Conagra Brands, Inc. (CAG) Earnings Call Transcript & Summary

If we can make our way back to our seats, we're ready for our next presentation from Conagra brands. But before we get started, please join me in thanking Conagra for hosting the reception again last year and spending time with us last night. We're excited to have Conagra back presenting at CAGNY this year. Since the last presentation 2 years ago, Conagra's transformation has continued with the integration of Pinnacle Foods, revenue enhancement fueled by innovation and improved execution and a steadily improving balance sheet. So with that in mind, we're very excited to have with us today, President and CEO, Sean Connolly; CFO, Dave Marberger. Sean, I'll turn it over to you.

Thank you, [ Brian ]. Good morning, everybody. Welcome to CAGNY 2020, and thank you for joining our presentation this morning. We're thrilled to have you here. I also want to give a thank you to those of you who joined us last night for our dinner. We put a lot of energy into that. Hopefully, you had a great culinary experience and you got a chance to taste some of the awesome products that we've got forthcoming for our consumers. Before I jump into it, let me remind everybody that Dave and I may be making some forward-looking statements today so please take a look at this slide. All right, let's get going. There are 3 things I'd like you to take away from our presentation today. First, we compete in attractive categories with consumer-preferred brands. Second, we deploy our assets via modern, repeatable, scalable processes, processes that work. And third, we have made tremendous progress. And despite some Q3 category softness that has impacted our year, we are confident we have a tremendous runway of growth ahead. So those are the 3 things I'd like you to take away from today. This is our agenda for today. We break it into 3 sections. First, I want to take you through an overview of Conagra Brands, then I want to walk you through a little bit of our unique brand building model. But we'll spend the bulk of our time today talking about the all-important what comes next. Let's start with an overview of our company. Conagra Brands is a highly focused $10.5 billion portfolio. As you can see on the left hand of this chart, over 90% of our sales is in the United States. And as you can see on the right-hand side of this chart, about 90% of our sales is in the retail channel of trade, with the balance being in foodservice. So overall, a tremendously focused portfolio. And we have tremendous scale in the U.S. In fact, we are the fifth largest food company in America, as you can see on this chart, just behind General Mills and behind Nestlé. So obviously, significant scale and a lot of importance to our customers. And we compete in attractive categories. Over the last 52 weeks, our categories grew over 2% which outpaced food overall. And you may be surprised to know that today, 71% of our portfolio resides in growing categories, and that compares very favorably with 5 years ago when only 41% of our portfolio was in growing categories. Importantly, private label development remains very low in our categories, averaging about 16%, which is below the average in food. And when it comes to brands, we have the #1 or #2 combined market share brands in over 80% of our categories. So tremendous brands and tremendous brand strength. You can see many of those brands on this slide. We have both iconic legacy brands, and we have emerging brands. They span 3 consumer domains. Those domains are frozen, snacks and staples. The 2 consumer domains on the left represent about 2/3 of our portfolio, and this is where we derive our growth: snacks and frozen. The domain on the right is staples. These are just that. These are staple products. Consumers don't think a lot about them. They buy them habitually. They rely on them, and they're very important to our retailers. We'll talk about all 3 of these through the presentation today. As you know, we are very passionate about frozen. We think it's the perfect food form for today's consumers. And one of the reasons we're passionate about it is because we love our portfolio. We have the second-largest portfolio in the U.S. in frozen with over $5 billion of scale and growing. And we love our snacks business. We've got a significant $2 billion ready-to-eat snack business that spans multiple interesting subcategories, where we either have the fastest-growing brand or the largest brand, in many cases, both. And when you look at the performance of that snacking portfolio, it is fast-growing. In fact, it is the third-fastest snack -- growing snack portfolio in the U.S., as you can see on this chart, just about 5%. One of the things I really like about our portfolio is its breadth. The reason I like our portfolio's breadth is because we are able to access more of the available consumer demand out there. What I put on this slide for you is an example from frozen single-serve meals. Conagra's brands are able to reach 61% more of the available demand in frozen single-serve meals than our nearest competitor. You may ask yourself, "Well, how can you do that?" The answer is our array of brands and think about it this way. We have an array of brands that can compete very credibly in very different consumer benefit areas, whether it's indulgent meals, whether it's better-for-you meals or whether it's ethnic meals. We have brands that have high credentials and credibility in each of those consumer benefit areas. So our breadth of brands is a true strength. For those of you who know us best, you know we're tremendously proud of our culture. We have a differentiated culture at Conagra brands. It's a lean organization. We are an agile organization. It's very collaborative. We have a fondness for rejecting silos on a functional basis. We're obsessed with innovation, but we deploy our resources there at a highly disciplined way. And if you came to our office, and many of you have, you