Conagra Brands, Inc. · NYSE:CAG
Conagra Brands — Q3 FY2019 Earnings Presentation
56 slides from Conagra Brands's earnings presentation, Mar 21, 2019
Slide 1: FY19 Q3 Earnings Presentation
FY19 Q3 Earnings Presentation March 21, 2019
Slide 2: Today's Presenters
Today’s Presenters Brian Kearney Investor Relations Sean Connolly President and Chief Executive Officer Dave Marberger Chief Financial Officer 2
Slide 3: Legal Disclosure
Legal Disclosure Note on Forward-looking Statements This document contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Reader
Slide 4: Sean Connolly
Sean Connolly President and Chief Executive Officer
Slide 5: Key Takeaways
Key Takeaways • The “Conagra Way” continues to drive strong momentum in the Legacy Conagra business • Significant progress on Pinnacle-related activities: • Integrating people, processes, and systems • Reinvigorating innovation • De-leveraging • Investor Day on April 10th in Chicago • Long-term stra
Slide 6: The Conagra Way To Profitable Growth
The Conagra Way To Profitable Growth • Relentlessly principle-based • Enabled by differentiated capabilities • Disciplined portfolio management • Repeatable & scalable processes 6
Slide 7: Legacy Conagra Consumption Remains Strong
Legacy Conagra Consumption Remains Strong Legacy Conagra Retail Sales +3.1% +2.9% +2.2% +1.7% +1.0% +0.7% Q3 FY18 Q4 FY18 Q1 FY19 Q2 FY19 Q3 FY19 % Change vs Year Ago 2-Year Growth Source: IRI Market Advantage, Conagra Custom Categories, TTL US MULO, data through February 24, 2019, Product: “Conagra
Slide 8: Legacy Conagra Fundamentals Remain Strong
Legacy Conagra Fundamentals Remain Strong Legacy Conagra Domestic Retail Scanner Data Total Retail Sales Avg. Weekly TPDs Base Sales Velocity +3.1% +2.9% +0.8% +6.6% +2.2% +1.7% +1.0% (0.2)% (0.4)% (0.5)% +0.7% +4.7% (1.5)% +3.7% (1.9)% +2.3% +1.7% +1.8% Q3 Q4 Q1 Q2 Q3 Q3 Q4 Q1 Q2 Q3 Q3 Q4 Q1 Q2 Q3
Slide 9: Refrigerated & Frozen Segment Growth Led by Frozen
Refrigerated & Frozen Segment Growth Led by Frozen Q3 FY19 Organic Net Sales1 Growth (% Change vs Year Ago) +4.9% +2.4% (5.1)% Refrigerated Refrigerated Frozen & Frozen Note: Organic net sales growth is non-GAAP. See the end of this presentation for a reconciliation of this measure to the most direc
Slide 10: Frozen Fundamentals Remain Very Strong
Frozen Fundamentals Remain Very Strong Legacy Conagra Frozen Domestic Retail Scanner Data Total Retail Sales Avg. Weekly TPDs Base Sales Velocity +10.2% +5.9% +5.1% +4.3% +8.3% +2.9% +7.5% +2.2% +2.1% +6.4% +7.9% +6.0% +4.8% +3.4% +2.8% +2.6% +2.2% +1.8% Q3 Q4 Q1 Q2 Q3 Q3 Q4 Q1 Q2 Q3 Q3 Q4 Q1 Q2 Q3
Slide 11: Conagra Restored Category Growth
Conagra Restored Category Growth Legacy Conagra Retail Dollar Sales – Frozen Single Serve Meals (% Change vs Year Ago) +13.2% +13.0% +11.3% +10.0% +9.2% +8.3% +4.4% +3.0% +3.1% +3.0% +2.7% +2.6% +1.9% Category +0.7% All Other (incl. Pinnacle) +0.3% (0.8)% (0.6)% (0.7)% (1.1)% (1.3)% (1.8)% Q1 FY18 Q
Slide 12: Much More to Come in Legacy Conagra Refrigerated & Frozen
Much More to Come in Legacy Conagra Refrigerated & Frozen 12
Slide 13: Strong Growth in Grocery & Snacks
Strong Growth in Grocery & Snacks Q3 FY19 Organic Net Sales1 Growth (% Change vs Year Ago) +8.2% +2.9% (0.1)% Grocery Grocery Snacks & Snacks Note: Organic net sales growth is non-GAAP. See the end of this presentation for a reconciliation of this measure to the most directly comparable GAAP measure
Slide 14: Delivering Strong Growth Across Every Snack Category
