CAG - Earnings call transcript Q2 2021

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Operator

Good day. And welcome to the Conagra Brands Second Quarter Fiscal Year 2021 Earnings Conference Call. [Operator instructions] Please note this event is being recorded. I'd now like to turn the conference call over to Brian Kearney from Investor Relations. Please go ahead.

Brian Kearney

everyone. morning, Good us. joining Thanks for I'll remind statements making forward-looking will that we today. be some you

the that are refer for in Also, section References we can earnings including release press While to do in those filed on financial are making found be we statements our measures. items. documents the impact be comparability Please to found of any the of see Sean. risk Investor conagrabrands.com. With believes which net exclude we website, earnings GAAP release our about turn or organic discussing included Descriptions in period non-GAAP in the the not the items good items, that, the The guarantee non-GAAP referenced. be the I'll information the will management reconciliations achieve. to earnings can results for slides, it SEC. to measures adjusted will with Relations the additional either sales, factors we have of comparability we over faith, some both

Sean Connolly

as our Year. second to Brian. our positioned succeed Dave thank everyone. current and discuss morning, the I Happy environment And Good continue as well Today, beyond. on quarter perspective how New call. Conagra will fiscal you second for results XXXX Thanks, quarter our to earnings and joining strong is in both

very started. get I'm with second pleased our for quarter. let's So results strong the

and in both absolute well relative peers. perform to the continued business to Our

transform the plus the work ability not a of environment, adapt done current a Our to to but date success testament to XXXX to to years. our our past team's fiscal only in over is reflection five business we've the

occasion better margins playbook of capabilities during the the the our and and has excel pandemic, the to positioned Conagra the business has better ongoing growth reshaping that in rise and perpetually to to future. us execution COVID-XX Our way portfolio enabled for

our exceeded momentum growth. on quarter, based results our We had strong, board. continue broad and to QX expectations second we across build the sales our the During

proud Our quarter; to targeted originally margin expansion in way the support I'm to our reached our we for planned. And drive of during availability target made the playbook, both than mental our production we optimize that deleveraging products. announce creation value with we long-term Conagra Keeping investments capacity and is ahead of continue physical to business schedule. the earlier and marketing

We business, an butter. Pan quarter our remained second Peter our portfolio with investment smart not agreement sell closed, has priorities. sculpting committed to for but through Peter it's divestments Conagra portfolio priority peanut the after shortly to good very given Pan also a the other

this XXXX our Finally, frontline workers. we all be And exceptional are reaffirming without our none metrics. team, of particularly would for fiscal our guidance possible

possible. this safe, like continued chain. making before customers industry responsible recognize We the proud team hardworking that, supply of members Conagra needs I whose everyone keeping And dive extremely So the want to for leading the work we I'd on communities, our the get the has everyone remain business our of I'm of of let's into thank enabled Conagra With the at employees while our quarter, and into details update. to performance. meeting focused consumers. extraordinary for of dedication thousands

of of exceeded growth schedule. enabled These of As our sales our X $X.XX. adjusted EPS results X.Xx and the ahead quarter board. reach net X.X%, to XXXX fiscal leverage our ratio organic shows second XX.X% target We table on results us margin across slide delivered of adjusted expectations net the operating

staples our growth frozen across we each snacks, across quarter, During significant with and to portfolios. Total business. retail drive the grew our XX.X% year-over-year, second continue Conagra sales of growth retail strong

gained our our basis the points have category by and We've in at outpaced And total consumers products, pandemic. brick e- share results. our for retained share. of In penetration ago, of growth or what's physical is pandemic. this the whether with yield quarter. and edible slide of sustainability online. chart gaining the onset our in sales e-commerce with left, and e-commerce our sustain Total basis can to continued grew presence a a ability to commerce consumers has through that on Our chart investments see Conagra continued impressive relevancy household massive XX our the change occurred of step edible mortar And success performance. the results e-commerce about increased results ongoing the our the points. of XX the availability e-commerce portion Critical were to the X year driven growing you our is growth But have total since the really expanding demonstrates versus how onset we each

As total of our right. of sales its our e-commerce continued a increasing success, as retail trend of you result steadily sustained a percentage can see the recent on as

a basis not is dynamic Conagra; as of growth percent absolute accelerated and COVID-XX. While, overall e-commerce an this growth a both new during has for on sales

be the years performance our the recognized we addition continued it generated had a we potential that second ago, new e-commerce, of our we to In portfolio; began journey latent progress this lot When during quarter. had innovation modernized. in in just strong over to five

within retail out that of products we sales that. recall having annual established So preceding from years. XX% And set goal of our we you'll just launched the come three do a to aggressively

us trials compared we and frozen points half on on and Duncan UPC category per times. single than new down first CAG next products our launches. distribution the serve and will that recent rely boasts serve re-calendars Hungry-Man overall item indulgent one see distribution about the single the exceed half After have the XX has more a important sales top per Investments capabilities As Slide delivered outpacing our innovation performance brand we've goal. drills Hines innovation modernized launches track time to achieved the XX, years continue is innovation velocity include more comparable growth. record Expect items products pandemic strength in XXXX, our to baking of month. more this our of has on to product this in half. over drive UPC our launching products innovation performance. more first our branded new made began. our by of two at will during in XX% since slide What's new strong highest in Customers meals. growth our the and five of continued and you even can is hear innovation fiscal equally The Product three XX% enabled our half number to to upcoming new year's period. introduced trust highlights the new products consistency first category last the last more in performance year consumer we the XX% introduce build second performance

impressive year Turning four now of ago, growth strong thanks versus frozen an slide main our a XX, grew to in categories. Conagra sales X.X% frozen retail total each

