rounds to $0.05.

Now let's first look at the continuing ops component of our earnings.

As shown in the tables in the Q&A accompanying the earnings release, fourth-quarter diluted EPS as reported from continuing operations was $0.09.

This includes approximately $0.18 of expense from items impacting comparability.

This adds to $0.27 of earnings from continuing ops excluding items impacting comparability.

These comparability items include restructuring charges of about $0.09, a charge related to early retirement of debt of $0.03, a charge related to an additional impairment of a joint venture of about $0.05, and a $0.05 charge related to a note receivable.

Also within continuing ops, we had a favorability of approximately $0.04 per share related to taxes.

This was associated primarily with a benefit with changes and estimates related to certain state and foreign tax matters.

So again, in total, we had a net of $0.18 of expense from special items.

Now let's look at discontinued operations.

Included in disc ops for the fourth quarter were the Cook's Ham, seafood and packaged meat and cheese businesses either divested or announced for divestiture.

Diluted EPS from disc ops was $0.12 per share.

This included $0.07 of profit from items impacting comparability.

This makes EPS for disc ops equal to $0.05, excluding comparability items.

Consistent with the earnings release, the $0.07 is due primarily to a gain from divestiture of our Cook's Ham business early in the quarter.

This amount, which is net of taxes, was significantly impacted by the nondeductibility of goodwill associated with that business.

As an additional item, please note that during the quarter, there were no additional impairments taken associated with businesses yet to be divested.

Now, just a couple of additional words on the tax rate you see in continuing ops.

Those of you who have already done the calculations from this morning's release will note that this quarter's tax rate on results from continuing operations is about 11%.

The difference between this rate and our normalized rate of 36%, as applied to profit from continuing ops, is about $0.04 per share, and this difference is due to the Q4 changes and estimates described earlier.

I would now like to review a couple of other items.

During the quarter, as previously mentioned, the Company completed the divestiture of its Cook's Ham and its seafood businesses.

We received gross proceeds of approximately $440 million, resulting in a pretax gain of about $111 million and an after-tax gain of about $35 million.

The high tax rate, again, was due primarily to the nondeductibility of applicable goodwill noted previously.

Dividends paid during the quarter totaled 142 million versus 141 million last year, reflecting the payment on March 1, 2006.

The dividend action we announced in March, which lowered the dividend to $0.18 per share per quarter, was reflected in the June 1 payment, and that was after our fiscal year end.

Capital expenditures for the quarter totaled about 92 million, as compared to the prior year's fourth quarter of about $102 million.

Depreciation and amortization was approximately 85 million in the quarter, all of which applied to continuing ops.

This compares to 91 million in the fourth quarter of the prior year, of which $77 million applied to continuing ops.

This quarter's spending reduction reflects our continued improved discipline around our capital spending processes.

That said, going forward, as we stated in March, we do intend to make significant investments in our infrastructure and in plant rationalization initiatives, and spending increases for these items will start to become evident as we get further into fiscal 2007.

We still believe the overall guidance we provided in March for fiscal 2007 capital spending in the range of $450 million is still appropriate.

Our cash balance at the end of the fiscal year was $326 million.

So we are in good shape from a liquidity standpoint.

This was after some balance sheet actions we undertook during the fourth quarter.

Specifically, we decided to redeem $250 million of our 7.875% senior debt due in September 2010.

We still have $500 million of that maturity still due.

We also repurchased approximately 8.7 million shares of our common stock during the quarter at a cost of approximately $197 million.

As a result, our weighted average diluted share count for the quarter came in at about 519 million shares, and the fiscal year-end share count was approximately 511 million shares.

Overall, in the interest of our various constituents, as well as our continued commitment to a strong balance sheet, we believe this use of divestiture proceeds during the quarter was prudent in the current environment.

I would also like to point out that we have been making progress on the initiatives we discussed in March at the analysts and investors' meeting in New York.

We continue to identify areas of G&A savings, and believe that we can reduce costs in this area by $100 million by fiscal 2009 on a comparable basis.

Obviously, we are working to pull as much of the savings into fiscal 2007 as possible.

Timing of our remaining divestitures will be one of the factors in determining how much we can accomplish near term, but we are making very good progress.

In the area of cost of goods sold, the supply chain organization is also working very hard to meet the commitments in that area, both on the variable and fixed side of the equation.

They are quickly gaining traction and are well on their way to identifying significant savings.

