Q1 2024 Conagra Brands Inc Earnings Call

Speaker 1: Good morning and welcome to the ConAgra Brands first quarter of fiscal year 2024 earnings conference call. All participants will be in the tsunami mode.

Good morning, and welcome to the Conagra Brands' first quarter fiscal year 2024 earnings conference call.

All participants will be in listen only mode.

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I would now like to turn the conference over to Melissa Napier Senior Vice President of Investor Relations. Please go ahead, good morning, and thanks for joining us for the Conagra brands first quarter fiscal 'twenty 'twenty four earnings call.

Speaker 2: I would now like to turn the conference over to Melissa Napier, Senior Vice President, Investor Relations. Please go ahead. Good morning, and thanks for joining us for the ConAgra Brands first quarter fiscal 2024 earnings call.

Speaker 2: Sean Connolly, our CEO , and Dave Marburger, our CFO , will first discuss our business performance, and then we'll open up the call for Q&A.

Sean Connolly, our CEO and Dave Marburger, our CFO will first discuss our business performance and then well open up the call for Q&A.

Speaker 2: On today's call, we will be making some forward-looking statements. And while we are making these statements in good faith, we do not have any guarantee about the results we will achieve.

On today's call, we will be making some forward looking statements.

And while we are making these statements in good faith, we do not have any guarantee about the results we will achieve the.

Speaker 2: Descriptions of our risk factors are included in the documents we filed with the FCC.

Description of our risk factors are included in the documents, we filed with the SEC.

Speaker 2: We will also be discussing some non-GAAP financial measures. These non-GAAP and adjusted numbers refer to measures that exclude items management believes impact the comparability for the period reference.

We will also be discussing some non-GAAP financial measures.

These non-GAAP and adjusted numbers refer to measures that exclude items management believes impact the comparability for the period referenced.

Speaker 2: Please see the earnings release for additional information on our comparability items. The gap to non-gap reconciliations can be found in the earnings press release and the slides that we'll be reviewing on today's call, both of which can be found in the investor relations section of our website. I'll now turn the call over to Sean.

Please see the earnings release for additional information on our comparability items. The GAAP to non-GAAP reconciliations can be found in the earnings press release and the slides that will be reviewing on today's call both of which can be found in the investor Relations section of our website I will now turn the call over to Sean.

Speaker 3: Thanks, Melissa. Good morning, everyone, and thank you for joining our first quarter fiscal 24 earnings call.

Thanks, Melissa good morning, everyone and thank you for joining our first quarter fiscal 'twenty four earnings call.

Speaker 3: Let's start with what we want you to take away from our presentation shown here on slide five.

Let's start with what we want you to take away from our presentation shown here on slide five.

Speaker 3: At an industry wide level, macro dynamics have clearly impacted consumer behavior across.

An industry wide level macro dynamics have clearly impacted consumer behavior across the board cut.

Speaker 3: I will cover this in more detail shortly, but ultimately this behavior shift has elongated the volume recovery period across the industry, which is reflected in our Q1 top line results.

Cover this in more detail shortly but ultimately this behavior shift has elongated the volume recovery period across the industry, which is reflected in our Q1 top line results.

Speaker 3: we've navigated these macro dynamics. I'm proud of the team for delivering another quarter of strong margin improvement and EPS growth.

We've navigated these macro dynamics I'm proud of the team for delivering another quarter of strong margin improvement and EPS growth.

Speaker 3: We also continue to strengthen our balance sheet, improving our leverage ratio during the quarter while investing in our business and returning cash to share.

We also continued to strengthen our balance sheet, improving our leverage ratio during the quarter, while investing in our business and returning cash to shareholders.

Speaker 3: Our team's execution supported a strong supply chain recovery during the quarter. Hitting pre-pandemic service levels as we exited Q1.

Our team's execution supported a strong supply chain recovery during the quarter hitting pre pandemic service levels as we exited Q1.

Speaker 3: Looking toward the remainder of the year, we will work to drive volumes and top line growth through targeted and disciplined investments behind prudent merchandising and continued support for our strong innovation.

Looking towards the remainder of the year, we will work to drive volumes and topline growth targeted.

Targeted disciplined investments behind crude in merchandising and continued support for our strong innovation.

Speaker 3: Finally, we are reaffirming our guidance for fiscal 24, reflecting confidence in our plans, people, and agility as we navigate a shifting consumer environment.

Finally, we are reaffirming our guidance for fiscal 'twenty, four reflecting confidence in our plans people and agility as we navigate shifting consumer environment.

As I mentioned, a moment ago the timetable for volume recovery has been elongated across the industry due to near term consumer behavior changes.

Speaker 3: As I mentioned a moment ago, the timetable for volume recovery has been elongated across the industry due to near-term consumer behavior changes.

Speaker 3: After three years of unprecedented inflation, along with other macro dynamics, consumers have felt increased financial pressure and used a variety of strategies to stretch their balance sheet.

After three years of unprecedented inflation, along with other macro dynamics consumers have felt increased financial pressure and used a variety of strategies to stretch their balance sheets. This resulted in a near term re prioritization of their typical purchase behaviors in order to make their budgets.

Speaker 3: resulted in a near-term reprioritization of their typical purchase behaviors in order to make their budgets work.

Speaker 3: seen shifts like this before and expect these near-term changes in behavior to also be temporary. In fact, recent trends suggest this is already underway.

We've seen shifts like this before and expect these near term changes in behavior also be temporary in fact recent trends suggest this is already underway.

Speaker 3: Let me provide a bit more color on the kinds of behavioral shifts we've observed.

Let me provide a bit more color on the kinds of behavioral shifts we've observed.

Speaker 3: As you've seen for some time now, with the notable exception of summer travel, discretionary purchases have been down almost across the board.

Have you seen for some time now with the notable exception of summer travel discretionary purchases have been down almost across the board.

Speaker 3: consumers have also been actively reducing remnant household inventory from the pandemic.

Tumors have also been actively reducing remnant household inventory from the pandemic.

Speaker 3: Within food, convenience-oriented items, typically a top consumer priority, have lagged as shoppers have turned to more hands-on food prep to get additional bang for their buck.

Within food.

Minions oriented items typically a top consumer priority have lacked as shoppers have turned to more hands on food prep to get additional bang for their Buck.

Speaker 3: And as they've done this, not surprisingly, they have shifted from meals for one to meals for many, even if not everyone is home at the same time to eat together.

And as they've done this not surprisingly they have shifted from meals for one two meals for many even if not everyone is call them at the same time together.

Speaker 3: And the last shift I will mention is a reduction in wasted food and an increase in the use of...

And the last shift I will mention is a reduction wasted food and an increase in the use of leftovers.

Speaker 3: Collectively, these short-term behavior shifts act as a sort of cheat code to help these consumers spend within their means.

Collectively these short term behavior shifts act as a sort of cheat code to help these consumers spend within their means.

Speaker 3: Slide 8 demonstrates the elongated volume recovery across the industry. As you can see, through the four-week period ending August 26, the entire peer group was showing volume performance within a very tight band, with ConAgra in the middle of the pack.

Slide eight demonstrates the elongated volume recovery across the industry as you can see through the four week period ending August 26.

Tire peer group, we're showing volume performance within a very tight band with Conagra in the middle of the pack.

As I mentioned a minute ago more recent trends are showing the first signs of improved performance.

Speaker 3: As I mentioned a minute ago, more recent trends are showing the first signs of improved performance.

With that backdrop, let's dive into our results shown on slide nine.

Speaker 3: With that backdrop, let's dive into our results shown on slide 9.

Speaker 3: As you can see, in the quarter, we delivered organic net sales of approximately $2.9 billion, which is down slightly compared to last year as a result of the slower volume recovery we've discussed.

As you can see in the quarter, we delivered organic net sales of approximately $2 9 billion, which is down slightly compared to last year as a result of the slower volume recovery we discussed.

Speaker 3: Adjusted gross margin of 27.6% was up 272 basis points from last year.

<unk> gross margin of 27, 6% was up 272 basis points from last year.

Adjusted operating margin of 16, 7% was up 297 basis points compared to last year and adjusted earnings per share up 66 cents.

Speaker 3: Adjusted operating margin of 16.7% was up 297 basis points compared to last year. And adjusted earnings per share of 66 cents increased almost 16% versus last year.

Increased almost 16% versus last year.

Speaker 3: Diving further into our top line performance by retail domain. You can see on slide 10 that sales in our staples domain were flat compared to the prior year.

Diving further into our top line performance by retail domain, you can see on slide 10.

Sales in our Staples domain were flat compared to the prior year.

As consumers shift towards more stretching well meals are staples categories, such as you can't Chile, and canned Tomatoes are well positioned and have gained unit share compared to last year.

Speaker 3: consumers shift toward more stretchable meals, our staples categories, such as canned chili and canned tomatoes are well positioned and have gained unit share compared to last year.

Speaker 3: Quite the macro headwinds, our snacks domain has continued to grow as shown on slide 11. We're building unit share as consumers continue to respond positively to our microwave popcorn and ready to eat pudding and gel burn.

Despite the macro headwinds headwinds our snacks domain has continued to grow as shown on slide 11.

Building unit share as consumers continue to respond positively to our microwave popcorn and ready to eat pudding NGL brands.

Looking at Slide 12, you can see there are frozen domain has been the most significantly impacted by recent shifts in consumer behavior, particularly in areas like single serve meals given the headwinds we discussed a moment ago.

Speaker 3: Looking at slide 12, you can see there a frozen domain has been the most significantly impacted by recent shifts in consumer behavior, particularly in areas like single-serve meals given the headwinds we discussed a moment ago.

Speaker 3: As we look at the frozen domain, it's worth noting a few key points. First, despite the recent impact on volume, we continue to gain unit share in important frozen categories like single-serve meals.

As we look at the frozen domain, it's worth noting a few key points first despite the recent impact on volume we continue to gain unit share in important frozen categories like single serve meals.

Speaker 3: This dynamic demonstrates the relative strength and strong position of our brain.

This dynamic demonstrates the relative strength and strong position of our brands.

Speaker 3: Second, the year over year performance figures do not properly represent the broader trend within frozen food. In fact, if you look over a four year period, ConAgra's frozen retail sales have increased 22%.

The year over year performance figures do not properly represent the broader trend within frozen food. In fact, if you look over a four year period conagra's frozen retail sales have increased 22%.

