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

Please join me first in thanking Conagra for sponsoring last night's fantastic opening reception. Always a fan favorite. So like many in the industry, Conagra has been impacted by some behavior shifts as consumers look to stretch their food budgets, and this has elongated the expected volume recovery. But the company has recently targeted investment in Frozen and was met with solid consumer response, which has caused the company to step up its activity to a broader set of key categories in the back half of this fiscal year to get volume moving in the right direction all while free cash flows remain solid, allowing for further deleveraging. With us from Conagra today to talk more about its go-forward approach are Sean Connolly, President and CEO; Tom McGough, Executive Vice President and Co-Chief Operating Officer; Ale Eboli, Executive Vice President and Chief Supply Chain Officer; and Dave Marberger, Executive Vice President and CFO. Sean, over to you. Thanks for being here.

Thanks, Andrew. Appreciate it. Good morning to everybody here in the room in Boca and also to those of you streaming in. I want to thank everybody who joined us at our opening kickoff dinner last night. Once again, our chefs outdid themselves with an array of super delicious modern recipes, hopefully, you enjoyed it. We are really looking forward to sharing our presentation with you this morning. 2023 was a tough year on food stocks, but the tide is turning. And when I think about the value creation prospects I see now, I think they stack up as favorably as any CAGNY, I can remember, and I've been to quite a few. Wouldn't be an investor presentation without some forward-looking statements. If you'd like to dig into this slide in more detail, you can find it on our website. So this is our agenda for our presentation this morning. I'll kick us off with a big picture as to where we stand in our company journey. Then our Co-Chief Operating Officer, Tom McGough, will provide an update on the state of our portfolio. Next up will be our Chief Supply Chain Officer, Ale Eboli, who will share some exciting work we've got going on to modernize our supply chain, in order to, further unlock gross margin from here. And then we'll bring it home with Dave Marberger, our CFO, who will share our financial outlook. At the end of our presentation today, we want you to take away that Conagra is a compelling investment opportunity for 4 reasons. Number one, we have curated an attractive portfolio, and it's fueled by a culture of external focus and agility. Two, we're well positioned to return to growth in 2024. Three, we have meaningful margin expansion opportunities ahead. And fourth, we expect strong cash flow and debt reduction near term and an array of attractive capital allocation options long term. Now for those of you who are newer to our story, you should know that over the last 8-plus years, we have architected a completely new Conagra brand. It began with a vision to transform our company from a 95-year-old global holding company into a U.S.-centric branded pure play. Then we invested to build capabilities that would be required to win. And then in about 2020, we pivoted into the accelerate phase of our journey, which is really all about winning in the marketplace and winning in the workplace. And across that journey throughout all the hard work, we had to overhaul our portfolio, our capabilities and our culture completely. With respect to portfolio, our True North is perpetually reshaping our portfolio for better growth and better margins. And we do that 3 ways. First, we strengthen the businesses we own. Second, we make acquisitions that make strategic and financial sense. And third, we engage in divestitures or spins that add value. And when you look at what we've done, you can only see that we've done a heck of a lot in terms of strengthening the businesses we own, we've completely transformed our Frozen business and our Snacks business, and we've modernized our Staples business. Within -- with acquisitions, if you look in the middle here, you can see we've done quite a lot over the years, particularly in Frozen, where we are the market leader in the United States. And on the right, you can see all the divestitures and some spins that we've done over the years, very active, including standing up Lamb Weston as a very successful public company. With respect to portfolio, our True North is perpetually reshaping our portfolio for better growth and better margins. And we do that 3 ways. First, we strengthen the businesses we own. Second, we make acquisitions that make strategic and financial sense. And third, we engage in divestitures or spins that add value. And when you look at what we've done, you can only see that we've done a heck of a lot in terms of strengthening the businesses we own, we've completely transformed our Frozen business and our Snacks business, and we've modernized our Staples business. Within -- with acquisitions, if you look in the middle here, you can see we've done quite a lot over the years, particularly in Frozen, where we are the market leader in the United States. And on the right, you can see all the divestitures and some spins that we've done over the years, very active, including standing up Lamb Weston as a very successful public company. With respect to capabilities, this is the Conagra Way playbook. Everything we do is in service to this playbook. It starts with building superior products through perpetual modernization in our innovation program. Then we secure advantaged distribution with our retail customers, we