康尼格拉食品 (CAG) 2009 Q2 法說會逐字稿

Good morning, and welcome to today's ConAgra Foods second quarter earnings conference call.

This program is being recorded.

My name is John Daniels and I will be your facilitator.

(Operator Instructions) 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'm here with Andre Hawaux, our CFO, Rob Sharpe, President of our commercial segment and EVP of External Affairs and Chris Klinefelter, VP of Investor Relations.

Over the next few minutes, Andre and I will provide our view about the strategic, operating and financial aspects of the quarter.

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

Good morning.

During today's remarks we will make forward-looking statements and while we were making those statements in good faith and are confident about our Company's direction we do not have guarantee about the results you will achieve.

If you like to learn more about the risks and factors that could impact 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 for regulation G compliance can be found in the earnings press release or on our website under the financial reports and filings link and in choosing non-GAAP reconciliations.

In reference to regulation G, I will note that a reported diluted EPS for continuing operations of $0.38 has $0.05 of net expense from items impacting comparability, as detailed in the press release, resulting in EPS of $0.43 on a comparable basis for this quarter.

On that same basis, the $0.27 of diluted EPS from continuing operations reported in the prior year quarter contained $0.03 of expense from items impacting comparability resulting in EPS of $0.30 on a comparable basis.

Lastly as detailed in the press release consumer foods operating profit of $247 million was up 2% as reported this quarter and down 8% on a comparable basis.

Now I will turn it back to Gary.

Thanks, Chris.

Given the current market environment, I'm happy to be able to reconfirm our earnings outlook for fiscal 2009.

Second quarter comparable EPS of $0.43 reinforces our full year outlook.

For the quarter, our commercial business has delivered another strong performance.

We saw good control of the cost performance across the company.

Changes to our consumer merchandising programs showed positive results late in the quarter.

And our key new products performed well.

At the same time several challenges that we forecasted for consumer foods affected our results as we expected.

As I said last quarter, we know what the issues are and we've taken significant actions to improve the operating performance in consumer foods.

This has put us in good position to deliver on our commitment for profit growth in this segment during the back half.

Let me go through some the segment highlights of the quarter.

Consumer had a solid quarter in many respects as expected our non-measured channel business was very strong.

And recent IRI numbers indicate the start of a more favorable trend of the mainstream grocery channel.

Overall consumer sales were up a little more than 4% on a comparable basis.

Volumes were down a little less than 4%.

Consumer volume reflected our need to work through some fine tuning on our pricing.

We chose to error on the side of somewhat aggressive list pricing and of course correct surgically with merchandising.

I firmly believe we can grow net sales in a way that preserves the vitality of our brands.

Competitive promotion remained fierce in the frozen business but we now have the right measured responses in place and we are starting to see better marketplace results toward the end of the quarter.

We also remain very pleased with the performance of Healthy Choice Cafe Steamers which are now up to an annualized run rate of more than $140 million in our sales and represent more than 30% of Healthy Choice frozen sales.

This is a testament to the power of our game changing innovation.

And you can expect to see more of it in the back half of the year particularly in our frozen operations.

You're still seeing only the tip of the iceberg in terms of our innovation pipeline which focuses on delivering step changes in the uniqueness of our products.

While solid Banquet volume and sales growth didn't fall through to the bottom line as previously discussed with you, that issue is being addressed by the introduction of a revamped line of Banquet dinners late in our third quarter.

In our grocery businesses, Healthy Choice Fresh Mixes were introduced nationally during quarter and are performing well.

Consumer feedback is very positive.

This line of high quality nutritious shelf stable convenient meals hits the bull's bulls eye on the lunch day part nd nicely complements our primary focus on the dinner segment with frozen.

We have more plans in place for this innovative platform in the future.

We also continued the momentum on key brands like Hunt's tomatoes and Hebrew National hot dogs.

And although several of our high-share grocery brands were down on volume we adjusted our merchandising on these brands to bend that trend while still maintaining good margins.