How much of this goes to the bottom line?

Depends on the highly uncertain inflationary environment, so we intend to watch that very closely.

Finally, in the area of working capital, our core consumer business continues to make very good progress in the area of finished goods inventories and accounts receivable.

More information on working capital will be available once we file our 10-K document with the SEC later this summer and as we get further into fiscal 2007.

There is one other items of note this quarter.

As we mentioned last quarter, we were again required to classify $400 million of our 7.125% long-term debt due in 2026 into short-term debt because of a put option the debtholders have.

They can exercise this option this coming August, so the accounting rules require us to classify this in the short-term debt category since conceivably the debt could be redeemed within one year.

Given current conditions and the price at which the debtholders would be able to put the bonds to us, we do not currently believe it is likely the put option will be exercised.

So, if things play out the way we think it will, we would likely reclassify the $400 million back into long-term debt during this fiscal year once the option period has expired.

That said, given recent interest rate movements, there's always some possibility that the put option could be exercised, so we continue to monitor this situation.

Given our current financial strength and access to the credit markets, we do not, however, have any concerns surrounding near-term liquidity, even if the bonds were to be redeemed.

With that, Gary and I will be happy to take your questions.

And I'll turn things back over to our operator.

Thank you.

(OPERATOR INSTRUCTIONS).

Christine McCracken, Cleveland Research.

Just wondering if you could provide a little bit more color around how the sale of your meat business is going -- is that still on track, and whether or not you've seen good interest around that?

Christine, that is a fair question.

Can you -- I am sure that you would not expect us to speculate on the timing of the proceeds.

There is a wide range of values out there.

We are seeing a lot of interest in the business, really no surprises in the process, and we are continuing to manage the business well.

It is holding up well.

It is not the perfect time, from a cycle standpoint, to sell the protein business, but it is clearly a key catalyst for us as a piece of our savings and simplification.

So we are very much on track.

Is it still your preference to sell that as one complete unit to a single party?

Or would you consider other alternatives?

Clearly our preference, the cleanest would be to sell it all as one.

And then just if you could provide -- you did say that protein helped that business in the quarter, lower protein prices.

Can you comment on your outlook for commodities in general?

Clearly, there's been a number of moving parts here.

But commodity inflation was a big part of your guidance at the analyst day.

Maybe you could provide more color?

Yes, Christine, I will take that.

It's Frank.

I think when we looked at the quarter, we had inflation and productivity roughly offsetting -- we are looking at that same kind of a trend as we get into FY '07.

It might vary a little bit up or down by quarter, but generally a pretty good balance between the inflation and savings.

I think as we look ahead, obviously a very uncertain environment.

As it relates to crude oil, it's anybody's guess.

That impacts, obviously, our packaging costs -- resin-based packaging, as well as some of our transportation costs.

That has gone up and down.

But that is clearly something in our forecast for the coming year.

As it relates to protein, they have moderated somewhat.

We do hope that continues.

And the other item is with respect to our grocery business, continues to be impacted by relatively high steel pricing, which affects any of our canned businesses.

So those are the major elements.

I would say during this past quarter, inflation may be in the 40 to $50 million range, roughly offset by productivity.

Looking forward, perhaps similar kinds of numbers on a quarterly basis in FY '07.

David Driscoll, Citigroup Investment Research.

First off, Gary, thanks for all this information.

It certainly is a lot to take in this morning, but we do appreciate it.

It's more than we've seen in a long time from ConAgra.

You're welcome.

The place I'd like to really focus on is I think you mentioned in your prepared comments that you were happy with the progress you have made so far on improving the cost structure.

Can you give us some more details here?

Can you talk to us about when we might see some announcements on plant closures?

Can you give us some anecdotes or highlights to give people a sense for what type of progress the management team is making on the cost reduction efforts?

Yes, David, I would tell you that we have implemented an Office of Project Management, which basically tracks with a high degree of specificity all of our initiatives on cost savings.

And that is working extremely well.

We have a high degree of accountability and a high degree of visibility into every one of the projects.

These take time to implement and gain traction.

And that is why I think you will see, as the rest of the year develops, we will have a high degree of confidence in our annual numbers, despite the fact that the Q1 numbers will fall a little short.

In part, that is because these programs take some time to ramp up.

They are productivity initiatives that do include plants rationalization.

But we will not be making an announcement on that for a bit -- probably into the second quarter would be my guess.

