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

This completes the items to be voted on at today's meeting. The polls for voting are now closed. We'll announce the preliminary results of each vote later in the meeting once all votes have been counted. I'm now most pleased to introduce the President and CEO of Conagra Brands and fellow Board member, Sean Connolly. Sean completed his fifth year as our CEO this past April. Over these past 5 years, Sean has transformed the company in terms of its portfolio, executive leadership, culture and its results. Sean's leadership during the pandemic crisis has been superb, continuing to deliver industry-leading results while always remaining focused on the safety and well-being of our employees no matter where in the company. Thank you, Sean.

Thank you, Rick. It's a pleasure to be here today to share a few words about our recently completed fiscal 2020. I want to begin this morning by saying that on behalf of Conagra Brands, I hope that each of you and your families are healthy and safe during this unprecedented time. No one could have predicted how fiscal 2020 would ultimately unfold. However, I'm grateful for our team's response to the COVID-19 pandemic. As an essential business during this time, the Conagra team's dedication to supporting our customers, consumers, communities and each other has been and continues to be a true reflection of the Conagra way in action. And our transformation over the past 5 years prepared us to effectively respond to the COVID-19 crisis. As restaurants closed, schools shifted to virtual learning and people sheltered in place, consumers increasingly cooked and ate at home, and demand for our products reached an all-time high. Staple brands like Chef Boyardee and Hunt's; frozen leaders such as Birds Eye, Healthy Choice and MariCallender's; snack brands like Slim Jim and Duncan Hines; and emerging brands, including Gardein, Frontera and Angie's BOOMCHICKAPOP, all took on new importance to consumers as people discovered and rediscovered eating at home. I'm proud to report that our broad portfolio, strengthened by the fiscal 2019 acquisition of Pinnacle Foods, combined with our agile culture and dedicated workforce, enabled us to deliver for consumers and produce strong financial results. Our net sales increased 15.9% during fiscal 2020 with strong growth across our portfolio. We delivered a 12.4% increase in earnings per share from continuing operations versus fiscal '19. We also exceeded our free cash flow guidance for the year and generated more than $1.4 billion in cash in fiscal 2020. This allowed us to accelerate our progress on reducing debt. We reduced our total gross debt by more than $1.8 billion between the closing of the Pinnacle acquisition at the end of fiscal 2020. We also paid nearly $414 million in cash dividends during the year. Today, a bit over a quarter into fiscal 2021, we remain optimistic about our opportunity to continue leveraging our portfolio for shareholder value creation. I won't be discussing fiscal 2021 1st quarter results today. We'll announce those results next week on Thursday, October 1. I hope you'll read the press release and listen to our conference call scheduled for that morning. However, I do want to share a few thoughts on our corporate social responsibility agenda for fiscal 2021. Our Citizenship Report published on conagrabrands.com details our 4 CSR focus areas: good food, better planet, responsible sourcing and stronger communities. So far, in fiscal 2021, we have been particularly focused on our stronger communities pillar. Like you, we have been deeply saddened by recent events in the U.S. It's heartbreaking and unacceptable that racism and prejudice persist. Building stronger communities embodies how we view our culture, and we are confident that we can be part of a solution. Again, thank you for joining us today and for joining us for the long term. I look forward to continuing to accelerate growth and maximize value creation at Conagra Brands. I'm excited about our future, and appreciate your trust and continued support. I'll now turn the meeting over to Colleen, who will provide an update on the vote count. Colleen?

The inspector has given me a preliminary tally, and all 3 items voted on have been approved with the necessary vote. Shareholders have elected all 10 director nominees, ratified the appointment of KPMG as the company's fiscal 2021 independent auditor and approved our named Executive Officer compensation. The final vote tallies certified by the inspector of elections will be included with the minutes of this meeting and made publicly available with the SEC in the next few days. With that, I'll officially adjourn the business portion of the meeting and turn it back to Sean for your questions or comments.

All right. So moving to the question-and-answer portion of the meeting today. I will read the question out loud before I answer them so you have a chance to see what was submitted. The first question we have today is: when this pandemic is over, will grocery stores bring back more SKUs into their stores? And will this affect Conagra products as well as pricing power? Well, as some of you have heard for a couple of years now, we have been talking about potentially there being too many items in grocery stores, and the byproduct of that is out of stock on the highest velocity item. So Conagra has been a champion of creating more shelf space for the highest velocity items, and so we had begun to see some SKU reduction in some of our categories. During the pandemic, the reduction of SKUs increased more significantly in part to create maximum volume opportunities because retailers were looking for the most units they could sell, not necessarily the widest assortment, so assortment has been reduced. I would expect that to rebuild to a degree post-pandemic, but I wouldn't expect it to necessarily go back to the level of SKU proliferation we've seen in the past because one of the opportunity cost of that kind of wide assortment is out of stocks on the highest velocity items, and that doesn't serve the consumer well, it doesn't serve the customer well and it does not serve the manufacturer well. Moving to the second question submitted here today: what areas do you feel that the company is not leading in at present and has a good future in these new products? The one area that's among the most exciting in food right now where we participate, but we are not the market leader, is plant-based meat alternatives. We have one of the fastest-growing brands in that space, a brand called Gardein, and it is a phenomenal lineup of products, and it is a clear consumer trend. It's not just vegan and vegetarian consumers that eat these products, it's meat-eaters as well who are looking to reduce the amount of meat they eat, and they're looking for some alternatives that they can weave into their weekly diet. Gardein meets those needs head on, does a fantastic job. It has been growing robustly. We've been increasing our capacity there, and I believe that brand has a fantastic future, not just in the frozen section where it has participated up until now, but also in new areas like plant-based jerky as well as canned soups. That brings us to the third question, which is: are you concerned that areas where you have a large concentration in big box stores could eventually privatize their brands and could take away from Conagra? How have you adjusted your brands to millennials and Gen X? I think the answer to that question is, if you look at the development of private label food categories or food in categories across the store, Conagra Brands tend to under-index versus private label, particularly in areas that are very strategic to us like the frozen section. So we're always highly competitive and looking to stay out ahead of our competition by way of superior innovation. But even in the pandemic, we have seen that the performance of large, well-known brands has actually performed the most strongly. That brings us to the next question: is changing the display of packaging an ongoing trend? And are you seeing results from this effort? The answer to that is, I would encourage our investors not to think about any one demand of our products, be it the food or the package. Our responsibility is to perpetually modernize our products and packages to be interesting and relevant to today's consumers. And when we -- the way we go about doing that is through a very well-oiled innovation machine, and we consider not only the food to try to optimize our culinary performance, but we also do look at what trends are happening in packaging so we can make sure that packaging not only looks arresting, but is made from materials that consumers desire. For example, in the last several years, we have moved away from using plastic for Bowls and some of our key microwaveable products and moved to products that are compostable, that look like a recycled -- recyclable that look much more modern. And the consumer response has been terrific. With that, it looks like we have completed our investor questions. And I will thank you again for joining us, and that will conclude the 2020 Annual Meeting of Shareholders of Conagra Brands. Thank you once again for joining us today.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.