Frozen meals has been one of the fastest growing categories in in home consumption over the past 40 years.

Speaker 3: Frozen meals has been one of the fastest growing categories in in-home consumption over the past 40 years.

Speaker 3: 4% tagger is in the top tier of foods growing in at home consumption.

It's 4% CAGR is in the top tier of foods growing in at home consumption. This expansion has been fueled by the long term sustained consumer demand for convenience as well as the additional addition of innovation and quality ingredients is 40 year trend demonstrates that.

Speaker 3: This expansion has been fueled by the long-term sustained consumer demand for convenience, as well as the addition of innovation and quality ingredients.

Speaker 3: 40-year trend demonstrates the critical role that frozen plays in providing convenient, high-quality foods for every occasion, which consumers have come to increasingly rely on. This is central to why we believe the current softness is temporary.

Critical role that frozen plays in providing convenient high quality foods for every occasion, which consumers have come to increasingly rely on this is central to why we believe the current softness is temporary.

Turning to slide 14, I'm pleased to share that we continue to advance our supply chain initiatives during the quarter, allowing us to return our service performance back to pre pandemic levels, our productivity initiatives remain on track and we plan to maintain and capitalize on this strong recovery during the rest of fiscal 'twenty four.

Speaker 3: Turning to slide 14, I'm pleased to share that we continue to advance our supply chain initiatives during the quarter. Allowing us to return our service performance back to pre-pandemic levels.

Speaker 3: productivity initiatives remain on track and we plan to maintain and capitalize on this strong recovery during the rest of fiscal 2020.

That's a key piece of our action plan for the remainder of the year as outlined on slide 15.

Speaker 3: That's a key piece of our action plan for the remainder of the year as outlined on slide 15.

In addition to our ongoing supply chain execution, we will continue to focus on executing our conagra way playbook as we make targeted and disciplined investments behind our brands.

Speaker 3: In addition to our ongoing supply chain execution, we will continue to focus on executing our ConAgraWay playbook as we make targeted and disciplined investments behind our brand.

Speaker 3: help protect share and drive the top line. We're focused on investing behind quality, high ROI merchandising and AMP to support our brand.

I'll protect share and drive the top line, we're focused on investing behind quality high ROI Merchandizing and A&P to support our brand. We will also continue to prioritize reducing our debt and improving our net leverage ratio.

Speaker 3: We'll also continue to prioritize reducing our debt and improving our net leverage ratio.

We are reaffirming our fiscal 2000 and for guidance that we shared last quarter, including organic net sales growth of approximately 1% compared to fiscal 'twenty three.

Speaker 3: We are reaffirming our fiscal 24 guidance that we shared last quarter, including organic net sales growth of approximately 1% compared to fiscal 23.

Speaker 3: Adjusted operating margin of 16 to 16.5% and adjusted EPS between $2.70 to $2.75.

Adjusted operating margin of 16 to 16, 5% and adjusted EPS between $2 70 to $2.75.

Speaker 3: Overall, we remain confident in our plans, people, and agility as we continue to navigate this shifting consumer environment.

Overall, we remain confident in our plans people and agility as we continued to navigate the shifting consumer environment.

With that I'll pass the call over to Dave to cover the financials in more detail.

Speaker 3: With that, I'll pass the call over to Dave to cover the financials in more detail.

Thanks, Sean and good morning, everyone.

Speaker 3: Slide 18 highlights our results from the quarter. Overall, we are pleased with our profit and cash flow delivery and remain confident in our ability to achieve our full year guidance targets. In Q1, net sales were 2.9 billion, reflecting a.3% decrease in organic net sales driven primarily from the elongated recovery of volumes due to the industry-wide slowdown in consumption that Sean discussed earlier.

18 highlight our results from the quarter overall, we are pleased with our profit and cash flow delivery and remain confident in our ability to achieve our full year guidance targets. In Q1 net sales were $2 9 billion, reflecting a 3% decrease in organic net sales driven primarily.

<unk> from the elongated recovery of volumes due to the industry wide slowdown in consumption that John discussed earlier.

Gross margin recovery was a key priority for us in fiscal 'twenty, three and we delivered another strong result in Q1.

Speaker 3: Gross margin recovery was a key priority for us in fiscal 20-3, and we delivered another strong result in Q1.

Speaker 3: adjusted gross profit increased by 10.9% in the quarter, primarily from the pricing implemented in the prior year, and strong productivity, which more than offset the negative impacts of cost of goods sold inflation and unfavorable operating leverage.

Adjusted gross profit increased by 10, 9% in the quarter, primarily from the pricing implemented in the prior year and strong productivity, which more than offset the negative impacts of cost of goods sold inflation and unfavorable operating leverage.

Speaker 4: adjusted gross margin increased 272 basis points, and adjusted EBITDA increased 12.1%, largely driven by the increase in adjusted gross profit. slide 19.

Adjusted gross margin increased 272 basis points and adjusted EBITDA increased 12, 1%.

Largely driven by the increase in adjusted gross profit.

Slide 19 provides a breakdown of our net sales.

Speaker 4: The 0.3% decrease in organic net sales was driven by a 6.6% decrease in volume, which was partially offset by a 6.3% improvement in price mix, a result of fiscal 23's inflation-driven pricing action.

<unk>, 3% decrease in organic net sales was driven by a six 6% decrease in volume, which was partially offset by a six 3% improvement in price mix are result of fiscal 'twenty threes inflation driven pricing actions.

Speaker 4: small benefit from the impact of foreign exchange contributed to reported net sales coming in flat for the quarter.

Small benefit from the impact of foreign exchange contributed to reported net sales coming in flat for the quarter.

Slide 20 shows the topline performance for each segment in Q1.

Speaker 4: Slide 20 shows the top-line performance for each segment in Q1.

Speaker 4: Our grocery and snack segment achieved net sales growth of 1.2% in the quarter.

Our grocery and snacks segment achieved net sales growth of one 2% in the quarter.

Speaker 4: we gain dollar share in snacking categories, including seeds and microwave popcorn, as well as in staples categories including chili and canned meat.

We gained dollar share in snacking categories, including seed and microwave popcorn.

As well as in staples categories, including Chile, and canned meat.

Speaker 4: As Sean discussed earlier, our refrigerated and frozen segment was the most impacted by recent consumer behavior shifts, with net sales down 4.6% in the quarter.

As Sean discussed earlier, our refrigerated and frozen segment was the most impacted by recent consumer behavior shifts with net sales down four 6% in the quarter.

Our international and foodservice segments combined are slightly below 20% of our net sales.

Speaker 4: Our international and food service segments combined are slightly below 20% of our net sales.

Speaker 4: Both are important to ConAgra and contributed meaningfully to growth this quarter.

Both are important to conagra and contributed meaningfully to growth this quarter.

Speaker 4: Our international segment delivered year-over-year volume growth in addition to improved price mix, which helps support strong organic net sales growth of 8.2% during the quarter.

Our international segment delivered year over year volume growth. In addition to improved price mix, which helped support strong organic net sales growth of eight 2% during the quarter.

Our two largest international regions, Mexico, and Canada delivered double digit organic net sales growth over prior year.

Speaker 4: our two largest international regions, Mexico and Canada, delivered double-digit organic net sales growth over prior year.

Speaker 4: We also saw low single digit volume growth in Mexico, which contributed to the segment's overall positive volume.

We also saw low single digit volume growth in Mexico, which contributed to the segment's overall positive volumes for.

Speaker 4: For the remainder of the year, we expect volume growth to continue in international markets.

For the remainder of the year, we expect volume growth to continue in international.

Our foodservice segment delivered five 2% net sales growth in Q1 from strong price mix and we expect to see positive net sales growth in foodservice for the fiscal year.

Speaker 4: Our food service segment delivered 5.2% net sales growth in Q1 from strong price mix, and we expect to see positive net sales growth in food service for the fiscal year.

Speaker 4: Food service also delivered a strong gross margin in Q1 versus a year ago due to the reduction of supply chain disruption costs incurred in the prior year.

Foodservice also delivered a strong gross margin in Q1 versus a year ago due to the reduction of supply chain disruption costs incurred in the prior year.

Speaker 4: This benefit is not expected to extend beyond Q1.

This benefit is not expected to extend beyond Q1.

Our foodservice segment supplies, a diverse set of clients beyond the restaurants, including health care travel and leisure and educational institutions and we are well positioned to compete in these markets.

Speaker 4: Our food service segment supplies a diverse set of clients beyond restaurants, including healthcare, travel and leisure, and educational institutions, and we are well positioned to compete in these markets.

Slide 21 highlights our adjusted operating margin bridge. We are pleased to have delivered a fourth consecutive quarter of strong gross margin improvement up 272 basis points in Q1.

Speaker 4: Fly 21 highlights our adjusted operating margin bridge.

Speaker 4: we are pleased to have delivered a fourth consecutive quarter of strong gross margin improvement, up 272 basis points in Q1.

Speaker 4: We drove a four percentage point improvement from price mix during the quarter.

We drove a four percentage point improvement from price mix during the quarter.

Speaker 4: We also realized a 1.8 percentage point benefit from continued progress on our supply chain productivity initiative.

We also realized a one eight percentage point benefit from continued progress on our supply chain productivity initiatives, along with the ramp of some supply chain disruptions in the prior year.

Speaker 4: along with the rap of some supply chain disruptions in the prior year.

Speaker 4: These price and productivity benefits were slightly offset by cost of goods sold inflation, a margin headwind of 3.1%.

These price and productivity benefits were slightly offset by cost of goods sold inflation a margin headwind of 313, 1%.

Speaker 4: Those factors, combined with small year-over-year favorability in ANP and SG&A, drove the 297 basis point improvement in operating margin for the quarter.

Those factors combined with small year over year favorability in A&P and SG&A drove the 297 basis point improvement in operating margin for the quarter.

Slide 22 details our margin performance by segment for Q1.

Speaker 4: Fly 22 details our margin performance by segment for Q1.

Speaker 4: Overall, continued progress on our productivity initiatives and positive price mix contributed to an increase in adjusted operating profit and adjusted operating margin across all four operating segments.

Overall continued progress on our productivity initiatives and positive price mix contributed to an increase in adjusted operating profit and adjusted operating margin across all four operating segments.