In the snacks business we saw healthy growth both top and bottom line.

All key brands showed sales growth as consumers spend more time at home and we've supported the brands with high quality advertising.

Most of our enabler group performed well with sales up significantly behind pricing and generally good volume performance.

Consumers are seeking the excellent value propositions offered by brands like Libby's or La Choy and some of our strong regional brands like Rosarita turned in excellent performances.

The exception was Wesson oil.

Wesson showed a continuing hangover from high cost inventory built earlier in the year.

It was also impacted by our overly aggressive reductions in trade events and further declines in market prices for edible oils.

Both of these hit volume and contribution in a meaningful way.

Moving from sales to profit, consumer foods bottom line was down about 8% versus last year on a comparable basis.

I'm not happy with that but it is in the zone we expected.

The decline largely results from significant inflation, selected brand volume losses, resulting from some price elasticities and the issues with Wesson and Banquet.

On the AMP side our spend was down a bit this quarter but we were spending what we need.

I expect our overall AMP spend to be in line with last year's amount with an ROI emphasis in getting more bang for the buck.

Good things continue to happen on the supply chain side.

Our cost savings are materially ahead of schedule with benefits for this quarter consistent with our forecast and above our original plans.

As expected, inflation remained heavy across a big part of our inventory.

Even with moderating market costs for some ingredients.

Overall inflation and consumer foods was $170 million, up about 12% from our costs a year ago.

Remember, that declines in commodity costs did not immediately fall through to results and the cost of some key elements of our basket of goods such as proteins continue to rise.

The delay in realization of lower cost and key ingredients reflects both a normal lag and applied inventory evaluations and our hedges in supply contracts which smooth costs both when their rising and when they are falling.

Although the declines will favorably impact costs in the future, we still expect to see aggregate cost increases but at a lower rate than what we have seen in the last few quarters.

That $170 million of inflation this quarter more than offset our cost saves.

Also keep in mind that last year our consumer base had a $24 million hedge gain that we didn't have this year.

We've worked through these challenges and I feel good about our progress.

On the commercial side, the segment remained very strong on virtually all measures.

These are well positioned businesses and it shows in their consistently good results.

Sales were up significantly and profits were up more than 18% against last year.

The increase was largely driven by a strong performance from our flour milling operations and it was based on our core operating performance which was helped by a very high quality winter wheat crop.

Lamb Weston continued to deliver high quality growth by finding ways to cover inflation while at the same time improving the product offerings.

Foot traffic in QSR'sremained solid and Lamb Weston products are a key profit contributor to these customers.

Our Gilroy and Swank businesses also continue to show gains against the prior year.

Looking forward to the third quarter I expect several issues that have dampened our results to have a lessening effect.

As I indicated before, we now have our merchandising price point and consumer essentially where they need to be so I expect improved dynamics for a number of key brands.

We expect Wesson to sequentially improve its contribution as higher priced inventory continues to be worked off.

We will also be increasing our overall AMP investment in light of the product news and innovation being introduced in our back half.

And on the commercial side I want to remind you that last year's Q3 commercial profits benefited from a perfect storm in the wheat markets.

We don't expect to repeat that in our milling operations this quarter and this overlap issue is built in to our expectations.

Looking at our full year outlook, I'm confident in our ability to deliver for our investors.

When I consider the expected improvement in consumer foods, the performance of the commercial businesses our cost discipline and the strength of our balance sheet there are many things going well for us.

There is no question that the consumer marketplace is difficult.

Consumers are looking for hot price points, companies are managing input costs that reflect continuing although abating inflation.

And many trade customers are struggling for growth.

But I believe we have the right tools to profit from this dynamic.

We have a great stable of brands that play to thrifty consumers who are eating at home.

We have better merchandising programs now in place on key higher margin brands and innovative new products that are gaining new traction.

I want to reinforce that we are comfortable with our full year outlook and with our commitment to grow consumer foods profit in the balance of the year.

The fourth quarter in particular looks very strong for us.

