康尼格拉食品 (CAG) 2007 Q4 法說會逐字稿

Good morning and welcome to today's ConAgra Foods fourth-quarter earnings conference call.

This program is being recorded.

My name is [John Daniels], and I will be your conference facilitator.

All audience lines are currently in a listen-only mode.

However, our speakers will address your questions at the end of the presentation, during the formal question-and-answer session.

At this time, I would like to introduce your host for today's program, Gary Rodkin, Chief Executive Officer of ConAgra Foods.

Please go ahead, Mr.

Rodkin.

Good morning.

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

I'm going to start with a few words about the very strong EPS we just posted for the fourth quarter and why we are excited about fiscal 2008.

Then Andre will discuss financial matters.

After that, we will take your questions and Dean Hollis, President of Consumer Operations, and Greg Heckman, President of Commercial Operations, will join us for that portion of the call.

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

Good morning.

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

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.

Also, we will be discussing some non-GAAP financial measures during the call today and the reconciliations of those measures.

Regulation G compliance can be found on our Web site at www.ConAgraFoods.com, by clicking on the "Investors" link and then the non-GAAP reconciliation section.

Now, I will turn it back over to Gary.

Thanks, Chris.

We just released EPS of $0.38 for our fourth quarter, which is well ahead of what we originally thought we would deliver.

It was a high-quality quarter that showed measurable topline traction for key brands, and I will say more about that in a minute.

In terms of profits, we not only benefited from better brand performance but also from record Trading & Merchandising profits, which allowed us to significantly increase marketing investment and absorb additional peanut butter recall costs while still delivering and actually over-delivering on our core algorithm.

This wraps up a very strong year in terms of EPS that exceeded all of our expectations.

A few highlights for 2007 include strong cost-savings progress that drove 220 basis points of comparable gross margin expansion in our Consumer Foods business; divesting some low-margin businesses for our portfolio; eliminating undesirable promotions to build a healthier base of business; exceeding our internal goals for our Gold Store initiative -- that's the initiative that gets the right SKU assortments and shelf placement for our most important, highest-margin items; increasing advertising and promotion significantly -- we increased A&P by more than $100 million across the Corporation with a disciplined ROI focus so that the right resources are behind the right brands for the right payback; building more momentum in our Food and Ingredients operations, which are winning by a real us focus on customer service, innovation and efficiencies; repurchasing more than $600 million of stock; establishing a new product pipeline that brings new opportunities to our portfolio.

You'll start to see new items from Healthy Choice, Hunt's, Orville Redenbacher's, Swiss Miss and Chef Boyardee on the shelf this summer.

This first round is exactly that, a first round.

By taking a fundamentally different new product approach from that in the past, we now have a robust pipeline.

You'll see continuing results from that effort in the quarters and years ahead.

And of course, trading results that set a new record for us.

As I mentioned before, our team has a lot of the product in terms of what they've accomplished in 2007, and more importantly, that they've strengthened the foundation for the future.

Moving onto how we saw the quarter, we gave you details in the release and the Q&A so I will stay at a fairly high level.

Consumer Foods showed good sales traction.

Overall sales and volumes were up 3% after adjusting for peanut butter and a divestiture.

That's a pretty good jump from where we've been this year and I feel that things are moving in the right direction.

Our branded business was up more than 4% as a group for the quarter, adjusted for Peter Pan and a divestiture last year.

That's an acceleration from recent trends and it's beginning to reflect the stronger base of business that we've been establishing this year.

A number of key brands posted sales gains.

We've given you some details in the release and in the Q&A.

But for the full year, it's worth noting that Marie Callender, Orville Redenbacher, Slim Jim, Snack Pack, Hebrew National, Pam, Manwich and Rosarita each posted sales growth of more than 5% for the full year and also expanded gross profit margins.

Separately, private-label was down for the quarter, some of that due to peanut butter.

From the bottom line in Consumer Foods, it's important to point out that we took A&P investment up by $57 million in the quarter.

For the full year, the increase was almost 100 million which represented growth of 33%.

We told you we expected to increase A&P in the back half of the year and that we would invest as earnings allowed, and we did exactly that.

We made some investments later in the quarter that we think will help strengthen our equities and which we expect to help pave the way for our innovation pipeline to be more impactful and thus drive topline growth.

We ended the year with Consumer Foods A&P representing just shy of 6% of Consumer Foods sales.

As we've said before, since the investment is focused on priority investment brands, A&P as a percentage of sales for those brands was closer to 8%.

Remember, it's really all about the effectiveness and efficiency of the spend.

We are making our marketing decisions with a return on investment mentality that helps build the equities over the long term.

We've got some rebuilding to do, and the investments in the back half are just starting to help generate momentum.

It's not just about how much you spend, but how effective the spend is.