Speaker 4: It is worth noting that our refrigerated and frozen segment continued its very strong operating profit and margin recovery in the quarter, with adjusted operating margin improving 294 basis points versus a year ago.

It is worth noting that our refrigerated and frozen segment continued its very strong operating profit and margin recovery in the quarter with adjusted operating margin, improving 294 basis points versus a year ago.

Operator: All participants will be in the Sunil Modi mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You might press star than one on your telephone keypad to a jot your question. Please press star them to. Please note today's event is being recorded.

Yeah.

Speaker 4: Our Q1 adjusted EPS increased to $0.66, representing a 15.8% increase over the prior year.

Our Q1, adjusted EPS increased to 66.

Representing a 15, 8% increase over the prior year.

Speaker 4: Higher adjusted gross profit and slightly lower AMP and adjusted SQ&A were the positive contributors to our adjusted EPS performance in the quarter.

Higher adjusted gross profit and slightly lower A&P and adjusted SG&A were the positive contributors to our adjusted EPS performance in the quarter.

Melissa Napier: I would now like to turn a conference over to Melissa Napier, senior vice president investor relations. Please go ahead. Good morning, and thanks for joining us for the Conagra Brands first quarter fiscal 2024 earnings call. Sean Connolly, our CEO and Dave Marberger, our CFO will first discuss our business performance and then we'll open up the call for Q&A. On today's call we will be making some forward looking statements. And while we are making these statements in good faith, we do not have any guarantee about the results we will achieve descriptions of our risk factors are included in the documents we filed with the FCC. We will also be discussing some non gap financial measures. These non gap and adjusted numbers refer to measures that exclude items management believe impact the comparability for the period reference.

Speaker 4: These positives were partially offset by lower pension and post-retirement non-service income, decreased equity method investment earnings, and higher interest expense.

These positives were partially offset by lower pension and post retirement non service income decreased equity method investment earnings and higher interest expense.

Slide 24 includes our key balance sheet and cash flow metrics at.

Speaker 4: Slide 24 includes our key balance sheet and cash flow metrics.

Speaker 4: At the end of the quarter, our net leverage ratio was 3.55 times, down from the end of fiscal 23.

At the end of the quarter, our net leverage ratio was 355 times down from the end of fiscal 'twenty three.

Speaker 4: we will continue to prioritize reducing our debt and lowering our net leverage ratio in fiscal 24.

We will continue to prioritize reducing our debt and lowering our net leverage ratio in fiscal 'twenty four.

Net cash flow from operations increased $180 million in the quarter.

Speaker 4: Net cash flow from operations increased $180 million in the quarter, primarily driven by reduced investment in inventory versus the prior year.

Merrily driven by reduced investment in inventory versus the prior year.

While capex investment increased by approximately $20 million.

Speaker 4: While CapEx investment increased by approximately $20 million,

Melissa Napier: Please see the earnings released for additional information on our comparability items. The gap to non gap reconciliation can be found in the earnings press release and the slides that will be reviewing on today's call, both of which can be found in the investor relations section of our website.

Speaker 4: Q1 free cash flow more than doubled from a year ago, coming in at 300 million.

Q1 free cash flow more than doubled from a year ago coming in at $300 million.

This strong free cash flow enabled us to pay down approximately 130 million of net short term debt, while also funding $157 million for the Q1 dividend.

Speaker 4: This strong free cash flow enabled us to pay down approximately $130 million of net short-term debt while also funding $157 million for the Q1 dividend, highlighting our focus on balanced capital allocation.

Sean Connolly: I'll now turn the call over to Sean. Thanks Melissa. Good morning everyone and thank you for joining our first quarter fiscal 24 earnings call.

Highlighting our focus on balanced capital allocation.

Speaker 4: We did not repurchase any shares in the quarter as we continue to prioritize paying down debt.

We did not repurchase any shares in the quarter as we continued to prioritize paying down debt.

Sean Connolly: Let's start with what we want you to take away from our presentation shown here on slide five. At an industry wide level macro dynamics have clearly impacted consumer behavior across the board. I will cover this in more detail shortly, but ultimately this behavior shift has elongated the volume recovery period across the industry, which is reflected in our Q1 top line results. As we've navigated these macro dynamics, I'm proud of the team for delivery another quarter of strong margin improvement and EPS growth.

Speaker 4: As mentioned, we are reaffirming our guidance for fiscal 24 given the strong Q1 profit and margin performance and the confidence in our investment plans year to go as we continue to navigate a shifting consumer environment.

As mentioned, we are reaffirming our guidance for fiscal 'twenty four given the strong Q1 profit and margin performance and the confidence in our investment plans year to go as we continue to navigate a shifting consumer environment.

Slide 25 outlines our current fiscal 'twenty four expectations for our three key metrics, including organic net sales growth of approximately 1% over fiscal 'twenty three.

Speaker 4: Slide 25 outlines our current fiscal 24 expectations. For our 3 key metrics, including organic net sales growth of approximately 1% over fiscal 23.

Speaker 4: adjusted operating margin between 16 to 16.5 percent.

Adjusted operating margin between 16 to 16, 5%.

Sean Connolly: We also continue to strengthen our balance sheet improving our leverage ratio during the quarter while investing in our business and returning cash to shareholders. Our team's execution supported a strong supply chain recovery during the quarter, hitting pre pandemic service levels as we exited Q1. Looking toward the remainder of the year, we will work to drive volumes and top line growth from targeted and disciplined investments behind proven merchandising and continued support for our strong innovation.

And adjusted EPS between $2 70, and $2 75.

Speaker 4: and adjusted EPS between $2.70 and $2.75.

Let's take a closer look at how we expect to achieve that guidance during Q2 and the back half of fiscal 'twenty four shown on slide 26.

Speaker 4: Let's take a closer look at how we expect to achieve that guidance during Q2 and the back half of fiscal 24 shown on slide 26.

During Q2, we expect to continue seeing low single digit organic net sales declined but volume declines should improve versus Q1, as we wrap inflation driven pricing actions from fiscal fiscal 'twenty three.

Speaker 4: During Q2, we expect to continue seeing low single-digit organic net sales decline, but volume decline should improve versus Q1 as we wrap inflation-driven pricing actions from fiscal 23.

Sean Connolly: Finally, we are reaffirming our guidance for fiscal 24 reflecting confidence in our plans, people and agility as we navigate a shifting consumer environment. As I mentioned a moment ago, the timetable for volume recovery has been elongated across the industry due to near term consumer behavior changes. After three years of unprecedented inflation, along with other macro dynamics, consumers have felt increased financial pressure and used a variety of strategies to stretch their balance sheets.

As Sean mentioned, we will redeploy some of our strong gross profit into strategic investments behind quality high ROI merchandising and increased A&P to support our brands.

Speaker 4: As Sean mentioned, we will redeploy some of our strong gross profit into strategic investments behind quality, high ROI merchandising, and increased A&P to support our brand.

Speaker 4: We also expect operating margins to be down from Q1 with adjusted EPS approximately flat to Q1.

We also expect operating margins to be down from Q1 with adjusted EPS approximately flat to Q1.

Speaker 4: In the back half of the year, we expect volume trends to return to year-over-year growth, which will help drive low single-digit organic net sales growth.

In the back half of the year, we expect volume trends to return to year over year growth, which will help drive low single digit organic net sales growth.

Speaker 4: We expect our trade and AMP investments to be higher than the first half, with margins flat to Q2.

We expect our trade and A&P investments to be higher than the first half.

Sean Connolly: This resulted in a near-term reprioritization of their typical purchase behaviors in order to make their budgets work. We'd seen shifts like this before and expect these near-term changes in behavior to also be temporary. In fact, recent trends suggest this is already underway. Let me provide a bit more color on the kinds of behavioral shifts we've observed. As you've seen for some time now, with the notable exception of summer travel, discretionary purchases have been down almost across the board.

With margins flat to Q2.

Speaker 4: and second half fiscal 24 adjusted EPS approximately flat to the same period in fiscal 23.

And second half fiscal 'twenty four adjusted EPS approximately flat to the same period in fiscal 'twenty three.

That concludes our prepared remarks for today's call.

Speaker 4: That concludes our prepared remarks for today's call. Thank you for listening. I'll now pass it back to the operator to open the line for questions.

Thank you for listening I'll now pass it back to the operator to open the line for questions.

Speaker 1: Thank you. We will now begin the question and answer session. If you'd like to ask a question, please press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. We'll pause momentarily to assemble our roster.

Thank you we will now begin the question and answer session.

To ask a question. Please press Star then one on your telephone keypad.

Sean Connolly: Consumers have also been actively reducing remnant household inventory from the pandemic. Within food, convenience oriented items, typically a top consumer price priority, have lagged as shoppers have turned to more hands-on food prep to get additional bang for their buck. And as they've done this, not surprisingly, they have shifted from meals for one to meals for many, even if not everyone is cloned at the same time to eat together. In the last shift, I will mention, is a reduction in wasted food and an increase in the use of leftovers. Collectively, these short-term behavior shifts act as a sort of cheat code to help these consumers spend within their means.

Your question. Please press Star then two.

Pause momentarily to assemble our roster.

Speaker 1: And today's first question comes from Andrew Lazar with Barclays. Please go ahead.

And today's first question comes from Andrew Lazar with Barclays. Please go ahead.

Speaker 5: Great, thanks so much. Sean, I realize, as you talked about a lot of near term sort of macro dynamics impacting sort of the industry volume recovery right now. And, you know, it's logical that amping up the marketing investment in the second half.

Great. Thanks, so much.

Sean I realized as you talked about a lot of near term sort of macro dynamics impacting sort of the industry volume recovery right now and it's logical that that happening up the marketing investment in the second half now that service levels have returned to normal should logically start to improve volume trends sequentially.

Speaker 5: now that service levels have returned to normal should logically start to improve volume trends sequentially. I assume you forecast as best you can, but I guess my question is, do you think you've given yourself enough latitude to do what's needed while also being able to reiterate the full year guidance on both the top line, which assumes a healthy positive inflection in the second half, and on EPS, given the year is now more backend weighted there as well?

You know I assume your forecast as best you can but I guess my question is do you think you've given yourself enough latitude to sort of do what's needed.

So being able to reiterate our full year guidance on both the top line, which assumes a healthy positive inflection in the second half and on EPS given the year is now more backend weighted there as well.