call that driving physical availability. And then finally, we drive with consumers, what we call mental availability, which is saliency and relevancy. People need to understand our new innovations, what they do and how they're going to benefit their lives. The capabilities we've built over the years looks something like this. This is just a sampling. It's everything from demand science to e-commerce to more recently AI. And these have been fundamental in the success we've had in transforming our company. But I would assert that nothing has been more meaningful in our transformation than what we've done to build a winning culture and simply put, our culture is rooted first an external focus, which is all about relentless observation of an ever-changing consumer and constantly discovering provocative and exciting sources of inspiration on social media and in society every day. And second, it's about agility because we've got to be fast in converting our insights into action. We've got to be fast to win. And throughout that work, what we've built, you can see on this chart, we are now the fourth largest food company in America. And we've curated a very attractive portfolio that spans 3 consumer domains, Frozen, Snacks and Staples, which is split between ingredients and enhancers and shelf-stable meals and sides. And when it comes to consumers, make no mistake about it, they absolutely love our market-leading brands. You can see several of them here on this page. In fact, about 80% of our portfolio comes from brands that are #1 or #2 in their categories. Now we'd like to point out that our U.S. centricity drives what we call simplicity at scale. If you think about it, 92% of our sales are in the United States. So we know our consumers extremely well. We know our customers extremely well, and we know exactly what it takes to keep them happy. And the thing that keeps them the most happy is winning innovation. Our innovation priorities over the years have been all about modern and premiumization of our categories, be that through reinventing big brands or extending into adjacencies or even tapping into the power of licensing. You're going to hear from Tom McGough about some of these success stories in just a minute. And importantly, that innovation has not only delivered, it has sustained. You can see our innovation performance in terms of new products over the past 5 years on this chart. $1.6 billion in innovation and each year, it has proven sticky. That is phenomenal innovation performance. And importantly, that success in innovation has been a major contributor to why our earnings per share has sustained so strongly over the years. This is our earnings per share growth CAGR since fiscal '16 when we implemented our playbook, 11% EPS growth CAGR over that period. And you can see how that compares to our near-end peers in the middle, but also the broader food group on the right-hand side. And even if you isolate the more volatile period of the last 4 years, you can see how our earnings per share performance has sustained in the absolute and versus peers. And if you move beyond EPS to total shareholder return, you can see that we're also very competitive against peers. But if you look at the bottom of this chart, you can see the relative multiples. And I think when you consider those multiples and you consider what we're about to show you, we've got in the pipeline, one can only conclude that Conagra Brands is a tremendous value, but also a super compelling investment opportunity. With that, I'm going to turn it over to Tom McGough, our co-Chief Operating Officer, to take you through the state of the portfolio. Tom?

Thank you, Sean, and good morning. The perspective I'm going to share today comes from a unique lens given my long tenure at Conagra. Not only have I written shotgun over the last 9 years during our transformation, but I have a vivid appreciation of how markedly different Conagra is today versus where we were in the old days. What you'll see today is we compete in very attractive categories where we hold strong leadership positions, and as Sean highlighted, we're poised to return to volume growth in 2024. So today, I'm going to start with our portfolio and then finish outlining how we're building momentum this year. I'm incredibly proud of how we've sculpted the portfolio for greater growth and how we strengthen our brands. Our categories are performing better than overall food, in fact, 30 basis points higher. We also have strong leadership positions within those categories. As Sean highlighted, 80% of our sales come from brands where we command a #1 or #2. And we employ a very disciplined approach to portfolio management. Our businesses each have defined roles. Frozen and Snacks are our largest and fastest-growing businesses. We concentrate our investment and integration resources here to drive growth. Staples plays a very important role. It generates strong cash fueling those investments on Frozen and Snacks. So let's take a look at Frozen and how we've transformed not only our brands, but the category through aggressive innovation. Now Frozen is a phenomenal space. When you look broadly at Frozen food, Frozen is growing significantly faster than food overall. In fact, 70 basis points faster in terms of dollars and even faster in terms of overall unit growth. And why is that? Well, Frozen is structurally advantaged for long-term growth. Growth is driven by higher levels of consumer acceptance and usage. What we see is consumers continue to discover Frozen's quality, convenience and superior relative value, and there's also a demographic