We're trying to go about it in a way that gives us a good bang for the buck over time.

The decline in consumer operating profit from year-ago reported amounts was driven almost completely by three things, the impact of the $57 million of increased A&P, the $17 million of recall costs, and the absence of any profits from peanut butter sales in this year's fourth quarter.

The last thing I will mention about that segment as it relates to the quarter, and it's an important point, is that cost savings and inflation essentially offset each other this quarter.

The same volatility that created opportunities in our Trading & Merchandising business drove increased costs for our inputs.

This was not unexpected.

For the past three quarters, the segment's cost savings have exceeded inflation and delivered net benefit to gross profits.

That wasn't the case this quarter, given that inflation is getting tougher.

We expect that to be the case for the next few quarters, but let me reiterate; these assumptions are built into our plan and algorithm.

The obvious question is, given the inflation outlook, how do we grow Consumer Food profits in '08?

In a nutshell, in addition to more cost savings from our productivity runway, we have other important growth levers to use now because we've been gradually building them over the last several quarters.

These are the kind of levers you'd expect from a healthy business -- volume growth from a number of factors and innovation, more and better marketing, channel expansion and better retail execution -- in addition, margin expansion from pricing and mix on existing products and from accretive margins on innovation.

All of these are expected to play a more significant role in '08 than they did in '07.

As inflation moderates and cost-saving initiatives exceed our projections, that's all the better.

Net/net, we are committed to attractive profit growth for this segment in '08 than believe that we've got the right levers in place to make that happen.

In our other lines of business, the Food & Ingredients segment had another excellent quarter.

Volumes for our Lamb Weston potato business continue to grow, reflecting the benefits of efficient operations and strong customer service.

These operations continue to serve as our internal benchmark for consistent growth and customer satisfaction, and their momentum over the last several years has simply been remarkable.

Our international operations' profits were down from last year due to some increased marketing investment.

Not obvious in these results is that our Canadian operations had a great year.

The more we look at our international portfolio, the more we are convinced of greater organic growth opportunities for it and with some increased focus we expect a stronger '08 for this segment.

Finally, it almost goes without saying that the Trading & Merchandising performance was impressive by any standard.

They earned almost as much this quarter as they did in their entire best year in recent history.

Volatility in commodity markets creates opportunities for these operations, and you can see from the results that the fluctuations in energy markets and spikes in demand for fertilizer created significant opportunities that we captured.

While quarterly results of 5X are unsustainable and it obviously doesn't represent a base that we plan to keep growing from, that over-delivery does provide real cash and real EPS flexibility that allows us to do other things like accelerating smart A&P product launch and innovation investments while at the same time absorbing the peanut butter recall costs while still meeting the growth commitment to the shareholders.

Our Trading & Merchandising team knocked the cover off the ball, so I congratulate them on a job very well done.

Before I turn it over to Andre, I will say again how pleased I am with what our team accomplished this year.

The Company is clearly moving in the direction in many key respects.

It really is a new ConAgra Foods, and we look forward to continued progress.

As we indicated in the release, we are comfortable with the consensus of $1.48 right now.

Andre will say more about that in a minute.

Thanks for your interest in the Company.

Now, I will turn it over to Andre Hawaux.

Thanks, Gary, and good morning, everyone.

I will touch on the financial highlights before we turn it over to Q&A.

Let me start by also congratulating our team on a job well done.

These were some very strong numbers this quarter, and this wraps up a very strong year financially for ConAgra Foods.

As you know from the release and from Gary's earlier comments, this quarter was characterized by improving sales growth for the branded business within Consumer Foods, significantly increased advertising and promotion investments, more intense inflation, continued momentum in our Food & Ingredients business, and extraordinary Trading & Merchandising profits.

While it's easy to focus on the size of the increase in our Trading & Merchandising profits, I don't want to lose sight of the accelerating sales growth in our priority brands.

4% is a pretty solid number by itself and even more impressive when contrasted with results earlier this year.

Now, I'd like to focus my comments on three principle areas.

My goal here is going to be to not be repetitive of what Gary said, but perhaps add depth in a few areas.

The three topics I would like to cover are our cost progress and our '08 cost journey, the fact that we are prudent -- we use prudent use of cash to optimize stakeholder value, and why we are comfortable with consensus for fiscal year 2008.

For the year, our cost savings were north of $275 million and inflation was roughly $160 million.

So in fiscal year 2007, our supply chain benefited Consumer Foods' gross profits by more than $100 million, which of course is the major reason our Consumer Foods gross margins expanded as much as they did.

Now, in Q4, we still brought home cost savings, but they were completely absorbed by inflation.

As we look to fiscal year 2008, our cost-savings targets are still intact, but inflation will most likely even to a significant chunk of the savings, which means that improvement in Consumer Foods in fiscal year 2008 is expected to be driven more by volume, pricing, mix, innovation, and operating leverage than by the benefit from cost savings.

