Conagra Brands Inc Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Andrew Lazar - BNP Paribas Exane - Analyst : Sean, you talked in the prepared remarks about expecting a sort of a gradual transition in fiscal '25 to a more normal operating environment as consumers adjust their reference prices. And I know you've talked a lot through the back part of this last fiscal year that consumers were increasingly ready to sort of engage in your categories and just needed to be nudged a bit. And it seems like that adjustment is taking longer, not just for Conagra, obviously, but the industry at large. Why do you think that is? And is it going to require or is it requiring more investment than maybe you initially anticipated? And obviously, I ask because that's one of the, if not the biggest, debate in the space right now.

Question: Kenneth Goldman - JP Morgan - Analyst : I wanted to first better understand the comment about the outlook being prudent. On the one hand, your sales and EPS guidance, lower than the street expected. I think that's helpful in certainly setting a lower bar. On the other hand, as Andrew mentioned, your outlook requires volumes to accelerate, especially on a two-year basis. And you're relying on the consumer getting used to higher prices, as you mentioned, and we just haven't seen that yet. So I guess I'm just trying to dig in a little bit on where you think you're being most conservative in your modeling as you plan out.

Question: Kenneth Goldman - JP Morgan - Analyst : And then for my follow-up, I wanted to clarify the first-quarter outlook. Is the messaging first that the gross margin on an absolute level will be down -- or will be the lowest of the year? Or is that year on year? I just wanted to clarify the gross margin comment. And then more broadly, you talked about volume, gross margin, tough SG&A lap. It certainly seems like consensus of $0.65 or so may need to come down a bit. So understanding you don't provide quarterly specifics. Just trying to get maybe a slightly tighter sense of where you think some of the puts and takes in 1Q will be, just so maybe investor expectations are properly aligned with yours.

Question: David Palmer - Evercore ISI - Analyst : I wanted just to ask you about the challenging environment comments. You made that comment a few times during the prepared remarks, but sometimes we can assume what you mean by that, but I would assume also that there's going to be some differences in the types of challenges you see per category. And I sense that you might have more category issues, for example, in entrees. You speak to price gap issues perhaps in vegetables, for example. So could you speak specifically to what those challenges you're talking about and the types of investments that you're making, whether that's just price adjustments through promotion, display or other activity?

Question: David Palmer - Evercore ISI - Analyst : And just one follow-up on A&P margin. You mentioned that being close to the 2.4% level this year again. Is this the type of year that maybe advertising isn't as much of a priority, but maybe that starts to step up in the future years? How are you thinking about advertising and the path going forward?

Question: Peter Galbo - Bank of America - Analyst : Dave, just kind of going through your comments, if we take kind of the productivity savings, net of the inflation, it's roughly, I think, $85 million that will kind of get reinvested back into brand investment or price. Can you just, A, verify that that math kind of checks out on your end? And B, just give us a sense, maybe this being kind of incremental investment, where in the segment it's going to hit? Is it more weighted to refrigerated or more weighted to grocery? Any kind of color there would be helpful.

Question: Peter Galbo - Bank of America - Analyst : Got it. Okay, that's helpful. That's helpful. And then, Sean, just kind of thinking about the productivity number, and it's a question being asked of your peers as well. I guess, just what's the risk that we start to push the productivity lever too hard, and that that create, I don't know, lower ingredient quality or potential issues just as you're kind of getting maybe too productive. I think it's a question that we face a lot as well.

Question: Max Andrew Gumport - BNP Paribas Exane - Analyst : I might be reading a bit too much into it, but it feels like while you're still encouraged by the direction of the volume recovery, you may be a bit less optimistic on the pace of that recovery than you were just last quarter, when it felt like you were moving towards that Mendoza Line of flat-to-positive volumes. If that's right, can you just give us an update on sort of what's changed over the last three months in terms of what you're seeing in the consumer environment?

Question: Max Andrew Gumport - BNP Paribas Exane - Analyst : And then on foodservice, with volumes down 10% in the quarter, you called out the QSR weakness as well as some actions to eliminate a low-profit business. So I was just curious if you could disaggregate for us the magnitude of each of those two impacts, and also what you're seeing on the QSR side in terms of how that weakness could progress over the coming year.