tailwind. Millennials, who've been latent family formation are now having children. And when children are present, Frozen food usage increases by 50%. We compete primarily in 3 large and growing Frozen categories of single-serve meals, multi-serve meals and vegetables. And it takes scale and it takes innovation capabilities to win in Frozen, and we have built both. Why is scale important? It drives margin given the fixed costs associated with the Frozen supply chain and you also needed to compete for limited in-store merchandising and shelf space. And why is innovation important? Because consumer taste and food are constantly changing. And you have to constantly innovate to keep the food not only current but on trend to retain not only those people in the category today, but to attract new users to the category. And that is what we do. We built the largest Frozen food company in the United States with over $6 billion in retail sales. And I can't overstate the importance of our innovation capabilities. As Sean highlighted, we generated $1.6 billion in sales last year from products that were introduced over the last 5 years. The majority of those are concentrated in Frozen. And what you see on this chart, I kind of delineated it in too, is we did not pause our innovation program during the pandemic. And that was critically important because the pandemic drove a surge in high-quality trial and a new generation of consumers tried many of our modernized brands and upgraded products for the very first time. Our innovation transforms categories, one of which is Frozen single-serve meals, our largest category. For a few years, this category underperformed and many questioned, is Frozen still relevant. What we saw was a category that had sleepy incumbents and lacked meaningful innovation. What we saw was -- or our conclusion was it wasn't Frozen that was broken, it was the food. Frozen has tremendous advantages. It's minimally processed. For example, vegetables are picked at the peak of brightness. And, literally, within hours, they are flash frozen, and flash freezing locks in that freshness and taste at the optimal point without artificial flavors or preservatives. And that is what's truly amazing about Frozen. It is the ultimate clean-label food. Back then, when we looked at our portfolio, we saw tremendous opportunities. Our solution and our conclusion was, it was about aggressive innovation. We leverage advanced analytics to identify attractive spaces, uncover unmet needs and pinpoint the attributes that are driving growth. We then design exceptional products that have great taste, contemporary cuisines that are infused with modern product attributes that are all packaged and presented in very provocative ways to stand out on shelf or online. So we embarked on a mission to transform the category by modernizing the food, and we started with these 3 powerhouse brands and consumers responded. Collectively, these 3 brands have added over $600 million of retail sales since we launched our innovation program in FY '18. And not only do we -- not only did that build our brands, but it reinvigorated the category. Category sales accelerated with our first wave of innovation in FY '18. We continue to innovate, and we continue to outperform. Now this is an interesting chart. This is Frozen Meals. When you look at Frozen Meals over a 40-year period of time, it has a long track record of growth by winning a greater and greater share of consumers' at-home usage occasions. In fact, they've grown at a 4% rate. And I've highlighted 2 periods on here that are really instructive about the power of innovation. The first is in gray. That was a period that I referenced that there was little category innovation. What we saw was occasions plateaued, category growth stalled. But what you see in blue is we launched our innovation in FY '18. Growth in occasions accelerated. The category regained growth and it has continued to grow through that period of time. Innovation moves people. It changes behavior, and that is what we do. I think it's fair to say that over the last 4 years, we've all been tested with the pandemic and inflation, and we've emerged stronger. And I don't say that lightly. I think there's a couple of ways that you can substantiate that. One is market share, which is a measure of brand strength. We lead Nestle by nearly 20 share points in Frozen Meals, and we extended that lead by over 300 basis points in the last 4 years. And this is really an incredible chart. We know in this round of inflation, volume elasticities have been relatively muted, but there are a few businesses and a few brands that have been able to do this. At the end of our last fiscal year, our Frozen single-serve meal volumes were 2% higher than pre-pandemic levels even after 30% inflation-justified pricing, 2% higher after 30% pricing. That's unprecedented. That's a true testament to the strength of the connections that we have built between our consumers and our brands. And we have strong connections with our customers as well. Frozen shelf space is finite and it's very precious. And this is really instructive of how you sustain growth over the long term. What you see here is that long-term changes in market share are almost identical to changes a share of shelf. Given our strong track record of innovation success, our record of driving category growth, retailers continue to reward us with more and more space driving our shares even higher. Now we recognize that we compete in a much broader competitive set than Frozen Meals. Given the macro environment we're in today, we've invested in merchandising so that our