Importantly, our terrific frozen quarter. growth vegetables the business strong returns in to

of our investments segment. position Birds As digs more brand we largest into XX vegetable for competitor. than as our bit started online. work some branded deeper of category one quarter, the closest bit consumption brand supply that a important new ahead a as brought Slide capacity on a bring inventories. we rebuilding category frozen previously to the the online. that capacity Recall the constraints last cornerstone were With Eye. Eye the I their of Birds a number additional And retailers frozen in shipments is shares Eye faced noticed twice Birds

form can QX returned Eye charts on to slide see as in You the expected. XX, Birds

brand QX new X.X% category our in of growth positioned modernize we began. sales slide has and retail to on well more believe and vegetables basis strong QX. competition to attracted see to XXX steps Birds Frozen remains than pandemic XX, impressive category an quarter, can quarters the share taken to from addition of And you Birds retained In several relevant over how Eye expand the to capacity have leadership. gained buyers build Continuing Birds since to Eye the highly us points our the we've past consumers. Eye

quarter. meals had our another terrific frozen Turning now area portfolio of leading strength, to single of another serve

As Conagra peers, attracted on category and since of the slide driven start has XX you new buyers the can see outperformed growth pandemic.

brands three from top show perspective. and both a trial on have repeat this As the we the this category chart slide of in

also strong see in to continued business growth quarter. snacks the Our

popcorn, on snacks. We're just year share XX the basis see two we meat cocoa, not year-over-year deliver and snacking, and hot by can competition. gelatin in winning slide you snacks, XX, shows digit As the double meat results we in versus and a on Slide across ready-to-eat and how in pudding retail year-over-year quarter. impressive growing; growth grew sweet led treats, we're sales popcorn, the

remained us, for as has primarily of results but Our in looked staples and the as been as highly a the products XX cooking, a relevant staples hasn't consumers utility, portfolio and value served as a people QX. portfolio slide But source of cash also solid our engine. portfolio. this relevance in it growth to delivered shows at rediscover Historically, continue in have to quarter

to Many basket and pandemic. grew XX.X% of in new, joy during the brands Hunt's category utilities are this by And of retail second RO*TEL, total on sales are discovering the kitchens People and are Our including the the their of ingredients. staples younger quarter. cooking. returning the slide Pam, consumers cooking

going that coming before, resulted takes trying products again. to win. or and reengaging As we in back our to see with has consumers uniquely is forward and current business set how and we've discussed environment And our what us the again up

highly last over of have products to cable ability deliver to Conagra and we of enabled way eating of playbook that driven portfolio all execution our these years products. the has the And an reshaped plus prior trial, modernized adoption has Covid. strong our Our the also We believe an acceleration five in the of been performance that foundational firmly our onset know to us increase pandemic and enhanced abilities at for rates repeat But purchase meant the during excel home to times. consumer it COVID overall. Conagra, dynamic

both Our business. of incremental also absolute results in ROI and an been availability on disciplined for our strong mental and have flow driven These relative capabilities, physical enhanced products. of and dynamics our levels of previous portfolio, investments have the the cash They've our meaningful basis.

to adapted smart Importantly, perpetual to investments further the while we've make current our the and also superior strengthen environment, continue to future to Conagra the ways delivers business. results; look we and

outlook near-term category when come. but increasing not consumer raising availability, reaction longer-term awareness. capacity, and years our a the modernize now clear, win, dynamics the that in Our Conagra is for way. the to to and strong packaging, believe rooted Conagra increased continuing decisions share disciplined continue investments warrant, a business environment, position and our and investments products and these to e-commerce shelf our in to for We to of We on execution supporting production are include

our us of playbook summary, stickiness our that Conagra QX, to will the Conagra and long-term products with expect aligned We investments, proven see profitable. expectations. consumer our coupled portfolio to in we deliver which across of execution enabled way In to results result adoption exceeded deliver that our continue in the with continuing solid

remains even over to better Our and ongoing strong to Dave. absolute business Conagra with expect positioned post approach of a to and we be innovation. that, disciplined result in I'll our relative competition. And investment as to it the and And COVID turn

Dave Marberger

Today, Q&A start highlights Sean. XX. you, to few the call. a captured portion everyone. we morning, our I'll our the QX out details performance I'll slide quarter, walk from of which Thank on XXXX fiscal calling the through are performance outlook second the before and quarter of by Good move

teams and organic As deleveraging up business. Sean margin, were in second and period us quarter execution and company across year ago. net continued while by same the quarter, for exceed X.X% our to we the the the Reported net the invest mentioned, X.X%, during profitability, sales, versus sales for respectively, a outstanding expectations to enabled

increased adjusted breaks $XXX grew X.X% quarter. million out our the quarter. continued $X.XX XX QX margin to performance adjusted Adjusted EBITDA points our EPS drivers increased sales XX.X%. quarter XX.X% the our of basis QX XXX We Adjusted margin XX.X%. points as increased XXX to second to net XX.X% And Slide basis in margin diluted to growth. second strong from gross the operating for