Delivering Strong Growth Across Every Snack Category Legacy Conagra Snacks Retail Dollar Sales +13.6% Popcorn +9.3% Meat Snacks +7.5% +6.7% +6.4% +5.7% +5.8% Sweet Treats +3.2% +4.2% Seeds Q3 FY18 Q4 FY18 Q1 FY19 Q2 FY19 Q3 FY19 +2.5% % Change vs YA 2-Year Growth Source Left Chart: IRI Market Advant
Slide 15: Snacks Growth Driven By Strong Velocity
Snacks Growth Driven By Strong Velocity Legacy Conagra Snacks Domestic Retail Scanner Data Avg. Weekly TPDs Base Sales Velocity +14.5% +1.3% +0.7% +9.3% (0.9)% +7.7% (0.5)% (0.7)% +5.8% (0.9)% +5.3% +4.7% +4.6% (1.5)% Q2 Q3 Q4 Q1 Q2 Q3 Q2 Q3 Q4 Q1 Q2 Q3 FY18 FY18 FY18 FY19 FY19 FY19 FY18 FY18 FY18 F
Slide 16: TPD Metric Not Always Helpful as Barometer of Brand Health
TPD Metric Not Always Helpful as Barometer of Brand Health Slim Jim (% Change vs Year Ago) Total Retail Sales +7.4% Avg. Weekly TPDs (17.8)% Base Sales Velocity +28.5% Source: IRI Market Advantage, Conagra Custom Categories, TTL US MULO, 13-weeks ending February 24, 2019, Product: “Slim Jim Meat Sna
Slide 17: Much More To Come In Legacy Conagra Grocery & Snacks
Much More To Come In Legacy Conagra Grocery & Snacks 17
Slide 18: Pinnacle-Related Priorities
Pinnacle-Related Priorities 1. Integration 2. Strengthen the “Big 3” • Deploy value over volume • Reinvigorate innovation • Improve margins • Infuse “Conagra Way” across the team 3. De-lever 18
Slide 19: Integrating Pinnacle
Integrating Pinnacle People • Work transition on-track • Executing the Conagra Way Processes for profitable growth Systems / Data • Systems integration on-track • Captured ~$12 million in Q3 Synergies • Expect to exceed initial $215 million cost synergy target 19
Slide 20: Deploying Value Over Volume
Deploying Value Over Volume Pinnacle Domestic Retail Scanner Data Total Retail Sales Avg. Weekly TPDs Base Sales Velocity +2.1% +10.8% +1.1% (1.1)% (2.7)% (4.0)% +5.7% +6.0% +5.2% (1.4)% +4.6% +4.6% (2.5)% (7.8)% (3.0)% (9.2)% (4.6)% (10.3)% Q3 Q4 Q1 Q2 Q3 Q3 Q4 Q1 Q2 Q3 Q3 Q4 Q1 Q2 Q3 FY18 FY18 FY1
Slide 21: Focus is "Big 3"
Focus is “Big 3” Birds Eye Duncan Hines Wish-Bone (% Change vs Year Ago) (% Change vs Year Ago) (% Change vs Year Ago) Acquisition close: 15% Acquisition close: 15% Acquisition close: Oct 26 Oct 26 0% Oct 26 10% 10% (5)% 5% 5% Distribution (10)% Sales 0% 0% (15)% Sales (5)% (20)% (5)% (10)% (25)% (1
Slide 22: Deluge of Birds Eye Innovation Forthcoming
Deluge of Birds Eye Innovation Forthcoming Note: Packaging under development; subject to change 22
Slide 23: Relaunching Optimized Duncan Hines Mug Cakes
Relaunching Optimized Duncan Hines Mug Cakes LARGER SIMPLIFIED SIZE BRANDING IMPRESSION UPGRADED PRODUCT OPTIMIZED WITH SKU RANGE FROSTING Note: Packaging under development; subject to change 23
Slide 24: Fixing Wishbone Label for Better Variety Communication
Fixing Wishbone Label for Better Variety Communication Old New Note: Packaging under development; subject to change 24
Slide 25: Pushing On All Levers To Improve Margin
Pushing On All Levers To Improve Margin Realized Margin Accretive Improved Pricing Productivity Innovation Capabilities (Integrated Margin Management) Trade Brand Mix Channel Mix Optimization 25
Slide 26: Infusing the "Conagra Way"
Infusing the “Conagra Way” Principle-Based Approach • You can’t cut your way to prosperity Demand Sciences • Growth is essential • Not all growth is created equal; consumer pull is what counts Precision Marketing • Iconic brands + modern attributes = superior velocities • Innovation capability Omni-
Slide 27: De-Leveraging On-track