Sean Connolly: Slide 8 demonstrates the elongated volume recovery across the industry. As you can see, through the four-week period ending August 26, the entire peer group was showing volume performance within a very tight band with Conagra in the middle of the pack. As I mentioned a minute ago, more recent trends are showing the first signs of improved performance.

Speaker 3: Good morning, Andrew. Yes, I believe the answer is yes, we have. Like others, we're essentially now putting our emphasis on the back half where we expect to have the most impact.

Good morning, Andrew Yes, I believe the answer is yes, we have like others. We're essentially now putting our emphasis on the back half where we expect to have the most impact if you copter up and look at the back half between more favorable comps increased investment a very strong innovation slate.

Speaker 3: If you copter up and look at the back half between more favorable comps

Speaker 3: increased investment, a very strong innovation slate, and a move back toward a more typical consumer behavior, we do expect meaningful top-line progress in H2. And with productivity strong and excellent margin progress over the past several quarters and a good start to the year at EPS, we feel good about the profit call for the year even with that added investment.

Sean Connolly: With that backdrop, let's dive into our results shown on slide 9. As you can see, in the quarter, we delivered organic net sales of approximately 2.9 billion, which is down slightly compared to last year as a result of the slower volume recovery we've discussed. Adjusted gross margin of 27.6% was up 272 basis points from last year. Adjusted operating margin of 16.7% was up 297 basis points compared to last year, an adjusted earnings per share of 66 cents increased almost 16% versus last year.

And a move back toward a more typical <unk>.

Consumer behavior, we do expect meaningful top line progress.

In H, two and with productivity strong and excellent margin progress over the past several quarters and a good start to the year at EPS, we feel good about the profit call for the year, even with that added investment.

Speaker 3: I probably also will give a nod to our food service and international teams for the excellent job they're doing working their plans.

Probably also will give a nod to our foodservice and international teams for the excellent job, they're doing working their plants.

Great and then.

Speaker 5: I guess on the targeted and sort of disciplined spend, I assume much of this goes to the frozen arena. I guess what form will this take more specifically and I guess how do you ensure it'll be disciplined and I guess what are you seeing competitively?

I guess on the targeted and sort of disciplined spend I assume much of this goes to the frozen arena I guess, what form will this take look more specifically and I guess, how do you ensure it'll be disciplined and and I guess what are you seeing competitively.

Sean Connolly: Diving further into our top line performance by retail domain, you can see on slide 10 that sales in our staples domain were flat compared to the prior year. As consumers shift toward more stretchable meals, our staples categories such as Cantilly and Cantamato are well positioned and have gained unit share compared to last year. Despite the macro headwind, headwinds are snacks domain has continued to grow as shown on slide 11, rebuilding unit share as consumers continue to respond positively to our microwave popcorn and ready to eat pudding and gel brands.

Speaker 3: Great question. As you point out with our supply chain now clicking on all cylinders, we're once again in a position where we can selectively add promotional activity to drive sales.

Great question as you point out with our supply chain now clicking on all cylinders were once again in a position where we can selectively add promotional activity to drive sales as I've said before selectively means highly incremental high ROI events at critical calendar windows like the holidays as an.

Speaker 3: As I've said before, selectively means highly incremental high events at critical calendar windows. Like the holidays as an example, so frozen is certainly in the mix, but so are other categories.

Sample.

So frozen is certainly in the mix, but so our other categories.

Speaker 3: Just to give you some perspective, and I'll give you more on this in just a minute so you have the detail, in Q1, only 21% of our sales were on promotion, which was below the peer group.

To give you some perspective and I'll give you more on this in just a minute. So you have the detail in Q1, only 21% of our sales were on promotion, which was below the peer group and also below the pre pandemic baseline. So if you look at Q1. The last couple of years not this year, but the last couple of years.

Sean Connolly: Looking at slide 12, you can see there are frozen domain has been the most significantly impacted by recent shift in consumer behavior, particularly in areas like single serve meals given the headwinds we discussed a moment ago. As we look at the frozen domain, it's worth noting a few key points. First, despite the recent impact on volume, we continue to gain unit share in important frozen categories like single served meals. This dynamic demonstrates the relative strength and strong position of our brands.

Speaker 3: and also below the pre-pandemic baseline. So if you look at Q1, the last couple of years, not this year, but the last couple of years.

Speaker 3: ConAgra was around 18% of our volume was on promo.

Conagra was around 18% of our volume was.

On promo.

Speaker 3: And the pre-pandemic baseline, the number was 24.

And the pre pandemic baseline number was 24.

Speaker 3: So this year in Q1, we were at 21. So we're still below the baseline, and we've got some room to pick our spots and invest smartly to engage further with consumers. But let me be clear.

Percent. So this year in Q1, we were at 20 once we're still below the baseline and we've got some room to pick our spots and invest smartly to engage further with consumers, but let me be clear we are not talking about deep discount low ROI promotional activity like you might remember from Conagra at 10 15 years ago that is.

Sean Connolly: Second, the year over year performance figures do not properly represent the broader trend within frozen food. In fact, if you look over a four year period, Conagra's frozen retail sales have increased 22%. Frozen meals has been one of the fastest growing categories in in-home consumption over the past 40 years. Its 4% Kagger is in the top tier of foods growing in at-home consumption. This expansion has been fueled by the long term, sustained consumer demand for convenience as well as the additional addition of innovation and quality ingredients. This 40-year trend demonstrates the critical role that frozen plays in providing convenient high quality foods for every occasion, which consumers have come to increasingly rely on.

Speaker 3: We are not talking about deep discount, low promotional activity like you might remember from 10, 15 years ago. That is not part of our playbook.

Not part of our playbook.

Great. Thanks, so much.

Yes.

Speaker 1: Thank you. And our next question today comes from Ken Goldman at JP Morgan. Please go ahead.

Thank you and our next question today comes from Ken Goldman of Jpmorgan. Please go ahead.

Speaker 6: Hi, thank you. Sean, to Andrew's question right there, one of the drivers you mentioned for the second half was, I think, maybe a little bit of a directional return to more typical consumer behavior. I just wanted to know if we could hear a little bit more about which elements of this behavior, maybe you expect to improve what will drive it? Or in the comment more just that we have more, we have less pricing, we have more trade, we have more A&P, more new products. So that altogether will help our business. I just wanted to get a little bit more color there if I could.

Hi, Thank you.

Sean to Andrew's question right. There one of the drivers you mentioned for the second half was I think maybe a little bit of a directional returned to more typical consumer behavior.

Wanted to know if we could hear a little bit more about which elements of this behavior. Maybe you expect to improve what will drive it or is the comment more just look we have more we have less pricing. We are more trey we have more A&P more new products. So that altogether will help our business I just wanted to get a little bit more color there if I could.

Yeah, Ken it's a mix of all the above the comps are clearly much more favorable we're clearly going to have some stronger merchant investment in the back half and we've got A&P focused on.

Speaker 3: Yet can it's a it's a mix of all the above the comps are clearly much more favorable. We're clearly going to have

Sean Connolly: This is central to why we believe the current softness is temporary. Turning to slide 14, I'm pleased to share that we continue to advance our supply chain initiatives during the quarter, allowing us to return our service performance back to pre-pandemic levels. Our productivity initiatives remain on track, and we plan to maintain and capitalize on this strong recovery during the rest of fiscal 24.

Speaker 3: some stronger merchant investment in the back half. And we've got A&P focused on our largest brands with good margins. So those are all well positioned to have an impact. But I think the key here is this consumer behavior shift. And I do think

Our largest brands with good margins. So those are all well positioned to to to have an impact.

<unk>, but I think the key here is this consumer behavior shift and I do think when you see all the competitors in such a tight bandwidth, which is frankly, a tighter bandwidth at all.

Speaker 3: You know, when you see all the competitors in such a tight bandwidth, which is frankly a tighter bandwidth that I'm even accustomed to seeing, you know it's a macro dynamic. And the way to think about what we saw in the first quarter with respect to the

Sean Connolly: That's a key piece of our action plan for the remainder of the year as outlined on slide 15. In addition to our ongoing supply chain execution, we will continue to focus on executing our Conagraway Playbook as we make targeted and disciplined investments behind our brand. Outprotect share and drive the top line will focus on investing behind quality, high ROI merchandising, and A&P to support our brand. We'll also continue to prioritize reducing our debt and improving our net leverage ratio.

<unk> been accustomed to seeing.

No, it's a macro dynamic and the way to think about what we saw in the first quarter with respect.

So the.

Speaker 3: behavior over the summer was, it was this paradoxical combination of selective splurging and broad-based belt tightening. So as an example, consumers may have simply said, I'm taking that summer trip and it's not up for debate, and then at the same time said, I'm going to change some things up to create an off-site.

Behavior over the summer was it was this paradoxical combination of selective splurging and broad based belt tightening. So as an example consumers may have simply said I'm, taking that summer trip and it is not up for debate and then at the same time said I'm going to change some things up to create an offset and so in our line of work, it's what we call.

Speaker 3: And so in our line of work, it's what we call compensating behavior.

Sean Connolly: We are reaffirming our fiscal 24 guidance that we shared last quarter, including organic net sales growth of approximately 1% compared to fiscal 23. Adjusted operating margin of 16 to 16.5%, and adjusted EPS between $2.70 to $2.75.

Paul compensating behavior, but one of the other things we know about consumer habits and practices is that they are very hard to change long term. So these shifts tend to be temporary tactics that people use to get through a period of time when they've committed more of their cash to something else and I think the summer travel example.

Speaker 3: But one of the other things we know about consumer habits and practices is that they are very hard to change long term. So these shifts tend to be temporary tactics that people use.

Speaker 3: to get through a period of time when they've committed more of their cash to something else. And I think the summer travel example is illustrative of what I'm talking about there. And so, you know, this is a bit of a different animal.

Sean Connolly: Overall, we remain confident in our plans, people, and agility as we continue to navigate this shifting consumer environment.

Is illustrative of what I'm talking about there and so this is a bit of a different animal than what.

Speaker 3: than what we would call normal elasticity effects because normal elasticity effects are really

What we would call normal elasticity effects, because normal elasticity effects really.

Dave Marberger: With that, I'll pass the call over to Dave to cover the financials in more detail.

Speaker 3: brand level elasticity effects that are consumer judgments about the value of a particular brand versus another close-in alternative following a pricing.