It reflects a frozen portfolio transformation including the Banquet dinner reformulations I mentioned last quarter that will be in the market at the end of the third quarter.

This transformation is very proactive and will strengthen our competitive position in the frozen segment.

And improve our Banquet margins.

And it reflects the timing of several improvements in other areas of the business like Wesson oil that I just discussed.

It reflects abating inflation and it includes the 53rd week in this year.

We have gotten better and smarter about responding to the challenges in the market and I believe it will show in the back half.

We started to see some evidence of this in November and will continue to see it today.

At this point I will turn it over to Andre who will provide additional details.

Thanks, Gary and good morning everyone.

I want to focus my comments on four primary areas.

Our Q2 accomplishments, capital items for the quarter, our balance sheet strength and then finish with a fiscal year 2009 outlook.

Q2 accomplishments were many and I won't repeat Gary's points but I would like to re-emphasize the following.

You saw us deliver another strong perform in our commercial segment.

The marks the 11th consecutive quarter we have delivered solid growth.

This is no accident.

These businesses are well run, customer-centric and operating focused and their results speak for themselves.

Our cost control both in supply chain and at Corporate reflect a growing cultural shift to zero overhead growth which people are embracing as a new way to do business at ConAgra Foods.

In particular, supply chain cost savings came in ahead of target and we were on track to deliver supply chain savings in excess of $250 million for the full year.

As Gary mentioned our consumer results have been very strong in non-measured channels particularly in mass and club.

We saw improvement in our consumer takeaway in the last month of this quarter and measured channels as we fine tuned our merchandising price points and continue to see that today.

Now talking about capital items for the quarter, interest expenses $43 million in the current quarter versus $62 million in the year ago period.

This expense declined as largely due to the interest income of the notes receivable associated with the sale of our trading and merchandising operations.

We remain comfortable with the collectability of these notes.

Dividends paid for the quarter totaled $86 million versus $88 million last year reflecting fewer shares outstanding.

For the quarter, we had capital expenditures of $115 million which brings our year to date Cap Ex to $221 million.

We it continue to forecast a full year capital number in the range of $475 million.

We are on track with respect to our working capital targets which we call to be at least cash neutral for the year.

My next topic is our balance sheet.

We believe it's use envelope these turbulent economic times to remind our investors about ConAgra's strong balance sheet and our access to credit.

We have a $1.5 billion revolver in place which does not mature until December 16, 2011.

At quarter end, we had used approximately $180 million of this line, a fairly small percentage of it.

We currently also have approximately $100 million in outstanding commercial paper and we have maintained good access to the commercial paper markets during this time.

Our $3.3 billion of long-term debt has nothing coming due until fiscal year 2011.

We have a 2027 bond of $300 million that has a put feature which could be exercised in the summer of 2009.

We have a game plan to readily refinance this bond should the need arise.

I want to close with comments on our fiscal year 2009 outlook.

As Gary mentioned, we are reconfirming out look north of $1.50 per share excluding items impacting comparability.

This quarter's performance reinforces that view.

We are confident for the following reasons.

Our CTG proceeds have been deployed according to our plan.

SG&A savings are on track.

Our zero overhead growth culture is taking root and we were starting to lay out plan for fiscal year 2010.

Our supply chain organization will deliver cost savings in excess of $250 million.

We believe inflation will moderate the back half of the year.

Our pricing is in place and we have already significantly course corrected to ensure we have effective merchandising programs in the market.

We know our commercial organization will deliver.

We have key innovation is gaining traction.

More of the items will come forth as Gary mentioned on Banquet in terms of the renovation.

You'll also see innovation in Q3 and Q4.

We have a 53rd week in 2009.That concludes our formal remarks.

I want to thank you for your interest in ConAgra Foods and wish you all a wonderful holiday season.

I'll now turn it over to the Operator to begin the Q&A portion of our session.

(Operator Instructions) Our first question comes from David Driscoll, Citi Investment Research.

Good morning, everyone.

Good morning.

