ConAgra Brands, Inc. · NYSE:CAG
ConAgra Brands — Q3 FY2017 Earnings Presentation
37 slides from ConAgra Brands's earnings presentation, Mar 23, 2017
Slide 1: FY17 Q3 Earnings Presentation
FY17 Q3 Earnings Presentation March 23, 2017
Slide 2: Today's Presenters
Today’s Presenters Johan Nystedt VP, Treasury & Investor Relations Sean Connolly President and Chief Executive Officer Darren Serrao Chief Growth Officer Dave Marberger Chief Financial Officer 2
Slide 3: Forward-Looking Statements & Non-GAAP Measures
Forward-Looking Statements & Non-GAAP Measures Forward-Looking Statements This presentation 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 change
Slide 4: Key Messages
Key Messages • Continued progress in reshaping portfolio, capabilities and culture • Solid results in Q3 • Margins continue to improve • Cost savings program on-track; continue to be disciplined on all margin drivers • Expect adjusted EPS at or slightly above high-end of range with net sales at or s
Slide 5: A New Approach to Value Creation
A New Approach to Value Creation from to Focus on Volume Focus on Value Reliance on Trade/Push Reliance on Brand Strength/Pull SKU Proliferation SKU Optimization Erratic A&P/Innovation Disciplined A&P/Innovation Inefficient Cost Structure LEAN Cost Structure Weaker Margins Stronger Margins 5
Slide 6: M&A Will Contribute to Value Creation
M&A Will Contribute to Value Creation Duke’s® BIGS® 6 Note: Transaction subject to customary closing conditions, including regulatory approval. Closing expected in early summer.
Slide 7: Q3 Performance Highlights
Q3 Performance Highlights (dollars in millions, Q3 FY16 Q3 FY17 Change vs YA except per share data) Net Sales $2,199 $1,981 (9.9)% Net sales excl. impacts of (4.8)% divestitures & foreign exchange Adj. Gross Profit 654 625 (4.4)% Adj. Gross Margin 29.7% 31.6% +180 bps Adj. Op. Profit* 304 332 +9.3%
Slide 8: Continued Margin Improvement
Continued Margin Improvement Adj. Gross Margin Adj. Operating Margin* Q3 YTD FY17 Q3 YTD FY17 30.6% 16.4% 31.6% 16.8% 16.2% 13.8% 30.1% 12.1% 29.7% 28.1% H1 Q3 H1 Q3 H1 Q3 H1 Q3 FY16 FY16 FY17 FY17 FY16 FY16 FY17 FY17 * Adjusted Operating Margin excludes equity method investment earnings 8 Note: “Ad
Slide 9: Key Margin Drivers
Key Margin Drivers SG&A savings program on track Trade efficiency program on track Realizing pricing benefits of premiumization SKU rationalization working Supply Chain productivity coming through Continue to Chip Away from Here 9
Slide 10: Value Over Volume Strategy Working
Value Over Volume Strategy Working Incremental Sales Base Sales Velocity (% Change vs Year Ago) (% Change vs Year Ago) Q2 Q3 Q4 Q1 Q2 Q3 FY16 FY16 FY16 FY17 FY17 FY17 3.7% (1.8)% 2.9% (6.8)% 1.8% 0.4% 0.5% (17.4)% Q2 Q3 Q4 Q1 Q2 Q3 (15.0)% FY16 FY16 FY16 FY17 FY17 FY17 (18.3)% (21.2)% (2.9)% Source:
Slide 11: Top Line Trends Beginning to Improve
Top Line Trends Beginning to Improve Net Sales Growth excl. Divestitures and Foreign Exchange 1% 0% (1)% (2)% (3)% (4)% (5)% (4.8)% (6)% (5.8)% (7)% H1 Q3 Net sales excl. impacts of divestitures and foreign exchange is non-GAAP. See the end of this presentation for a reconciliation of these measures
Slide 12: Our Actions for Long-Term Growth
Our Actions for Long-Term Growth $138B 217 +6% Dollar CAGR ’11-’14 POCKETS +9% Dollar Chg. vs YA GROWTH POCKETS $362B 150 CATEGORIES $43B 115 +10% Dollar CAGR ’11-’14 POCKETS +17% Dollar Chg. vs YA +3% Dollar CAGR ’11-’14 +2% Dollar Chg. vs YA HIGH GROWTH POCKETS 12 Source: Conagra Insights & Analyt
Slide 13: Portfolio Segmentation Guides Innovation