brands and our categories stand out in-store. We tested this in Q2, consumers responded, and we posted record shares. We continue to see -- we continue to like what we see. Our shares in December and January are even higher. Now there's a lot of discussion about GLP-1. It's early days, and no one knows for sure. But if anything, we see opportunity within our portfolio. Numerator data indicates that consumption of better-for-you Frozen Meals increases 8% among GLP-1 users. You may ask yourself, well, why is that? Well, Frozen Meals are portion-controlled, they provide vegetable nutrition and they're high in protein. Those are all things that those consumers are looking for. So it's evident we've built a very successful and strong Frozen business, and we're doing the same on Snacks. Today, we have over a $3 billion portfolio in Snacks with over $2 billion in permissible Snacks, and over $800 million in Sweet Treats. Now snacking is the fastest-growing occasion in food. And our largest snacking categories, Meat Snacks, Popcorn and Sweet Treats are growing at rates comparable to snacking overall. And not only do we lead our categories with the #1 position, but we have at or at least 50% share in almost all of these categories. That translates into large-scale positions on Meat Snacks, which we have a business over $1 billion and Popcorn, which is approaching $1 billion in sales. What you'll notice is these businesses are growing at strong compounded rates. And these businesses have generated over $600 million of incremental sales during that period as well. Now one final thought on our snacking business. Again, no one knows for sure how ubiquitous GLP-1 drugs are going to become. But if anything, we see opportunity within our unique snacking portfolio. And that's because Meat Snacks are high in protein and Popcorn is a low-calorie high-fiber food and among GLP-1 users, consumption of both Meat Snacks and Popcorn increase. So now we'll look at our Staples business, which plays a very important role for 3 reasons. First, it generates strong cash, fueling investments in Frozen and Snacks. Second, these are high-margin, but low-touch businesses that don't require a lot of resources. And third, the reliable contributors that play a leading role in preparing at-home meals. And more of those at-home meal occasions originate from the center of the store and the notion that the center of the store is dying quite simply is a myth. Not only are our categories large, but they're growing. The categories we compete in are over $60 billion in sales today. Like Frozen and Snacks, our Staples are leading brands, and they have broad consumer appeal, reaching almost 90% of U.S. households. To conclude this section, I think it's evident that the breadth of our portfolio across Frozen, Snacks and Staples are well positioned to grow. And I'd like to talk about building momentum and returning to volume growth in 2024. So where are we today? Well, industry volume recovery has been elongated, but we're beginning to see top line progress. Our approach is to invest to return to volume growth in 2024. And at-home meals are well positioned to grow. More meals are made at home. And when you look -- and they are the most affordable meal option. In fact, on average, it costs 4x more to eat out than it does to make meals at home. And we're beginning to see the impact of that disparity as Foodservice industry traffic has recently weakened. On our business, our volume recovery is accelerating. We see sequential progress and our volumes are approaching year-ago levels. As we highlighted in January, we're making robust brand-building investments in merchandising, innovation and advertising, which I'd like to go -- share with you. We take a principled approach to all our investments. In terms of merchandising, we're very focused, very disciplined and importantly, we're ROI driven. We're investing in high-quality feature and display support and we're reinstating support on those businesses that were impacted by supply issues last year. We continue to like what we see from these investments. In terms of innovation, there's probably nothing more important in our playbook than innovation. It's the key to driving sustainable long-term growth. And the innovation -- the upcoming innovation we have is some of our strongest that I'd like to share with you now beginning with Frozen. And this is a great case study of how we approach innovation across our portfolio. In single-serve meals, our bowl innovation grew category volume. It increased consumption at the lunch occasion. Bulls represent just 25% of category volume, but they've contributed 60% of category growth. And this is where our portfolio breadth is a real strength. We develop innovation platforms like bowls and then we leverage the breadth of our portfolio to reach more consumers and drive greater scale. As a result, this platform is approaching $1 billion in sales and as you can see, we're going to sustain success with a very impressive range of new items within this segment of the category. We're taking the same approach to the dinner occasion, which is a huge opportunity for us. It's the largest meal occasion, but one in which we are underdeveloped. Like bowls, we're developing a platform, and we're going to aggressively innovate across the breadth of our portfolio. We, literally, have something for everyone, beginning with these new Healthy Choice modern dinners. On Marie Callender, we're elevating and modernizing traditional dinner favorites. In front of those with hungrier appetites, we're introducing Hungry-Man combos and Marie Callender duos