Very nice to see the guidance certainly it has been challenging out there in this environment.

Overall I think you guys are doing a good job here.

Gary, big picture, can you tell us that the situation is really starting to turn around?

This November Nielsen data was quite encouraging with it up 6.1%.

I know it's only one month, but can you just give us your level of conviction here that takeaway trends can continue to look like this?

David, certainly numbers are always going to bounce around a bit.

But we feel very good that over time starting with the November numbers you are going to see better trends from us.

We've made some adjustments.

We erred a bit on the side of more aggressive list pricing and of course corrected in places where we needed to, particularly on brands where we got very high shares and happen to be good margin businesses as well.

We have gone back and made sure that we have the right price and margin balance in place.

That is certainly one key piece.

Another is the fact that in the frozen segment as we talked last quarter there has been some tough deep discounting from one of our key competitors.

We made some quite measured responses to that.

We are hoping that rationality will return but we are planning cautiously for that.

But those kinds of adjustments that I talked about clearly are trends that I think we will see continue in the back half.

Two more quick questions, if I may.

What volume growth do you expect in the back half in consumer foods?

Then I've got one quick question for Andre

We are still staying with a pretty conservative plan.

Our algorithm stays in place.

I wouldn't want to step out on a limb in terms of getting too aggressive on the volume and net sales mix.

But I would tell you that we are comfortable that we will see improving trends.

Andre, one question for you, what share count do you expect by the end of the year?

I think we have put it in the Q&A -- this is Chris.

Where we ended the quarter was roughly 450.

And then the share repurchase arrangement we have has some open items that could be trued up in the back half where that number could come down.

We would rather have that firm before we give you a new number.

But if you use something in the range of 450 you aren't going to be too far off.

Signaling from Davenport, Ann Gurkin.

Good morning.

Can you help me with Corporate expense what level we should use for the second half?

I think we are really happy.

I don't want to quote a number but we were happy with the performance.

As I mentioned, the culture that's taken root here relative to strong cost management.

I think you will see a number that will be better than -- well I know it will be better than last year's.

Right now we feel comfortable with where we are.

We don't want to provide guidance on that particular line item for the back half of the year.

Okay.

Then secondly, there has been talk about retailers pushing back on pricing and Gary you talked about ya'll very aggressive in pricing.

Give a little more detail on any adjustments you're making to pricing.

More in reaction to volume or retailers pushing back?

Ann, I think that clearly we aren't deaf to the marketplace.

That being consumers and customers.

We are making smart adjustments, as I referenced.

We will continue to do that.

But we do need to keep in mind that costs are still greater than they are -- than they were a year ago or two years ago.

Inflation is moderating but it's not deflationary versus a year ago.

We are also making some product line adjustments like re-engineering our Banquet line to make sure we have the prices and the margins in balance.

Okay.

And then have you all hedged a number of your commodity needs for the next couple quarters?

Or can you give us an update on where you are with hedges?

Ann, I think last quarter I talked a little bit about this.

As we go through the year we get closer to having obviously-- through the year get closer to having our positions fully hedged.

And again it runs the gamut based on-- there are some items that we can't hedge as an organization.

But again I would talk to you about a range like I talked the last quarter.

We have some commodities right now that are in the full year that are in the 30-40% range and some commodities that we have fully hedged for the balance of the year.

So it's against our basket of things that we purchased.

It's kind of in different places based on the commodity and based on what we can put hedges on for.

We welcome a question from Christine McCracken, Cleveland Research Company.

Good morning.

Good morning.

Just looking at the consumer foods data that you provided in the Q&A.

Noticed a nice improvement in the snacks and store brand segment clearly you called out the strength in several of your snack brands.

I'm curious given the current economic environment if you are seeing increased strength in store brands?

If you could comment on kind of the --

Christine -- We are having difficulty hearing you.

Maybe I don't know if there is anything you can do about it.

Maybe I will just try to talk louder.

That's good.

Okay.

Just looking at the segment data that you provided in the Q&A, snacks and store brands, the snack -- you called out several of the snack brands as being particularly strong.