Portfolio Segmentation Guides Innovation Reinvigorate Accelerate Growth Reliable Contributors Grow Core & Extend 13
Slide 14: Innovation Has Premiumized Healthy Choice
Innovation Has Premiumized Healthy Choice Premiumization Continuum Good Better Best Price $2.74 $2.69 $3.39 $3.99 $ % Chg (32)% +1% +30% N/A Expected Launch: Q1 FY18 Source: IRI MA/POS data, IRI TUS-MULO, 26 weeks ending Feb. 26, 2017 vs YA 14 Note: Price points reflect non-promoted average retail p
Slide 15: Banquet is Following a Similar Path
Banquet is Following a Similar Path Premiumization Continuum Good Better Post-Restage Pre-Restage (Classics) Price $1.05 $1.26 $2.25 $2.25 $ % Chg (9)% (1)% N/A N/A Expected Launch: Q1 FY18 Source: IRI MA POS data, IRI TUS-MULO, Pre-Restage numbers are for FY15, and Post-Restage numbers are as of th
Slide 16: Frontera Premium Quality Extending into Meals
Frontera Premium Quality Extending into Meals Salsas/Sauces Frozen Meals Expected Launch: Q1 FY18 16
Slide 17: Robust FY18 Innovation Pipeline
Robust FY18 Innovation Pipeline Frozen Grocery/Snacks Refrigerated 17
Slide 18: Looking Ahead
Looking Ahead • Continue to focus on executional excellence • Continue lapping pricing actions • New innovation slate expected to begin hitting market in Q1 FY18 • Continue to expand margins • Continue to re-shape portfolio via disciplined M&A 18
Slide 19: Consolidated Financial Summary
Consolidated Financial Summary (dollars in millions, Q3 FY16 Q3 FY17 Change vs YA except per share data) Net Sales $2,199 $1,981 (9.9)% Net sales excl. impacts of (4.8)% divestitures & foreign exchange Adj. Gross Profit 654 625 (4.4)% Adj. Gross Margin 29.7% 31.6% +180 bps Adj. Op. Profit* 304 332 +
Slide 20: Net Sales Bridge
Net Sales Bridge Drivers of Q3 Net Sales Change vs YA 2% 0.7% 0% (0.2)% (2%) (4%) (4.9)% (6%) (5.5)% (8%) (10%) (9.9)% (12%) Volume Price/Mix Divestitures Foreign Total Net Sales Exchange 20
Slide 21: Continued Margin Improvement
Continued Margin Improvement Adj. Gross Margin Adj. Operating Margin* Q3 YTD FY17 Q3 YTD FY17 30.6% 16.4% 31.6% 16.8% 16.2% 13.8% 30.1% 12.1% 29.7% 28.1% H1 Q3 H1 Q3 H1 Q3 H1 Q3 FY16 FY16 FY17 FY17 FY16 FY16 FY17 FY17 * Adjusted Operating Margin excludes equity method investment earnings 21 Note: “A
Slide 22: SG&A Reduction On Track
SG&A Reduction On Track Q3 Adj. SG&A Q3 YTD Adj. SG&A (dollars in millions) (dollars in millions) $256 $775 $202 (21)% vs YA $592 (24)% vs YA FY16 FY17 FY16 FY17 % Net Sales 11.6% 10.2% 11.7% 9.9% “Adjusted” financial measures are non-GAAP. See the end of this presentation for a reconciliation of th
Slide 23: Adj. EPS Bridge
Adj. EPS Bridge Q3 Drivers of Adj.Adj. Gross Diluted EPSMargin From Cont. Ops. vs YA $0.09 $(0.02) $0.48 $0.07 $0.35 $(0.05) $0.04 Q3 FY16 Volume Gross Margin SG&A Interest Expense / JM Swank / Q3 FY17 Actuals Expansion Income Tax / Spicetec Actuals FX / Other EPS contributions from the J.M. Swank a
Slide 24: Financial Summary by Segment
Financial Summary by Segment (dollars in millions) Net Sales Adj. Op. Profit1 Q3 FY17 vs YA Q3 FY17 vs YA Grocery & Snacks $850 (5.4)% $212 +7.9% Refrigerated & Frozen 666 (6.0)% 128 +5.1% International 205 (3.0)% 18 +7.2% Foodservice 260 (2.6)% 28 (0.4)% Corporate Expense - - (53) +22.8% Total2 $1,
Slide 25: Key Balance Sheet & Cash Flow Metrics
Key Balance Sheet & Cash Flow Metrics YTD through Q3 FY16 FY17 (dollars in millions) Net Cash Flow from Operating Activities – cont. ops. $274 $804 Capital Expenditures $171 $159 Dividends Paid $324 $329 Share Repurchases $0 $595 (dollars in millions) May 29, 2016 Feb 26, 2017 Debt $5,455 $2,974 Cas