that are high in protein and Evol has always been at the forefront of contemporary cuisine and will continue to be so with these culinary-inspired recipes. When you look at the dinner occasion, there's the sole occasion that those single-serve meals satisfy. But in -- but there's a segment called multi-serve meals. This is a different job. And this category growth -- category growth in this segment is, actually, accelerating. Italian is America's favorite cuisine, and we're expanding our line with these premium Bertolli entrees that you compare with these new Bertolli Appetizers for a complete at-home meal that's like going out. And for those feeding larger families, we're modernizing and premiumizing Chef Boyardee, and we're moving it into the Frozen category. These are unbelievably great products. The consumers prepare just 15 minutes at about $2 per serving. I continue to be excited about how we continue to build the Birds Eye brand. Americans love potatoes, potato side dishes are growing at a strong double-digit rate. And we're expanding the Birds Eye brand further into potatoes, while at the same time, elevating vegetables with just exquisite flavors. And we take it a step further on Alexia. These are just some exceptional products that are culinary-inspired, that appeal to a younger, more affluent household. And this one's really interesting. Chicken sandwiches is the hottest menu item on QSR restaurants. And this is a great example where Frozen is a superior relative value to eating out. These new Banquet Mega chicken filets deliver a QSR experience. But you get 6 filets for the price of 1 QSR sandwich. That is an incredible value both in terms of quality and the price value. Talking about sandwiches. Handheld is an emerging platform for us. We've built over $100 million business with Sandwich Brothers. Now this may be a brand that many of you aren't familiar with. It's traditionally been sold in the club channel. But we build capacity, and we're now in a position that we can expand the distribution in the grocery channel, and there is a long runway of growth for us in this platform. I don't know about you, but when I saw Jaws as a kid, I was absolutely terrified to go into the water. But that's not the case with kids today. They can watch Shark Week now with these Van de Kamp's Shark Bites. Angie's BOOMCHICKAPOP is a great ready-to-eat popcorn, but we also see that Frozen novelties is a category that's growing at a double-digit rate. And we have this incredibly loyal following on the Angie's brand and we're expanding Angie's in the Frozen novelty with these Angie's BOOMCHICKAPOPs. Slim Jim. It's the #1 brand in meat sticks. Our goal is to show up everywhere Snacks are sold. But when we look at our distribution, we have about 50% of the distribution that our leading meat snack competitor has. There is a long runway of distribution growth on Slim Jim that we are unlocking by having the right product, the right package and the price for each retail location. This is an interesting one. And you may have seen it last night at our reception. Popcorn seasoning is a category that's growing at an 18% rate and it is high margin. We introduced Orville into this category back in the fall. And in just a few short months, we've captured 20% share of the category that continues to grow, and we've generated nearly all the category growth within this segment. This one is really cool. Swiss Miss Hot Chocolate Bombs. It's essentially a milk chocolate ball filled with marshmallows that melts when kids pour milk over it. It makes not only a great hot chocolate drink, but it's a cool experience for kids to do when they're home from school, which seems to be more and more often. On -- now Pickle Balls is America's fastest-growing sport. We're jumping into the craze and expanding in the salty snack with these ballistic Pickle Balls. And this one is a diamond in the rough. Andy Capp's is approaching $100 million in sales. It's growing at a double-digit rate, nearly 50% faster than salty snacks overall. It kind of has a cult following among the 420 crowd. And we're kind of fueling -- we're kind of literally fueling the heat with these Fire Fries. And if that's not enough heat, we have Vlasic with Frank's RedHot. And this one, you look at labels and add these little designations on how hot, well, this is RO*TEL with ghost pepper. I made this for the Super Bowl and it's the spiciest queso that I've ever had. You will not be disappointed about the heat and the flavor. We continue to look for new opportunities to build categories. And we see one as consumers now, 2/3 of consumer households now have an Air Fryer. When I use Air Fryer, the food sticks and it's a hassle to clean. So we specially formulated PAM for Air Fryers to make that easier, unlocking new usage occasions within that category. And this one has been an absolute home run. This is a great example of how we modernize and premiumize categories. Wendy's has generated nearly 100% of the Chili category growth over the last year. Now I never thought I would do this but I'm going to introduce Dolly Parton with a special message for all of us here today, roll the video.

Well, hello from Nashville. It's Dolly and I am down here announcing my exciting new partnership with Conagra Brands. We've had a very successful couple of years making up amazing flavors with Duncan Hines collaboration. Now I'm ready to expand beyond the bacon aisle with them. In the coming months, you look for our new exciting innovations in other parts of the store. And I hope you all enjoy CAGNY and I will see you in the kitchen with Dolly. See you later.