I'm just curious if you can give any comment on your store brand business and whether or not you are seeing any trade down.

Sure.

I could tell you snacks is strong, particularly Orville Redenbacher which is a brand that's very important to us and we support strongly with marketing.

But you also mentioned our store brands.

In the snacks business we have a very strong business in our bars.

Bars like granola bars, et cetera.

And that is doing extremely well as that category is.

And we are clearly seeing that strength as innovation plays out.

But we were also seeing strength in other parts of our private label business, like our potatoes at Lamb Weston.

We feel good that we've got a very good value proposition there.

It's also, as you said on the branded side and snacks as well, another brand in particular is David's seeds that are doing very well.

Just one quick question.

On potatoes, you did highlight that there were some higher cost potatoes impacting your international JV.

Can you talk about your Lamb Weston business in light of higher potato costs.

If you have been able to pass through pricing to food service if that's part of what's driving that strong performance there, and then if food service contracts in anyway limit your ability to recover that pricing?

It's Rob Sharpe.

Let me basically say that the Lamb Weston business experienced inflation pretty much in line with what you saw in the consumer business.

They were very successful at managing that through pricing and through cost reductions in other areas.

So net-net they covered it.

Clearly as you price food service contracts, it does affect some of the timing and obviously in a number of the contracts reflects your ability to immediately price through.

But we consider all that when we are making these long-term commitments and we consider also our purchase contracts with growers that will help us manage those costs.

On the international venture side the issue there is really a flood of low cost potatoes in the spot market.

That business didn't make a lot of money in the first half.

Sequentially it's going to make very decent money in the third quarter, although it's up against a very tough lap from last year's third quarter which was a record quarter.

On a lap basis you will see some shortfall in the third quarter.

The fourth quarter that lap will turn around and you will see pretty good positive contribution.

From the desk of Barclays Capital, Andrew Lazar.

Good morning.

Two things, first, you're obviously calling out and talking about overdelivery on the cost savings side.

I want a sense, how do you gauge if you are pushing too hard on that front, obviously I'm thinking of a year ago and what have you and pushed today hard on the supply chain and felt some of the pain associated with that?

Let me try to tackle that.

One of the things that we are very optimistic on is how we've looked at our cost savings.

If you take a look at our total cost structure, we are still making investments and I say the two primaries one of which you hit on already, the other area where so in supply chain we are making cost investments there and in the other area is in terms of the research quality and innovation platforms that we are doing.

We are actually putting money into those areas and those respective cost centers and where we are providing the fuel is more what I call the back office and some of the other costs in our cost structure.

We are not taking our focus off on quality.

We are putting quality first and innovation is right behind there in terms of what you will see from us in the marketplace.

It's very much a balanced approach.

And then it's interesting that when you talk about the prices you have taken and then course correct a bit when you learn what some of the elasticities are.

In many ways you are no different from a lot of others which is a realtime in-market test in terms of the power of one's brand when we see how the brands react to the kind of pricing the industries had to take over the last year or two.

And your conversation on these calls and around elasticity tend to be a little different than with a we heard than some others.

Where you've got to make tactical adjustments and things like that and that can tend to play into what you hear often about where your brands may stand versus the power of other brands and things like that.

I'm curious if you could talk about your learnings on that and why I shouldn't take away-- right from some of the comments you've made around having to course correct-- that your brands aren't less well positioned than others or in categories that are less compelling than others.

The things you've learned in that process that helped you get more comfortable with that or should I take a look at course corrections that were needed and make the assumptions that maybe what folks sort of talk about over time is right.

I would tell you, Andrew that we were a little bit late to the pricing game so it was concentrated much more than many of our competitors were.

It was spread out over a number of quarters.

We took it in a couple of big slugs.

That was probably a bit more difficult for us and required us to do a bit more course correcting.

I will also tell you that our biggest issue, I would say, in net pricing was in the frozen category where we led and I don't want to drag everybody through that story again.