impact sales merchandising divestitures. offset thus also net partially growth. organic impacts by foreign driven X.X% Pan organic sales associated peanut The and still favorable the of by primarily with growth by and the and As less in mix, of mix was you our contributed is in increase results. of favorable X.X% business driven a of can to our exchange, part organic see, was to The was which trade net price home the included at sales strong increase food volume evenly X.X% in growth a Peter net Conagra related consumption. decrease The brands butter

second estimated We I retailers grocery point removed Slide The consumption, XX.X% to strong this which in organic will frozen expect Pan driven benefited the consumption be increase home segment. a net growth The organic by a summarizes organic organic net and quarter. and XX sale and as growth. growth outpaced Peter each at our experienced net the of COVID-XX to growth and from of increase significant segment's result for sales it The segment basis, in net food discuss of growth sales On snack was which in will both retail saw retail the but the snacks, its the international. as food sales completed inventories. segments our net negatively our at impacted service of primarily shortly. three sales be of refrigerated sales rebuild we continue of and by QX, our quarter. segments continued reported divestiture segments; and impact grocery

frozen a and needs Our growth of continued efforts, and to net products growth our the consumers. play refrigerated and frozen meeting important organic This sales innovation in today's increasingly modernization and delivered X.X%. segment of role illustrates refrigerated evolving testament the is

Turning sales particularly experienced organic Mexico. to segment increased This quarterly strong growth Canada both International X.X%. segment, in net the and

less reported XX, segment result period. the net service food outlined volume prior due a decrease margin bridge sales operating XX.X% versus our primarily quarter, restaurant the by of declined, year for XX.X% to quarter This Slide a a COVID-XX. of as the adjusted traffic organic driven

and XXX ago. margin increase points to the our sold improvement; Strong increased primarily sales ago. a of XX.X%. increased basis, quarter, increases favorable QX As and quarter. a operating gross costs acquisition realized was with quarter in on productivity, price associated these adjusted to goods due A&P and in versus fixed this of combined our basis synergies a margin period drive to more see adjusted in cost year points year percentage COVID A&P resulted in mix, supply offsetting point chain than the adjusted X.X% Pinnacle drivers same cost of the leverage on XXX basis Foods costs you margin inflation second in related the a operating can Collectively, XXX versus basis a marketing. e-commerce dollar flat basis impact

of net reduce Finally, fixed employees temporarily their the want a our reduced Pinnacle by margin costs home SG&A favorable was our cost adjusted basis XXX from you leverage on as higher travel. and as rate work points, primarily significantly to I sales, result some synergies on and spending give additional perspective expansion.

XXX ahead mentioned, quarter, As XX% and margin XX%. expansion our ongoing I points for margin margin approximately quarter XX basis point reflects XXXX XXX expanded achieving expectations. basis operating towards of the points just our to operating of our this progress target basis well fiscal this Of

a quarter, XXX approximate from trade lesser to by benefit an point in primarily mix saw extent, also merchandising. pricing mix and lower and We basis margin the price favorable driven

exactly fixed at expansion this not An goods We quarter. COVID COVID much But XX benefit forward. offset from retain and mostly across net our margin year. for related margin costs to P&L going segment this remains how summarizes entire SG&A related benefits of to of expect by the adjusted repeat second sold. the operating costs by and next profit XX benefit came basis point. points additional this net Slide do favorable of expect We leverage some uncertain

the are chain synergies. productivity more results that margin expected of from digit acquisition strong than decreased related the the segment, realize offset three chain which with a percentages Each sales impacts cost productivity. productivity year to the benefits saw net versus by increased we're however, and and higher sales strong segment costs core into second the of benefited from retail realized the supply segments net favorable operating see. Overall, the impacts we continuation pleased input organic operating and organic Food due COVID retail the anchored and lower by of to ago. period Our Service profits higher In Pinnacle profit QX double same supply quarter,

during period our to $XXX to quarter, ago. of EPS quarter increase we've in expansion year bringing of expense and slide debt continued profit with $X.XX. by the and increased an we during most XX are captured Turning the the fiscal in since diluted benefited driven as net outlined total increase from recent Pinnacle overall prioritized. growth highlights in The XXXX; growth the a decrease the operating XX.X% reduce associated same savings was we've quarter EPS drivers on synergy XX; progress in to interest acquisition versus as cumulative capture Foods primarily adjusted net margin close second the the the million. synergies $XX million Slide of incremental the significant second sales adjusted also quarter to a the

reminder, XXXX; to a close track of made $X.X debt of in XXXX synergy quarter been bigger to of through two the synergies to remain in to the achieve in As up targets. fiscal $X.X strong we achieve date total goods fiscal we've quarter sold billion, synergies capturing gross quarters, of expect make XX second the by the going to a Cost the cash for SG&A. in the have synergy synergies net our deleveraging end our we majority Since progress the second our forward. our XXXX have Pinnacle progress shows resulting pleased Slide targets. a acquisition reduced started of them date fiscal debt billion. on synergies total majority the to and have of team's last remain of of and We be portion with

closing down X.Xx are end We second reduction, robust leverage acquisition achieved and of quarter we the the earnings at first net the ratio report schedule. to achieve coupled the Pinnacle debt quarter, X.Xx from this net to Xx the for leverage that of with pleased at at ratio enabled consistent of target fiscal Strong, of of improvements target ahead us XXXX. in the end our