But we have a number of programs that have already been implemented and are beginning to gain traction.

And I think we'll start to see some of the benefits of that in Q2.

Top-line growth is expected to be I think about zero, is what you gave us in terms of guidance for FY '07 on continuing ops versus the numbers for '06.

The question I get from a lot of folks, and I would really like to hear your answer to this, is when do you see the effect of your marketing program in both the increased dollars, and then you made a real big point about the increased effectiveness -- when do you really expect to start seeing traction from that?

And then a follow-on to that.

Well, I will tell you, we have, I would say, some very strong plans and initiatives, some of them already underway as it pertains to marketing effectiveness, retail execution and even building a robust innovation pipeline.

Several of the brands already have begun implementation, and those would include Hebrew National, Orville Redenbacher, Slim Jim, and a number of others of our key brands have work that is underway.

I think if you looked across the year, the number would be more like 1 to 2% on the top line, with that gaining some traction as the year goes as more and more of these brands do receive the new marketing effectiveness programs, basically advertising, in-store execution and, again, a little bit later, the innovation pipeline.

Just one last question -- how long will it take to get new products, new product introductions to where you think it should be?

Well, I think that is a fair question.

The way that I see it is basically second half of this year, we may start to see a little bit.

But clearly, as we hit our next fiscal year '08, it should be in absolutely full stride.

Really appreciate the comments.

Thanks, everyone.

Eric Katzman, Deutsche Bank.

I was wondering if you could kind of fill us in on where the implementation of SAP stands in terms of kind of rollout and if you're learning anything from that to date, or is it still too early?

No, I would say we have learned quite a bit.

And again, we have brought in a gentleman from Kellogg, King Pouw, who was very much in a leadership role in implementing SAP across that company globally.

So he's got a lot of experience.

And what we have done is stepped back a bit to really focus on making sure we've got the right processes before we turn it into implementation of systems.

So we have narrowed the focus a bit and decided to go a little deeper rather than broader.

I think that has been a very good step for us.

We have crossed some important things off of the list, getting them done.

And we're feeling much better now -- not ready to say that we declare victory, but I would say we are past mid-field.

And so I think in the last update we had, maybe Chris can remind me, but I think you had said there was maybe about a third complete.

Is that -- given you want to go deeper rather than broader, is that still a good percentage?

Or how do we look at it in terms of innings or percentages, or however you want to quantify it?

In real rough terms, I would say we are probably about 40% done.

So we've got still plenty ahead of us, but I think we are doing it in a more sustainable, choiceful way so that we can make certain the initiatives we tackle get done the right way.

So the pacing is a little bit different.

Gary, can you touch on pricing and what has happened there in terms of either -- I guess the two major areas would be the Consumer or Retail versus the Foodservice?

Eric, I will take that for a second.

In terms of pricing, during the quarter, you could probably surmise it is about 2%, in that range, what we were able to achieve.

If you look at the volume change and the fact that we are roughly flattish on a net sales basis, pricing would be implied at about 2%, 2%-plus.

And that is probably relatively even across the segments.

As you know, the Foodservice business is now meshed into Consumer, with the exception of Lamb Weston.

And Eric, this is Gary.

I would tell you that we look at net pricing as a combination of our trade spend and our pricing.

And we are making very good progress as we look towards productivity, some of it being choiceful pricing and the right competitive environment in different categories, some of it being more efficient with our trade spend.

So as we look forward, we are going to get better and better at that, because it is certainly our intent to improve our gross margins.

And this is a big piece of it.

Todd Duvick, Banc of America Securities.

First of all, let me say, Frank, we are going to miss you.

I've really appreciated the job that you have done.

Thank you.

I guess related to that, going forward, just in terms of your financial policy, can you tell me if things like debt paydown and managing your balance sheet, if that is going to continue with some guidance from the Board, or if that will largely depend on who you choose as a successor candidate?

I think the Board is always going to have the ultimate decision on these kind of major actions.

But I would say that we are going to have continuity in the realm of what we communicated back in March -- that we will benchmark the deployment of any of our one-time proceeds in a way that compares it to share repurchase.

So we will look at organic deployment, look at repurchase, but we will always keep in mind the need to have a strong balance sheet and a solid investment-grade credit rating.

I think the actions you saw in the fourth quarter demonstrated our sense that we'll always want to draw a good balance, but we will always deploy our proceeds in a way that benefits our shareholder and creates shareholder value.