Another item I want to mention is full-year SG&A progress.

As many of you know, we targeted SG&A reductions as part of our growth initiatives, and we are happy with where we ended up in fiscal 2007.

It's difficult to see from the financial statements because fiscal year 2007 SG&A reflects increases driven by such things as higher marketing investments and the peanut butter recall cost.

But for the subset of SG&A costs we targeted, we made a great deal of progress, in the range of $80 million.

Going forward, we will continue to reduce SG&A, and we are confident we can deliver on our original goal of $100 million in reduction in SG&A that we discussed in March of 2006.

The second topics are prudent use of cash to optimize stakeholder value.

We repurchased another $214 million of stock this quarter.

This number was about $615 million for the year.

We've said before that share repurchases are the benchmark for our capital allocation process, and that will be true going forward.

We have $88 million remaining under our current authorization.

We will update you on any change in that.

Capital expenditures came in a little higher than we thought, $425 million for the year, with $172 million in the fourth quarter.

We saw some opportunities in the last 13 weeks of the year that were worth the investment in terms of quality and efficiency, and we made the investments.

We continue to expect 425 million to 450 million to be our range for CapEx next year.

We ended the year with a slight reduction in working capital year-over-year.

We continue to think there is opportunity to enhance free cash flow by lowering working capital levels, and we expect working capital to be a modest source of cash over the next few years.

One of the reasons we aren't committing to generating large amounts of cash from working capital initiatives is that, from time to time, our trading group has to tie up working capital to take advantage of opportunities, and it's tough to predict when that is necessary.

But our experience shows that, when opportunities are there, the returns on those temporary working capital spikes can be terrific, as you can see from this quarter's results.

For the year, we also contributed $170 million to our pension plan, given our strong cash position and our desire for very solid funded levels.

Now, let me turn to the last topic.

We are comfortable with consensus at $1.48.

To reiterate what Gary said and what we mentioned in the release, we are comfortable with EPS of $1.48 for fiscal 2008, excluding items impacting comparability.

When we did our internal exercise to determine fiscal 2007 base on which to make our 2008 projections, we took several things into consideration -- one, fiscal year 2007 diluted EPS from continuing operations of $1.41, excluding items impacting compatibility but including peanut butter recall costs, so we start with that number.

Then we adjust for $0.08 of expense in fiscal 2007 related to the peanut butter recall because we certainly aren't planning on repeating that expense next year.

Most importantly, we adjust for something in the range of $0.15 per share of net EPS over-delivery, primarily driven by the unusually strong performance by the Trading & Merchandising segment in the second half of the year.

That segment performed much better than it has in recent history, and we need to make some form of adjustment for that.

I want to make it very clear that it's difficult to normalize a trading business.

We are not trying to give you a precise number of what we expect every year.

Usually, we expect that business to contribute somewhere between $100 million to $200 million of operating profit a year.

This year, it exceeded 300 million, so we think it's prudent to take some estimate of the 2007 EPS net over-delivery into account when making our plans for fiscal 2008.

When we take all of those into considerations, we get to a base somewhere in the low $1.30s on which to make the projections for 2008.

This is why we are okay with consensus of $1.48 for 2008, given the financial growth expectations we have discussed before.

Now, let me explain why we advise you not to expect higher than $1.48.

Let me remind you that a big portion of the 2007 EPS over-delivery during the year came from cost savings that more than offset inflation in the Consumer Food segment.

Inflation was modest then, but it is much more severe now and likely to be tough for a while.

Our cost savings versus inflation ratio for that segment will probably not be as favorable in '08 as it was in '07.

Obviously, higher-than-expected trading profits also played a huge role this year.

We certainly don't plan for these types of surprises.

The last item I will point out relates to the peanut butter business.

Now, I'm talking about the core peanut butter business, meaning the regular business independent of any recall costs.

That business will obviously be a lower-profit contributor in 2008 than it was in 2007 due to relaunch investments and lower volume plans.

The year-over-year difference we project is about $0.05 per share, meaning that fiscal 2008 profits from peanut butter, excluding recall costs, are expected to the $0.05 per share lower than fiscal 2007 amounts.

So that's another form of headwind for us.

We've taken those things into consideration in our guidance.

I hope that you see that, from across all of those things -- inflation, more modest trade profits, and the core peanut butter profit differential -- there is good reason to stay close to the Company's guidance and not above it.

That concludes my remarks.

Again, I'm very pleased with the fiscal year 2007 that just ended.

We delivered against our core objectives.

We delivered strong cost savings which drove our operating margins.

We prioritized our portfolio.

We invested in our brands, and we were prudent stewards of cash to optimize stakeholder value.