will get a clear sense of entrepreneurship and a clear sense of a highly energized, motivated employee base. And the way our people think about what they do for a living on a daily basis is this, they'd tell you we're in the business of perpetually reshaping our portfolio for better growth and better margins, and we do it 3 ways. We strengthen the brands we own. We add new brands that make us stronger. And then if we find we have a brand that doesn't fit strategically or it's a chronic drag, we will divest it. That's what we do on an ongoing basis. So that's a quick profile of who we are. What I'd like to do now is spend a few minutes talking about how we build our brands because we think it's a bit of a unique approach. Our approach to brand building is rooted in the Conagra Way. And simply put, what that means is it's relentlessly principle-based. It's enabled by differentiating capabilities. It's anchored in disciplined portfolio management, and it leverages repeatable and scalable processes. In terms of supporting our brands, we support our brands with rock-solid, steady investment consistent across the board. In fact, we've supported our brands with consistent and rock-solid marketing spend for the last several years. As some of you know, the mix of that spend has shifted a little bit as we've leveraged advanced analytics to identify A&P spend that wasn't working and also identify good ROI opportunities with our retailers. And we've shifted that spend from nonworking below-the-line A&P to spend with our retailers, and I'll unpack that for you in just a few minutes. But overall, rock-solid total marketing investment. Now you should know that our investment behind our brands is highly focused on our growth domains, frozen and snacking, as you might expect. In fact, 80% of our marketing investment is focused on our 2 growth domains, with the other 20% in the -- against the A&P-light and resource-light staples businesses. One of the key takeaways today is that our innovation is working. What I'm showing you on this slide is what we call renewal rate. This is the percent of our annual sales that comes from items launched over the previous 3 years. When we started this journey 5 years ago, that number stood at 9%. In less than 5 years, we doubled it. And in calendar year '19, it was 18%. And that tells you our innovation is resonating with consumers. And it's not just performing in the absolute. It's outperforming our peers. What I'm showing you on the left-hand side of this chart is our innovation TPD growth versus total food companies, and you can see we're clearly advantaged. On the right-hand side of this chart, you see our innovation retail dollar sales growth, and you see the same type of advantage. What we really are looking for is, is it working in frozen and snacks. So those are our growth domains. And the answer is unequivocally, yes. Here on the left, you can see our frozen single-serve meals innovation versus our peer set. And you can see we're clearly winning in the marketplace, and that's been happening for a number of years now. Similar results on the right. Our competition is faring a bit better here, but you can see, we are leading the pack in terms of ready-to-eat snacks innovation total points of distribution gains. But one of the most important things about our innovation is that it sticks. We invest to support our innovation beyond year 1. We invest in year 2, 3, and we continue to expand beyond that. And if you look at the 2 platforms I'm sharing with you here, you can see evidence of that success. These are 2 of our largest innovation platforms from the last couple of years, Banquet Mega platform and Healthy Choice Power platform. And as you can see, they have grown multiple years in a row, showing we continue to support them and we continue to expand them. Mega is now over $150 million, and Healthy Choice Power platform over $100 million. So home runs in the marketplace. And I'll show you some innovations in a couple of minutes that will show they'll continue to build from here. We take a modern approach to our brand building, and it's really built around 3 things. I think you saw last night in our dinner presentation we're obsessed with superior food. We then leverage highly collaborative relationships with our customers. And then we move to communicating about our brands, which is through what we call always-on tailored communication. It always starts with superior food. But before we get to building the food, we look at the data. We don't look at survey data because we're not particularly interested in what consumers say. We're interested in what consumers do. They often diverge, and you don't want the red herring of what they say. We need behavioral data. We always start there. We look for growth pockets, we study the modern attributes that are driving the growth, and then we leverage our great chefs in our state-of-art facilities and the input of our senior leaders to design very powerful products and packages. And after all, that's the aim. Our aim is to design provocative food experiences and make sure we're giving the consumer what they want in terms of benefit areas, things like bigger and bolder flavors, modern health attributes, even experiential elements. And it works. Our approach to superior food is having an impact. Let me give you 3 examples. What you're looking at here are last year's top 10 better-for-you frozen single-serve meal launches. The green bars represent Healthy Choice. The blue bars represent our competition. We own 7 of the top 10. In fact, we own all of the top 5 in better-for-you single-serve meals. So it clearly works. If you're not into better-for-you and you're into indulgence, we see similar patterns. Here you can see Conagra drove a full 35% of the segment innovation dollars in indulgent meals. Let's move to snacks. What do we see in snacks? Same pattern. This is meat snacks in particular. And you can see that Slim Jim innovation is roughly 3x the size of