So I don't see any major changes.

You know, Gary and I have talked about this.

We don't see any major changes in the bias of deployment of proceeds.

And it is consistent with what we said in March.

That's helpful.

And then I guess related to that, and I don't know if you will be able to answer or speak to this, but as we look for additional divestiture proceeds from the packaged meats business, I guess you will use that same rationale, and we might actually see some additional tendering for bonds?

I guess what I would say is that I would just repeat what we were saying before -- let's get the proceeds first, and then we will do the analysis based on the current situation as to what the best deployment is.

We will benchmark against repurchase, but we will always keep in mind a strong balance sheet.

I would point out that as you look ahead and look at our debt to cap ratio, which is the lowest it's been in quite a long time, we've got great coverage ratios, that there is not a whole lot of additional debt near term that would be economically efficient to take out because of some of the premiums involved.

We will continue to look at it, but we are in very good shape from a liquidity and balance sheet standpoint right now.

David Nelson, Credit Suisse.

On the consumer business, I'm trying to reconcile the weak top line, first of all, in the quarter -- not much growth there, I understand, sales versus volume, with the 9% operating profit growth and your comments that things are -- cost-cutting is only on track.

It looks like -- it appears that it might be ahead of schedule.

But then also on your top-line comments for the next year, you're only looking at 1 to 2% growth, albeit back-end-weighted.

Is there an issue here?

Because as I look at the amendment to the -- or appendix to the release, where you have, it is like 15 brands growing and, I don't know, five or six brands declining, are some brands just falling off a cliff in, say, the managed for cash division?

Is that why it is kind of netting out to a very low number at the top line?

I think the basic answer there, David, is mixed.

We are feeling as though we are taking the right steps on each of the quadrants that we are investing where we said we were going to invest and putting productivity plans in place that, as I said earlier, include really taking a hard look at our trade spend.

And in some cases, not all volume is created equal.

So we have made choices to eliminate some of the least-productive of our trade spend.

That has some short-term volume implications occasionally, but builds a much stronger foundation for us as we go forward.

So I think we are very comfortable.

And when we say 1 to 2, hopefully we are going to beat that.

But we're trying to make sure that we live up to our promises.

And --

Pardon me, go ahead.

And I would also say that I want to make it very clear -- in no way, shape or form are we falling off a cliff.

And in fact, we have some wins under our belt.

Some of that has not shown up on the order sheet yet because we have just completed a few of the deals.

But in some of our managed for cash businesses, we're starting to get some pretty good traction in what I call the value segments, like dollar stores.

Your growth in operating profit exactly speaks to that.

What tools are you using to make sure that you use -- it allows you to use [great] spending more efficiently?

We have a big project underway with our in-house experts, but also some help outside from a well-respected consulting firm that has done this many times.

And I would tell you that the big areas for us are compliance.

So we haven't been, if you want to talk about accountability, we have not been as diligent as we are going to be on a go-forward basis when we spend the money for a particular program.

We are going to hold our partners to a higher degree of accountability to deliver and perform for what we're paying.

That would be one area.

And the second would be just pure efficiencies.

Some of the spends we have done in the past clearly I would call renting volume.

And we're not interested in doing that any longer.

A lot of those deals, frankly, are unprofitable, and there is no reason for us to continue to do them.

So once we get that out of our system and we don't have to overlap that volume, we will be in much better shape.

I'm very interested in your comments about moving the G&A associated with the meat business off the books when you get there, that you're still being hampered by that in your profits.

Any chance you could quantify what overhead you might be able to eliminate once that business is sold?

You know, that clearly would be pure speculation.

It is a bit -- well, let me give that over to Frank.

I would say that when we gave our guidance back in March, the fact that we wanted to get $100 million of G&A savings by FY '09, that would have included a significant portion related to divested businesses.

Now to the extent that we can achieve -- complete the divestitures during the fiscal year, that will give us some wind at our backs in being able to pull a much larger portion of that forward into FY '07.

Now, that said, we are not waiting for the divestitures to claw back G&A anywhere we can possibly find it.

And I would say we are well on our way to getting tens of millions of dollars into the bucket for FY '07.

Pablo Zuanic, JPMorgan.

Just a couple of questions.

First, just to go back to the previous question, but more from an EBIT perspective -- for fiscal year '07, you have implied that most of your cost savings are going to be offset by the need to reinvest in marketing.