So we started with Dolly and we made a line of baked goods inspired by our recipes. And now as she said, she's partnered with Conagra exclusively to develop her brand in food. This is a new innovation platform for us. Our next step is to move Dolly into the Frozen category with baked goods and Frozen Meals. We're just getting started here. There's a lot more to come in the upcoming years. Unquestionably, we have tremendous opportunities to drive growth through innovation. Our pipeline for the next couple of years are very, very robust. We're also looking to build our brands and build our categories through advertising. And 2 of those I'd like to share is on Healthy Choice and Birds Eye. Healthy Choice is a phenomenal brand. As you can see, over the last 4 years, we've extended our share leadership in better-for-you single-serve meals by nearly 700 basis points. But you probably don't have an appreciation for as before the pandemic, we were about $100 million smaller than Lean Cuisine. Today, we're about $150 million larger. There's a huge opportunity on this brand because you don't have to sacrifice taste for great -- you don't have to -- to get health, you don't have to sacrifice taste. So we've developed advertising that will not only build our brand, but build the category. Please show the work. [Presentation]

Vegetables is a huge addressable market. In fact, on an annual basis, there are 30 billion eating occasions of vegetables that deliver over $30 billion worth of sales. But Frozen has just 11% of that. What we do is incredible in vegetables. As I highlighted earlier, we picked vegetables at the peak of rightness. We flash freeze them, locking in that fresh missing taste at the optimal point with artificial flavors or preservatives. That is a huge, huge benefit. And we're going to highlight the superior relative benefit of frozen versus fresh and canned. Let's take a look at the work. [Presentation]

So when you put it all together, we're incredibly excited about the growth in our portfolio, and we're poised to return to volume growth in 2024. Now please welcome Ale, our Chief Supply Chain Officer.

Thank you, Tom. Good morning. Before I show how we make all that great food, I'll start with a quick personal story Three years ago, I got a call from Sean inviting me to join Conagra. After 25 years at Unilever, that was not an easy decision to make. That was not easy to decide to leave Unilever and join Conagra. There were 2 things that Sean mentioned to me during that conversation that led me to accept the invitation. First, the opportunity to take the supply chain of a great company with great brands to the next level. And second, the value that can be created by the concept that he shared this morning about simplicity and scale, the value that can be created to consumers, customers and shareholders by Conagra's unique ability to move fast and at scale. I'm 3 years into the job. Now I'm more excited today than I was in day one of the job. What I'd be sharing with you right now is the journey that we are going through in supply chain. Starting with the key masses. Yes, we are on track to deliver the $1 billion cost savings that we committed at our last Investor Day. Not only that, the supply chain is well positioned to continue to drive margin expansion while delivering world-class customer service, all that supported by the construction of a digitally connected supply chain. Over the next 10 minutes, I'll be sharing with you how we are doing that. Let me start by the results that we have already delivered. Managed supply chain over 30 years in different geographies and business, there is one lesson that I learned to properly evaluate the value of a supply chain, you have to look through 3 different lenses. First, to support growth through great customer service; second, to expand margins through a relentless focus on costs; and third, releasing cash by effectively managing your working capital. And in 1 of those 3 metrics to be moving in the right direction simultaneously, not one at a cost of another. As you can see, that's what we are doing. We are moving the 3 value drivers in the right direction. Our service levels are up, 16 points in case fill, 10 points in on time. Our productivity agenda is approaching 4% of costs, and our working capital is reducing by reduction in inventories. I'm super proud of these results, really happy. Happy but not satisfied. I'm sure that there is more value that we can deliver over the coming years. What I'll be sharing with you right now is how we are implementing a digitally connected supply chain that is at the core of the results that we have already delivered. And it's the base of my confidence that there is more value to come. This is the program that we are implementing in the digitally connected supply chain. It's based on 3 pillars: Connected Shop floor, the digitization of our factories, Connected Network, the digitization of the end-to-end network from customers to suppliers. And finally, connected people that captures the investments that we are making to our people so that they can create value today and in the future. Now what I'm going to do is just give a quick overview of each 1 of those 3 pillars, so you can get a flavor of the work that we are doing. Start with Connected Shop Floor. It's focused on our factories. That's the place that we make all that great food that consumers love that Tom shared with you. Connected Shop Floor is based on 3 elements: Line Connectivity, Materials Efficiency and Performance Management. Line Connectivity basically is the installation of sensors in every piece of equipment of a given line. Those sensors they feed real-time data into the cloud and from the cloud, we can extract in sites and drive performance. We have also implemented image