But we have seen irrational pricing from one of our competitors.

Hard to figure that out-- we did not want to go all the way there because we believe the strength of our brands does not require us to get down to those levels so our measured responses have worked quite well.

We saw that come back to us in the latter part of the quarter and more importantly we fortunately had already begun a lot of work on a major transformation of our frozen portfolio that I think is going to help negate some of the pricing pressures as we go forward.

You are going to see more of that probably at Cagney and you will see it in the marketplace at the end of the third quarter on our frozen portfolio.

That's where we had the biggest pricing issues.

Next is Eric Katzman, Deutsche Bank.

Good morning, happy holidays.

I want to follow up on Andrew's question a bit.

I guess-- historically the previous management teams of ConAgra has been known to be very aggressive on promotion.

And Gary, you have done an admirable job of trying to pull back on that.

Maybe you had to course correct a little bit because of irrational competition.

I'm wondering, how do you think your relationship with the retailers in your brands will play out as hedges roll off if we have some relief and input cost pressure-- Do you think the retailers come back to you and look for historical whatever was 10 for 10 on Banquet and that kind of crazy stuff.

Or have they recognized that this is a new ConAgra and we are not going to be the kind of let's say-- sales allowance bucket of choice out of the major players.

Eric, we have committed to more efficiencies in our trade spend.

And we continue to believe that will be the case.

We are certainly not opposed to smart merchandising, but we are looking at it in a very measured and balanced way.

There are products where we've got a significant market share position and good margins.

And we know what kind of price points this will take in this environment to get the job done.

The retailers also very much appreciate the value products like a Banquet where frankly we know that it's going to take a 10 for 10 pricing to be able to get there.

What we are doing is working backwards from that.

As I said on our frozen transformation, Banquet is one piece of that.

We are work backward to ensure that we can make good margins on Banquet at the kind of merchandising pulsing the kind of merchandising price points that we need and that will be in the marketplace at the end of Q3.

In other places where we have got private label as our primary competitor let's say in cooking spray Pam, there we have very good margins and we know what the right balance between value and merchandising price points.

But I can assure you what you aren't going to see is us going back to 10 for 10 pricing on our core Healthy Choice and Marie Callender's dinners that crazy pricing that we bought volume is not in our DNA any longer.

Thank you.

We transition to JP Morgan, Terry Bivens .

Good morning, everyone.

Good morning.

Gary, just as you kind of do a little quick and dirty math, as you look at your pricing that you guys recorded for the quarter and basically look at comparable period in Nielson, it looks as though your pricing was negative to the tune of maybe 5% or so in alternate channels.

Is that true?

If it is, were there particular brands that you went at especially hard there?

Terry, I don't track with those numbers.

You know, I think what we've reported is what we are actually seeing and we clearly-- those alternate channels that are not picked up in Nielson there is different dynamics going on there and we have no way, shape or form took pricing down.

It's clearly up across the board.

Terry, let me add to that.

I won't get into channel specific or customer specific, but in the full week ending November 23 for us which is the last period in the quarter that we are talking about, every single spread was positive between unit growth in those other channels and our pricing.

And in many cases it was significant as much if not more than what we saw in IRI or what you're looking at is Nielson.

So, no that was not the case.

For the four weeks?

For the four weeks-- the same is true over the 12 week period as well.

I thought your question at first referenced your most recent Nielson that you looked at.

It's true in both cases.

Okay.

I will follow up offline.

Okay.

Thank you.

Thank you.

Robert Moscow, Credit Suisse.

Thank you.

Had a question about the mark to market loss in the quarter which obviously we are all going to be excluding and I guess if I had gotten on the call call could have asked that for General Mills, too.

But my question is, it's a statement saying that you have some hedges in place that are underwater right now.

But it also means that commodity costs are going to be lower in the future.

So you probably get some margin expansion as a result of that.

But I guess you only get that margin expansion if you are able to maintain price and not have to discount it away.