We have clearly articulated goals for 2008, which we've shared with you, and a clear roadmap to achieve these goals.

We look forward to reporting on our progress in fiscal year 2008.

We will now turn it over to Q&A, which will include Gary, Chris and myself, plus Dean Hollis, who runs our Consumer and International segments, and Greg Heckman, who runs our Food & Ingredients and our trading business.

Operator, please start the Q&A session.

Thank you.

Now, we'd like to get to an important part of today's call, taking your questions.

The question-and-answer session will be conducted via the telephone.

(OPERATOR INSTRUCTIONS).

Dave Driscoll, Citi Investment Research.

Good morning, everybody.

Certainly, I want to say congratulations on a good start to your turnaround program for ConAgra, Gary, and to the rest of your team.

For marketing spending, can you give us some guidance on your 2008 projected levels?

What type of increased do you want to see here, or do you think that the level is now at the place where it should remain at?

Is there any quarterly pattern that you can advise us on?

The quarterly pattern for '07 was obviously incredibly back-half weighted.

Then, in the fourth quarter, also on the marketing spending, I think you said it was 57 million for consumer but you also mentioned, in the press release, that there was increases in other areas.

What was the total increase in the fourth quarter?

Did any of the marketing expenses in the fourth quarter relate to your new product launches in '08 or were they really advertisements that took place in the fourth quarter of '07?

David, that's a lot of questions; I will try my best to remember.

Let me work backwards here.

Of the spend that we had in the fourth quarter, it was split between basic driving of our core equities, you know, brands like Healthy Choice, or Marie Callender, Orville Redenbacher, etc.

We certainly spent some reasonable advertising there, but we also spent money to set ourselves up for our new product innovation for our product launches that you'll see in the first quarter.

So it was a combination.

Next year, we plan to have a moderate increase in our spend for the total year on A&P.

That really is going to be combined with continuing improvement in effectiveness, which as I've always said acts as a multiplier on our dollars.

Of the -- you know, the 57 million was in consumer.

There was a total of about three more -- that's right, total for the quarter increase is around 60, 61, with another three in international.

Could you just make any comments on the pattern for '08, because of how heavily back-half weighted the '07 pattern was?

I'd assume it will not be anything like the pattern in '07 when we get to '08.

Dave, this is Chris.

We're not in a position to give anything concrete on that right now.

Okay.

Then just one last question on cost inflation -- what is the percentage increase you expect in '08?

David, we have built into our plans about 6% for fiscal year 2008.

Christine McCracken, Cleveland Research.

You know, obviously Trading & Merchandise had a huge year, and you did talk about the volatility in some these markets benefiting that particular segment, but I'm wondering.

As you look at the fertilizer market, it appears to us that the demand you referenced is actually somewhat sustainable.

So I'm wondering.

Is it your expectation that, going forward, you will actually continue to see some kind of outperformance from that piece of the Trading & Merchandising group, or is it kind of a one-time benefit tied to your positioning in that market?

Greg?

Hi, Christine.

This is Greg Heckman.

Yes.

Definitely, as we saw the increase in corn acreage this year that we had very strong fertilizer demands, not only from the switch to corn overall acres but also the profitability of corn and application rates that we are seeing versus prior years.

As far as exactly what work the market does in the two out years I think yet to be determined, but right now with the outlook, why, it probably won't be as robust as this year.

You know, if corn acres continue to stay up to support the renewable fuels demand, it should be a good environment for our wholesale merchandising and distribution business versus the past five years, let's say.

So it's your expectation to some extent that you will see some benefit from that?

Yes, we will see some benefit, but you know, there's a lot of competitors and no one is operating in a vacuum out there.

This was kind of -- much like the corn prices, this was the first leg up and now the market has to do some work and get supply and demand back in equilibrium on fertilizer, just like it's trying to do on corn.

That's reasonable.

Gary, can you provide any incremental information around kind of how your peanut butter business is doing today?

I know that you referenced that your customers actually were, at one point, demanding that your products get back on the shelf.

Can you give us any update there?

Yes, we've had terrific response for our customers who, in many cases, in our key customers have left the shelf open, basically, for us to come back.

So they are very anxious to have the product back.

The first product will appear on the shelf in late July.

We are building inventory as we speak, and everything from a peanut butter standpoint in our algorithm is built in and planned conservatively.

As Andre said, we will have some significant relaunch investment costs but consumers and the customers are both giving us good feedback that say that we're going to get back on our feet on Peter Pan because it's a great equity that is in demand.

Ann Gurkin, Davenport.

I was wondering if we could get some more detail on what you've modeled for your foodservice customers' growth in '08, and then if you could also comment on what you're going to do with your regional brands as we move forward the next couple of years.