our closest peer, not even close. So our approach to superior food works. Once we've done that, we go to work with our customers. And we have a fantastic relationship with our customers. Let me remind you, our portfolio is vital to retailers in the U.S. We compete in 9 out of 10 top aisles. These are aisles that drive 75% of food sales. And we are #1 in terms of aisles with greater than 50% household penetration. And importantly, we have little to no presence in the bottom 10 aisles. So we matter to retailers. And it shouldn't be a surprise then that we drive a tremendous amount of traffic here in the U.S., 2.3 billion trips per year. This is total in-store trips where a company's product is purchased. And you can see, we rank third overall. That is a massive amount of trips. That's a lot of products in the basket of our retailers, and it speaks to why our retailers value our relationship. But another reason our retailers value our relationship is because we know what we're doing when it comes to innovation. In the case of frozen, as you can see on the left, we single-handedly took this category from decline to growth starting 5 years ago. And as you can see on the left, we've driven all of the growth in frozen. On the right, you see snacks. Again, our competitors have fared better here, but we're still leading the way in terms of ready-to-eat snacks growth. This matters to retailers because we share a common objective. We both want growth, and they know they can rely on us and our innovation platform to drive that growth. By the way, snacks is not just working in meat snacks. I've mentioned Slim Jim a couple of times now. Look at the broad-based nature of our competitiveness in snacks. We're outperforming in terms of our innovation versus the peer set in meat snacks, in microwave popcorn, in ready-to-eat popcorn, in seeds and in hot cocoa. So broad-based performance in our snacks unit. Our investments with the retailer go far beyond traditional investments. Sure, we start with traditional investments that you would expect all of our peer companies do: shelf space, in-store displays, feature ads. We do that. It matters. It drives visibility in the store. But our investments go far beyond that and includes nontraditional retailer investments, things like online merchandising and activation, retailer data access and retailer media services. We start with distribution all the time. Traditional distribution, like grocery, mass, club and C store; nontraditional distribution like dollar; even nontraditional placement like the checkout lane. Once we do that, we then partner with our retailers to make sure we are bringing visibility to our great innovation lineup in the store. It makes no sense to innovate and have nobody see it. So we invest behind things like signage. You may have seen the cool freezer doors that we're expanding with one retailer last night at our event. Sampling, endcaps, this creates visibility in the store. The consumer interacts with our products outside of its normal placement. We go further in businesses like snacks and invest behind disruptive merchandising vehicles like you see here on the right. This is really important on snacking, where it's important we get secondary and tertiary display. Then we leverage our unique product activations in e-commerce. So things like solution bundles. What's that? On the left, you see a box, it's got 2 jars -- 2 bottles of Orville Redenbacher popcorn kernels and a bottle of popcorn oil. That's a solution bundle. We advertise on search, things like the fact that Slim Jim is perfect for keto diet. And we do fun things like occasion boxes and online exclusives. And if you're wondering how our e-commerce is performing, well, this will give you the data. It's performing exceptionally well. On the left, you could see it's grown year after year after year, and that growth is accelerating. On the right, we are in green, our peer set is in blue. And this is e-comm as a percent of total sales. And you can see that our performance, as it's grown, has now overtaken the peer set in e-comm. We invested to build this capability and we're gaining tremendous traction. When you put it all together, our conclusion here is that when we combine traditional investments with retailers, along with the nontraditional, we find synergy. We get better ROI, and we have higher impact. And that matters to our retailers. When we combine these 2, traditional and nontraditional, our events perform better. We drive more trips. We drive more units purchased and we drive more total dollars spent. And as you can imagine, that works for our retailers. So we keep the flywheel going on this. And that brings us to the third piece of our modern approach to marketing: always-on tailored communication. Now our media investments have shifted dramatically in the last 5 years from traditional, what I'll describe as high-frequency mass marketing vehicles, to very modern, high-reach digital vehicles. And what you can see on the right-hand side here is that today, over 80% of our media investment is digital. Over 80%. That number stood at 28% 5 years ago. Why do we do that? Because in our business, the name of the game is reach, and the best way to drive efficient reach these days is digital. And you know what? We're reaching people. In Q2 alone, we reached over 220 million consumers with our messages. That's 89% of all possible buyers in the second quarter alone. Now this is always-on type of approach to marketing and advertising drives mental availability, top of mindness. When people are starting to think about our category, our brands come to mind. Instead of me trying to describe what this looks like for you, let me run a quick video so you can see for yourself. Let's roll it. [Presentation]