De-Leveraging On-track • We are committed to a solid investment grade credit rating • Achieved significant debt reduction since Q2 • Improvements in leverage will come from both debt reductions and EBITDA growth • No additional divestitures required to hit our leverage targets 27
Slide 28: Looking Ahead
Looking Ahead • Continue to drive top line momentum on the Legacy Conagra business • Continue executing the Pinnacle action plan • Continue to focus on margin drivers to fuel growth • Investor Day on April 10th in Chicago 28
Slide 29: What To Expect At Investor Day
What To Expect At Investor Day • Unpacking the Conagra Way to long-term, sustainable growth • Previewing the exciting innovation slate on deck for Legacy Conagra and Pinnacle • Sharing additional details on our Pinnacle action plan • Updating our financial algorithm, including a cost synergy update
Slide 30: Dave Marberger
Dave Marberger Chief Financial Officer
Slide 31: Q3 Performance Summary
Q3 Performance Summary Dollars in Millions, except per share data Increase/(Decrease) Q3 FY19 Q3 FY18 vs YA Reported Net Sales $2,707 $1,995 +35.7% Organic Net Sales ex Trenton1 +1.9% Q3 Adj. GM: Adj. Gross Profit 781 598 +30.5% Legacy Conagra Adj. Gross Margin 28.9% 30.0% (115) bps 29.8% Pinnacle A
Slide 32: Q3 Net Sales Bridge vs Year Ago
Q3 Net Sales Bridge vs Year Ago 1 Organic Net Sales Growth 1 Organic Net Sales FY19 Growth Organic Net Q3 Drivers of Net Sales Change Sales Growth 1 (% Change vs Year Ago) (% Change vs Year Ago) (% Change vs Year Ago) (% Change vs Year Ago) Organic Net Sales ex Trenton1 +1.9% +35.7% +35.7% Price/Mix
Slide 33: Q3 Net Sales Summary by Segment
Q3 Net Sales Summary by Segment Dollars in Millions Increase/(Decrease) Net Sales Organic ex Reported Q3 FY19 1 Trenton 1 vs YA vs YA1 Grocery & Snacks $863 +2.9% +2.9% Refrigerated & Frozen 711 +3.3% +2.4% International 198 (11.4)% (0.9)% Foodservice 223 (8.7)% (0.6)% Legacy Conagra $1,995 +0.0% +1
Slide 34: Pinnacle Expectations in Fiscal 2019
Pinnacle Expectations in Fiscal 2019 Pinnacle Net Sales $776 $763 ~ $740 to $755 $712 Q3 FY18 Q3 FY19 Q4 FY18 Implied (pro forma) (pro forma) Q4 FY19 (based on guidance1) • Consumption decline of (4.6)% • Continued consumption declines • Exiting low-ROI promotions • Later timing of Easter/Lent-relat
Slide 35: Segment Q3 Adj. Op Profit & Margin Summary
Segment Q3 Adj. Op Profit & Margin Summary Dollars in Millions Increase/(Decrease) Adj. Op. Profit1 Adj. Op. Margin1 Q3 FY19 vs YA Q3 FY19 vs YA Grocery & Snacks $196 +9.8% 22.7% 1 +142 bps 1 Refrigerated & Frozen 132 +4.2% 18.6% +17 bps International 26 (13.0)% 13.0% (24) bps Foodservice 29 +21.5%
Slide 36: Gross Margin Bridge
Gross Margin Bridge Q3 Adj. Gross Margin Realized Inflation Increase in Pinnacle Productivity Retailer Acquisition (incl. op. offsets), Investments Impact Price/Mix, Other Note 1: “Adjusted” financial measures are non-GAAP. See the end of this presentation for a reconciliation of these measures to t
Slide 37: Pinnacle Adjusted Profit Margins
Pinnacle Adjusted Profit Margins Adj. Gross Margin Adj. Op. Margin Q3 FY19 26.2% 15.6% (Quarter ended Feb. 24, 2019) Q1 CY181 27.1% 15.6% (Quarter ended Apr. 1, 2018) Variance (100) bps 0 bps • Inflation • Gross margin Headwinds • Business investments & • Transaction-related amortization volume/mix/
Slide 38: Q3 Adjusted EPS Bridge
Q3 Adjusted EPS Bridge Q3 FY19 Drivers of Adjusted Diluted EPS from Cont. Ops. vs YA Pinnacle Acquisition-related: $(0.08) $0.22 $(0.17) $0.06 $(0.02) $(0.02) $(0.13) $(0.04) $0.61 $0.59 $0.51 2 Q3 FY18 Adj. Legacy Pension & Adj. Equity Adj. Taxes Q3 FY19 Adj. Pinnacle Interest 1 Shares Q3 FY19 Adj.