Brand level elasticity effects that are consumer judgments about the value of a particular brand versus another close in alternative following a price increase these macro behavior shifts are a bit of a different animal here the consumer's not passing judgment on the value of a specific brand following a price increase rather they're temporary.

Dave Marberger: Thanks, Sean, and good morning, everyone. Slide 18 highlights our results from the quarter. Overall, we are pleased with our profit and cash flow delivery and remain confident in our ability to achieve our full-year guidance targets. In Q1, net sales were $2.9 billion, reflecting a 0.3% decrease in organic net sales driven primarily from the elongated recovery of volumes due to the industry-wide flowdown and consumption that Sean discussed earlier. Gross margin recovery was a key priority for us in fiscal 23, and we delivered another strong result in Q1.

Speaker 3: These macro behavior shifts are a bit of a different animal. Here, the consumer's not passing judgment on the value of a specific brand following a price increase. Rather, they're temporarily re-ranking how they prioritize entire categories in order to live within their means for a period of time. So why does it matter to understand the difference between this versus normal elasticity? Well, in our experience, it's because behavioral shifts at a category level tend to be shorter in duration.

Early re ranking how they prioritize entire categories in order to live within their means for a period of time. So why does it matter to understand the difference between this versus normal elasticity well in our experience, it's because behavioral shifts at a category level tend to be shorter in duration and.

Speaker 3: And you know, it's a simple way to think about it is consumers are creatures of habit. So it's very difficult for them

It's.

Dave Marberger: Atjusted Gross Profit increased by 10.9% in the quarter, primarily from the pricing implemented in the prior year and strong productivity, which more than all set, the negative impacts of cost of goods sold inflation and unfavorable operating leverage. Atjusted Gross margin increased 272 basis points, and atjusted EBITDA increased 12.1%, largely driven by the increase in adjusted gross profit. Wide 19 provides a breakdown of our net sales. The 0.3% decrease in organic net sales was driven by a 6.6% decrease in volume, which was partially offset by a 6.3% improvement in price mix, a result of fiscal 23s inflation-driven pricing actions.

A simple way to think about it as consumers are creatures of habit. So it's very difficult for them to de prioritize things like convenience convenience benefits. So this is one of the key reasons, we expect the shifts to be temporary they had been in the past and that's what we expect again and it's also why we're.

Speaker 3: deprioritize things like convenience benefits. So this is one of the key reasons we expect these shifts to be temporary. They have been in the past.

Speaker 3: what we expect again. And it's also why we're really loading up our resources in the back half, where we think the market conditions will be much more favorable to the to get driving the kind of impact we're seeking.

We're really loading up our resources in the back half, where we think market conditions will be much more favorable.

Two driving the kind of impact we're seeking.

Thanks, Sean I'll pass it on.

Thank you and our next question today comes from Pamela Kaufman with Morgan Stanley . Please go ahead.

Speaker 1: Thank you. And our next question today comes from Pamela Kaufman with Morgan Stanley . Please go ahead.

Hi, good morning.

Speaker 2: Hi, good morning. You talked about your plans to step up A&P and trade spend over the rest of the year. Just wanted to get a sense for if this was kind of consistent, the amount was consistent with your initial expectations heading into the year, or if you're now planning for greater reinvestment compared to your initial plans given volume trends.

You talked about your plan to step up A&P in trade spend over the rest of the year just wanted to get a sense for if this.

Dave Marberger: A small benefit from the impact of foreign exchange contributed to reported net sales coming in flat for the quarter. Wide 20 shows the top line performance for each segment in Q1. Our grocery and snack segment achieved net sales growth of 1.2% in the quarter. We gained dollar share and snacking categories, including seeds and microwave popcorn, as well as in staples categories, including chili and canned meat. As Sean discussed earlier, our refrigerated and frozen segment was the most impacted by recent consumer behavior shifts, with net sales down 4.6% in the quarter.

This was kind of consistent the amount was consistent with your initial expectations heading into the here or if you are now planning for greater reinvestment compare to your initial plans given volume trends.

Speaker 3: It's higher, Pam. You know, it's obviously the consumer dynamic in the first quarter was tougher than we planned for. We do think the conditions, the macro conditions will be more favorable in the back half. And we're in a fortunate position where we got off to a strong start in the year on profitability. So we've got some room to invest back. So we're talking about a higher investment posture on.

It's higher Pam.

It's obviously the consumer dynamic in the first quarter was tougher than we planned for we do think the conditions the macro conditions will be more favorable in the back half.

And we're in a fortunate position, where we got off to a strong start in the year on profitability. So we've got some some room to invest back so we're talking about a higher investment posture.

Dave Marberger: Our international and food service segments combined are slightly below 20% of our net sales. Both are important to Conagra and contributed meaningfully to growth this quarter. Our international segment delivered year-over-year volume growth in addition to improved price mix, which helped support strong organic net sales growth of 8.2% during the quarter. Our two largest international regions, Mexico and Canada, delivered double-digit organic net sales growth over prior year. We also saw low single-digit volume growth in Mexico, which contributed to the segments overall positive volumes.

On merch in particular in the back half of the year is now that we've got the supply chain working.

Speaker 3: on merch in particular in the back half of the year as now that we've got the supply chain.

Okay. Thanks, that's helpful. And then I guess do you feel like there are areas in the portfolio, where you've taken too much pricing and do you envision a scenario where pricing will turn negative.

Speaker 2: Okay, thanks. That's helpful. And then I guess, do you feel like there are areas in the portfolio where you've taken too much pricing and you envision a scenario where pricing growth turns

Speaker 3: Yeah, I don't really see that Pam. The volume impact we are seeing and frankly, the peers in the space are really not a function. Of individual brand level prices and a consumer judgment. That it's got, it's much more of this macro thing where they're reprioritizing entire categories and consumer domains in order to. Stretch their budget short.

Yes, I don't really see that Pam the volume impact we are seeing and frankly the peers. In this space are really not a function of individual brand level prices and a consumer judgment that it's got it's much more of this macro thing where they are re prioritizing entire category consumer domains in order to.

Dave Marberger: For the remainder of the year, we expect volume growth to continue and international. Our food service segment delivered 5.2% net sales growth in Q1 from strong price mix, and we expect to see positive net sales growth in food service for the fiscal year. Food service also delivered a strong growth margin in Q1 versus a year ago due to the reduction of supply chain disruption costs incurred in the prior year. This benefit is not expected to extend beyond Q1.

Stretch their budget short term.

Speaker 3: There was very little interaction in our portfolio with private label. There are some categories in our portfolio, albeit very few.

There.

There was very little interaction in our portfolio with private label. There are some categories in our portfolio, albeit very few that are more pass through in nature and are more prone to a rollback in price.

Speaker 3: that are more passed through in nature and are more prone to a rollback in price if the key ingredient costs deflates. So products like Ready Whip where you've got basically dairy in there, products like our sausage business or our hot dog business where it's pretty much a particular meat block.

If the key ingredient cost deflate, so products like ready with where you've got basically dairy and there are products like our sausage business or hotdog business, where it's pretty much a particular meat block. That's in there those products kinds of products tend to move with the commodity but for most of our.

Dave Marberger: Our food service segment supplies a diverse set of clients beyond restaurants, including healthcare, travel and leisure, and educational institutions, and we are well positioned to compete in these markets. So, I-21 highlights our adjusted operating margin bridge. We are pleased to have delivered a fourth consecutive quarter of strong growth margin improvement of 272 basis points in Q1. We drove a 4% point improvement from price mix during the quarter. We also realized a 1.8% point benefit from continued progress on our supply chain productivity Adidas, along with the wrath of some supply chain disruptions in the prior year.

Speaker 3: that's in there, those kinds of products tend to move.

Speaker 3: with the commodity, but for most of our portfolio, A, we haven't seen that kind of singular judgment around the value of the product.

Portfolio, a we haven't seen that kind of singular judgment around the value of the product.

Being too expensive and we just haven't seen any any cost basis for rolling back price in terms of deflation, we're still net net in an inflationary position.

Speaker 3: too expensive and we just haven't seen any cost basis for rolling back price in terms of deflation. We're still net net in an inflationary position.

Thank you that's helpful.

And our next question comes from David Palmer of Evercore. Please. Please go ahead.

Speaker 1: And our next question today comes from David Palmer at Evercore. Please, please go ahead.

Speaker 7: Thank you. It looks like you're assuming 2 to 3 percent organic sales growth in the second half, as implied by the guidance. I guess what gives you the most confidence that you can get there? What are the key improvement areas that we would see? I would imagine frozen entrees would be one, but perhaps you can give a sense of where we should be expecting the most energy and improvement going into the second half. Sure, Dave.

Thank you.

It looks like you're assuming 2% to 3% organic sales growth in the second half as implied by the guidance.

Dave Marberger: These price and productivity benefits were slightly offset by cost of goods sold inflation, a margin headwind of 3.13.1%. Those factors, combined with small year-over-year favorability and AMP and SGNA, drove the 297 basis point improvement in operating margin for the quarter. Y-22 details are margin performance by segment for Q-1. Overall continued progress on our productivity initiatives and positive price mix contributed to an increase in adjusted operating profit and adjusted operating margin across all four operating segments.

I guess what gives you the most confidence that you can get there what are the key improvement areas that we would see I would imagine frozen entrees would be one, but perhaps you can give a sense of where we should be expecting the most energy an improvement going into the second half.

Sure Dave.

Let me hit that.

Speaker 3: You know, we're going to focus as we always do on our frozen and snacks businesses because those are the centerpiece of our strategy. But we also do have

We're going to focus as we always do on our.

Our frozen and snacks businesses, because those are the centerpiece of our strategy, but we also do have businesses within our portfolio now that are typically reliable contributors that are working really well in terms of meal creation simple meals and things like that in our staples business, which tends to be good mix, but I think between an improving consumer environment.

Speaker 3: businesses within our portfolio now that are typically reliable contributors that are working really well in terms of meal creation, simple meals and things like that in our staples business which tends to be good mix. But I think between you know an improving consumer environment and the

Dave Marberger: It is worth noting that our refrigerated and frozen segment continued its very strong operating profit and margin recovery in the quarter, with adjusted operating margin improving 294 basis points versus a year ago. Our Q-1 adjusted EPS increased to 66 cents, representing a 15.8% increase over the prior year. Higher adjusted gross profit and slightly lower AMP and adjusted SGNA, were the positive contributors to our adjusted EPS performance in the quarter. These positives were partially offset by lower pension and post-retirement non-service income, decreased equity method investment earnings, and higher interest expense.