Looking balanced be solid continue Slide drive ahead, capital focused to using executing summarizes allocation on outlook. value, to to investment CapEx committed XX a our XX% we shareholder opportunistic, be to the investment grade our dividend credit we recent in as continue will We our increase. as ratings remained sheets balance and such policy. increased

believe As I Conagra throughout presentation, both the Sean said of future. and we strength this have in

of forecasting environment; in confident we're continue that to continues the ahead challenge. with a specificity to While COVID-XX near-term and beyond impact and make the will remains quarters Conagra sustained dynamic the excel COVID-XX

continuation a reduced demand levels. historic demand elevated to expect demand of and We service pre-COVID retail XX food compared

We are in currently third today. seeing both trends the continue of these quarter

the to quarter, X% in third For range sales we organic be X%. growth the expect net plus of to

We reducing to XX expected the basis to includes to we in of year-over-year This that operating QX, expect points. increase expansion. of year-over-year operating margin a be an QX acceleration the and started in of A&P estimated XX% estimate marketing our implying QX margin range XX.X%, XX e-commerce investment

historically reminder, operating the than leverage of a sales. operating are margins QX As QX impact seasonality given on lower the margins,

along in the EPS third sales these improvement to range the items, quarter and adjusted expected with below to deliver margin expect factors line we $X.XX. Given and of $X.XX

continues demand. Our chain end-to-end effectively operates third of guidance heightened quarter also period this assume supply that the to during

any guidance outlined sale impact third earnings the As Pan release, our yet in the does from quarter Peter of pending our business. include not

of the $XXX We net impacts sales million divestiture are the adjusted and expected reduction are approximately EPS. million. annualized And of approximately of three a of business for the sets $XXX selling

our XXXX the to Thanks another questions. again we where We Peter metrics sale progress of it month remarks and for fiscal guidance, operator the provide forward us. at the will I'll presenting also the CAGNY excludes all reaffirming That join to everyone. next now open up We Conagra which of look of you'll it are my we for Lastly, Pan. update pending listening pass this to morning. on way. our executing concludes hope impact

Operator

[Operator of first Andrew Instructions] The Lazar question comes today Capital. from Barclays

AndrewLazar

all that around, offer investors guess company it deliver those fiscal guess, Sean that really But Happy rapidly importantly, point XXXX sort XXXX Good And operating reaffirm I with can obviously the its in the today do environment, you fiscal and approaching Pinnacle the in what current I targets? reach financial everybody a only can been as of well to the this ever guess I goals assure deal. enables the not way have to uncertainty as Conagra you, Year. milestone at sustainable and morning, fiscal Conagra XXXX company a growth the can for key more since thereafter. New

I a As of bit the summary was mentioned third that that's And forward? combined? know as we a that question I to you of a for Is got fiscal that -- we should moving quarter. is one that kind pattern should expect into pattern A&P quarter. more of that that up just I've investment those And of days. Dave. continue of getting a are in expect quite follow been And up that these the saw I So part then

SeanConnolly

Okay, there's well, one. a lot in that

So questions. good

is try that me we experiencing product the now believe unpack piece years trial of we millions provide of of dollars. to of that. normal of can would right in what course, acceleration Let assurance. that times hundreds and take that Yes, each are We

nutshell, as Now XXXX sustain to and is and what's beyond. a it, it playbook. our In for people our through going

about brand remarks. people our playbook, let respect to me remind particularly my I our in building. Now, investors spoke prepared with But about

powerful really We packages, And building. to that, between in they the and heart do one that And then with progressive meet brands. our most is products space. communicate our the where to we meaningful that brand information connection people you approach. and approaches have spent our building relevant are this obviously, our in to and And and to is is consumers our of the simplest sense have eyes years them. to modernized you in curating approach create is believe effective goal, a The and and our brand of optimizing

on these not important ask they be And first, where advertising. also not. are that online. can market entertainment understand is are. television, a their it's we information, shopping Well, these where broadcasting, they're to mass or often, people it's increasingly, well, a; five they But And or to tethered When we're was devices where you So in that meet years yourself, days? days, I seeing bricks-and-mortar they're or seeking old, our the But share. you lot approach and consumer, young consumers, sustainable information you especially it wouldn't a so could would a a not finding had very, today, monolithic, lot find obviously, before. we was that who are consumers, the if of of to spoken that you and place a communicate were on there tailwinds very I've demographic are be there significant focused we about because that were

our reach of So And with a you store, consumers our heard with then That's online design, the our outpacing to meaningful to to often me our our talk performance, times TV trial, instead, many depth And and we a our of it's radio, in on information often message it relevant diversity product playbook. to a respect package will locales appealing are the our it succinct modernized and in provocative them; innovation then repeat, starts our why communicating product rates, from as repeat, from on very It that's to competitors. more. benefit. works. growth work. around and metrics and continue to And

simplest So or of with quality products we that with media provocative by level, in messaging here supported sense, But presence, products quality will quarter, online based variable. it total online presence, is, the is and weak investment flex high it strong. store been has our brand is great broadcast single lower already time. are outdated, on can we lots strong it yes, of targeted beat in remains in your it a quarter. but and circumstance And store lastly, in the what every And any modern, then and part given of question, the at asserting last

seen, was and we flex it it ample, And supply would is seeing as by the that the show flex or to I say level good above the that. not the constrained, in below So the recall good way, competition but relative absolute in up. when back; I think dial you've overall, can you're place. but when we strong just can we line, supplies see results opportunities, a ROI we And