I guess my question is, are there any commodities there that relate to highly commoditized category-- like margarine or bottled oils where pricing is tied to the commodity and it's going to be very, very hard to maintain price in those categories.

You could be experiencing some price erosion.

Or are those commodities related to a typical categories where pricing is rather sticky?

Thank you.

I think I -- this is Andre-- I get your question.

You were breaking up somewhat.

Only place we have that dynamic going on right now is Wesson oil.

And we have, as Gary mentioned sequentially as we move out of the higher priced oil we have and go into lower priced oil you will see the sequential profitability of that brand get better.

We have it built into our plans to work through the oil that we have.

All through the balance of the year.

It's imbedded for our algorithm for the balance of the year but that point you make is very valid for one brand for us and that's Wesson.

How much of the mark to market losses related to vegetable oil in and of itself?

If you give me a second I will get that.

For the quarter specifically?

Yeah.

We are really not in the habit of disclosing mark to market specific commodity.

If there is something that is material as we go forward we will help you understand it in that context.

We aren't going to break down the $48 million in terms of oil or gas or what have you.

We will leave it at the consolidated level.

Sounded like Andre was going to get into the habit but keep it to yourself that's fine.

We need to be consistent on the disclosure.

All right.

Open the line of Chris Growe with Stifel Nicolaus.

I wonder if I could follow up a bit on Rob's question and ask in relation to Wesson and Banquet which were two brands you called out as a bit more challenging in the quarter, how much of maybe the profit weakness, underlying profit weakness was related to Wesson and banquet?

Can you give us rough numbers around that?

It's roughly two-thirds and one-third.

Break down the Banquet and Wesson.

Okay.

We were trying to figure out is how much that hurt overall consumer food.

Two-thirds of it was Wesson?

No, I thought you were talking about how did Banquet and Wesson break down among that subset.

I would tell you that there is a lot of puts and takes.

We have a huge portfolio.

Those clearly were some of the bigger pieces that were the down elevators.

But we have as everybody does some ups and downs.

I also tell you that we feel very good that we have fixes in place for both.

That high cost inventory-- we continue to work it off on Wesson.

That's built into our numbers.

Will bleed out the rest of the year and on Banquet that re-engineered line will be in place at the end of Q3.

So both of those significant issues for us have fixes in place.

Okay.

And then-- I don't know if you have this composite number for your consumer foods business but can you say what private label market share was up in your categories or perhaps seeing collectively private label prices coming down in your categories of late?

I'm not sure that I got those numbers at our finger tips because a bunch of different categories.

Clearly private label is up and the real strength of our private label business is in the bars business and snacks and potatoes on the Lamb Weston side.

It really varies by category.

We are not seeing tremendous pricing volatility there.

Okay.

And then my last one, just perhaps I missed this, but have you confirmed a cost inflation figure or percentage for the year then?

I know what it was for the quarter.

What are we looking at for the year now?

Remember we had about 15% in Q1.

We have about 12% in Q2.

I think we will see as this runs out probably I would say low double digits is what we are calling for the year.

For the year.

Did I hear that you are hedging then -- sounds like it runs the gamut is it like half of your costs to hedge?

It's going to depend again commodity by commodity, balance ever the year and we have some position that we have coverage on and some that are less than 100% and some that are items that we can't hedge.

You couldn't say 50% or some number like that?

No, I wouldn't want to get that specific.

Okay.

Thanks a lot.

David Palmer joins from UBS.

Hi guys, in categories where private label is your top competitor, I'm wondering have you gotten any sense of the retailer's plan for pricing and promoting retailer brands in early 2009?

I suppose this is a bit of a follow-up with focus on prices potentially coming down in the early calendar '09 period.

Clearly there is a focus from the retailer on private label.

And their percentage costs or pricing went up a bit faster than branded did and it will probably go a bit the other way as well.

But again that's some of the places, the key places where we have been making adjustments as we look forward in terms of what our costs to goods will be to make sure that we have the right price gapping in place.

It's really not a surprise this phenomena of private label doing well in this tough economic environment.