Slide 26: FY17 Outlook
FY17 Outlook1 Previously Provided Updated Net Sales excl. divestitures and At or slightly below (4) to (5)% foreign exchange2 low-end of range Adj. Gross Margin 30.4% to 30.6% Within range Adj. Op. Margin3 15.3% to 15.5% Slightly above range At or slightly above Adj. Diluted EPS from cont. ops. $1.6
Slide 27: Summary
Summary • Continuing to make progress on upgrading volume base • Continuing to expand margins • Cost savings program remains on track • Strong balance sheet • Guidance updated 27
Slide 28: Q&A
<b VY wbx CONAGRA “BRANDS -° Q&A
Slide 29: Reconciliation Tables
<b VY wbx CONAGRA “BRANDS -° Reconciliation Tables
Slide 30: Conagra Brands Net Sales Reconciliation
Conagra Brands Net Sales Reconciliation (dollars in millions) FY 16 Q2 FY 17 Q2 YTD YTD FY 16 Q3 FY 17 Q3 Conagra Brands Net Sales $ 4,411.8 $ 3,984.0 $ 2,199.3 $ 1,981.2 Impact of foreign exchange - 19.5 - 3.8 Net sales from divested businesses (237.5) (71.1) (114.2) - Net sales, excluding the impa
Slide 31: Conagra Brands Gross Profit Reconciliation
Conagra Brands Gross Profit Reconciliation (dollars in millions) FY 16 Q2 FY 17 Q2 FY 16 Q3 FY 17 Q3 YTD YTD FY 16 Q3 FY 17 Q3 YTD YTD Conagra Brands Net Sales* $ 4,411.8 $ 3,984.0 $ 2,199.3 $ 1,981.2 $ 6,611.1 $ 5,965.2 Conagra Brands Gross Profit $ 1,229.3 $ 1,192.1 $ 619.8 $ 621.0 $ 1,849.1 $ 1,8
Slide 32: Reconciliation of total operating profit to income from continuing operations
Conagra Brands Reconciliation of total operating profit to income from continuing operations before income taxes and equity method earnings Company operating Profit: Total operating profit for segments consisting of earnings before interest expense and equity method investment earnings, and income t
Slide 33: Segment Operating Profit Reconciliation
Grocery & Snacks Foods Segment Operating Profit Reconciliation (Dollars in millions) Q3 FY17 Q3FY16 % Change Grocery & Snacks Segment Operating Profit S 2019 $ 153.4 31.6% Net expense related to restructuring plans 91 43.2 Net expense related to intangible impairment charges 11 _ Grocery & Snacks Se
Slide 34: Commercial Segment Operating Profit Reconciliation
Commercial Segment Operating Profit Reconciliation (Dollars in millions) Q3 FY17 Q3FY16 % Change Commercial Segment Operating Profit (Loss) $s (0.2) $ 10.2 NA Adjustment related to gain on JM Swank sale 02 _— Commercial Segment Adjusted Operating Profit s — $102 (100.0)% Corporate Expense Reconcilia
Slide 35: Reconciliation of SG&A adjusted for items impacting comparability
Conagra Brands Reconciliation of total selling, general, and administrative expenses, adjusted for items impacting comparability (dollars in millions) Q3 FY 16 Q3 FY 17 FY 16 Q3 YTD FY 17 Q3 YTD Net Sales $ 2,199.3 $ 1,981.2 $ 6,611.1 $ 5,965.2 Selling, general, and administrative expenses $ 447.0 $
Slide 36: Q3 FY17 & Q3 FY16 Diluted EPS from Continuing Operations
Q3 FY17 & Q3 FY16 Diluted EPS from Continuing Operations Q3FY17 Q3FY16 % Change Diluted EPS from continuing operations $ O41 $ 0.16 156.3% Net expense related to restructuring plans 0.02 0.16 Net expense related to early extinguishment of debt 0.05 0.04 ‘Net expense related to salaried pension planl
Slide 37: Effective Tax Rate Reconciliation
Effective Tax Rate Reconciliation Income from continuing Income from continuing operations before income 1 FY17 Q3 operations Income Tax Expense taxes Effective Tax Rate Reported $ 179.5 $ 67.9 $ 247.4 27.4% Restructuring plans 8.8 4.9 13.7 Early extinguishment of debt 21.1 11.6 32.7 Salaried Pensio