ConAgra Brands, Inc. · NYSE:CAG
ConAgra Brands — Q2 FY2018 Earnings Presentation
43 slides from ConAgra Brands's earnings presentation, Dec 21, 2017
Slide 1: FY18 Q2 Earnings Presentation
FY18 Q2 Earnings Presentation December 21, 2017
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: Forward-Looking Statements & Non-GAAP Measures
Forward-Looking Statements & Non-GAAP Measures 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 ch
Slide 4: Sean Connolly
Sean Connolly President and Chief Executive Officer 4
Slide 5: Key Takeaways
Key Takeaways • We remain on track with our transformation • Sales trends continued to improve • Near-term gross margin pressure • Executing M&A agenda • Repurchased $280 million of shares • Updating guidance 5
Slide 6: One Year of Being a Pure Play
One Year of Being a Pure Play 1919 1971 1993 2009 2016/17 Agriculture Diversified Conglomerate Branded Pure Play 6
Slide 7: Conagra Transformation On Track
Conagra Transformation On Track FY16/17 FY18 FY19/20 • Reset top-line • Improve top-line • Accelerate growth • Expand margins • Expand margins • Expand margins 7
Slide 8: Clear Top-Line Progress; Trends Accelerated
Clear Top-Line Progress; Trends Accelerated Organic Net Sales Growth1 (% Change vs Year Ago) +2.3% Includes ~220 bps benefit from Hurricanes (3.0)% (4.7)% (5.2)% (6.6)% Q2 FY17 Q3 FY17 Q4 FY17 Q1 FY18 Q2 FY18 1. Organic net sales excludes the impact of foreign exchange and divested businesses, as we
Slide 9: Higher Quality Revenue Base
Higher Quality Revenue Base Domestic Retail Scanner Data Avg. Weekly TPDs Base Sales Velocity Base Dollar Sales (% Change vs Year Ago) (% Change vs Year Ago) (% Change vs Year Ago) +5% +2% +3% +3% +1% 0% (2)% (1)% (3)% (5)% (4)% (5)% (4)% (4)% (5)% Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 FY17 F
Slide 10: Higher Quality Revenue Base
Higher Quality Revenue Base Domestic Retail Average Unit Price % Sold on Promotion (% Change vs Year Ago) (Percentage Point Change vs Year Ago) +4% +1 +0 +3% (1) +2% (2) (3) CAG +1% Categories (4) +0% (5) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 FY16 FY16 FY16 FY16 FY17 FY17 FY17
Slide 11: On Track With Margin Goals
On Track With Margin Goals Adj. Gross Margin Adj. Operating Margin1 ~32.0% 16.6% ~16.5% 15.8% 30.2% 29.7% 28.4% 12.7% 11.5% 25.9% FY15 FY16 FY17 H1 FY18 FY20E FY15 FY16 FY17 H1 FY18 FY20E 1. Adjusted operating margin excludes equity method investment earnings. Note: “Adjusted” financial measures and
Slide 12: Refrigerated & Frozen Segment Continues Growth
Refrigerated & Frozen Segment Continues Growth Refrigerated & Frozen Organic Net Sales1 (% Change vs Year Ago) +2.2% +1.3% (6.0)% (5.7)% (10.5)% Q2 FY17 Q3 FY17 Q4 FY17 Q1 FY18 Q2 FY18 1. Organic net sales excludes the impact of foreign exchange and divested businesses, as well as acquisitions (unti
Slide 13: Frozen Remains Strong; Banquet Returned to Growth
Frozen Remains Strong; Banquet Returned to Growth Frozen SSM1 Retail Sales Banquet SSM1 Retail Sales ($ Consumption, % Change vs Year Ago) ($ Consumption, % Change vs Year Ago) Category CAG +12% +13% +8% +9% +3% +2% +2% +1% (5)% Last 52 Weeks Last 13 Weeks Last 5 Weeks Last 52 Weeks Last 13 Weeks La
Slide 14: First Wave of Innovation Performing Well
First Wave of Innovation Performing Well • Early results in-line with expectations • Continuing to build distribution • Bringing new consumers to categories • Over-indexing to younger, higher-income consumers 14
Slide 15: Early Days in Grocery & Snacks