Question: Robert Moskow - TD Cowen - Analyst : Sean, you have a lot of brands that skew more heavily towards lower-income consumers. You have a lot of brands that skew the other way. Are you seeing any differences in terms of how those brands are performing, like, low income versus high income? Because look, there's a lot of -- when food companies are asked why things are slowing, they tend to point to that cohort, and you have a pretty broad portfolio. So do you see more in one versus the other?

Question: Nik Modi - RBC - Analyst : Maybe I can just follow up on Rob's question from a different angle. And Sean, I'd love to hear your perspective on this. I mean, I'm wondering if there's a mismatch between where the consumers are versus how you're spending? I mean, Conagra has been very -- on the forefront of digital marketing for many years, but it seems like a lot of older consumers tend to over-index to your categories? And I'm curious if you think there's a mismatch between where you're spending the money, which is more digital, versus kind of more traditional media, which is where some of these older consumers tend to traffic. Any thoughts on that?

Question: Nik Modi - RBC - Analyst : That's helpful. And then just maybe if you can give us an update on Slim Jim. And some of the channel work would suggest there's some pressure there from kind of encroaching competitors like FATTY. I'm just curious if you have any perspective on kind of how that brand is faring right now. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 11, 2024 / 1:30PM, CAG.N - Q4 2024 Conagra Brands Inc Earnings Call

Question: Thomas Palmer - Citi - Analyst : I just wanted to clarify on promotional activity and other types of brand building that you've referenced. How does the response of consumers compare to historical norms and relative to what we might have seen, say, in late 2023? And then are you seeing much response from your competitors based on your actions?

Question: Thomas Palmer - Citi - Analyst : And then just a quick one on Ardent Mills. The language in the release, or the prepared remarks at least, referred to it as moving towards a more normalized level of operations. I just want to make sure I understand this. Should we think about that $150 million outlook, which is kind of consistent with how you started off last year as well, as a more normalized rate? Or is that like normalizing and we should look for maybe a glide path slightly lower over a series of years?

Question: Christopher Carey - Wells Fargo - Analyst : So I just wanted to maybe clarify -- or not clarify but get a bit more context on the pricing comments in the presentation around tomato-based pricing will be lapping and then you'll be taking new pricing on some cocoa. I guess, when you think about those two things, does that net out neutral for the year? And then how would you see overall pricing trending, perhaps ex those items, for the broader business? I specifically ask that in the context of the stable gross margin despite some of these investments. And then I have a quick follow-up.

Question: Christopher Carey - Wells Fargo - Analyst : Okay, great. I said it would be a quick follow-up. Maybe it'd be a bit more than that, but we'll see. About 80% holding or gaining share on the strategic frozen and snacks, clearly very good share momentum in those areas where you're focused. You did, however, mention that staples is a work in progress. Can you just comment on the areas where you are seeing competitive encroachments? And perhaps specifically, how you see private label developing in some of these areas, given the setup, retailer focus? Just any context on this that comes to mind is helpful.

Question: Robert Dickerson - Jefferies - Analyst : Great. I guess, Sean, just to come back to the grocery, maybe more staples business, it does seem like it's lagging a little bit for the various reasons you mentioned and a bit more investment going in there as we go through the year. But I am just curious kind of much more broadly speaking, if we go back kind of to pre-COVID, kind of as you entered the company and we look through all the different brands and segments, there did seem to be a bit of a potential divestment on some of those grocery brands just to kind of focus the overall portfolio, right? And then we come back, you think it will -- 80% holding or gaining share in the strategic domains. This is our focus. So I'm just curious, as you think forward in the next few years, like, I guess, why not just kind of step away from some of those brands? Kind of in line with what you've been speaking about on the foodservice side.

Question: Robert Dickerson - Jefferies - Analyst : Got it. Yes, fair enough. And then just maybe quickly for Dave. I normally don't ask about impairments, but clearly called out this quarter, and I think some have been called out previously. While I understand changes in rates, what have you, like are there certain areas that we should just be aware of or certain brands that maybe have been driving a bit more of those impairments? And that's all.