processing capability in many lines that is helping us drive performance, for example, in our quality results. Materials Efficiency is the first use case of Connected Shop Floor, basically because that's where we identify the biggest value opportunity. Through a precise and immediate identification of potential sources of losses, we can immediately take action and reduce material waste. All that information then is available for the leaders of the site that can identify priority areas and drive expertise to quickly address any potential issue. All that combined is driving our efficiencies in a way that is improving our asset utilization, reducing material waste and helping us identify additional opportunities for cost optimization. For example, the repatriation of volumes that we currently make at co-manufacturers. By end of fiscal year '24, our expectation is to have delivered $160 million in manufacturing savings. We have already implemented Connected Shop Floors in 9 sites. And in the next 2 years, it will be 13. And those 13 sites will represent more than 50% of the volume that we currently manufacture at Conagra facilities. Moving on to the second pillar, Connected Network. Value supply chain is created not only by the perfect execution of each one of its processes. But more importantly, in how are we orchestrate and you synchronize them to the network. Connect network then is built on 3 elements? Network Agility, Customer Integration and Supplier Integration. Network Agility is a way to measure how fast the supply chain can react to changing demand or challenge in supply. Our approach to agility starts the implementation of advanced analytical tool to forecasting, leveraging AI and machine learning, we are able to capture consumption data and many other data and send a demand signal to those supply chain that can quickly react to it. We have also implemented digital twins in many of our lines. Those digital twins will allow us to compress the lead time of innovation and increase our speed to market. The second element is Customer Integration. It starts with the implementation of customer supply chain teams that sit at our key customers, not only they can leverage their data and technology, but more importantly, they can collaborate and understand our customers' priorities and secure that the entire supply chain is line up behind them. All that supported by an integrated and automated logistics network that is driving efficiency and customer service. Finally, on the Supplier Integration front, we are leveraging technology so that we can build resilience and cost optimization opportunities, both in our raw materials as well as in commodity management. A deeper understanding of our cost drivers is allowing us to identify additional cost optimization opportunities. For example, in inbound logistics. Our agility program and our demand-driven planning process have already delivered substantial results, both in working capital and customer service. By the end of fiscal year '24, we expect to have delivered $120 million savings in logistics and $370 million in materials efficiency. Finally, moving to our connected people. In a world where technology and knowledge changed constantly at an unprecedented speed, more important than running our assets and technology well to date, it's how we developed our culture, where people can learn, unlearn and relearn constantly adapting to the ever-changing environment. Connected people then is composed of 3 elements. Our data and technology infrastructure, the digitization of our front line and our leadership development programs. Our technology and data infrastructure starts with the implementation of the ERP that is now fully completed. We have then implemented world-class applications across the different functions of supply chain, like planning, transportation, warehousing, just to name a few. Those applications then feed the data lake that is also fully implemented. And from the data lake, we can then develop, implement and quickly roll out all the different cases of machine learning and AI, some of those that I've shared with you this morning. The second element is the digitization of our frontline. We have already delivered 2,200 iPads to our frontline colleagues, and we have 5,000 to implement over the next coming years. That technology allows them to communicate and perform their activities very efficiently, leveraging data analytics, image processing and avoiding nonvalue-added activities. Finally, one of the ways to keep the momentum of our ultra transformation is by investing in our leaders. Our development program here is focused on our supply chain leaders so they can lead the new generation that is now joining the workforce. A few examples of the programs already implemented is the Supply Chain Academy, the Manufacturing Leadership Program and the Supply Chain Early Career Program. In summary, this is how we are implementing the digitally connected supply chain. 3 pillars, 3 elements in each pillar, simplicity at scale. Now if you go back to the beginning of my presentation, you will remember that I told you that I'm happy with the results delivered so far, happy but not satisfied. I also said that I believe there is more value to be created. The third question to be made now is how much value. To answer to that question, I come back to my value drivers. Our ambition is to deliver another 2 points of case fuel improvement. We want to continuously progress our productivity initiatives should be consistently at least at 4% of COGS. And we want to continue to release cash by reducing our working capital 3 days per year over the next 3 years. Well, that's it. I hope you have enjoyed this quick tour through the supply chain, and I'll hand over to Dave Marberger. Dave, the floor is yours.