Speaker 3: More aggressive, but smart and selective.

More aggressive.

But smart and selective merchandising environment are really good innovation slate and then A&P on some of our biggest businesses not to mention we've got very favorable comps on some of our big businesses.

Speaker 3: merchandising environment, a really good innovation slate.

Speaker 3: and then A&P on some of our biggest businesses, not to mention we've got very favorable comps on some of our big.

Speaker 3: In in the in the year in the back half of the year, you know I think all of that gives us a line of sight to delivering the kind of

In the in the <unk>.

Here in the back half of the year I think all of that gives US a line of sight to delivering the kind of.

Speaker 4: numbers that you just quoted. Dave, you want to add anything to that? Yeah, just a little more color on the disruptions in the prior year, which were mostly second half last year, Dave. We had a fire at our Jackson plant, which significantly impacted our frozen fish business. Obviously, Lent is the big time for that, so it would be a much better position this year on that. You know, we had canning issues in our beans and chili business second half last year, and then as you...

Numbers that you just quoted Dave you want to add anything to that yeah, just a little more color on.

The disruptions in the prior year, which were mostly second half last year, Dave We had a fire at our Jackson plant, which significantly impacted our frozen fish business. Obviously learnt is the big time for that so we'll be a much better position. This year on that we had kidney issues in our beans in Chile business second half last year and then.

Dave Marberger: Y-24 includes our key balance sheet and cash flow metrics. At the end of the quarter, our net leverage ratio was 3.55 times down from the end of fiscal 23. We will continue to prioritize reducing our debt and lowering our net leverage ratio in fiscal 24. Net cash flow from operations increased $180 million in the quarter, primarily driven by reduced investment in inventory versus the prior year. While CapEx investment increased by approximately 20 million, Q-1 free cash flow more than doubled from a year coming in at 300 million.

As you are.

Speaker 3: Remember, we had the can meet recall, which impacted Q3 and Q4. So. That, you know, more specifically, we should see strong improvement on those categories. Hey, 1 other point I'll make to David, because you brought up our frozen business.

Remember, we had the can meet recall, which impacted Q3 and Q4 so.

More specifically we should see.

Strong improvement on the on those categories. One other point I'll make to David because you brought up our frozen business.

Speaker 3: It's not an inconsequential point that 1 slide in our prepared remarks today that showed the 40 year trend on frozen. It is literally.

It is not an inconsequential point on that one slide in our prepared remarks today that showed the 40 year trend on frozen it is literally.

Speaker 3: not counting commodity category like like frozen fruit it is in the top two I think of packaged goods in terms of long-term growth in the category and it's been particularly strong in the last six or seven years as we've driven innovation so we remain incredibly bullish on our frozen business and by the way our unit share in frozen has grown consistently over the last

Not counting commodity categories like frozen fruit. It is in the top two I think of a packaged goods in terms of long term growth in the category and it's been particularly strong in the last six or seven years is we've driven innovation. So we remain incredibly bullish on our frozen business and by the way our unit share.

Dave Marberger: This strong free cash flow enabled us to pay down approximately 130 million of net short-term debt while also funding 157 million for the Q-1 dividend, highlighting our focus on balanced capital allocation. We did not repurchase any shares in the quarter as we continued to prioritize paying down debt.

<unk> and frozen has grown consistently over the last.

Speaker 3: 7 or so years and that included Q1. I saw it David you printed you printed this morning and thought we were losing share. In our frozen meals business that is actually not the case even with.

Seven or so years and that included Q1 I saw David you printed you printed this morning. He thought we were losing share in our frozen meals business that is actually not the case, even with the consumer environment. The way. It is right now consumers, making some of these trade offs. We grew our unit share in our frozen meals business once again.

Dave Marberger: As mentioned, we are reaffirming our guidance for fiscal 24, given the strong Q-1 profit and margin performance, and the confidence in our investment plans year to go as we continue to navigate a shifting consumer environment. Why 25 outlines our current fiscal 24 expectations for our three key metrics, including organic net sales growth of approximately 1% over fiscal 23, adjusted operating margin between 16 to 16.5%, and adjusted EPS between $2.70 and $2.75.

Speaker 3: the consumer environment the way it is right now, consumers making some of these tradeoffs, we grew our unit share in our frozen meals business once again. And that is with some additional promotional activity from a larger competitor in the space during Q1. But frankly, that had no impact on us on a national basis. It impacted a different competitor in the space that happens to be a value-oriented play but had no impact on ConAgra where we again gained unit share in our frozen meals.

And that is with some.

Additional promotional activity from a larger competitor in this space during Q1, but frankly that had no impact on us on a national basis. It impacted a different competitor in this space that happens to be a value oriented play, but had no impact on conagra, where we again gained unit share and our frozen meals business.

Okay. Thanks for that.

Speaker 7: Thanks for that. We're certainly seeing that promotional activity. I'll pass it on. Thanks.

We're certainly seeing that promotional activity.

Pass it on thanks.

Thanks, Dave.

Dave Marberger: Let's take a closer look at how we expect to achieve that guidance during Q2 and the back half of fiscal 24 shown on slide 26. During Q2 we expect to continue seeing low single digit organic net sales declined but volume declined should improve versus Q1 as we wrap inflation driven pricing actions from fiscal fiscal 23. As Sean mentioned, we will redeploy some of our strong growth profit into strategic investments behind quality high ROI merchandising and increased AMP to support our brands.

Thank you and our next question today comes from.

Speaker 1: Thank you. Our next question today comes from Max Gumport with BNP Perrybaugh. Please go ahead.

Max Gulfport with BNP Paribas. Please go ahead.

Speaker 4: Hey, thanks for the question. Wanted to come back to the commentary around the improved outlook for the second half of the low single digit organic sales growth. I hear what you're saying. But a lot of the factors that you've called out feels like they would have been knowable a couple months ago in terms of the easier comps and the innovation and the advertising and lacking the supply chain disruption. Some mysteries. What's changed over the last couple months? Given you this.

Hey, Thanks for the question wanted to come back to the commentary around.

Improved outlook for the second half low single digit organic sales growth.

I hear what Youre, saying.

A lot of the factors that you've called out feels like they would've been knowable a couple of months ago in terms of that the easier comps and that innovation and advertising and lapping the supply chain disruption I'm just curious what's changed over the last couple of months, that's giving you. This inquiry.

Dave Marberger: We also expect operating margins to be down from Q1 with adjusted EPS approximately flat to Q1. In the back half of the year, we expect volume trends to return to year over year growth, which will help drive low single digit organic net sales growth. We expect our trade and AMP investments to be higher than the first half with margins flat to Q2 and second half fiscal 24 adjusted EPS approximately flat to the same period in fiscal 23.

Speaker 8: increased confidence in the second half because before it sounded like we were going.

Increased confidence in the second half because before it sounded like they were going to see organic sales to be strongest in the first quarter and then work its way down thanks.

Speaker 8: organic sales would be strongest in the first quarter and then work its way down.

Speaker 3: Yeah, sometimes, you know, when you run in businesses like this, and you're servicing consumers, you take what the field gives you. And I think what we're saying is in Q1, the consumer environment is, was more challenged, people were trying to create these offsets to cover expenditures that they were determined to make over the course of the summer. And we do believe that the consumer environment is going to be more favorable, there'll be a bit of pent up demand here for some of the things that people have traded out of as they've created these kind of short term

Sometimes when you run in businesses like this and you're servicing consumers you take with the field gives you and I think what we're saying is in Q1, the consumer environment is.

It was more challenged people were trying to create these offsets to cover expenditures that they were determined to make over the course of the summer and we do believe that the consumer environment is going to be more favorable.

Dave Marberger: That concludes our prepared remarks for today's call. Thank you for listening.

A pent up demand here or some of the things that people have traded out of his they've created these kind of short term packs.

Operator: I'll now pass it back to the operator to open the line for questions. Thank you.

Speaker 3: to make their house of balance sheet work and and you know having the supply chain in the position It's in and getting off to a strong start on profit and having the ability to invest more. We think these are high ROI investments that are going to enable us to...

To make their household balance sheet work and having the supply chain in the position, it's in and getting off to a strong start on profit and having the ability to invest more we think these are high ROI investments.

Operator: We will now begin the question and answer session. If you'd like to ask a question, please press star than one on your telephone keypad. To withdraw your question, please press star than two. We'll pause momentarily to assemble our roster.

There are going to enable us to.

Speaker 3: have the kind of consumer engagement impact that we want to have, but also be profitable the way we want to be at the same time.

Have the kind of consumer engagement impact that we want to have but also.

Andrew Lazar: And today's first question comes from Andrew Lazar with Barclays. Great. Thanks so much. Sean, I realize as you talked about a lot of near term sort of macro dynamics impacting sort of the industry volume recovery right now. And you know, it's a logical that that amping up the marketing investment in the second half. Now that service levels have returned to normal, it should logically start to improve volume trends sequentially. And I assume you forecast as best you can.

Be profitable by the way we want to be at the same time and that's that's kind of our outlook and just.

Speaker 4: kind of our outlook. Yep, and our international and food service businesses are off to a really strong start, and they're really tracking ahead.

Our international and foodservice businesses are off to a really strong start.

And they're really tracking ahead.

Speaker 8: Got it. And then one on gross margin if I can.

Got it and then and then one on gross margin if I can you.

Speaker 8: talked about how you expect to step down in gross margin from the first quarter to the second quarter and then to remain at a similar level in the second half. And so I'm getting that might imply a gross margin of around 27% for the year or roughly in line with last year. A few months ago, it sounds like you were expecting some improvement in fiscal 24 given price mix and productivity, the lapping of supply chain disruptions, all outweighing negative overhead absorption and business investment.

<unk> talked about how you expect a step down in gross margin from the first quarter to the second quarter and then to remain at a similar level in the second half and so I'm getting that might imply a gross margin of around 27% for the year are roughly in line with last year, a few months ago. It sounded like you were expecting some improvement in fiscal 'twenty four given price.