AndrewLazar

then which and fiscal you how up. pretty factors walk commodities follow marketing QX? there bit and in is mentioned, into have your QX Thank goes spiked to that As the it again, margin us we for it's you represents landed a where from that. need And to substantial quick Right. take aspect for just operating Dave, commodity the just sequential through it and you or Can purely step of maybe things down there that nature? a are other account or forecast

DaveMarberger

Andrew, to break that me let Yes. try down.

the always shows down First, as to the lose season the in operating quarter from dollars. normal lower the quarter, it we overall third mentioned sales my cadence leverage from operating of some margin of as second the stepped I exit remarks, holiday and the

year margin benefits Second, QX. a ago QX operating ago, were a when you incentive there look year at SG&A some from reduced comp, in and accrual

to X.X%, to are estimated X.X% lastly, the marketing quarter QX. it - for QX whereas in as just we inflation quarter support X.X%. e-commerce investment around our And third in third is started accelerating in the A&P was be then now we Third, we increased that around discussed,

third versus quarter a expect in the in we digit ago. year increase A&P So double

And third the point our basis improvement So really operating we with we're in with guidance, XX quarter. to still they're that XX factors. a margin applying in

Operator

Apologies. It is looks next like David Palmer the question.

DavidPalmer

bit to Andrew's a A of question. follow Thanks. up

And mentioned in you executing slides investing is mentioned way. the Conagra five You years. Conagra behind that and

sees if spending wondering I ways a what a forward. I be broken you out. And everybody adjusting have quick give feeling and us has us shifted snapshot I'm its where to less about give obvious, because is follow going want about think year Perhaps you advertising investment worked in that So since what is could it five best up. might think that you Conagra has maybe

SeanConnolly

play company. conglomerate, looks focused consumption years struggling up play, then look in spaces. But the frozen. of And they are go last demographic portfolio Hi, form probably, lot of sure. company in very users painful, first and have tailwinds we volume in households. We with five, lift didn't again. of of call and on innings base. as households early years, position to we on that the we that business ago been where volume. know a as capita we it. five were early in additional a children; And Year. the over have big had then Today, we success. with we Frozen, It is started establish look CAGNY snacks, And And lot frozen out households and is us the leading layer if frozen to of five have foundation. anything go today, North and new purge I private the form continue Happy a our American year, in David. a when the over And play we to as we incredibly quality global you in last low has the pointed much a centerpiece that frozen. largely was the lot and right? it Dave, stronger when snack But much neglected goes child in will be the to already a were you coats, a and they're innovation they, of five play of people. tackle we our half to per like Yes, are then of we a in investment it's we pure world as up trying but from And those to heavy back necessary three And days a up and was And North believe the the staples. that's value America innovation pretty you a unique were New And label; we we things a we portfolio if through years, it what growing out put effort. and know robustly. millennials, because outstanding they in at

So frozen. that's

And business; rebased like to years just it of extremely snack we we got growth, a M&A. in strong we performance been really been playbook shares high has through said relative there and company, that a and snacks And stand a up been we And margin business. will couple company. think Our a both going It's outstanding. we're run the that we've market It's it's organic, ago, continue. high space. that snack

a is degree manage So or probably fact but combination line. good and It's in the see priority cooking culinary that these right who cooking again, ham utility above can is are place, might for spices some of have generations of other their a about a in mental, out staples type recipes the of you post own their portfolio. just line business. in the these availability they kind more behavior, third learned where from cooking no There households enamored homes, and staples, go is are skills our as products younger one their these comfortable not are than and and and built and like of cooking meeting to products not RO*TEL terms process. and explored a out, but established our of cooking a is cooking But And goes corner absolutely some of And fundamentally been not. be now of pointed with now. during was McCormick what's people in remains investment. continue the and older spray very have to investments our in terms of right available physical different pieces all below will a of the and just a more I That's second what the mental in here of come are pandemic because those the are business utilities cash is of very, piece as retail or historically products happening which interesting cash peer also that companies in process the differently cooking our that always third which where the the that lot

we a believe of our level in during salsa pandemic. because like So are business, our role tomato, be businesses, continue And products; a businesses some post meaningful these our the elevated an tailwinds of staple Hunt's dressing at are products lot pandemic. demographic of RO*TEL, will that these playing

probably in put do want more forward optimism you is of staples snacks. how very than would and So to growth looking it. of strong add potential up frozen, to Dave, the in I pre performance out pandemic anything And that? terms

DaveMarberger

in capability our and of COVID, analytics, retail acceleration view, that that which of e-commerce. we're investments, our of really on you approach to that the is kind right? chain, is Yes, thing e-commerce the all modern that marketing, look we sits made capability, the in of at in on, top would all early invest If I now only supporting investments say seeing with we've the of investments the supply benefits

that So both I to would applies innovation, legacy volume. everything, and really add

SeanConnolly

to key for stickiness obviously, right David a and obviously of thing. the a on Your this. question, now, with lot lot question has it question Andrew's investors' minds And do this

we that of year, last I interesting that And into our more was home at six XXXX. One to of in slide we saw the investors' is might permanently months showed of very was a is back period this twice or after that quarter pandemic the occasions. XXXX, time. in level that what saw in attention point about we first this a elevation was this the saw recession a -- of was level year, And just previous the of short it eating shared past I a this things elevated what

see evidence of previous of stickiness, higher the post just and this time So level adversity think similar but we occurring, there I stickiness this a not is level.