So that is why you are guiding pretty much for flat EBIT growth.

But here in the fourth quarter, you have about 8, 9% EBIT growth like-for-like on continuing operations.

Did you see anything in the fourth quarter in terms of operating profit trends that would make you think that there is more upside than downside to that guidance in terms of EBIT for the continuing operations for '07?

Pablo, that is a good question.

And I think the important thing to keep in mind is, while we do think that our cost savings will accelerate as we go through the year, both in G&A and in COGS, our goal is really to use that as fuel to redeploy in the initiatives we've talked about previously, whether it be incremental spending on innovation in R&D, or on the advertising and promotion side to really ramp our priority brands.

So as we generate more fuel, we will use that to redeploy, to start growing the top line more quickly.

So we would hate to call an upside to EBIT at this point because it is exactly the model we're trying to pursue right now.

Okay, then a follow-up -- your guidance when you give the guidance for '07 based on March -- in March, you said that you were assuming that commodity trading, if I understood right, that commodity trading would be pretty much stable year on year.

But now you are implying that commodity trading apparently is going to be much lower in '07, but you are keeping your guidance unchanged at the operating level.

So that has to mean to me that actually you are projecting better numbers on the breaking side ex-trading.

Is that fair?

I mean, you are talking about in the fourth quarter, your commodity trading went to down to 36 million from 55; you're guiding for a much lower number for the first quarter in '07.

So it seems that -- or in March, when you gave guidance, you had already assumed there would be a significant drop-off in commodity trading.

And related to that, what is the number that you are assuming in terms of commodity trading for your guidance in '07, if you may say that?

I would not want to get into specific numbers for '07, because even if we could call it, I'm not sure we would want to disclose that.

But it is difficult to call.

But I guess I'd clarify -- the guidance back in March was that we thought that the Trading and Merchandising operations would be -- I will call trend levels as opposed to stable year over year.

And there is a differentiation there.

Our plan did assume a moderation in the profitability of Trading and Merchandising in '07, as Gary indicated before, while at the same time an acceleration of cost savings and other margin-enhancing initiatives would offset that, giving us a relatively steady overall EBIT performance year over year.

Okay, I just want to know -- is that trend downwards, Gary, because you're actually forced to reduce the size of the book?

Or is it just that the trading environment is less favorable?

Pablo, obviously this is a world of volatility that we manage for the long term.

And Q1 of last year was a barn-burner.

It would not be in any way, shape or form prudent for us to plan to repeat that.

So as Frank said, in our planning we have chosen to be much more modest back with more like historical trends.

And therefore, Q1 clearly will be short from a planned standpoint on the trading side.

But that does not change our outlook for the entire year.

That is the way we have planned it.

I understand, Gary, and I am sorry to insist -- I just want to know is this also because you're actually forcing to reduce the size of the book?

In other words, the amount of cash that has been allocated to that division to be invested -- have you forced some form of reduction, or there's been no change in terms of the assets that are being invested there?

No, that is absolutely not the case.

And just going back to the share buyback numbers, in terms of share buybacks you have done about 45% of your proceeds from asset sales, based on the press release.

I know that the question was asked before, but I guess what I am trying to understand here, can I use that 45% ratio for the next 12 months?

I don't think -- we don't see major changes in terms of your financial environment that would make me think that that ratio should be much higher or lower, Frank?

Yes, I think that the reason we did it the way we did it in the current quarter is we thought it was a good balance.

We had an opportunity to do some things on some near-term maturities in 2010.

But going forward, we are going to benchmark proceeds, as we said before, against a share repurchase.

I'm not sure you could use that same 45% going forward, because again, there is not a lot of debt coming up that would be economically feasible to redeem.

So we are going to be looking at repurchases on the one hand and also organic investment on the other hand.

So I don't think you can apply that percentage going forward necessarily.

Okay.

I have just a couple of follow-ups and then I will pass it on.

Gary, in terms of the environment in frozen dinners, we are seeing [Kallo] coming in.

We hear about other companies trying to enter that segment also.

It seems to be quite price-competitive, promotional.

What are you seeing there in terms of just the frozen dinners segment?

That is an important part of your business.

Pablo, it is a very important part of our business and one that we feel very good about.

We had a good overall year on the frozen business.

And we do see innovation in that.

We do see here and there some of our competitors being more price-competitive than we expected them to be.

We trust that that will smooth out over time and gets a bit more rational.