Sean Connolly: But yes, my question is, do you think you've given yourself enough latitude to sort of do what's needed. Well, also being able to reiterate the full year guidance on both the top line, which assumes a healthy positive inflection in the second half and on EPS given the years now more back and weighted there as well.

Mix and productivity the last thing a supply chain disruption all outweighing negative overhead absorption in business investment.

Sean Connolly: Good morning, Andrew. Yes, I believe the answer is yes. We have like others. We're essentially now putting our emphasis on the back half where we expect to have the most impact. If you copter up and look at the back half between more favorable cops, increased investment, a very strong innovation slate and a move back toward a more typical consumer behavior. We do expect meaningful top line progress in in age two. And with productivity, strong and excellent margin progress over the past several quarters and a good start to the year at EPS.

Speaker 8: I didn't see an updated inflation number today, but assuming it stayed at around 3% for the year, I'm just curious what's changed. I'm assuming it's maybe a bit more business investment that has moved up. I'm just curious for any color there. Thanks. I'll leave it there.

I didn't see an updated inflation number today, but assuming it stayed at around 3% for the year I'm just curious what's changed in that I'm, assuming it's maybe yeah.

A bit more business investment and that has moved up I'm just curious for any any color. There. Thanks I'll leave it there.

Yes, so yes, we're holding our inflation assumption at 3% at this point, we've had some categories. Some items, where there is more inflation than we expected, but we have some that have gone. The other way. So we're still holding to the 3% that that's an important that that remain that way for us to hit the margin guidance that we gave.

Speaker 4: So yes, we're holding our inflation assumption at 3% at this point. We've had some, you know, category of some items where there is more inflation than we expected, but we have some that have gone the other way. So we're still holding to the 3%. And that's important that that remain that way. We're up to hit the margin guidance that we gave. You know, we were impacted in Q1. We're really pleased with our productivity in the first.

Sean Connolly: Yes, we feel good about the profit call for the year, even with that added investment. I probably also will give a nod to our food service and international teams for the excellent job they're doing, working their plans. Great.

We were.

<unk> in Q1 were really pleased with our productivity in the first quarter.

Speaker 4: embedded in the productivity numbers are actual headwinds from absorption. So the second half with volumes, us being confident that our volumes will be up, will have a benefit in absorption. So the incremental investment can drive incremental volume and help with...

Embedded in the productivity numbers are actual headwinds from absorption so the second half with volumes us.

Sean Connolly: And then I guess on on the targeted and sort of discipline spend I assume much of this goes to the frozen arena.

Being confident that our volumes will be up we will have a benefit an absorption. So the incremental investments can drive incremental volume and help with absorption offsets, which benefits margin. So but I would just remind you. We gave a range for margin for a reason because of that we're not going to get precise with an absolute gross margin.

Sean Connolly: I guess what what form will this take look more specifically and I guess how do you ensure it'll be disciplined and and I guess what are you seeing competitive? Great question. As you point out with our supply chain now, clicking on all cylinders, we're once again in a position where we can selectively add promotional activity to drive sales. As I've said before, selectively means highly incremental high ROI events at critical calendar windows like the holidays as an example.

Speaker 4: absorption offsets which benefits margin. I would just remind you, we gave a range for margin for a reason because of that. We're not going to get precise with an absolute gross margin number. You're directionally correct, but that's why we gave a range on operating margin for our guide. Thank you.

Number Youre Directionally correct, but thats why we gave a range on operating margin for our guide.

Okay.

Got it thanks very much.

Sean Connolly: So frozen is certainly in the mix, but so are other categories. Just to give you some perspective and I'll give you more on this. In just a minute, so you have the detail in Q1, only 21% of our sales were on promotion, which was below the peer group and also below the pre pandemic baseline. So if you look at Q1, the last couple of years, not this year, but the last couple of years, Conagra was around 18% of our volume was on, on promo and the pre pandemic baseline, the number was 24% so this year in Q1, we're at 21.

Yes.

Speaker 5: Thank you. And our next question today comes from Robert Moscow with PD Cowen. Please come ahead. Hi, thanks for the question. Sean, I think you said in your script that in the Nielsen tracking data you had started to see signs of some sequential improvement. I didn't quite see it in the slide and I haven't seen it in our data yet. So I was wondering if you could give a little more color on that.

Thank you and our next question today comes from Robert Moskow with Cowen. Please go ahead.

Hi, Thanks for the question.

Sean I think you said in your script that in the Nielsen tracking data you had started to see signs of some sequential improvement.

I didn't quite see it in the slide.

I haven't seen it in our data yet so I was wondering if you could give a little more color on that.

Sure happy to do that Rob.

Speaker 3: Sure, happy to do that, Rob. If you look at the slide we shared today, notably it's units, it's not dollars. And that's the metric that we are looking at is units, not dollars, because to us that is going to be the marker of when we start to see this change. Frankly, if you if you look at the slide that I shared today, it's got 52 weeks, 13 weeks.

You look at the slide we shared today, notably its units, it's not dollars and Thats. The metric that we are looking at is units not dollars because to us that is going to be the marker of when we start to see this change frankly, if you look at the slide that I shared today. It's got 52 weeks 13 weeks four weeks, what the competitive set.

Sean Connolly: So we're still below the baseline and we've got some room to pick our spots and invest smartly to engage further with consumers. But let me be clear, we are not talking about deep discount low ROI promotional activity, like you might remember from Conagra 10, 15 years ago. That is not part of our playbook.

Unknown Attendee: Great, thanks so much.

Speaker 3: What the competitive set would expect to have seen is that as you move from 52 to 13 to 4, you see improvement in trend. And as you can see on that slide, it was fairly flat. So what we're looking for is bend in the trend in unit movement as a proxy for this consumer behavior shift beginning to move. So if you look at the more recent period, which is, it just came out I think this week, which is

We expect to have seen is that as you move from 52% to $13. Four you see improvement in trend and as you can see on that slide it was fairly flat. So what we're looking for.

Ken Goldman: Thank you, and our next question today is from Ken Goldman at JP Morgan, please go ahead. Hi, thank you. Sean, to Andrew's question right there, one of the drivers you mentioned for the second half was, I think maybe a little bit of a directional return to more typical consumer behavior. I just wanted to know if we could hear a little bit more about which elements of this behavior, maybe you expect to improve what will drive it, or is the comment more just look, we have more, we have less pricing, we have more trade, we have more AMP, more new products, so that altogether will help our business.

And in the trend in unit movement as a proxy for this consumer behavior shift beginning to move. So if you look at the more recent period, which is it just came out I think this week, which is the.

Speaker 3: four-week period following what we shared today, you see the first noteworthy change in unit movement for ConAgra, and there may have been one or two other competitors that saw some movement there as well. That's important because that's the kind of movement that we thought we would see across the industry back at Memorial Day or so, and it didn't materialize. We've got our first data point now that's showing it.

The four week period following what we shared today you see the first noteworthy change in unit movement for Conagra and there may have been one or two other competitors that saw some movement there as well that's important because that's the kind of movement that we thought we would see across.

Ken Goldman: I just wanted to get a little bit more color there if I could. Yeah, Ken, it's a mix of all the above, the cops are clearly much more favorable, we're clearly going to have some stronger merchant investment in the back half, and we've got AMP focused on our largest brands with good margins, so those are all well positioned to have an impact. But I think the key here is this consumer behavior shift, and I do think, you know, when you see all the competitors in such a tight bandwidth, which is frankly a tighter bandwidth that I'm even accustomed to seeing, you know, it's a macro dynamic.

<unk> the industry back at around Memorial day, or so and it didn't materialize and we got our first data point now thats showing its its going in the right direction. That's the metric we need to move if units move the way that we expect them to move everything else will take care of itself at dollars and so that's why.

Speaker 3: it's going in the right direction. That's the metric we need to move. If units move the way that we expect them to move, everything else will take care of itself at dollars. So that's why we're focusing on the

We're focused on that.

Speaker 7: Okay, and a quick follow up for Dave. You mentioned a lot of little supply chain issues that affected last year, Dave, like the frozen fish issue and then the beans and the chili. Is there any way to add it all up and help us understand what kind of easy comp this provides either on sales, profits, in the back half?

Okay, and a quick follow up for Dave.

You mentioned a lot of little supply chain issues that affected last year, Dave like.

The frozen.

Fish issue and then the beans in the Chile is there any way to add it all up and help us understand like what kind of easy comp. This provides either on sales profits in the back half.

Ken Goldman: And the way to think about what we saw in the first quarter with respect to the behavior over the summer was, it was this paradoxical combination of selective splurging and broad based belt tightening. So as an example, consumers may have simply said, I'm taking that summer trip and it's not up for debate, and then at the same time said, I'm going to change some things up to create an offset. And so in our line of work, it's what we call compensating behavior.

Yes, Rob I would just kind of go back to what we said last year, we didn't quantify everything exactly so I wouldn't want to give you a number here, but if you go back and look at what we communicated last year second half I think youll get.

Speaker 4: Rob, I would just kind of go back to what we said last year. We didn't quantify everything exactly, so I wouldn't want to give you a number here. But if you go back and look at what we communicated last year, second half, I think you'll get a pretty good feel for the magnitude, generally speaking. But we didn't give a precise number on that.

A pretty good feel for the magnitude generally speaking, but we didn't give a precise number on that.

Ah Okay alright. Thanks.

Ken Goldman: But one of the other things we know about consumer habits and practices is that they are very hard to change long term. You know, so these shifts tend to be temporary tactics that people use to get through a period of time when they've committed more of their cash to something else. And I think the summer travel example is illustrative of what I'm talking about there. And so, you know, this is a bit of a different animal than what we would call normal elasticity effects because normal elasticity effects are really brand level elasticity effects that are consumer judgments about the value of a particular brand versus another close in alternative following a price increase.

Speaker 1: Thank you, and our next question comes from Nick Moody with RBC. Please go ahead.

Thank you and our next question comes from Nik Modi with RBC. Please go ahead.

Speaker 7: Yeah, thank you. Good morning. Sean, it's clear your brands within Frozen are doing well and you see that in the share gains. I'm just curious if you have made any observations regarding the perimeter. Some of the things we're seeing through our channel work is

Yes. Thank you good morning, Sean it's clear your brands within frozen are doing well and you see that in the share gains, but I'm. Just curious if you have made any observations regarding the perimeter, whereas some of those things that we're seeing through our channel work is.