Operator

Goldman next of Morgan. The from is question Ken JP

KenGoldman

patience. Hey, guys, hear much for can me your so you Hi, thanks time? this

that a growth a top sales guiding third in leading slope year, of walk questions organic again, -- Again, comparison you easier in slowdown? from lapping just you just that year X.X%. one, And deceleration guess that Two can a have You'll factors maybe to talked X.X% a are it's air line Sorry the about be quarter, guidance are which quarter ask pocket Number to quarter? third much about about organic for that. the for that versus second wanted me. the the last the you curious some basis. I'm two I'm to to in steep pretty the I range us of through

some So just be? of might those what curious headwinds

DaveMarberger

is Ken, Yes, this Dave.

to we we So look overall, QX. QX, very at look it when at similar

third reduce inventory clip So There's shipments in quarter levels some be we where there, can to consumption. time a see line the retailers be expect takes that with roughly you some because we seeing are that, the have the have able But such that support we right to historically. demand we're demand. replenishing now stocks strong strong to are to right be orders

So third there's a lot prior seen in of we haven't third quarter. that on dynamics quarter this going in

that be So And shipments our in saw all in you that. There's we that going segments, planning and that's to will add puts right in want similar posture our but dynamics on it believe that? going now, we to just are roughly takes be be given line some QX. our anything about Sean, we are to good different call, between, the going the part planning consumption is what very to QX. feel with to

Sean Connolly

No.

I that summarizes. think

Ken Goldman

for when And the a follow to the more, demand Okay, I more in stickiness you that. want is our of one thank ask over. it quick been after of CEOs Sean, then you up, have confident to that comes space, crisis

Dave, is of your for kind there. should that demand, very of I some next as expansion that in kind or free you to today, flow, wondering But a be to your How perhaps the sustainable grow there's should Can about why support too. support demand? need if gave wasn't talk and you if reasons of is over you changed. heightened already stickiness compelling think the will that chance there think talked more plants we will see out consumer this that's guess how that about You to desire about think years growth I just you here. cash what's world. CapEx a that sticky being couple little I'm

Sean Connolly

an of me about example, And could against organic some done right. XXX%, that. When And ROIC, best you're we Yes, that, growth we returns. let see first we And I well, we're use all, we opportunities, deploy if say, Ken. our of yes. just very already think capital have when doing Slim oftentimes Jim as the

capacity, Jim, plant, doing that performed a again. So year size dramatically so we've we're the or well. so that an ago, on as business the has on and precipice that And increased of Slim example, utilizing the of

our are radar But so our of options And us. is And have on little that of as capital investments well. are bit? clearly part and for those to that to a you allocation. want Dave, up capital pick priorities types balanced approach other capital we our on all allocation

Dave Marberger

in the help half, things, of a lot the Right? some give now, of have frozen, two at you over some our so Birds CapEx strong in optimization build and one drivers drive to a then if is to to refrigerated just capacity big CapEx up that there's in there, examples, projects, big And network Yes, first spending investing you we're in grocery; ROI a big XX%. margins. look continues for term. the investment drives we have our one So long we Eye

opportunities have So on a feel good capital said look investment allocation As Sean CapEx. at we in about But the a we'd we balance basis. really

a situation, invest so it's we have of a things good good because lot And in. to

Ken Goldman

you to that XXX% increased think the support Just necessary that's be for flow there. to there, out demand what cash have free be CapEx guidance you the will clear, out includes that

Dave Marberger

estimate we our and that CapEx Yes. that for And in correct. That's Q for you'll reflects file that. our see year the

Operator

of comes Growe Stifel. next from today Chris The question

Chris Growe

you. the leverage that this question Hi, good my less and division. and for when look divisions, that to refrigerated in frozen morning. at the relation is be snacks And for to that in as and you're says using had little in and and for two expansion I different you grocery a for I maybe I those and just could quarter. the limiting divisions, expectations, want the the division, had leveraged strong the degree a I what And and was guess really to way snacks than which an say parties, example. expected margin just grocery understand manufacturing, example, third between nuances the then I division, the

Dave Marberger

look snacks. refrigerated and of at relative really to hit and when grocery in areas the two snacks quarter, more this COVID you grocery One, was so frozen. related Yes, Chris, and hit costs harder

overall inflation snacks hit our secondly, then snacks our So costs quarter frozen. additional And of inflation, the include refrigerated use, for and that COVID costs, hits the more of that stuff, and so and PPE transportation relative grocery the kind grocery we more of all in to quarter. business commands that

drivers of by look two the So there two segments really when side at are the you side.