But we've got our guns loaded extremely well.

We've got a great, well-segmented portfolio between our Kid Cuisine, our Healthy Choice, our Marie Callender and our Banquet.

We feel very good that we've got plans in place from a marketing and a retail execution standpoint, as well as the innovation pipeline that is going to make this a very vibrant and continuing growth opportunity for us.

So we are real excited about this segment.

And just to follow up, when I go around and see stores, obviously, we see quite a bit of your products -- sesame seeds, David's and your penny candy, beef jerkies and a number of those products.

I just wondered, given your drop size and scale, much lower compared to other companies, say, like Pepsi, how profitable that business is and whether there's opportunities there to take on more of the merchandising down the road or to be more aggressive?

I would say that when I see your products at these stores, I would say that you are overrepresented based on what we would have thought would have been your rational cost base.

Can you comment on that?

Pablo, that is a fair question, and it is clearly an area that I am very, very interested in, with my background.

We do have some terrific products for that segment, led by Slim Jim.

David's is also a very good one.

And we're going to continue to work at deepening our penetration and making certain -- you hit in on the head -- our drop size.

We have some executional plans in place that allow us to feel very good about our profitability.

But it is an area that we're going to continue to push hard as an area of focus.

And getting the drop size bigger is clearly something that is in our sights.

And just one last one for Frank.

Frank, in terms of the guidance for '07, maybe I am forgetting my numbers, but did you actually say what the charges in terms of cents would be in '07?

Because I look at your fourth-quarter numbers, you know, continuing operations, the charges on the continuing operations have doubled, are almost two-thirds of your like-for-like EPS, your $0.04 guidance for the first quarter broadly implies also huge restructuring charges -- have you given that number?

I mean, can you give it for the first quarter and for '07?

I don't have a number for you for the first quarter.

That will depend on the timing of announcing of plant rationalizations and some other G&A initiatives.

But we can commit to you that as those charges occur, we will be very, very careful to be very transparent about those, including telling you what segments of the Company that those do occur in.

But we haven't given a specific number by quarter.

We did issue an 8-K at the end of the last quarter, talking about a range of about $183 million.

We have taken about 130 of that so far.

That number could go up or down over time, but we will be very transparent about that.

John McMillin, Prudential.

Hopefully these won't be unfair questions, Gary.

Just can you give us some kind of idea what advertising was for the quarter and for the year -- the level of advertising support?

We will work on getting that number to you.

I can't tell you what the exact number is.

But I can tell you that it was up.

Chris, maybe you've got--?

Yes, I have something that might be helpful.

For A&P collectively, we were around 70 million or so for the quarter, which was up about 11%.

And then for the year, we were about 320 or so rounded, which was up about 3%.

Only 70 million for the quarter?

Seven-zero?

Okay.

And just as I look at this new segment, the International food segment, I kind of ask myself, does it have any kind of scale to be really be successful longer term.

Can you attempt to address that, Gary?

Sure.

First of all, you know that we don't include our Lamb Weston international business, which is substantial.

That is not included in that.

The way we manage that is through our Lamb Weston operation, which is counted in Food and Ingredients.

We also have a pretty large JV in India, which we have a 48% interest in.

So that is just equity income; we don't include that in our revenue.

So those are two pieces that make our numbers significantly bigger.

But it is clearly a relatively small piece of our operation today.

The way to think about it, John, as we go forward, is from a platform standpoint.

And we do have several platforms where we are very fundamental domestically and we think we can be globally -- don't want to share those today from a competitive standpoint.

But you can probably fairly easily back into them.

And just my last question, and I guess it plays off a little bit on what Dave Nelson said, but when it was said that Frank was leaving, you used the word, solid finish to the year.

And even today you talked about a solid quarter.

And I don't know, I see a 2% volume decline.

I see a much, much lower tax rate.

Is this -- it's certainly solider than your associate at Sara Lee.

But is this really what you mean by solid, at 11% tax rate, 2% volume decline?

Well, I guess you could debate the semantics of that.

And everything obviously has to be put into context.

But we feel like we are making progress.

I would tell you, John, that we are clearly not satisfied with those kind of numbers on a go-forward basis.

That would clearly not be satisfactory.

But we are in a real reinvention mode.

We are in a real blocking and tackling focus period right now where we are trying to look forward, and the current performance, or I should say the Q4 performance, important to keep the wheels on, but not the primary focus.

