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Original Source: FD (FAIR DISCLOSURE) WIRE
. Gary Rodkin, ConAgra Foods, Inc., CEO . Chris Klinefelter, ConAgra Foods, Inc., VP IR . Andre Hawaux, ConAgra Foods, Inc., CFO . Dave Driscoll, Citigroup, Analyst . Andrew Lazar, Lehman Brothers, Analyst
. Eric Serotta, Merrill Lynch, Analyst . Eric Katzman, Deutsche Bank, Analyst . Robert Moskow, Credit Suisse, Analyst . Michael Piking, Cleveland Research, Analyst . Eric Larson, Piper Jaffray, Analyst . Edgar Roesch, Banc of America Securities, Analyst . Pablo Zuanic, JP Morgan, Analyst
CAG reported 3Q07 EPS of $0.38, ahead of original expectation.
A. Key Data From Call 1. 3Q07 EPS = $0.38. 2. 3Q07 CapEx = $147m.
3. 3Q07 share repurchase = $197m of stock.
S1. 3Q07 Business Review (G.R.) 1. EPS: 1. Co. reported 3Q07 EPS of $0.38, ahead of original expectation and strong considering the fact that CAG: 1. Incurred $0.06 of costs related to the peanut butter recall. 2. Increased advertising and promotion investments by more than $25m. 2. Strong EPS was driven by a few key factors: 1. Continued productivity in Consumer Foods.
2. Enjoyed some mix improvement. 1. Together, these allowed Co. to significantly increase its marketing investments to build for future. 2. Reported to have a long runway ahead in terms of cost
savings and efficiencies, which will provide important fuel for brand reinvestment for quite some time. 3. Strong performance from Food Ingredients operations, where all major product lines posted sales and profit growth. 4. Strong results from Trading and Merchandising. 1. Posted record operating profit. 5. Benefit of prior year actions to pay down debt and repurchase Co.'s stock. 3. Overall, a much stronger EPS delivery than planned. 2. Consumer Foods: 1. Consumer Foods continued its successes with strong cost savings and solid mix improvement. 1. Together these allowed increasing advertising and promotion by about $26m, focused on high-priority brands. 2. Earlier this year, Co. told that it would start increasing
marketing spend in 2H07 as it focuses its investment behind
its promising brand equities. 1. This is going to result in a strong foundation for future growth by reconnecting with consumers.
2. Expects next few quarters to show a similar pattern of increased investment. 3. Reported that because of the impact of peanut butter recall and recent divestiture of refrigerated pizza business, it is tough to make sense of the reported Consumer Foods' sales
numbers. 1. Looking at ongoing operations, excluding peanut butter and divested businesses, showed topline growth of 1%. 4. Sales for priority investment brands as a whole, slightly more
than 75% of the segment, were up slightly excluding peanut
butter. 5. Number of key brands, including Hebrew National, Orville Redenbacher's, Marie Callender's, Manwich, PAM and Snack Pack posted strong sales results of more than 5% for 3Q07.
1. Favorable response to more and better marketing for these brands is what Co. was expecting from its new approach with a prioritized portfolio and ROI-based marketing. 6. Reported that it takes some time to rebuild brand equities and Co. is going about it methodically, finding the true north of key brands and driving marketing through consumer insights. 7. As Co. gets further along with its increased marketing investment and innovation pipeline, expects more traction with more of its priority investment brands as a whole. 8. Phasing out unprofitable promotions, selling non-core brands
or rationalizing products and programs are the deliberate
choices Co. is making to strengthen the base of the business.
1. Getting rid of Healthy Choice 10 for $10 promotions has been
Co.'s poster child for dropping rented volume. 2. Had a major [10 for $10] program in 3Q06 that Co. didn't repeat this past qtr.
9. Mix management is important. 1. In popcorn, Co. is focusing more resources on Orville Redenbacher's. 1. While this has cost ACT II sales, it has resulted in strong Orville growth and more total margin dollars from popcorn for Co. and customers. 10. Showed progress in the rest of the Consumer Foods segment, which was up slightly after excluding the impact of recent divestiture of refrigerated pizza business. 3. Food and Ingredients: 1. Segment had a strong qtr. with profits up 36%. 2. All of the major product commercial brands, Lamb Weston potatoes, ConAgra Mills, Gilroy Foods vegetables, and Spicetec seasoning blends and flavors showed strong sales and profit growth. 3. Overall segment performance reflects: 1. Good volumes. 2. Mix. 3. Some pricing. 4. Continued focus on costs. 4. Reported that Co. is doing a great job of innovation in these businesses, working with its foodservice customers. 1. [Addition of] Lamb Weston's Cheesy Tots to Burger King's all-day menu and the use of Gilroy Foods controlled moisture vegetables, and Garden Frost [Pieris] and new items at key quick serve restaurants and fast casual dining customers. 4. Trading and Merchandising: 1. Had an outstanding qtr., exceeding last year's record performance. 2. Opportunities in fertilizer and agricultural commodities helped offset lower profits for energy trading. 3. Co. noted that it doesn't and wouldn't plan for this segment to perform this well on a regular basis.
5. International: 1. International retail branded business also showed profit growth, largely due to strong results for Canada.
2. For the segment overall had sales growth for key brands like:
1. Hunt's. 2. Chef Boyardee. 3. ACT II. 4. Orville. 5. Swiss Miss. 3. Is steadily building a strong base here and expects it to benefit from increased focus over time. 6. Initiatives & Plans: 1. Co.'s broader initiatives were outlined in detail at last month's CAGNY presentation. 2. Co.'s plan is producing sustainable and consistent topline growth that drives bottom line growth. 1. To make this happen, is implementing important cultural, organizational, portfolio, and operating changes. 1. These are the core of Co.'s six …