Early Days in Grocery & Snacks Grocery & Snacks Organic Net Sales1 (% Change vs Year Ago) 2.2% Includes ~200 bps benefit from Hurricanes (5.2)% (5.1)% (6.5)% (6.3)% Q2 FY17 Q3 FY17 Q4 FY17 Q1 FY18 Q2 FY18 1. Organic net sales excludes the impact of foreign exchange and divested businesses, as well a
Slide 16: Strong Growth Potential in Snacks
Strong Growth Potential in Snacks 16
Slide 17: Focused Grocery Portfolio Roles
Focused Grocery Portfolio Roles Condiments/Enhancers Shelf Stable Meals/Sides 17
Slide 18: Growing Share Across Portfolio
Growing Share Across Portfolio Domestic Retail Sales (% Change vs Prior Year Period) CAG Categories Conagra Brands +2.9% +1.7% +1.2% +1.4% +0.4% (2.5)% Last 52 Weeks Last 13 Weeks Last 4 Weeks 18 Source: Conagra Retail Sales, IRI Market Advantage Conagra Custom Categories (excl. non-frozen Frontera)
Slide 19: Reshaping and Modernizing Portfolio via Value-Creating Transactions
Reshaping and Modernizing Portfolio via Value-Creating Transactions Acquisitions Divestitures/Spin-Off Pending Pending 19
Slide 20: Further Bolstering Our Strategic Platforms
Further Bolstering Our Strategic Platforms Pending 20
Slide 21: Looking Ahead
Looking Ahead • New innovation continues to build momentum • Continue to support growth through disciplined, strategic investments • Continue to focus on executional excellence to manage through inflationary environment • Continue to re-shape portfolio via disciplined M&A • Deliver updated FY18 guid
Slide 22: Dave Marberger
Dave Marberger Chief Financial Officer 22
Slide 23: Performance Summary
Performance Summary Dollars in millions, except per share data Increase/(Decrease) Q2 FY18 Q2 FY17 vs YA Net Sales $2,173 $2,088 +4.1% Organic Net Sales1 +2.3% Adj. Gross Profit 655 650 +0.7% Adj. Gross Margin 30.1% 31.1% (101) bps A&P 86 97 (11.7)% A&P % of NS 4.0% 4.7% (71) bps Adj. SG&A 206 198 +
Slide 24: Q2 Net Sales Bridge vs YA
Q2 Net Sales Bridge vs YA Organic Net Sales1 +2.3% +4.1% +1.7% +1.4% +0.6% +0.4% Volume Price/Mix Foreign Exchange Acquisitions Net Sales 1. Organic net sales excludes the impact of foreign exchange and divested businesses, as well as acquisitions (until the anniversary date of the acquisitions). 24
Slide 25: Q2 Financial Summary by Segment
Q2 Financial Summary by Segment Dollars in millions, Increase/(Decrease) Net Sales Adj. Op. Profit1 Adj. Op Margin1 Reported Organic2 Q2 FY18 Q2 FY18 vs YA Q2 FY18 vs YA vs YA vs YA Grocery & Snacks $900 +5.5% +2.2% $212 (4.5)% 23.5% (246) bps Refrigerated & Frozen 758 +2.3% +2.2% 128 +6.9% 16.9% +7
Slide 26: Adj. EPS Bridge
Adj. EPS Bridge FY18 Drivers of Adj. Diluted EPS From Cont. Ops. vs YA Adj. Gross Margin $0.04 $0.55 $0.03 $(0.02) $0.01 $0.00 $0.49 Q2 FY17 Adj. Gross Profit Adj. SG&A / Equity Earnings / Taxes / Other Shares Q2 FY18 Adj. EPS A&P Interest Adj. EPS Note: “Adjusted” financial measures and organic net
Slide 27: Key Balance Sheet & Cash Flow Metrics
Key Balance Sheet & Cash Flow Metrics YTD through Q2 FY18 FY17 (dollars in millions) Net Cash Flow from Operating Activities $383 $461 – cont. ops. Capital Expenditures $102 $118 Dividends Paid $172 $219 Share Repurchases $580 $170 November May (dollars in millions) 26, 2017 28, 2017 Debt $3,528 $2,
Slide 28: FY18 Outlook
FY18 Outlook1,2 Key Financial Metrics Prior Updated Organic Net Sales Growth3 (2)% to Flat Near high end of range Reported Net Sales Growth (2)% to Flat 100-150 bps higher than organic growth Adj. Op. Margin4 15.9% to 16.3% Near low end of range Effective Tax Rate5 32.5% to 33.5% 33.5% to 34.5% Adj.