It is really looking ahead.

And in fact, we've got an all-Company meeting this afternoon to address just that.

So solid, again, matter of semantics -- we feel that we are making improvement.

And I guess that is the key.

Fair enough.

Thanks a lot and good luck, Frank.

John, one other thing is that when you talk about the tax rate, we did treat that lower tax rate as a comparability item.

So if you look at an apples-to-apples basis, for continuing operations, excluding items that impact comparability, including that tax effect, the $0.27 for this year's Q4 compares to about $0.23 in the prior year of Q4 after adjusting for similar items.

Yes, I know.

And it is about versus $0.30 versus about four years ago.

So you see my point -- I guess it is progress versus last year, but last year wasn't exactly the toughest comp.

And John, I would tell you that we agree with that.

We are basically saying we've got to build a much more solid foundation.

You have heard the key planks, starting with attacking the cost structure.

So again, we're looking toward the future and we hope that we can be much more of a model of sustainable, profitable growth on a consistent basis.

And we will feel a lot better about this when we talk this time next year.

Bill Leach, Neuberger Berman.

Frank, I was just wondering, in terms of your EPS guidance, what are you assuming for interest expense, the tax rate and option expensing?

This does not include the impact of option expensing, which is probably in the range of $0.03 to $0.04 on an annualized basis.

The tax rate, the normalized tax rate, we do believe, excluding comparability items, will be about 36%, and interest income between 225 and 250 million for FY '07.

You mean interest expense?

Interest expense, that is right.

What was the number again?

About 225 to 250.

And in terms of your first-quarter commentary, I wasn't quite clear -- are you suggesting the whole earnings to be down or just the Trading segment?

No, the earnings we said would be about $0.04 -- in the range of $0.04 below what it was last year on a comparable basis.

Last year, you would see is about a $0.26.

And that was due primarily to a less than -- I'll say solid, but less than extraordinary performance that we had last year in the Trading and Merchandising operations.

That would be the principal impact.

So you are guiding to $0.22 this year in the first quarter?

I would not want to call an exact number.

We are saying that versus last year, in the range of $0.04 due to that factor.

And obviously, there are a lot of other factors that could impact us as we go into the quarter.

Eric Larson, Piper Jaffray.

I have two questions, guys.

One really kind of relates a little bit to what John was questioning, and it really relates to your domestic portfolio as well.

And Gary, you have now had some time to really evaluate this.

We talked a little bit about it in March in New York.

But do you like the strength of your domestic portfolio?

We all talk about reinvestment of proceeds, maybe buying back stock from divestitures, but maybe there's some places where you feel you have to strengthen the domestic portfolio -- bigger brands or maybe becoming bigger players in some of the categories that you are in.

And tied into that, then, as you get your cost savings, what do you ultimately think your A&P as a percent of sales should be in this business so that you can have the chance of delivering sustainable, consistent volume growth that is more reliable?

Eric, I feel great about our portfolio.

That is not to say as we look out into the future that we wouldn't look to supplement here or there where we could strengthen ourselves.

But I am very happy with the portfolio today.

We've got a lot of what I call latent equity, and that means a lot of household names that people clearly haven't heard much about or seen much excitement about over the last X number of years that just need a little bit of tender loving care.

Hebrew National is a great example of that.

The business has responded unbelievably well as we mainstream that brand from an advertising standpoint and a retail execution standpoint.

We're starting to see that in a number of other products.

So I think if you really understand the trends from a macro standpoint, health and wellness is clearly one, and we've got some terrific products and terrific equities, led by Healthy Choice, Egg Beaters, Orville Redenbacher -- terrific as the perfect healthy snack, and so on.

If you think about another key trend, it's value.

And we have a lot of brands that play extremely well to that value segment.

And we are not ashamed to say that’s a focus for us.

So a great big brand like Banquet is a huge player when it comes to delivering great price value.

There are a number of other things.

But basically, the way our portfolio lines up, we believe we've got to make smart choices where to invest.

But we clearly have the kind of leadership in some of those categories like a PAM or an Egg Beaters.

We clearly have some brands that go very deep with particular regions of the country or customers, clearly have some that play very broadly.

And I would tell you if you took a look in our R&D labs today, it would look unbelievably different, much, much more exciting, very, very robust innovation pipeline against a number of platforms, some of which come from the other side of our business that include what you might consider business-to-business foodservice or commodity-type platforms.