One of the interesting things that happens when we create strong mental availability is sometimes we find that we build passionate brand advocacy amongst our brand fans. Let me introduce you to the Long Boi Gang from Slim Jim. We didn't start this. This is not a Conagra-funded movement. A consumer started this. And then over a year -- a little over a year, it's turned into a pack at this point of over 800,000 Slim Jim fanatics. For those of you in New York, you may have seen them running around through the subway with about a 30-foot long Slim Jim. They do all sorts of crazy stuff to drive our company's image virally. In fact, look on the right and you can see the followers we have on Slim Jim on Instagram. Look at the brands it compares to it and look at the advantage we have in terms of Slim Jim followers. We do reward them. We created a custom Long Boi Gang Slim Jim stick for them. We even sell online a Long Boi Gang starter kit that includes a jacket, a temporary tattoo and a box of Slim Jims. They appreciate that. But I can't do this justice. Take a look at the Long Boi Gang. [Presentation]

All right. The last point I want to make when it comes to, let's go back a slide here, always-on tailored communication is that we don't just do it on our own, it's our passion brand advocates. Here, again, we partner with our retailers. Why? Because they have platforms that reach consumers that are highly effective. They have broad reach. They specifically target people who want to buy our categories, and we can tinker with them. If we run a program and it doesn't work, we can quickly see it. We can iterate it, we can get it to work, and it translates to better conversion. Overall, our modern marketing approach is effective, and it drives household penetration. That's our goal here. We've driven over 1 million households into our frozen single-serve meal franchise and well over 1 million into our snack, and we expect that to continue. So let me talk about what comes next. We have 3 priorities: deliver our synergy target, restore top line momentum, continue exploring smart divestitures. Quick hit on synergies. The message here is when we did the Pinnacle deal, we saw $215 million of opportunity. We got under the hood, we found more. We raised it to $285 million. We got further along, we found more. We raised it to $305 million. And my message is we are squarely on track, and we're going to deliver that number. We are highly focused right now on restoring top line momentum. As you saw, industry-wide consumption weakness in Q3 has impacted our fiscal year despite the fact that in our key categories, we gained share. The good news is that the recent consumption trends and shipment trends seem to indicate this is an air pocket and it is abating. The other bit of good news is lost in this dip is the fact that our fiscal '20 innovation is performing exceptionally well, and our new fiscal '21 innovation slate has just been debuted to our customers. It's our biggest, baddest slate ever, and we've gotten the best reaction we've ever had. In fact, it's now going to ship earlier than historical norms across much of the portfolio. The last point here on restoring top line is we will continue to explore smart divestitures to help sculpt top line performance in addition to generating cash. A bit more on the unexpected headwinds that we experienced in Q3 that affected our fiscal 20 guidance. We saw a greater-than-expected industry softness starting in December in foodservice that then pivoted to retail in January. The encouraging piece, to the extent you have to live through a dip like this, is that we've gained share in the categories that matter most to us, indicating our brand health, but that share gain was not enough to hold the year, and it's impacted our guidance. But again, our recent data suggests that this is an air pocket and it seems to be abating. I'll show you that in just a second. Overall, we remain very committed to our long-term targets. This is foodservice in December on the right-hand side of this chart. You can see the traffic dip in December and the sales dip that followed. We did not anticipate that extent of a dip. Similarly, we planned in the retail business for more challenging comps, wrapping double snap and the polar vortex, but we didn't plan for this. This is 3, 4-week periods of scanner data. On the left, 4 weeks ending 12/1; in the middle, 12/29; and on the right, January 26. And you can see we had a broad-based softening even in some of our key growth categories that have had unabated growth for some time in January, and that has impacted our year. Here are 3 examples of categories that it impacted, categories that are important to us. On the left, frozen single-serve meals; in the middle, frozen vegetables and sides; and on the right, canned tomatoes. The blue line is category. And you can see in each of the 3 cases, the category dropped sharply in January. It actually continued in the first week in February. The gold line is our brand, and the green line is our market share. So to the degree there's a silver lining here in the course of this air pocket, as we're calling it, it is our brand health once again indicates that we are doing well in the marketplace, our innovation is working, and we're gaining share. Now the positive sign here is that recent data trends show this is improving. As you can see on the far right, the data we got this week suggests that the industry is bouncing back, including Conagra, and we see strength in the categories that matter most to us like frozen and like snacking. And by the way, this aligns with what we're seeing in our own shipment data. So we believe we're on the upswing. It's 1 week. We're all going to want to see more than 1 week, but I have a tremendous amount of confidence in what lies ahead for the balance of the year, in part because our innovation is working. You can see on the left here last year's innovation, fiscal '19. And the reason I'm showing you that is because it continues to grow this year. In fact, in the first half of the year, it was 75% larger this year than it was last year. Again, it grows beyond year 1. This year's F '20 slate is performing even better