Chris Growe

is of you. like Dave, call of all total if be And bit And in in they're incorporating that a our you right that's that kind third costs going to of input Is basket? costs follow number in quarter. also incremental up costs, mentioned the I'm your When cost terms the related as that on kind for X.X% the thank X% the for before, sound maybe type range, figure that you costs of you in just so, costs And give them. as Okay, are that then curious a input higher Xs COVID well? upper transportation QX. just if

Dave Marberger

You'll see than our related on inflation. bridge, the are separate costs COVID

commodities just inflation our because at, look The COVID we're specific and costs packaging, transportation separate COVID. relate that incurring are COVID we'll things that's So of than environment. the

separately. on we the point basis costs, related inflation those operating you'll item for but X.X%. headwind So that's COVID quarter, to the point XXX is so see yes, break basis in you was this XXX translates another then that That bridge headwinds see which margin out bridge,

I be saw for in that number expect the versus X.X% we inflation QX, to QX. that X.X% we yes, said around more So

Chris Growe

Okay, so little quarter. the margin that in in gross hit the heavier therefore, see bridge. a third the I

you. So thank

Sean Connolly

part our guide. That's of included. Yes, operating QX that's margin

Operator

is question of next from Bank Bryan of America. Spillane The

Bryan Spillane

Happy and Year, Hey, New guys. morning good

of month just around So even the the increases views some we've macro and more to pointing question agricultural seen economists, overall or two towards in certainly some last is inflation. inflation, the in energy, the just be commodities, freight, seem

into way one, terms you XXXX And then, inflation maybe morning? might just in maybe is have this pre-COVID? the pricing guess given about bit, retailers how guess, So the inflation case thinking XXXX? as to be hedged? approach Sean, that retail that targets than different I changed it would a And we questions how the we with anything two is what's that; today of fiscal environment contemplated and second reaffirm been there how to the in we related managing Or you should move are and that I

Dave Marberger

Yes.

area, taking are not where I seeing and opportunities that. department from inflation, very So so a experienced, from we at don't like positions I? every procurement to start do that, feel there is our we we're yes, why Why commodity, looking are and perspective, every we're with procurement

that's kind part really process. ongoing So of of our

positions fiscal obviously, point, we'll XXXX. at we're go XXXX. this have into looking But fiscal even that at So,

in it internal So talked is, manage that's our inflation then to of a I'll and we've we key we pass lot that offset Sean all always margins process Day, that have. and to this The part part of Investor this of about different at areas.

supply the look our obviously, and through margin margin way then productivity optimization, And mix, we so, we we at, accretive and programs our and have chain, sculpt have trade innovation, our we our M&A. can pricing,

volumes at out higher And so those drive the absorption of from fixed COVID. levers, the helping that. getting plus from more the we're getting That's all overhead we're we're looking obviously then and margin synergies obviously, that recently, in Pinnacle with

macro So that play all level. Sean, about margin a to into from -- we anything think comes as

Sean Connolly

margins extremely because that how Post tend relatively different a integrated different. think a those which or no, cooking potentially is number that reemphasizing expected business, offset is capability it place staples we multi management bit for a these Bryan, point faceted, of years COVID I today. we inflation, out margin that ago, millennials us. utilities I home, the of is would put emphasis stronger specifically, only thing be just stronger mix, it is may Yes, we these the remain in is at brand is And to cooking strong

that piece liking for a integrated portfolio, positive management. So in overall of cooking the these consumers in of engaging one that fortunate really and good number in that's that that's brands is, younger terms our and us. that's And habits, margin brands space, that's just, mix

Bryan Spillane

going parts experienced more cover the general lot really a just an a Is government to inflation of the just we're us environment there's long position general not in go And, where time. that be just so Sean, situation to makes but it's to haven't can the industry that's a where, that just in agricultural, more we it a you just which all inflation. right? spending, Typically, inflation, with there's period going into a remind all across economy, if easier for

Sean Connolly

Well, to compression, way kind use one we are that pricing, kind any of internally the language on within there levers is the inflation really the margin of six offset lean pricing. we at the and you traditional justified poking that

to Our all but view the in, always know, it, and justifies we will justify growing joyous if as inflation as kind that never do manufacturers we walk difficult investments our these to the these to retailers approach. innovation, take keep is principally continue can seek do in park, always to make a prices. and that it to been have we cannot take we in that that's is something inflation inflation keep And happy, it's of that our prices. because you you comes so categories if need It's

Operator

question next from Goldman English The comes Sachs. Jason with

Jason English

morning, New to Year folks. I -- good and I to Happy to question. wanted congrats a come Hey, on want strong quarter. back first Bryan's

you As your provide part I what you of inflation that. his was fiscal answer? embedded, answer assumptions the to question he Can us asked embedding hear XXXX guidance. didn't what that

Dave Marberger

fiscal fiscal on Yes, we specifics inflation Jason, it reaffirm to XXXX but XXXX. not now, we're giving relates right as

it that this at at point. not So inflation, assume disclosing you we're outcomes different ranges but we're for looking of can

Jason English

appetite also M&A you now expected. up more that what your open leverage by Does on appetite hit little effectively market And Okay, much acquisitions? than the understood. mentioned back have one mean that about your in you lever you And to a sculpt Can there margin Dave, there pursuing bit is go apertures? through M&A. deeper faster that? Is talk target you