Again we'veseen strength in our pieces of the private label business and on the branded side more importantly we are staying very close to the price gap management and course correct to make sure we have that right balance in place.

It's on our radar screen and we feel good we are in a better position now with our granular look than we historically have been.

And you -- do you feel like the prices will come down in the first calendar quarter of '09 in many of your categories in particular the private label competitor?

Or do you feel like the timing of that might be more similar to what it feels like many of the branded competitors have in terms of cost structures which might be closer to mid-2009?

That's really hard to forecast.

We will stay close to it.

But again, let's remember, cost to goods versus year ago is still greater.

So, yes, we were seeing sequential decreases as the quarters progress.

But the water level has risen.

That's the same for private label competitors as well.

And one more question.

Are you seeing retailers increasingly rationalizing SKUs and if, so have you seen impact from this where you might have brands that are ranked third or lower in the category?

Is this a factor at all?

We have seen a little bit of that but not dramatically.

We also seen some rationalization on the manufacturer's side.

One example might be in our pudding category with Kraft exiting the shelf stable pudding where we've got the number one market share with snack pack.

And we are proactive in SKU rationalization because we recognize the pressure that the retailers are under and we want to be smarter about it.

Good example would be the frozen transformation that I have talked about.

Clearly SKU rationalization is a part of that and that is part of what has given us such strong customer reaction-- positive reaction to programs like that is that we are being proactive in that regard.

Follow-up we return to David Driscoll with Citi Investment Research.

Thank you for taking the follow-up.

Gary, two questions here.

The first one is just a general question.

I do find one of the most popular questions out there from so many folks is this general issue of increasing commodity costs or decreasing commodity costs and what actually is good for a branded food company like ConAgra?

It seems when commodity costs were going higher everyone was paranoid that we couldn't get pricing.

Now that commodity costs are going down now everyone is terrified we will not be -- pricing aren't going to be able to be maintained and we're going to lose pricing in the private label.

Can you kind of boil this down?

Is the -- we know what happened with the rising commodity costs, ConAgra had a tough time.

In the declining commodity cost environment, which we appear to be heading into, is this good news or are you more cautionary than my statement?

I think it's good news.

I mean, in a perfect world we wouldn't have to spend so much time talking about things like hedging.

That clearly has been a fairly challenging ride for all of us.

Certainly ConAgra included in terms of being able to respond to such a volatile market.

But any time that there is less need to take the prices up is a good thing.

I welcome this environment and I think we will have the right balance in place.

So I think we are looking forward to the environment.

Second question is about the enabler brands.

I see in the quarter they were fairly strong with sales up 11%, but profits were down modestly.

Number one, can you just talk about that enabler portfolio itself?

Again, there has been a great deal of concern about that segment of the portfolio in particular basically from day one of when you took over and yet to my memory that group is actually done reasonably well.

Can you give us your characterization of where it is today in your outlook for it?

I could probably sum it up in one word, Wesson.

It's really a tale of two cities.

If you took the Wesson issue which as I said is really -- we got upside down and is that big brand for us.

So there's heavy weighting for us.

We got upside down in input costs long on high priced oil.

We got in it closer to the peak than I wish we had.

Our pricing was too aggressive.

And we've had to course correct.

But that issue is still with us as we work through that inventory.

Gets better and better as the year goes on.

But that really is what impacts which takes the leverage away from the good top line performance and enablers.

Virtually every other brand there is doing well.

Because they are strong value brands.

We also have some really good regional stars in there.

You know, brand, like Rosarita is clearly or Wolf chili is clearly a strong, strong player.

The rest of our enabler portfolio is doing well.

Everything is colored a bit by our continuing but sequentially improving issue on Wesson oil.

There are no further questions.

Mr.

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

Thank you.

This concludes our conference call.

As a reminder conference is being recorded and archived on the web as detailed in our news release.

As always we are available for discussions.

Happy holidays and thank you for your interest in ConAgra Foods.

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

Thank you again for attending and have a good day.