Slide 39: Key Balance Sheet & Cash Flow Metrics
Key Balance Sheet & Cash Flow Metrics For the thirty-nine weeks ended February February (dollars in millions) 24, 2019 25, 2018 Net Cash Flow from Operating Activities $745 $808 – cont. ops. Capital Expenditures 236 176 Dividends Paid 253 258 February 24, November (dollars in millions) 2019 25, 2018
Slide 40: Updated FY19 Outlook
Updated FY19 Outlook1,2,3 Total Conagra Key Financial Metrics Prior FY19 Guidance Updated FY19 Guidance Organic Net Sales Growth4 +1.0% to +2.0% Approximately +1% (excl. Trenton impact) Adj. Gross Margin 29.3% to 29.6% Below Range Adj. Op Margin5 14.9% to 15.2% Above Range Adj. Effective Tax Rate 24
Slide 41: Detail on Organic Net Sales Growth
Detail on Organic Net Sales Growth1,2,3 Organic Net Sales Growth3 +1.9% +1.8% ~ +1.7% ~ +1% +0.6% +0.4% Q3 FY19 Q3 FY19 Q3 FY19 Q3 FY19 Implied Guidance YTD YTD (incl. (excl. Q4 FY19 FY19 (incl. (excl. Wesson) Wesson) (excl. Wesson) Wesson) Wesson) 1. The inability to predict the amount and timing o
Slide 42: Q&A
<b VY wbx CONAGRA “BRANDS -° Q&A
Slide 43: Appendix
<b VY wbx CONAGRA “BRANDS -° Appendix
Slide 44: Pinnacle Pro Forma Net Sales
Pinnacle Pro Forma Net Sales The following unaudited pro forma financial information presents the combined results of operations as if the acquisition of Pinnacle had occurred on May 29, 2017, the beginning of fiscal year 2018. These unaudited pro forma results may not necessarily reflect the actual
Slide 45: Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures
Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures (in millions) Grocery & Refrigerated & Pinnacle Total Conagra Q3 FY19 Snacks Frozen International Foodservice Foods Brands Net Sales $ 862.6 $ 711.2 $ 198.0 $ 223.0 $ 712.3 $ 2,707.1 Impact of foreign exchange — — 9.3 — — 9
Slide 46: Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures
Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures (in millions) Grocery & Refrigerated & Pinnacle Total Conagra Q3 FY19 YTD Snacks Frozen International Foodservice Foods Brands Net Sales $ 2,533.4 $ 2,117.3 $ 600.1 $ 703.3 $ 971.1 $ 6,925.2 Impact of foreign exchange — — 2
Slide 47: Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures
Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures (in millions) Total Grocery & Refrigerated Pinnacle Corporate Conagra Q3 FY19 Snacks & Frozen International Foodservice Foods Expense Brands Operating Profit $ 193.5 $ 131.4 $ 25.1 $ 29.2 $ 101.6 $ (62.6) $ 418.2 Restructur
Slide 48: Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures
Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures (in millions) Total Grocery & Refrigerated Pinnacle Corporate Conagra Q3 FY19 YTD Snacks & Frozen International Foodservice Foods Expense Brands Operating Profit $ 581.2 $ 365.0 $ 87.2 $ 89.4 $ 130.3 $ (386.8) $ 866.3 Restr
Slide 49: Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures
Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures (in millions) Diluted EPS from income Income from continuing Net income from continuing Selling, general and operations before income attributable to operations attributable to administrative taxes and equity method Income
Slide 50: Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures
Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures (in millions) Diluted EPS from income Income from continuing Net income from continuing Selling, general and operations before income taxes attributable to operations attributable to administrative and equity method investm
Slide 51: Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures
Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures (in millions) Diluted EPS from income Income from continuing Net income from continuing operations Selling, general and operations before income taxes attributable to attributable to Conagra administrative and equity method
Slide 52: Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures
Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures (in millions) Diluted EPS from income Income from continuing Net income from continuing operations Selling, general and operations before income attributable to attributable to Conagra administrative taxes and equity method
Slide 53: Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures
Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures (in millions) Q3 FY19 Q3 FY18 % Change Net income attributable to Conagra Brands, Inc. $ 242.0 $ 362.8 (33.3)% Less: Income from discontinued operations, net of tax — 14.5 Add Back: Income tax expense (benefit) 67.2 (91.4)
Slide 54: Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures
Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures (in millions) Q3 FY19 Q3 FY18 % Change Equity method investment earnings $ 12.7 $ 29.0 (56.2)% Gain on substantial liquidation of an international joint venture — (4.3) Adjusted equity method investment earnings $ 12.7 $ 24
Slide 55: Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures
Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures (in millions) Q3 FY19 Q3 FY18 % Change Net Sales $ 2,707.1 $ 1,994.5 35.7% Impact of foreign exchange 9.3 — Net sales from acquired businesses (718.4) — Net sales from divested businesses — (14.5) Net sales from sold Trento
Slide 56: Conagra Brands
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