than that winning late last year. And in the first half of this year, it was 38% larger than last year's winning slate at the same time. If you missed this year's innovation slate, it's gone out. Some of it's still shipping. Let me give you a preview of it real quick. Healthy Choice Power Bowls, home run for us. This is the #1 better-for-you frozen single-serve meal launch of this past year. These are our grain-free bowls, where we replaced rice with rice cauliflower to follow the low-carb movement. We restaged Duncan Hines because the product needed fixing. The package needed fixing. And you can see here in the data that we are gaining traction on this key Pinnacle big 3 brand. Similarly, Wish-Bone, another Pinnacle brand that had some challenges over the last couple of years, needed to have its package addressed and product addressed, and you can see we have returned this business to growth as well. Banquet Mega has been a huge platform for us, now over $150 million in terms of incremental growth. One of the lines we're attacking this year is our meat line, starting with our bone-in meat line in fiscal '20. And you can see these attractive products are performing. Our top item is turning 18% faster than the category average. Marie Callender's is one of our largest brands. This year was a big-time restage. We moved out of the old-fashioned trays and into the bowls that have served the rest of our category so well, and it is working. Look at the TPD growth and look at the velocity increase, over 30% for one of our top brands. Millennials love ramen, and we've taken the P.F. Chang's multi-serve line into the ramen space. And this ramen lineup, in very early days, is already driving 34% of the P.F. Chang's growth in multi-serve meals. So working in the marketplace, clearly on trend. In snacking, this is our biggest year ever on Slim Jim, so it only makes sense that we launched our biggest Slim Jim stick ever. This beast is called Savage. It's our largest stick ever. It's turning at a base velocity of 4x the category average. And you can see we've brought back the legendary Randy "Macho Man" Savage. We've even taken Slim Jims beyond meat sticks. Low-carb is hot. Pork rinds are hot. We launched the first real national brand in pork rinds. And you can see over the last 13 weeks, it's already the #2 brand in pork rinds. We've also launched Slim Jim Fire Fries because Americans love fries. These have great iconic Slim Jim snap. If you like heat, I recommend the Buffalo Fury. If it's pain you're after, I recommend Inferno. Fanta -- or Snack Pack has been a great turnaround story. First, we fixed pudding, then we found an opportunity to go after our Hispanic consumer with gels. That's been a big hit, and it's driven this business back to growth. This year, we licensed the great Fanta soda brand, and you can see this item is already turning at 1.5x the category average. Terrific brand in our portfolio. That's just a slice of '20. Believe it or not, we're already at the time of year when we're selling in fiscal '21, and we have the best slate we've ever had, and the reaction we're getting is phenomenal. And I want to share some of that with you. Importantly, these items are going to begin to ship across a lot of the portfolio really at the end of April into May this year which is earlier than it historically has shipped. So we've gotten a phenomenal response from our customers. They are eager to get it on shelf. I want to start with frozen innovation. But before I get into the actual innovations, let me remind you why we love frozen. It's the perfect food for today's consumers, particularly millennials. They buy a ton of it, and they're about to buy a lot more. They are just beginning to form families. You can see on the right-hand side here, only about half of millennials have yet to form families. Why does that matter? Because when they have kids, their household consumption of frozen food goes up and up and up as they have kids, more kids and their kids get bigger and eat more. So we've got years of demographic tailwinds yet to go here on frozen, especially because the quality of the food is now much more appreciated than it was just 5 years ago. So here's what we're doing. Ramen works. Millennials love ramen. But most times when millennials eat, they're alone. So multi-serve doesn't really meet that need. So it's a no-brainer that we take our ramen line that's working and bringing it to single-serve. We're going to keep the momentum on Banquet Mega. We focused on bone-in meats this year. Next year, it's boneless meats. And this is the Buffalo line, over 30 grams in protein. Hungry-Man is a terrific brand that came with Pinnacle that hadn't received a lot of attention in quite some time. We're completely restaging this business. This is Hungry-Man XL. This is our new double-meat bowl line. These things pack a wallop. Some of them have over 45 grams of protein per serving. We think it really lives up to the promise of satisfying a hungry person. Marie Callender's, excellent restage this year. We need to keep the momentum next year. We'll do that with new variety expansion. One of the interesting things we're doing this year is this is our first foray into shrimp in the world of frozen. Why? Because shrimp don't usually hold up particularly well in microwave. Our chefs have solved for that. They've created a great sauce product that basically envelops the shrimp and protects it. This happens to be a mac and cheese bowl with shrimp, white wine and butter. It's fantastic. Healthy Choice Power platform will continue to get momentum. This year, we're getting into the vegan, vegetarian space. These are phenomenal lines. We've got inspiration from restaurant industry, things like Green Goddess, Buddha Bowls. These are truly terrific products. You can eat them as a meal or you can use them as side dish. Look at this one. This is interesting. Healthy Choice Power Bowls are a home run. We know we have our top 6 varieties that have