Ann, I'm not sure that I have a real specific number on foodservice but it would probably be in the neighborhood of 5%.

Dean?

Yes, I think that's right.

One of the things, as Gary referenced earlier, is a key opportunity for us is our channel penetration.

We include that, include foodservice in that, so we've got some dedicated focus against making sure that we drive that channel and drive our prioritized brands within that channel.

Your second question, on the regional brands -- you know, we feel we've got some real strength in our regional brands out there and use those as market leaders within the geography in which they are in.

Some of those are prioritized within those regions and others are (inaudible) brands that, again, allow us to leverage our more-prioritized brands.

Eric Katzman, Deutsche Bank.

This is actually [Gretchen Montgomery] speaking for Eric.

Good morning.

Just a question -- you mentioned that pricing would be a driver for the Consumer Foods business going into '08.

Have you taken price increases across those businesses, where and how much?

Actually, we have taken pricing in a number of categories.

I'm not going to comment on exactly how much that is but I will give you a few examples.

Hot dogs, frozen dinners, tomatoes, oils, Banquet fried chicken dinners, Liquid Eggs -- those are some of the categories where we have taken pricing to offset inflation.

You can't quantify the percent?

No, sorry about that.

Dean?

Yes, I think I would add to that, Gretchen, and say, there's all sorts of different levers you can pull from a pricing standpoint, whether it's through list or whether it's (inaudible) whether it's through depth of frequency or whether it's through product mix.

We evaluate those across the board and will continue to evaluate those.

You will see us evaluate and pull on each one of those levers as we go forward.

Robert Moskow, Credit Suisse.

Good morning.

I wanted to know.

You're spending increased a lot on A&P in the fourth quarter, but it seemed to me that your new products really don't launch until first quarter, so I would imagine then the spending is really going against existing products.

Is that correct?

Actually, we had some early shifts where we spent our sliding dollars.

We had marketing investments to build advertising and programs, etc., for those new products.

So, there was some spending against the launch of the new products.

But I believe, fundamentally, we're doing the right things to build our foundation.

We are making the right marketing investments that will pay off very well over time.

Remember, this is a sprint, not a marathon.

It's a sprint, okay.

But the 57 million, is that consumer advertising, or is it, as you said, [sliding] and programs?

This is Chris, morning.

The 57 million is consumer advertising and promotion.

I need to correct myself.

I really meant to say this is not a sprint, it's a marathon.

Chris Growe, A.G.

Edwards.

Good morning.

I just wondered on -- regarding the trading business for 2008.

Andre made a comment about a sort of $0.15 per share adjustment, which would, if you would back into that, would indicate somewhere around a $200 million run-rate of profitability.

Is that -- are you indicating that is a good number to use, as it looks today, for 2008?

Is that correct?

Well again, Chris, as I said in my comments, it's very, very hard to normalize sort of profits in our trading business.

I think we plan and we articulated that we plan in that space very conservatively.

We've looked at, over the last four to five years, where that business was.

I think we feel pretty comfortable that that's what we would take away from what we reported this year is about $0.15, so we feel pretty comfortable in that range.

Okay.

Then relative to the cost savings that you realized, either in the fourth quarter or throughout the year, a lot of those accrued to the consumer business.

You had mentioned how cost saves would more likely equal cost inflation in 2008, roughly, for that business.

So, could you quantify the cost savings you pulled through this year and in 2007?

Well, as I discussed, the costs saves on a macro basis in that space were about $275 million in fiscal year 2007.

Inflation gave us some headwind of about 160 million, so we over-delivered in the area, ballpark, of about $100 million that we dropped to the margin line in consumer -- if that was your question relative to fiscal year 2007.

Andrew Lazar, Lehman Brothers.

Good morning.

Gary, I guess, first as a comment, I like to think of it as a marathon, as a series of back to back to back sprints.

Maybe you could think about it that way.

Okay.

(LAUGHTER)

I think, in terms of your guidance for '08, I guess, if you expect costs to -- or you sort of cost saves to equal inflation, and then hopefully on top of that, you get some pricing and you obviously have a lot of new products coming, and you seem more confident that the top line can kind of pick up the pace for fiscal '08, I guess I'm try to get a sense of why the -- I mean, it's good to be conservative, obviously, in the outset for the year, but it would seem like maybe there would be some potential for upside to that number.

Even though I realize costs are higher, just if you're going to be covering that through costs saves, if your core business actually starts to grow as you would hope it would.

Andrew, that might be the case, but the most important thing to remember is that we want to deliver on our commitments; we don't want to fall back into a trap of overpromising.

So if you take a look at all the different factors, like volume growth for more and better marketing and better retail execution, innovation, and you know there's a lot of multiple ins and outs across the algorithm -- I think, sticking with the 2% to 3% and the 8 to 10 is what we're going to do and is smart for us.