Slide 29: Summary
Summary • Strong Q2 results • Continuing to make progress on improving top line trends • Continuing to manage through inflationary environment • Strong balance sheet • Updating FY18 guidance 29
Slide 30: Q&A
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Slide 31: Reconciliation Tables
Vy CONAGRA “BRANDS -° Reconciliation Tables
Slide 32: Reconciliation of organic net sales
Reconciliation of organic net sales Grocery & Refrigerated Total Conagra Q2 FY18 (Dollars in millions) Snacks & Frozen International Foodservice Brands Net Sales $ 900.4 $ 758.1 $ 220.3 $ 294.6 $ 2,173.4 Impact of foreign exchange - - (8.5) - (8.5) Net sales from acquired businesses (28.4) (1.1) - -
Slide 33: Reconciliation of organic net sales
Reconciliation of organic net sales Total Conagra Q1 FY18 (Dollars in millions) Brands Net Sales $ 1,804.2 Impact of foreign exchange (3.2) Net sales from acquired businesses (31.0) Organic Net Sales $ 1,770.0 Total Conagra Q1 FY17 (Dollars in millions) Brands Net Sales $ 1,895.6 Net sales from dive
Slide 34: Reconciliation of organic net sales
Reconciliation of organic net sales FY17 (Dollars in millions) Q2 Q3 Q4 Net Sales $ 2,088.4 $ 1,981.2 $ 1,861.7 Impact of foreign exchange 8.9 3.8 6.0 Net sales from acquired businesses (6.4) (8.6) (21.5) Organic Net Sales $ 2,090.9 $ 1,976.4 $ 1,846.2 FY16 YTD (Dollars in millions) Q2 Q3 Q4 Net Sal
Slide 35: Reconciliation of Grocery & Snacks organic net sales
Reconciliation of Grocery & Snacks organic net sales FY17 (Dollars in millions) Q2 Q3 Q4 Net Sales $ 853.2 $ 849.0 $ 749.4 Net sales from acquired businesses (5.7) (7.6) (17.3) Organic Net Sales $ 847.5 $ 841.4 $ 732.1 FY16 (Dollars in millions) Q2 Q3 Q4 Net Sales $ 906.1 $ 898.0 $ 772.5 Net sales f
Slide 36: Reconciliation of Refrigerated & Frozen organic net sales
Reconciliation of Refrigerated & Frozen organic net sales FY17 (Dollars in millions) Q2 Q3 Q4 Net Sales $ 740.7 $ 667.2 $ 640.2 Net sales from acquired businesses (0.7) (0.9) (4.2) Organic Net Sales $ 740.0 $ 666.3 $ 636.0 FY16 (Dollars in millions) Q2 Q3 Q4 Net Sales $ 826.8 $ 708.9 $ 674.5 Net sal
Slide 37: Reconciliation of Adjusted Gross Profit and Adjusted Gross Margin
Reconciliation of Adjusted Gross Profit and Adjusted Gross Margin (dollars in millions) FY 18 FY 17 FY 18 FY 17 FY 17 FY 16 FY 15 Q2 Q2 Q2 YTD Q2 YTD Q4 YTD Q4 YTD Q4 YTD Net Sales $ 2,173.4 $ 2,088.4 $ 3,977.6 $ 3,984.0 $ 7,826.9 $ 8,664.1 $ 9,034.0 Gross Profit $ 658.3 $ 647.5 $ 1,177.3 $ 1,192.1
Slide 38: Reconciliation of Adjusted Operating Profit and Adjusted Operating Margin
Reconciliation of Adjusted Operating Profit and Adjusted Operating Margin Company operating Profit: Total operating profit for segments consisting of earnings before interest expense and equity method investment earnings, and income taxes. Segment operating Profit: Total operating profit for segment
Slide 39: Adjusted operating margin (Adjusted operating profit / Net Sales)
Adjusted operating margin (Adjusted operating profit / Net Sales) Grocery & Snacks Segment operating profit reconciliation FY 18 FY 17 (dollars in millions) Q2 Q2 Grocery & Snacks Segment operating profit 199.8 220.2 Net expense related to restructuring plans 4.0 1.4 Net expense related to acquisiti
Slide 40: Foodservice Segment operating profit reconciliation
Foodservice Segment operating profit reconciliation FY 18 FY 17 (dollars in millions) Q2 Q2 Foodservice Segment operating profit $ 47.4 $ 31.9 Net expense related to restructuring plans - - Adjusted Foodservice operating Profit $ 47.4 $ 31.9 Adjusted Foodservice operating margin 16.1% 11.3% Year-ove
Slide 41: Reconciliation of Adjusted SG&A
Reconciliation of Adjusted SG&A (dollars in millions) FY 18 FY 17 Q2 Q2 Net Sales $ 2,173.4 $ 2,088.4 Selling, general, and administrative (SG&A) expenses $ 307.3 $ 417.9 Adjustment to the gain on sale of Spicetec and J.M. Swank businesses - 0.5 Advertising and promotion expenses 86.0 97.4 Net expen
Slide 42: Reconciliation of Adjusted Diluted EPS from continuing operations
Reconciliation of Adjusted Diluted EPS from continuing operations FY 18 FY 17 F Q2 Q2 Q2 Diluted EPS from continuing operations $ 0.54 $ 0.26 $ Adjustment to the gain on sale of Spicetec and J.M. Swank businesses - 0.02 Net expense related to restructuring plans 0.01 0.03 Net expense related to acqu
Slide 43: Reconciliation of Adjusted Income Tax Expense from continuing operations
Reconciliation of Adjusted Income Tax Expense from continuing operations Income from continuing Income from continuing operations before income 1 FY18 Q2 operations Income Tax Expense taxes Effective Tax Rate Reported $ 224.1 $ 109.5 $ 333.6 32.8% Restructuring plans 4.6 2.5 7.1 Costs Related to Acq