extremely high velocities. We also know these consumers are always on the go. They can't take a bowl with them many times. We can drive incremental consumption by giving them a portable handholdable product with the same 6 varieties they already love in a cassava wrap that's inherently low in carbs. So a really new interesting line here from Healthy Choice that keeps the momentum on this franchise. Gardein is on fire these days. Everybody knows the plant-based movement has made the world go crazy. We've got a great lineup of products in frozen that continues to grow. That growth is accelerating. But one of the areas where we needed to address was burgers. We've designed this new ultimate plant-based burger. Hopefully, you tried it last night. It's fantastic. It will be in the frozen section. Another place we're leveraging Gardein is co-branding it with our icon brands. In the world of tech, you may remember the phrase Intel Inside. Well, in our world, we call it Gardein inside. We're basically taking the meat out, and we're putting a plant-based meat in and we're branding that plant-based meat Gardein because Gardein has tremendous credentials for that. But we're doing it in concert with our icon brands because we're convinced that will drive the highest velocities and the fastest trial. Evol is another good business that came with Pinnacle, hadn't received some attention in a while. This year, it will. It gets a full restage. In fact, this is my personal favorite. If you're on a low-carb diet, you probably feel like you can't eat pizza. Well, you can eat this pizza because the crust is not made of bread. It's made of chicken and parmesan cheese. Birds Eye is going to get a huge launch next year, supporting this year's launch. Remember, it lost its mojo about a year or so ago. The first place we'll start is carb-replacement trend. It's not slowing down. So this is an example of what we're doing there. Our veggie lasagna, where the pasta sheets are made with zucchini and lentil pasta. Then we turn to restaurants for inspiration, casual restaurants like pubs, where we found things like cauliflower wings and zucchini fries. But also high-end restaurants, like where you see expensive baked sides like a Chicago steakhouse. Here, you've got items like loaded baked potato. Who hasn't had Brussels sprouts and bacon baked? Now you can have it at home. And P.F. Chang's is going to extend our brand footprint in the frozen space by giving us the ability to access demand for Asian vegetables. And you see some of our items here. My favorite is this, Kung Pao Cauliflower. Talking snacks. I just want to show you here, you already know this. Snacking consumption goes up and up and up. So we're not going to slow down at snacks either. It'll start with Slim Jim. We have an incremental opportunity to get into lunch boxes and so some of these items will help with that. But we're also going to extend this very successful Savage line this year, but not in the meat stick space, in the jerky space. Jerky is a big domain we really don't compete in today. We're getting after it in fiscal '21, starting with these terrific Savage dips -- strips. We're also going after it with Duke's, which was a great acquisition from a few years ago. This is a super premium product, super clean label, and now we're entering into jerky with these great products. Hopefully, you've got some from your bags last night. But maybe the most disruptive thing that we're doing in jerky is this. This is Gardein ultimate plant-based jerky. We marinate it the same way as our beef jerky. We smoke it the same way as our beef jerky. This will blow away any plant-based jerky you can find on the planet. If it doesn't live up to that, just call me, and we'll fix it. But I can tell you, this is that surprisingly good. You won't believe you're eating meat. We think it'll be disruptive to the category. Even pickles is getting into the snacking game. It's the ultimate original plant-based snack, but it's kind of hard to walk around with a glass jar of Vlasic. So we're going to solve for that. We're going to put it in this brine-free pouch, and we're going to shelf it in the refrigerated section. Angie's has been a great acquisition for us. If you're an Angie's fan, you know it's all about unique novel flavors. If you're part of the Rose all day crowd, you will like this. This is our new Rose flavored kettle corn. Orville Redenbacher's has been on the upswing in the past few years because we've made it healthier, packaging, the oils we use. We're taking that to the next level next year with avocado oil, very self-evident benefit that we're confident our consumers will get. There's a lot going on in pop culture with kids. You all know it. They love mermaids. They love unicorns. So we're doing a lot in kids. We're even getting into the ACT with llamas here on the ACT II business, which, believe it or not, is one of our fastest-growing brands. We're working with General Mills to license Lucky Charms for Swiss Miss. So a whole slate of things that we know are going to inspire our kids. And on Duncan Hines, we -- as you know, we're moving beyond being a baking mix to being more of a sweet treat. Well, people on a keto diet feel like they can't eat sweet treats until now. These are great cake and brownie cups that are very low in net carbs. This will solve that problem. But if you don't care about carbs, we've got something for you, too. We've got this Mega Cookie that's about 60 seconds in the microwave, super indulgent. And these refrigerated puddings that are very interesting, super decadent in the refrigerated section. This year, it's chocolate frosting and yellow cake. These are cake-inspired puddings. And I'll wrap up with a couple of quick hits on Swiss Miss. Swiss Miss, as you know, is a chocolate business, and it's pretty much a dairy business. But one of the big trends in food is nondairy. So this is a no-brainer. This is our first foray into the world of nondairy on Swiss