Conagra Brands, Inc. · NYSE:CAG
Conagra Brands — FY2018 Earnings Presentation
59 slides from Conagra Brands's earnings presentation, Jun 27, 2018
Slide 1: Conagra Brands Acquisition of Pinnacle Foods and FY18 Q4 Earnings Presentation
Conagra Brands Acquisition of Pinnacle Foods and FY18 Q4 Earnings Presentation June 27, 2018
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
Forward-Looking Statements 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 circumstanc
Slide 4: Non-GAAP Financial Measures; Additional Information and Where to Find It
Non-GAAP Financial Measures; Additional Information and Where to Find It; Participants in Solicitation Note on Non-GAAP Financial Measures This document includes certain non-GAAP financial measures, including adjusted diluted EPS from continuing operations, organic net sales, adjusted gross profit,
Slide 5: Sean Connolly
Sean Connolly President and Chief Executive Officer
Slide 6: What We Want You to Take Away From Today
What We Want You to Take Away From Today 1• We have made tremendous progress over the past three years • Executed comprehensive transformation • Significant margin expansion, bent the topline trend and upgraded the revenue base • Built industry-leading innovation capabilities • Completely overhauled
Slide 7: Three Years Ago, We Developed a Five Year Plan
Three Years Ago, We Developed a Five Year Plan FY16/17 FY18 FY19/20 • Reset top-line • Improve top-line • Accelerate growth • Expand margins • Expand margins • Expand margins 7
Slide 8: We Delivered On Our Investor Day Commitments
We Delivered On Our Investor Day Commitments As We Closed FY18 Build a Winning Increase Margins Improve Top Line Company Progress 8
Slide 9: Significant Margin Expansion
Significant Margin Expansion Adj. Gross Margin Adj. Operating Margin1 +380 +460 29.7% bps bps 16.1% 25.9% 11.5% FY15 FY18 FY15 FY18 Note: “Adjusted” financial measures are non-GAAP. See the end of this presentation for a reconciliation of each non-GAAP measure to the most directly comparable GAAP me
Slide 10: Bent the Topline Trend
Bent the Topline Trend Organic Net Sales Growth1 (% Change vs Year Ago) +2.0% +0.1% (3.0)% (5.5)% FY17 Q1 FY18 Q2 + Q3 FY18 Q4 FY18 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. 1. Organ
Slide 11: Upgraded Revenue Base
Upgraded 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% +5% +3% +3% +3% +4% +3% +2% +1% (0)% (1)% (2)% (1)% (3)% (5)% (5)%(4)% (4)% Q3 Q4 Q1 Q2 Q3 Q4 Q3 Q4 Q1 Q2 Q3 Q4 Q3 Q4 Q1
Slide 12: Built World-Class Innovation Capabilities
Built World-Class Innovation Capabilities FY18 Innovation FY19 Innovation Note: Innovation referenced may not be exhaustive nor final. 12
Slide 13: Completely Overhauled the Culture
Completely Overhauled the Culture Fewer layers and Differentiating Right sized – broader spans of capabilities – lean, self- Silo-free, control – agility, growth and service, and collaborative and speed, and margin strategic fun empowerment expansion outsourcing 13
Slide 14: Delivered Significant Shareholder Value
Delivered Significant Shareholder Value Total Shareholder Return 103.8% 52.5% S&P 500 Index CAG (Total Return) (incl. LW) Note 1: Measurements represent period from August 8, 2014 to May 25, 2018. “CAG (incl. LW)” calculated as Conagra Brands Share Price + (Lamb Weston Share Price / 3) to account fo
Slide 15: Pinnacle is a Compelling Acquisition
Pinnacle is a Compelling Acquisition • Creates an $11 billion company by net sales with iconic brands and leading positions in frozen, snacking, refrigerated, and grocery categories • Combines two portfolios with industry-leading growth • Enhances our scale overall and in frozen food categories • Co
Slide 16: Transaction Summary
Transaction Summary Structure and Consideration • ~$10.9 billion transaction, including Pinnacle’s outstanding net debt1 • Pinnacle shareholders receive an implied price of $68 per share in a combination of cash and stock • 15.8x adjusted EBITDA2 before synergies and 12.1x adjusted EBITDA2 including
Slide 17: Pinnacle at a Glance
Pinnacle at a Glance Net Sales Composition Top Brands Specialty Frozen 11% 41% Boulder Brands 13% $3.1 Billion Net Sales Grocery 35% 17
Slide 18: The New Conagra Brands Portfolio
The New Conagra Brands Portfolio Iconic Brands in Strong Categories ≥ $1 Billion Brands ≥ $450 Million Brands ≥ $100 Million Brands Source: IRI MA POS data, Syndicated TSV database, TUS-MULO+C, 52 weeks ending May 27, 2018, Dollar Sales 18