But we've got a lot of technologies and a lot of brands that really haven't talked to each other in the past, and we are excited about those opportunities.

Great.

And then just to finish that, Gary, A&P for the year -- 320 million.

Really, the revenue base for that, we should compare that to 6.6 billion to your consumer business, about 5% of total.

As you get your cost savings, what do you think -- and your ability to reinvest some of those cost savings to build growth into your consumer business, what should that number look like -- I mean, over time -- I'm not talking '07, but should that be an 8% number or 7 or what do you think is the right number on that?

Well, I would tell you, I would like to get up into the high single digits.

And it won't be spread like Peter Pan peanut butter, it will be much more choiceful.

So some of the equities will exceed that number as we concentrate on fewer.

But I would also tell you, Eric, just as importantly, and maybe even more importantly, it is the effectiveness of those dollar spends.

And I really do think we've got a 2X factor as we really zero in on what return on investment, on marketing spending really means.

So when you take the effectiveness and the increase that we generate from better margins through the cost savings programs, you are going to see a very different ConAgra as we look forward.

Good luck to you, Frank, we will miss you.

Tom Kerr, Reed, Conner.

Most of my questions have been answered.

I was just curious -- I saw a media report a while back that says you guys have 10 corporate jets.

Is that still the case?

And can you let us know what the cash operating expenses are for that?

We do, indeed, have 10 corporate jets.

I would tell you the usage factor on them has gone down dramatically.

I would tell you we've got some leases that are very onerous for us -- long-term leases that make it extremely difficult and bad economic decisions for us to be able to easily escape from them.

So, it is a bit of a perception issue.

But if you took a look at our total, as we look at our budget, even last year as we implemented much tougher policies, and on a go-forward basis you'd see the numbers go down dramatically.

David Driscoll, Citigroup Investment.

I will try to keep it brief here.

On the last conference call, I talked to you, Gary, about the SKU reductions.

Can you give us an update on it?

What was the effect of your ongoing SKU reductions in the quarter?

How much did it reduce net sales by?

And then can you talk to us about the SKU reduction efforts going forward in F'07?

David, I would tell you that would not be a major impact in Q4.

We think that the bulk of that is behind us.

We are going to be very selective on a go-forward basis, and we will continue to eliminate.

So as we go forward, I would hope that on a net basis as we introduce new products, we also eliminate some of the SKUs and we don't have a net addition, and probably still a net reduction.

But they will in no way, shape or form have any kind of material impact on our top line.

Discontinued operations, you didn't give guidance to it in your press release.

But can you just generally say whether you expect this business to improve next year for however long -- let's assume you have it for the whole year.

Would you generally expect it to improve or not?

You know, I don't think I can answer that question today.

It wouldn't be fair for us to speculate.

Final question -- you mentioned that both Healthy Choice and Banquet were two of the brands that didn't perform well in the fourth quarter.

You know, we see a lot of, a number of positive results here, out of Smart Ones, out of the Heinz brands.

Can you talk to us a little bit about the -- certainly health and wellness, you just mentioned a minute ago that Healthy Choice was a big deal.

But seeing it on the list of the ones that did not perform very well in the quarter, I think there would probably be a number of questions about that.

Can you comment on where you see this thing going?

Yes, I would tell you that buried within the Healthy Choice is our ice cream, and that performed very poorly.

We're making some changes in that arena.

And that was the big drag on the Healthy Choice number.

On Banquet, we really -- we're going into what I earlier called trade rationalization.

We clearly had some savings from that that helped our margins on Banquet.

And we were also up against an introduction last year of a big product, Banquet Crock-Pots, which was in its introductory phase.

So those are the two real key factors.

As we go forward, we are really taking a look at some pieces of that portfolio.

For instance, Healthy Choice Soups has a lot of momentum -- very strong, and could continue to receive more of our support.

It is a very vibrant category.

It is a competitive one.

But we've got a big stake in it.

And as I said before, I'd stack our portfolio up against anybody's.

Well, nice progress in the quarter, and good luck.

We are going to need to conclude our call now.

I know there is another company reporting in just a few minutes of the call.

So this conference is being recorded.

It will be archived on the Web, as detailed in our news release.

And as always, we are available for discussion.

So thank you very much for your interest in our Company.

And this concludes our call.

Ladies and gentlemen, at this time this concludes ConAgra Foods' conference call for today.

Thank you for participating, and you may disconnect now.