Miss. Similarly, we've pretty much conquered everything we can do in chocolate on Swiss Miss, but there's a big market for non chocolate. So we're going to expand our Indulgent Collection with this great white chocolate line. So that's a look at our snacking and sweet treat innovation. Now right about now, you may be saying, "Well, what about that other 1/3 of your business? What are you going to do on your staples business?" Our staples business is all about reliable contribution. These are large businesses. They're resource-light. They need to be stable. They matter to our customers. The category has been stable overall for the last several years. They contribute a high annual spend per buyer. They drive a lot of trips, and they have a shorter purchase cycle. You may be surprised to know that of all the brands we have in the staples portfolio, only 6 of them account for half of the sales, and you can see those 6 here. And the way we operate this business is pretty simple and straightforward. We pursue selective renovation and innovation, we seek to maximize our distribution, and we pursue a competitive share of voice. We don't have to have a massive share of voice. We just have to have better than our competition. These tend to be very A&P-light categories. People know what to do with staples. You don't have to remind people what to do with a can of PAM. They understand it. So they tend to be more A&P-light categories. With respect to the innovation in our staples business, we draw our inspiration the same way we get it elsewhere. We look for growth pockets and we study what's driving the growth. What are the trends that are driving the growth, then we design that into our own brands. Things like ethnic flavors, plant-based sauces and condiments and veggie-based pasta. Here's an example of some of the things we're doing in our fiscal '21 slate for staples. Wish-Bone is going to continue to get new extensions. These are great new flavor varieties that really are going to be a pop in the category, things like Italian 3 cheese and jalapeno lime vinaigrette. But maybe the most disruptive thing we're doing at staples this year is this. Salad dressing is a big category. It hasn't had a lot of disruptive news in a long, long time. There certainly hasn't been a lot of better-for-you news in salad dressing in a long time. And I don't know if there's ever been better-for-you news in salad dressing that actually tasted good, until this product. We're building on the tremendous success of our Healthy Choice Power platform in frozen, where we know we have a built-in massive user base, and we're extending that into salad dressings in a disruptive way. We're taking out the fat as a chassis approach that's typically done in salad dressings and replacing it with a veggie puree chassis as an approach. These products have 35 to 50 calories per serving, which is shockingly low compared to all the competition, but you're not sacrificing taste. We think this is going to be a success. Even Chef Boyardee is going to get some love in the staples space this year. You saw us pursuing vegetable-based pastas in our Birds Eye business, why not do it in our shelf-stable business as well. We know our Chef Boyardee moms want to feel good about the products they give their kids, so why not give their kids a half a cup of vegetables per serving. When you put it all together and you look at our innovation slate in fiscal '20, you look at our innovation slate in fiscal '21, across the board, frozen, snacking and staples, we have a phenomenal innovation slate queued up on the back of a proven success track record in innovation. We feel very good about our growth prospects moving forward. Now before I turn it over to Dave, I want to spend a couple of minutes on this slide. As you know, we've been very active over the last 5 years in reshaping our portfolio. We've had businesses come inbound. We've had plenty of businesses go outbound. In fact, I think the number, Dave, in the last year, we've divested something like 4% of our net sales. So it's a significant number. We've been active in this space. When we think about divestiture candidates, here's how we think about it. We assess strategic fit, we assess financial fit, and then we have other considerations. Strategic fit is assessing things like, does this business have limited coherence with our portfolio objectives? Is it a chronic drag? Does it have disadvantaged category fundamentals? In terms of financial fit, is it a chronic drag there on either our top line or our bottom line? So these are the core considerations that we have applied to date as we've thought about divestiture candidates. There are other considerations as well, however. We understand clearly that by divesting businesses smartly, we are able to stay on or get ahead of our planned deleveraging cadence, which is critically important to our team. We're incentivized to make sure that we do that, and we will do that. We also clearly understand that we have this tax asset, this capital loss carryforward that will expire at the end of fiscal year '21 associated with the RalCorp exit several years ago. The point I'm making on all of this is we have not been shy in pruning our portfolio to help strengthen the company overall, and we won't begin getting shy now. We will continue to be active in this space. We understand the capital loss carryforward we have as an asset until the end of fiscal '21, and this will continue to be top of mind for us. So let me wrap up with this, and then I'll turn it over to Dave. We have an advantaged process at Conagra for how to build brands in the modern era. We have a long runway of growth ahead of us, led by frozen and snacks, starting with what we expect to be a very promising Q4. And we will continue to reshape this portfolio the way we've been doing it for the last several years, reshaping it for better growth and better margins. With that, I'm going to turn it over to our CFO, Dave Marberger. Dave?