Slide 19: Combining Two of the Fastest-Growing Portfolios in the Industry
Combining Two of the Fastest-Growing Portfolios in the Industry Domestic Retail Scanner Data (Retail Sales; % Change vs Year Ago; Last 13 weeks ending May 27, 2018) Peer 1 +3% CAG +3% Peer 2 +2% Eagle +1% Peer 3 +1% Peer 4 +1% Peer 5 +1% Peer 6 +0% Peer 7 +0% Peer 8 +0% Peer 9 (0)% Peer 10 (0)% Peer
Slide 20: Improved Scale in Total Retail and Frozen Foods
Improved Scale in Total Retail and Frozen Foods Dollars in billions Total Retail Sales $37.3 $21.5 $18.3 $12.3 $12.2 $9.9 $9.1 $8.6 $8.2 $7.5 $7.2 $5.6 $5.4 $5.3 $4.6 $4.1 $2.6 $1.8 Peer 11 Peer 12 Conagra Peer 10 Peer 13 Peer 14 Peer 15 Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Peer 8 Peer 9
Slide 21: Portfolios Are Complementary Within Domains
Portfolios Are Complementary Within Domains Frozen & Snacks & Shelf-Stable Condiments & Enhancers Refrigerated Meals Sweet Treats Meals & Sides Percentage of portfolio’s retail sales Conagra: 39% 23% 23% 15% Pinnacle: 54% 11% 24% 11% Combined: 44% 19% 23% 13% Note: Percent of sales reflects the perc
Slide 22: Combining Two Strong Cultures: Lean AND Innovative
Combining Two Strong Cultures Lean AND Innovative 22
Slide 23: Strong Strategic Rationale
Strong Strategic Rationale Complementary Strengthens Enhances Innovation Leading Brands Businesses Scale Frozen Position Platform 23
Slide 24: Meaningful Value Creation from Transaction
Meaningful Value Creation from Transaction Attractive Strong Capital Synergies IRR > WACC Accretion Top-Line Structure Note: IRR is internal rate of return; WACC is weighted average cost of capital 24
Slide 25: Dave Marberger
Dave Marberger Chief Financial Officer
Slide 26: Transaction Financial Summary
Transaction Financial Summary • Implied price of $68 per Pinnacle share • $43.11 in cash and $24.89 in Conagra shares (0.6494 shares at $38.32 1) Purchase Price • ~$10.9 billion aggregate value ($8.2 billion of equity; $2.7 billion of assumed debt) • 15.8x adjusted EBITDA2 before synergies and 12.1x
Slide 27: Capital Allocation Policy Overview
Capital Allocation Policy Overview • Committed to solid investment grade credit rating Debt Reduction • Leverage target of 3.5x Invest in the • Support continued organic growth Business • Support seamless integration of Pinnacle • Intend to maintain quarterly dividend at current annual rate of $0.85
Slide 28: Q4 and FY18 Results
<b VY wbx CONAGRA “BRANDS -° O4 and FY18 Results
Slide 29: Performance Summary
Performance Summary $ in millions, except per share data Increase/(Decrease) Q4 FY18 vs YA FY18 vs YA Net Sales $1,966 +5.6% $7,938 +1.4% Organic Net Sales 1 +2.0% (0.2)% Adj. Gross Profit 573 +6.1% 2,354 (0.5)% Adj. Gross Margin 29.2% +12 bps 29.7% (57) bps A&P 59 (21.2)% 279 (15.1)% A&P as % of NS
Slide 30: Q4 and FY18 Net Sales Bridge vs Year Ago
Q4 and FY18 Net Sales Bridge vs Year Ago Organic 1 Q4Organic Drivers Net Sales of Net Growth Sales 1 Change Organic FY18 NetofNet Drivers Sales Sales Net Growth Sales Growth 1 Change (% Change Change vs vs Year Year Ago) Ago) (% Change vs Year Ago) (% (% (%Change ChangevsvsYear YearAgo) Ago) Organic
Slide 31: Able to Offset Inflation in FY18
Able to Offset Inflation in FY18 FY18 Adj. Gross Margin 0.0% Inflation at 3.8% Realized Productivity Retailer (incl. op. offsets), Marketing Price/Mix, Other Note 1: “Adjusted” financial measures are non-GAAP. See the end of this presentation for a reconciliation of these measures to the most direct
Slide 32: Q4 Financial Summary by Segment
Q4 Financial Summary by Segment $ in millions Increase/(Decrease) Net Sales Adj. Op. Profit1 Adj. Op. Margin1 Reported Organic2 Q4 FY18 Q4 FY18 vs YA Q4 FY18 vs YA vs YA vs YA Grocery & Snacks $803 7.1% 1.1% $181 13.7% 22.6% +121 bps Refrigerated & Frozen 691 7.9% 5.2% 123 14.9% 17.8% +109 bps Inter
Slide 33: FY18 Financial Summary by Segment
FY18 Financial Summary by Segment $ in millions Increase/(Decrease) Net Sales Adj. Op. Profit1 Adj. Op. Margin1 Reported Organic2 FY18 FY18 vs YA FY18 vs YA vs YA vs YA Grocery & Snacks $3,287 2.4% (2.0)% $754 (3.1)% 22.9% (132) bps Refrigerated & Frozen 2,753 3.8% 2.8% 480 6.2% 17.4% +41 bps Intern
Slide 34: Q4 Adjusted EPS Bridge
Q4 Adjusted EPS Bridge Q4 FY18 Drivers of Adjusted Diluted EPS from Cont. Ops. vs YA Adj. Gross Margin 34 Note: “Adjusted” financial measures and organic net sales are non-GAAP. See the end of this presentation for a reconciliation of these measures to the most directly comparable GAAP measures.