Sean Connolly

it's Sean. Yes, Jason,

of it Obviously, philosophy and better on the reshaping M&A. for the it consider take we just outbound years top the is, growth from that consider last me with stuff. not, active inbound and ways as our it both very of we in kind we margins. do do better stuff when Let we're terms five been And in we've portfolio

been divest; that drag And Similarly, be things have but our be items on growth come looking in, that brands items margins. that ideally to come will or a not growth rates of so strategic, terms in, in margin. and help chronic only we can that need sometimes forward us rates

as that is And day. there is principle our which is then, of every point kind about our value, on so just an be of the active, And in we've outbound, of effectively capital prospects Peter to inbound terms close, and active carry been that divestiture So of we're remaining kind loss forward we and us, not we're we've to that now pretty got, make margin. we and better. an focus we're simple, this going a we're both if the should of, about remain we else forward above obviously, the all situation feeling for thing. something, by ideal the aware to Similarly, been we're the company growth Pan, the managing offer getting is for somebody speak, ears we'll wants where, just see delevering. asset look continue what that, to we've announced fit on talked got well doing all stuff, That's inbound intrinsic has

clear cadence. very let's that ever not, be we've been XXX% focused now It's that. we're the been Let's headed on since on delevering, acquisition, Pinnacle

So of as acquisitions. could be be our sense. uses to see shared we can own can to can bolt-on toward forward, be a they other They in just have our CapEx. Or start make investing way buybacks, they business going pointed capital Ken out in

anything do fair add that's game. Dave, So that? all want that's to you to

Dave Marberger

it. got you No,

Operator

question comes Dickerson Rob of from next Jefferies. Our

Rob Dickerson

so Great, much. thanks

is So the kind about then we fiscal coming want in that then effects, received. of should margin a XXXX some as some or and hold to plan, already potentially we say leverage, targets, leverage this have you I also the less, the we're see year. bit fixed pricing ahead can all the focus with like talking think ahead to But just you benefits coming next on then little But in think said, we of targets targets on obviously, inflationary of plan. about let's year, you you've costs sound combine as of

still come of is, slightly So the we've below changing, where all are year. this it targets first are half of the our like in kind that what's have but of in targets seems we it implied

in same sales the I'm stronger, piece, good revised kind targets, to your but a right? you considered, than your not like sounds of look sit kind as next of just year, those it visibility, now, just while like, you forward a As were some of margin wouldn't day of to and would half of all things so to to you where kind maybe net-net analysis, XXXX feel asking you terms fiscal So of we the back. see why profit have to what we the just just wouldn't But be year have higher hitting some have your sensitivity of pointed operating, in upwards, all kind last things net this thought out, time give this to why it yes, kind back; even of at and might is, say, margin dollars relative or continue that there, of net-net, kind year, been ago. we where in give --- we might you of Lot about they you

Sean Connolly

take a that. so Yes, Rob. me at let shot

impacts the and post at the drives and starting of point profit, gross obviously, how dollars So, the profit then top and operating line top COVID right. that dollars, to come sales out, what is stickiness the this obviously the we

if differently. core you a take but this just you it of at little me this So bit QX back step and dissect look let and kind and

of understanding margin. kind get can happening of an in So you what's

at three margin look improved there's you operating XXX If points basis buckets. and quarter, we this

all going because improvement that guy, not across is first that us. return. guy; stuff COVID got, that's is good XXX. we the are which got And that, absorption going the that's stay traveling, bad basis COVID is it's basis Okay? good you XX we're not this of Covid all benefit to is points this from the costs together, a it's bucket P&L, it's XX what which The that's stuff, And with that to quarter, not a points lower that's that's the net of guy, SG&A we favorable

is core bucket to productivity productivity, our is that's And synergies, business then going that clinical second and realized chain, is what recur. inflation investments. and our The our supply that's from that's

of net programs benefit basis XX For those the and to were the will that points, go. continue quarter,

had XXX third benefit still is basis mix the We we ongoing bucket terms in QX. mix. benefit are of price is it evaluating in The points of where price

that's Now a the mix, majority of was lot from of that and volume.

But that there. less of a part So there a not will that is recur. pricing benefit there's also and merchandising in from

XXX what recur. we're of will of will not amount recur, that some And but quantifying

numbers hard these because and really of way, understand say it's at to not. ongoing that I some So what's look sometimes what's versus

So little of looking scenarios, us kind apply. kind mixture, the could thinking goes obviously to hopefully, else the to it that's XXXX. confidence we this and a at, all of helpful, that reaffirm But how inflation, looking at run we're everything give quarter as into

Rob Dickerson

CapEx repurchase targets I and coming cash quickly back more in activity helpful. Like of programs, stock that's thanks. to seeing, then your it's companies a and why cash announce the continue And needs, valuation schedule, ramped the space, the piece it, and around the ahead of ongoing but dividend, just be of stock all maybe got there's leverage other to they'll buying given then and allocation. just and proactive kind space. the Okay, back. lot and The of impressively around not And obviously talk capacity more in

Sean Connolly

Yes, Rob, stock of price been Sean. options, it's raised. repertoire that it's given Obviously, one relative capital and allocation part again, be before, you any of appeal buybacks into these in undoubtedly, the obviously, our that about have will factors and window, all

So will option other is and one obviously, an against it's a, us clearly that options. weigh our we this for

Operator

I for closing any question-and-answer to would to back over Kearney our conference This session. like turn Brian remarks. concludes the

Brian Kearney

you. thank Great,

any detailed that as on this has have. your the web for be will team our a our press for is call available may discussions So recorded reminder, been Thank release. archived Conagra. anyone That interest the up follow you and as in in

Operator

This conference for has you attending now presentation. concluded. Thank today's

You disconnect. may now

Conagra Brands (CAG) 7 Jan 212021 Q2 Earnings call transcript