Good morning, everyone. Before I jump into the numbers, I wanted to give a brief update on the significant progress we've made with Pinnacle Foods since we acquired it in the second quarter of fiscal year '19. The entire Pinnacle business is now integrated into our Chicago and Omaha operations. We've successfully converted Pinnacle onto SAP for the core financial systems, and we've started executing on our value-over-volume strategy and we've rebuilt the innovation pipeline for Pinnacle. The synergies that Sean talked about, the higher level of cost synergies are on track. And we've actually divested a couple of the Pinnacle assets to generate cash to delever. So we're making great progress overall on our operational integration, and we remain very bullish on the long-term growth prospects of Pinnacle. So let me shift to the short term. Yesterday, we issued a press release updating our fiscal year '20 outlook. We now expect organic net sales growth to be flat to plus 0.5%. That is a 100 basis point reduction from our previous range of plus 1% to plus 1.5%. We now expect reported net sales growth of 10% to 10.5%. And that change is really driven by 3 things: first, the change in our organic net sales estimate; second, our divestiture of the Lender's bagel business in the third quarter, which is about 40 basis points versus our expectation; and third is the 53rd week. We have a more conservative planning posture now related to the 53rd week given the dynamics of the new shelf resets in May and the dynamic impact that can have on orders and shipments in May. And since the 53rd week is the last week of May, we're taking a conservative approach to our overall forecast for the 53rd week sales. We've adjusted our adjusted operating margins to a range of 15.8% to 16.2%, and I'll talk about that in more detail in a moment. We've updated our adjusted effective tax rate to 23% to 24% to reflect the favorability we've had in the first half. And we now expect adjusted diluted EPS to be in the range of $2 to $2.07 to reflect the sales and margin items I just discussed, and we adjusted free cash flow to reflect our change in EPS. Now let me spend another minute to discuss some of these drivers in more detail. As I mentioned, we're reducing our organic net sales estimate by 100 basis points. That's about $90 million for the year. As Sean mentioned, the consumption softness we've seen in the third quarter is driving most of that change. So we now expect our third quarter organic net sales to be down versus the prior year. We do expect Q4 organic net sales to be up versus the prior year, in line with our previous expectations. We've also taken down our adjusted operating margin range, and this is driven by the expected unfavorable fixed cost leverage on the lower level of sales. And in addition, we expect higher inventory write-offs given the higher level of obsolete inventory due to the lower sales volumes. And both of these items will impact gross profit. This chart summarizes the future impacts of both net sales and EPS related to recent M&A activity. Included in this is our exit of the private label peanut butter business, our sale of Wesson Oil and Gelit and our sale of the Pinnacle assets, the DSD snack business and Lender's bagels business. As Sean mentioned, and you can see this quarter, we expect over 400 basis points of net sales impact from these divestitures. We've been very active in divestitures. And we expect to continue -- we're going to continue to be aggressive, looking at our portfolio for divestiture opportunities. So now let me turn to the long term. The only change we're making to our fiscal '22 targets are on EPS to reflect recent divestitures, and that's a $0.02 adjustment. Other than that, we are reaffirming our fiscal '22 targets. The operating profit growth that we expect to get from net sales growth and margin improvement combined with our continued expected $300 million working capital improvement that we expect through the end of fiscal '22 will help us get to our free cash flow conversion target of 95% plus to generate cash to delever, which I'll talk about in a minute. Our approach to a balanced capital allocation has not changed. We expect to maintain our $0.85 per share annualized dividend as we prioritize deleveraging. We remain committed to our solid -- to a solid investment-grade credit rating and our leverage targets for the end of fiscal '21. We expect to resume share repurchase only to the extent that we're ahead of our deleveraging targets. And as Sean mentioned, we're very focused on divestitures as a potential tool to delever. And as a reminder, we still have our capital loss carryforward that does not expire until the end of fiscal '21. I'm very pleased with the progress we've made in paying down debt since we bought Pinnacle in the second quarter of last year. The $1.3 billion in term loans that we issued as part of the financing have been completely paid off this quarter as part of our $450 million debt reduction that we will have by the end of this quarter, Q3. Our commitment to a solid investment-grade credit rating is as strong as ever. And our commitment to our fiscal '21 net debt-to-EBITDA leverage ratios of 3.6 to 3.5x are strong as well. Cash generation and debt paydown is a top priority for Conagra. That is why free cash flow is a metric in our annual incentive plan. So in summary, as Sean said, hopefully, you have a great understanding of how we compete in attractive categories and how we leverage our powerful brand assets to drive growth. We've made tremendous progress to date and believe that the headwinds in Q3 are behind us as we enter into Q4. That concludes my remarks. Thank you. I'll turn it back to [ Brian ].

All right. Thanks, Dave. Thank you, Sean.