Slide 35: FY18 Adjusted EPS Bridge
FY18 Adjusted EPS Bridge FY18 Drivers of Adjusted Diluted EPS from Cont. Ops. vs YA Adj. Gross Margin 35 Note: “Adjusted” financial measures and organic net sales are non-GAAP. See the end of this presentation for a reconciliation of these measures to the most directly comparable GAAP measures.
Slide 36: Key Balance Sheet & Cash Flow Metrics
Key Balance Sheet & Cash Flow Metrics For the fiscal year ending May May (dollars in millions) 27, 2018 28, 2017 Net Cash Flow from Operating Activities $920a $1,141b – cont. ops. Capital Expenditures 252 242 Dividends Paid 342 415 Share Repurchases $967 $1,000 May May (dollars in millions) 27, 2018
Slide 37: New Pension Accounting Changes Optics of Historical Income Statement
New Pension Accounting Changes Optics of Historical Income Statement FY18 $ in millions, except per share data Prior Standard Change New Standard Net Sales $7,938 - $7,938 Adj. Op Profit 1,277 (86) 1,191 Adj. Op Margin1 16.1% (110) bps 15.0% Adj. Pension and Postretirement - +86 86 Non-Service Incom
Slide 38: Pension Reinvestment and Risk Mitigation Affect Income Statement Prospectively
Pension Reinvestment and Risk Mitigation Affect Income Statement Prospectively Change vs FY18 % of Asset in Fixed Income Securities % of Asset in Equity + Other Securities Pension Risk P&L Impact (Pension and Postretirement ~$(46) million Non-Service Income) 38
Slide 39: Standalone FY19 Outlook
Standalone FY19 Outlook1,2 Key Financial Metrics FY19 Guidance Reported Net Sales Growth +0.5% to +1.5% Organic Net Sales Growth 3 +1.0% to +2.0% (excl. Trenton impact) Adj. Gross Margin 29.7% to 30.0% Inflation Rate (% of COGS) 3.0% to 3.2% Adj. Op Margin 4 15.0% to 15.3% (compared to recast 15.0%
Slide 40: Standalone Q1 FY19 Outlook
Standalone Q1 FY19 Outlook1,2 Key Financial Metrics Q1 FY19 Guidance Reported Net Sales Growth +2.0% to +2.5% Adj. Op Margin 3 14.1% to 14.4% (compared to recast 15.4% in FY18) Adj. Diluted EPS from Cont. Ops. $0.46 to $0.49 Note: Standalone FY19 Guidance excludes the impact of the pending acquisiti
Slide 41: Underlying Business On Track for Standalone FY17-20 Algorithm
Underlying Business On Track for Standalone FY17-20 Algorithm1,2 Strategic New Pension Key Financial Metrics Original Changes to Trued-Up Shift from Subtotal Accounting & Incr / (Decr) (Oct 2016) Outlook Targets A&P to Trade Tax Reform Organic Net Sales +0.5% to +1% to +2% (0.5)% - +0.5% +1% to +2%
Slide 42: Transaction Enhances Algorithm
Transaction Enhances Algorithm Key Financial Metrics Impact of Transaction Organic Net Sales Growth 1 Adj. Gross Margin Adj. Op Margin 2 Adj. Diluted EPS from Cont. Ops. Will Provide More Detail at an Investor Day Post-Close 1. Organic net sales excludes the impact of foreign exchange and divested b
Slide 43: What We Want You to Take Away From Today
What We Want You to Take Away From Today 1• We have made tremendous progress over the past three years • Executed comprehensive transformation • Significant margin expansion, bent the topline trend and upgraded the revenue base • Built industry-leading innovation capabilities • Completely overhauled
Slide 44: Q&A
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Slide 45: Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures
Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures
Slide 46: Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures
Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures (dollars in millions) Grocery Total & Refrigerated Conagra Q4 FY18 Snacks & Frozen International Foodservice Commercial Brands Net Sales $ 802.5 $ 690.7 $ 208.9 $ 264.1 — $1,966.2 Impact of foreign exchange — — (5.3) — — (5
Slide 47: Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures
Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures (dollars in millions) Total Grocery Refrigerated Conagra FY18 & Snacks & Frozen International Foodservice Commercial Brands Net Sales $3,287.0 $ 2,753.0 $ 843.5 $ 1,054.8 — $7,938.3 Impact of foreign exchange — — (27.9) — —
Slide 48: Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures
Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures (dollars in millions) Total Grocery Refrigerated Corporate Conagra Q4 FY18 & Snacks & Frozen International Foodservice Expense Brands Operating Profit $ 173.2 $ 122.9 $ 17.9 $ 27.2 $ (207.3) $ 133.9 Restructuring plans 3.5
Slide 49: Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures
Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures (dollars in millions) Grocery Total & Refrigerated Corporate Conagra FY18 Snacks & Frozen International Foodservice Commercial Expense Brands Operating Profit $ 724.8 $ 479.4 $ 86.5 $ 121.8 $ — $ (379.0) $ 1,033.5 Restructu
Slide 50: Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures
Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures (dollars in millions) Grocery Total & Refrigerated Corporate Conagra FY17 Snacks & Frozen International Foodservice Commercial Expense Brands Operating Profit $ 653.7 $ 445.8 $ (168.9) $ 105.1 $ 202.6 $ (313.3) $ 925.0 Gain
Slide 51: Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures
Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures (dollars in millions) Diluted EPS from income Income from from continuing continuing operations operations before income Net income attributable to Selling, taxes and equity Income attributable Conagra general and method ta
Slide 52: Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures
Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures (dollars in millions) Diluted EPS from income Income from from continuing continuing operations operations before income Net income attributable to Selling, taxes and equity Income attributable Conagra general and method ta
Slide 53: Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures
Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures (dollars in millions) Diluted EPS from income Income from from continuing continuing operations operations before income Net income attributable to Selling, taxes and equity Income attributable Conagra general and method ta
Slide 54: Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures
Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures (dollars in millions) Diluted EPS from income Income from from continuing continuing operations operations before income Net income attributable to Selling, taxes and equity Income attributable Conagra general and method ta
Slide 55: Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures
Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures (dollars in millions) Income from continuing Net income Diluted EPS from income Selling, general operations before Income (loss) from continuing and income taxes and equity tax attributable operations attributable to admini
Slide 56: Reconciliation of Organic Net Sales
Reconciliation of Organic Net Sales (dollars in millions) FY17 Q1 FY18 Q2 FY18 Q2+Q3 FY18 Net Sales $ 7,826.9 $ 1,804.2 $ 2,173.4 $ 4,167.9 Impact of foreign exchange 29.2 (3.2) $ (8.5) (19.4) Net sales from acquired businesses (36.5) (31.0) $ (29.5) (76.2) Net sales from divested businesses (71.1)
Slide 57: Reconciliation of Grocery & Snacks Organic Net Sales
Reconciliation of Grocery & Snacks Organic Net Sales Reconciliation of Grocery & Snacks organic net sales FY18 (Dollars in millions) Q1 Q2 Q3 Q2+Q3 Net Sales $ 745.8 $ 900.4 $ 838.3 $ 1,738.7 Net sales from acquired businesses (27.6) (28.4) (42.7) (71.1) Organic Net Sales $ 718.2 $ 872.0 $ 795.6 $ 1
Slide 58: Reconciliation of Refrigerated & Frozen Organic Net Sales
Reconciliation of Refrigerated & Frozen Organic Net Sales Reconciliation of Refrigerated & Frozen organic net sales FY18 (Dollars in millions) Q1 Q2 Q3 Net Sales $ 615.7 $ 758.1 $ 688.5 Net sales from acquired businesses (3.4) (1.1) (4.0) Organic Net Sales $ 612.3 $ 757.0 $ 684.5 FY17 (Dollars in mi
Slide 59: Revised Amounts Reflecting Reclassification of Benefit Plan Components
Revised Amounts Reflecting Reclassification of Benefit Plan Components (dollars in millions) 2018 2017 2016 2015 Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY FY FY Net Sales $ 1,804.2 $ 2,173.4 $ 1,994.5 $ 1,966.2 $ 7,938.3 $ 1,895.6 $ 2,088.4 $ 1,981.2 $ 1,861.7 $ 7,826.9 $ 8,664.1 $ 9,034.0 Reported Gross Profit