Andre?

Yes, and I just want to remind you, Andrew, I think we also said we're going to be conservative in the Trading & Merchandising area.

The last comment I made was around our core peanut butter business year-on-year, which is going to provide, again, some more headwinds for us which we did (inaudible).

So I think it's important for us to follow exactly what Gary said was -- is to make sure we don't overpromise and therefore not deliver.

We would rather go the other way.

It makes sense.

The last thing is it looked like I guess the non-priority brands, if you will, grew nicely in the quarter, I guess even accelerated quite a bit.

So I am trying to get a sense there.

I know that's been an area of worry for folks with less investment to those kind of fall off dramatically at some point.

And it's been a couple of quarters now where that hasn't happened.

So have you -- I guess, A, what's your sort of level of visibility and confidence around those brands?

Have you hit a sort of strategy that just seems to be hitting stride for you?

(technical difficulty) you are treating them more appropriately in certain cases as kind of value brands and therefore pricing more properly?

I'm trying to get a sense of what's been driving that and what gives you some comfort there.

Dean?

Yes, I think what you said is just right.

I think, Andrew, we feel good that the strategy we have been talking about -- and you are right.

You ought to be expressing concern about that because a lot of people haven't shown their ability to execute that, and I think we have.

We are pleased that both segmentations are growing and it also does show that our prioritized (inaudible) strategy can work, and that we can grow the [enabler] brands and also benefit the prioritized brands.

I would say, again, we're not going to plan for big growth in those brands but I think they can hold their own and be good contributors as part of the portfolio.

Edgar Roesch, Banc of America.

The first question is, you know, 6% increase in cost is a pretty significant level, and I don't know.

Would you normally expect that your productivity could offset that much cost inflation?

Let me take that first, Edgar.

I think -- we believe, I mean, we've demonstrated the ability to take cost out of this system in this year, and Jim Hardy and his team have similar plans for fiscal year 2008.

So we do believe that we feel very strongly behind our cost savings.

What we're seeing right now, coming out of the fourth quarter, is about a 6% inflationary environment; that's what we saw for the quarter in Q4.

We believe, based on the trends that we see, that that's going to continue; that's why we plan that for fiscal year 2008.

The net of those two actually ends up being about a wash for us in fiscal year 2008.

So, we do believe that our cost savings will, by and large, take care of the inflation headwinds.

Now, if inflation goes north, that will be much more of a struggle.

As Gary said earlier, if inflation doesn't come out that strong, we will have some savings to drop to the bottom line.

I think it's also important to remember we continue to talk about a long runway of productivity coming from the base, you know, where we've been and the consolidation into one company, getting that scale versus just the size.

I think you always have to keep that in mind, that we're still fairly early in that journey.

But if your categories are driving 6% inflation, I'd don't think your competitors would have the ability to offset that level.

So really, you would be justified in taking more pricing, it sounds like, than you are planning for fiscal '08.

So, strategically, it sounds like you are sort of investing a little bit in more competitive prices versus competitors.

Does that sound right?

Yes, I mean, pricing for us is very surgical.

If we see the appropriate opportunities and watch the competitive landscape, we will do things that we think have the right balance, so that may be the case.

Eric Serotta, Merrill Lynch.

Gary, you've expressed a lot of confidence, both at the tasting day and today, in hitting the 2 to 3% topline growth for fiscal 2008.

Looking at the various segments, it would seem that Trading & Merchandising -- if you're looking at the profits being down, you're looking at the revenues being down as well.

So does that imply that you're looking for much higher than 2% to 3% growth on Consumer Foods' topline growth?

Eric, I would tell you that 2 to 3 is probably the right range for consumer.

On our Foods & Ingredients business, we are looking for more than that, a higher level of growth than that.

When the net it all out together, you know, we come out in the total company to 2% to 3%.

Okay.

Then a couple of sort of housekeeping items -- equity income was up pretty strongly for the quarter.

What was the driver there?

Lamb Weston Meyer, which is our joint venture in Europe, was the primary driver of that.

Okay.

The strength there was driven by what?

Was it new customer wins?

Was it growth with existing customers?

This is Greg Heckman.

It was really across the board.

The raw material crop was better from a quality standpoint versus previous years; cost savings initiatives continue to be in place.

We saw some gains with key customers on the volume side, and then also some pricing but just a little bit of improvement everywhere and really a pretty easy comp with a difficult year last year, based on crop conditions.

[Tom Truhiel], Banc of America.

My first question is just about your free cash flow priorities in general, and when it comes to debt deduction, acquisitions and share repurchases.

Then a little bit more specifically, you mentioned that you have 88 million remaining under your current share repurchase approval.

How quickly you plan to use that and whether or not you're going to request further approval for additional share repurchases?