Thank you, Ale, and good morning, everyone. I crack up every time I see that Dolly Parton video. I love how she says, CAGNY. She's a great person and a great partner for us. So I'm going to bring us home here. I'm going to make up a little time. So here we go. Our model for creating value starts with our Conagra Way playbook for driving growth and is fueled by our productivity programs, both of which you heard a lot about today. This results in strong cash flow, enabling us to invest in the business while providing attractive cash returns to our shareholders. Now Sean talked about the Conagra transformation. This summarizes the strong performance across various financial metrics from fiscal year '17, which was the first year we were a pure-play branded food company through fiscal '23. During that period of time, we've gone from being $7.8 billion in sales to over $12 billion in sales. Our adjusted EPS has increased 59%. Our adjusted EBITDA is up over $900 million and our EBITDA margins have improved to 20.5%, a 60 basis point improvement. We've done all this while providing cash returns to our shareholders in the form of share repurchases and dividends which were up 44% per share during this period. So this summarizes our first half financial performance. Our organic net sales were down 1.9%, but the rate of volume decline improved from the first quarter to the second quarter. Both our operating profit and operating margin increased on lower sales because our supply chain operations were normalized and our productivity programs were back on track. Our EPS was negatively impacted as we wrapped on record proper performance from our Ardent Mills joint venture in the year ago period. But Ardent Mills continues to do very well this year. In fact, they're generating increased cash returns in the first half of this fiscal year. And overall free cash flow for Conagra for the first half came in at $641 million, a significant increase versus the prior year. Today, we're reaffirming our full year fiscal '24 guidance. We expect organic net sales of minus 1% to minus 2%. We expect adjusted operating margin of approximately 15.6% and adjusted EPS in the range of $2.60 to $2.65 reflecting the acceleration of our trade merchandising and advertising investment in the second half compared to the first half. And we expect our net debt-to-EBITDA leverage ratio to approximate 3.55x by the end of fiscal '24 as we expect to continue paying down debt in the second half. We follow a balanced approach to capital allocation. We invest in the business to drive returns above our cost of capital. We are always open to portfolio transactions that drive value based on our strategic and financial criteria. As Sean highlighted, we've executed smaller, modernizing acquisitions and larger synergistic acquisitions over the last 7 years. And we've divested various businesses as they were no longer a strategic or financial fit. But our priority now is continuing to pay down our debt to strengthen our balance sheet. We also provide returns to our shareholders in the form of opportunistic share repurchases and dividends, and we target a 50% to 55% payout ratio on our dividend. And as always, we're committed to maintaining an investment-grade credit rating. So I just talked about our free cash flow. Free cash flow in the first half increased $500 million. That's a free cash flow conversion of 97% for our first half. That's the highest in recent history. That was driven by our improved operating profit, improved cash flow from our Ardent Mills joint venture and a reduction in our days-on-hand inventory, which Ale talked about. We expect our cash flow to continue to be strong in the second half, and we expect our free cash flow conversion to come in around 100% for full year fiscal '24. Not only is our free cash flow conversion, very strong, but our free cash flow yield for the 12 months ended our second quarter is the top among the peer group. We're going to continue to focus on driving cash down to get to our long-term leverage target of 3x by the end of fiscal '26. Our long-term financial algorithm remains unchanged in an environment where supply chains are more stable and we're experiencing inflation that's much more moderate than what we've experienced in the last 3 years, we're confident that the Conagra business can deliver this financial performance that's outlined in this algorithm. So before I finish, I want to reflect on what this business has navigated the last 5 years, integration of a major acquisition in fiscal '19. The onset of COVID in fiscal '20 as we were still integrating that business and delivering over $300 million in cost synergies from it. And then fiscal '21 to fiscal '23, where like others, our supply chain was strained, consumer demand was inconsistent, and we experienced cumulative inflation of over 30%, requiring us to take our prices up. So as we approach fiscal '25, we're confident that we can drive profitable growth. Why? Because our supply chain is stable and normalized. Our productivity programs are on track, and our volumes are moving in the right direction. And as you saw, our free cash flow generation is very strong. That allows us to invest in the business, strengthen our balance sheet and provide attractive cash returns to our shareholders. So that's why we believe Conagra is a compelling investment opportunity. That concludes Conagra's comments for this morning. Appreciate your time, and we're going to take questions in the breakout room. Thank you.

Please join me in thanking Conagra for the reception last night, and we'll see you in the breakout.