Tom, let me try to go through some elements of your question.

I don't know if we're breaking up here or what's going on, but the first piece of your question was we're going to continue to benchmark our capital allocation decisions through share repurchases; that's still a benchmark that we use.

Specific to your question, yes, we have $88 million left.

We will probably go through that I think very early in fiscal year 2008.

Then at that point in time, we will need to determine, along with our Board, what was the right, appropriate level if we're going to go back into share repurchase.

So again, we will exhaust the 88 million and then go back and have discussions with our Board to determine what's the next appropriate level.

Pablo Zuanic, JP Morgan.

Good morning, everyone.

Couple of questions -- just in terms of the cost savings that are left, if I look at your CAGNY presentation from this year, you talked about supply chain, 250 basis points; that's about $160 million.

Should we still be modeling that or should we just assume that it's totally offset by cost inflation, or how do we model that?

In terms of SG&A, you talked about 100 million; that 80 million have we already realized, so there's 20 million left there.

I'm just trying to get a gauge where, at some point, I can think of whether the SG&A 20 million and the 160 in cost of sales that could be accretive to earnings.

How would we think about that?

Then I have a follow-up, if I may?

Good morning, Pablo.

This is Chris.

Let me start and then I will turn it over to Andre.

As far as the 2.5 margin point commitment in consumer from supply chain that you referenced from CAGNY, yes, that is the goal over the three-year period.

As you heard this morning, that will probably be more concentrated in '09 and '10 as opposed to '08 because, '08, it will probably be a story of cost savings and inflation being more equal within consumer.

But, yes, the goal is still there; we're comfortable with it.

As far as the SG&A goal of $100 million, yes, that is still intact.

We achieved roughly 80 of that this year.

The issue I would like to caution you on, and Andre mentioned this in his remarks, is that it's very difficult to see that as one line item on the face of our financials because our SG&A includes marketing, which went up this year, some incentives, which went up this year, and several other things.

So, now I will turn it over to Andre.

Yes.

I think, Chris, you articulated exactly where we were on the broader discussion around your first question, Pablo, on CAGNY.

Again, on SG&A, we feel very comfortable that delivering against that $100 million goal that we set out in March of '06 is clearly attainable, so we feel very comfortable with where we are at on our cost savings program.

And we've demonstrated the ability to deliver.

All right.

Gary, just a follow-up -- when I look at food ingredients, this quarter, earnings there are broadly more than half of what Consumer Foods are.

You mentioned that sales there are probably going to grow faster than Consumer Foods.

How should we think about profitability there?

We concentrate a lot in terms of cost savings on the Consumer Foods side.

What are the opportunities in food ingredients in terms of profit margins?

Why is that division doing so good for two years in a row in terms of growth?

How sustainable is that?

Give us more color, if you can, on that division, please.

Yes, Pablo, I'm going to turn this over to Greg in a second but I will tell you that segment has done extremely well for a considerable number of years, particularly led by Lamb Weston, an extremely well-run operation within ConAgra Foods.

But let me have Greg shed a little detail on that.

If you remember, we talked about that we do have some real strong business-to-business brands there, but they were in a little different place as far as the consumer portfolio, when we talked back in New York.

So from a big cost savings, the businesses are little more mature, running higher capacity utilizations, so you won't see the same opportunity.

We didn't in this year and won't in the forward years.

That being said, some of that top line of course is underlying commodity inflation that has passed through on things like wheat, vegetables, potatoes, just for us to stay whole.

The other is we continue to do the same things, leveraging the power of one ConAgra Foods across cost-savings opportunities, driving our innovation, using the insights that we wouldn't have if we weren't part of a consumer products company, and as well as bundling services with our products, which are very important to our customers, and continuing trying to increase our relevance.

So whether we do continue to stay focused on a pulling all of the levers to drive the top and bottom line, it's coming from a much more probably mature position.

Yes.

The last thing I would say on this -- thank you, Greg -- is that while we might not consider them consumer brands, our customers consider Lamb Weston, Gilroy, ConAgra Mills as terrific brands in that space.

David Driscoll, Citi Investment Research.

Thanks for taking the follow-up.

Back on the cost-inflation side, Gary, I want to just follow-up.

A number of people have been asking this.

The cost inflation that -- Andre, you said it's 6%.

That would be something like $530 million next year.

That truly is an extraordinary level of cost inflation.

I don't think the food group has seen any company over the last five years, nobody has given us a 6% cost inflation number in any one particularly year.

So Gary, the question then really comes back to the pricing question.

Given this kind of, I would call it extraordinary level of cost inflation, if you are not taking pricing to a substantial level to offset those numbers, which it sounds like you are not, then is that indicative of your desires to gain market share because you can do this because of the cost savings?

Or is it fundamentally that you consider the [proposition] is weak right now and you don't want to take those pricing up for fear of actually losing market share?

How do you look at that brand value equation in light of these extraordinary cost-inflation numbers?

David, this is Andre.

Let me take the inflation piece first and then I will flip that back to Gary.

So again, and we can talk later off-line if you would like, but I think your -- maybe the math is maybe a little skewed.

When we talk about 6% inflation, we are talking about the consumer space only.

The base of that spending is in the neighborhood of $4.5 billion.

So if I do 6% of that, I don't get to your $500 million.

So again, we can talk a little later off-line.

We do believe inflation is going to be 6% on a base of about 4.5 billion, so you can get the math around there.

So, that's the first piece.

$4.5 billion of input costs, that's what we're talking about.

In consumer.

In consumer.

And then from a pricing standpoint, we are -- we have taken a number of categories, David, as I gave a few examples before.

They are across a wide array of products.

We expect that, between net pricing and trade efficiencies, that we will take a considerable amount of pricing this year.

Edgar Roesch, Banc of America.

On the subject of pricing, yesterday, we got one data point from the retail side that not all the pricing has been passed on by the retailers to the consumer on the shelf.

I'm just wondering.

Versus where you were two months ago, let's say, I mean, today, is it a greater sensitivity to how the consumer is going to react, since it seems that the retailers are balking a little bit at passing some of this on?

Well, you know, it's always difficult to take pricing; nobody likes to pass higher pricing through.

But I would tell you, given the visibility and the breadth of pressure across all segments, there's probably a bit more receptivity and understanding across all constituencies on pricing than there has been for a while.

But that doesn't mean it's easy.

Eric Serotta.

Thanks for taking the follow-up.

Just could you comment on expectations for the corporate expense line?

It's bounced around quite a bit.

I realize, the fourth quarter there, are always odds and ends.

But what are you guys looking at in terms of corporate for next year?

Eric, this is Chris.

As you mentioned in your question, it's very difficult to call corporate a perfectly -- a number of that's very easily normalized, but what we will say is that, for most quarters, expect it between, say, 80 million and 90 million.

So for next full year -- and I'm talking about excluding any items that would impact comparability -- so next year we would be something in the mid 3s, maybe 350, 360-ish.

Tom Truhiel, Banc of America.

A quick follow-up first on the share repurchase program -- I was wondering if you could give any guidance on the amount that you would be going for next round.

Then secondly, I see that you guys don't have any debt maturing for several years, but do you have any plans on refinancing your outstanding high-coupon bonds?

Let me take the first one.

I'm having the same problem with the phone again.

I think we're not going to comment on what we're going to take on what recommendations ourselves and our Board will go forward on, relative to share repurchase.

Relative to our debt maturities, as you appropriately put out, we have nothing coming up soon.

One of the things we did do this year, as you may recall, is we did this exchangeable transaction of about $500 million worth of debt, which actually helped us smooth out our maturities, and it was retiring some of our higher-coupon debt.

So we already executed against a lot of that and we're very comfortable with where we are today.

This concludes our question-and-answer session.

Mr.

Klinefelter, I will hand the conference back to you for final remarks or closing comments.

Before we conclude, I need to mention a few housekeeping items that relate to reporting.

I think most of you have heard us say that, when we categorize our consumer brands as priority investment and all other, occasionally we may change a brand's classification as we see fit depending on a new assessment of a brand's potential and responsiveness.

We do that exercise once a year, and we stick with that classification for a full year.

So, we're currently in the process of that evaluation for fiscal 2008, so we may have some simpler categories in '08 than we did for '07, along the lines of how we run the Company from an internal management financials.

If there is any change in a brand's classification, we will certainly reclassify the historical brand results so that, when we give you comparable numbers and we report the year-over-year changes, they are exactly that, comparable in 2008.

The other item relates to how we report our unit volumes.

I'm happy to say that our information systems and processes are progressing, and we are now at the point where we have established what we term a common sales unit for our Consumer Foods business.

It's a way of equating products sold in pounds with products sold in cases.

Up to this point, we have consistently used a weighted average methodology in determining unit volume percentage change because we didn't have a common unit definition.

Now we have one, and the plan is to start using it in fiscal 2008.

I don't think it will affect anything significantly from the standpoint of our investors.

The last point I will make is that, at CAGNY this year, we provided some commentary on our financial goals for the fiscal 2008 through 2010 timeframe.

Those details can be found in that presentation dated February 20, 2007, which is archived on our Web site under this section "For Investors."

Just as a reminder, this conference is being recorded and will be archived on the Web as detailed in our news release.

As always, we are available for discussions.

Thank you very much for your interest in ConAgra Foods.

This concludes today's ConAgra Foods fourth-quarter earnings conference call.

Thank you again for attending, and have a good day.