Speaker 9: You know, deflation happening in the perimeter is putting pressure on frozen the category.

Deflation happening in the perimeter is putting pressure on frozen the category. So when you think about the competitive landscape are you kind of factoring that in and do you think that could put more pressure on potential pricing and promotional spend over the next <unk>.

Speaker 9: So when you think about the competitive landscape, are you kind of factoring that in and do you think that could put more pressure on potential pricing and promotional spend over the next several quarters?

Several quarters.

Ken Goldman: These macro behavior shifts are a bit of a different animal here. The consumers not passing judgment on the value of a specific brand following a price increase rather they're temporarily re ranking how they prioritize entire categories in order to live within their means for a period of time. So why does it matter to understand the difference between this versus normal elasticity? Well, in our experience, it's because behavioral shifts at a category level tend to be shorter in duration.

Nick can you say more about the specific things in the perimeter that youre seeing that are growing that you think might be impacting frozen.

Speaker 3: Nick, can you say more about the specific things in the perimeter that you're seeing that are growing that you think might be impacting.

Speaker 9: Yeah, just fresh vegetables, fruits, you know, primarily, right, the gaps between frozen and some of the fresh areas of the store.

Yeah, just a fresh vegetables fruits.

No.

Primarily right the gaps between frozen and then some of the fresh fresh areas of the store.

Okay, well I'm not sure we're having a lot of interaction there even our birds eye business is kind of behaving similarly, with the balance of our frozen business, but what what youre seeing in frozen.

Speaker 3: Well, I'm not sure we're having a lot of interaction there. Even our bird's eye business is kind of behaving similarly with the balance of our frozen business. But what you're seeing in frozen, most of the frozen items we sell are frozen convenience.

Ken Goldman: And you know, it's a simple way to think about it is consumers are creatures of habit. So it's very difficult for them to deprioritize things like convenience benefits. So this is one of the key reasons we expect these shifts to be temporary. They have been in the past, and that's what we expect again.

Most most of the frozen items, we sell are frozen convenience items and what you've seen over the last quarter.

Speaker 3: And what you've seen over the last quarter are more of this consumer pivot to what we'll call meals for many instead of meals for one. It's more of a speed scratch type of thing where you can stretch your buck and feed more mouths.

More of this.

Consumer pivot to what we'll call meals for many instead of meals for one it's more of a speed scratch type of thing where you can stretch your buck and feed more mountains.

Sean Connolly: And it's also why we're really loading up our resources in the back half where we think the market conditions will be much more favorable to driving the kind of impact we're seeking. Thanks, Sean. I'll pass it on. Thank you.

Speaker 3: But that's a laborious effort, and it's also not exactly the food that people are habitually accustomed to eating. So, you know, when I look back over the last 50, 60 years and you look at consumer trends, by far the most unshakable trend in the consumer packaged goods space is the trend toward...

But that is a laborious effort and it's also not exactly that food that people are habitually accustomed to eating so.

When I look back over the last 50 60 years and you look at consumer trends by far the most unshakable trend in the consumer packaged goods space is the trend towards convenience and so we know and you saw it in the long term frozen data that I put up that consumers don't have the time to make step from scratch. They don't have the culinary skills and they don't want to waste associated with it.

Pamela Kaufman: And our next question today comes from Pamela Kaufman with Morgan Stanley. Please you talked about your plans to step up A&P and trade spend over the rest of the year. Just wanted to get a sense for if this was kind of consistent, the amount was consistent with your initial expectations heading into the year. Or if you're now planning for greater reinvestment compared to your initial plans given volume trends. It's fire fam.

Speaker 3: And so we know, and you start in the long-term frozen data that I put up, that consumers don't have the time to make stuff from scratch. They don't have the culinary skills and they don't want the waste associated with it. Does that mean they won't do it from time to time and buy a bag of rice and a can of beans and some ground beef? No, they will do that. Those are the kind of the short-term cheat codes.

Does that mean, they won't do it from time to time and buy a bag of rice in a can of beans, and some ground beef know they will do that those are the kind of the short term cheat codes that I referenced but they tend not to be very lasting behaviors, because as I pointed out consumer habits and practices are highly entrenched. So really we're focused on that we know.

Speaker 3: But they tend not to be very lasting behaviors because, as I pointed out, consumer habits and practices are highly-

Speaker 3: So really, we're focused on that. We know that this is a short-term dynamic, and we expect it to change. And we certainly, within Frozen, have the brands that drive the growth and drive the share with the innovation we've delivered. I think our categories over the last five years have accounted for about 70% of the growth in all of Frozen.

That this is a short term dynamic and we expect it to change and we certainly within frozen have the brands that drive the growth and drive the share with the innovation. We have delivered I think our categories over the last five years have accounted for about 70% of the growth in all of the frozen.

Pamela Kaufman: You know, it's it's obviously the consumer dynamic in the first quarter was tougher than than we planned for. We do think the conditions the macro conditions will be more favorable in the back half. And we're in a fortunate position where we got off to a strong start in the year on profitability. So we've got some some room to invest back. So we're talking about a higher investment posture on on Merch in particular in the back half of the year is as now we've got the supply chain working.

We expect that kind of a highly competitive performance to continue.

Great and then maybe one for Dave will quick just wage inflation, obviously, it's been a big issue as it relates to conversion costs in terms of finished goods that you may buy and you have all these union negotiations going on in other industries.

Speaker 9: Great. And then maybe one for Dave real quick. Just, you know, wage inflation obviously has been a big issue as it relates to conversion costs in terms of finished goods that you may buy and you have all these union negotiations going on in other industries. And I'm just curious, like, you know, what are you seeing right now in terms of conversion costs kind of coming upstream in terms of how your cost of goods is shaping up?

Pamela Kaufman: Okay, thanks. That's helpful. And then I guess do you feel like there are areas in the portfolio where you've taken too much pricing and do you envision a scenario where pricing growth turns negative? Yeah, I don't really see that, Pam. The volume impact we are seeing and frankly the peers in the space are really not a function of individual brand level prices and a consumer judgment that it's got it's it's much more of this macro thing where they're reprioritizing entire categories and consumer domains in order to stretch their budget short term.

I'm just curious like what are you seeing right now in terms of conversion cost kind of coming upstream in terms of how your cost of goods is shaping up.

Yes <unk>.

Speaker 4: Yeah, and our, our inflation assumption for 3%, you know, we had assumptions on conversion costs, which, you know. Kind of in that mid to upper single digit area, so that hasn't changed. You know, we're very. Um, we spent a lot of time on our compensation benefits working hard to be competitive. As part of our overall strategy for all of our employees, so we feel like we've captured it in our estimates for inflation.

Inflation assumption for 3%, we had assumptions on conversion costs, which.

Kind of in that mid to upper single digit area. So that hasnt changed were very.

We spent a lot of time on our compensation benefits working hard to be competitive.

As part of our overall strategy for all of our employees. So we feel like we've captured it in our estimates for inflation.

Pamela Kaufman: You know, there are there was very little interaction in our portfolio with private label. There are some categories in our portfolio albeit very few that are more pass-through in nature and are more prone to a rollback in price if the if the key ingredient costs deflates. So products like Ready Whip where you've got basically dairy in there, products like our sausage business or hot dog business where it's pretty much a particular meat block that's in there.

Excellent I'll pass it on thank you.

Speaker 1: And I've asked question today, can some Jason English with long attacks? Please go ahead.

And our next question today comes from Jason English with Goldman Sachs. Please go ahead.

Hey, good morning folks thanks for slipping me in.

Speaker 10: Hey, good morning folks, thanks for spot me in. And congrats on the momentum and international food service, great to see. I'm sure on a lot of questions obviously today on your back half guidance, and I'm sure it's not lost to you that there's clearly some skepticism on their ability to get to the volume growth you're promising the back half. If that doesn't come for fruition, what if any offsets are in your P&L to allow you to get to the bottom line guidance?

And congrats on the momentum in international and foodservice great to see.

Sean a lot of questions. Obviously today on your back half guidance and I'm sure. It's not lost on you that there is clearly some skepticism among the ability to get to the volume growth you've probably seen in the back half.

Pamela Kaufman: Those products kinds of products tend to move with the commodity but for most of our portfolio A, we haven't seen that kind of singular judgment around the value of the product being too expensive and we just haven't seen any cost basis for rolling back price in terms of deflation. We're still net net in an inflationary position.

If that doesn't come to fruition, what if any offsets are in your P&L to allow you to get to the bottom line guidance.

Well look it is a quarter of the year is behind us and as I've said, many other years a quarter doesn't make a year. So we are on or ahead of pace on most of our goals. After one quarter and the challenge has been this consumer behavior shift, which as I mentioned, we view as a temporary dynamic.

Speaker 3: Well, look, you know, it is a quarter of the year is behind us, then, as I've said many other years, a quarter doesn't make a year. So, you know, we are on or ahead of pace on most of our goals after one quarter. And the challenge has been this consumer behavior shift, which, as I mentioned, we do is a temporary dynamic. Between that, our favorable comps, the increased investment, we do expect, you know, meaningful top lines.

Unknown Attendee: Thank you, the top floor.

David Palmer: And our next question today comes from David Palmer at Evercore. Please go ahead. Thank you. It looks like you're assuming two to three percent organic sales growth in the second half as implied by the kinds. I guess what gives you the most confidence that you can get there? What are the key improvement areas that we would see? I would imagine frozen entrees would be one but perhaps you can give a sense of where we should be expecting the most energy and improvement going into the second half.

And between that are favorable comps the increased investment we do expect meaningful top line progress in in the second half and that's our playbook.

Speaker 3: progress in in the second half and you know that's that's our playbook We're we feel good about it. We are investing more to drive the business. We are Trying to do a couple things here, which is deliver a strong 24 But also set our business up to have excellent momentum as we go out of 24 into 25 which we're confident will be a very different environment Dave you want to add anything to that? Yeah sure so

We feel good about it we are investing more to drive the business we are.

Trying to do a couple of things here, which is deliver a strong 24, but also set our business up to have excellent momentum as we go out of 24 into 25, which we're confident will be at a very different environment.

Dave you want to add anything to that yeah sure. So.

Yeah, Jason obviously, we are looking at our cost very closely if you look at the quarter our productivity performance was really strong.

Speaker 4: Jason, obviously, we're looking at our costs very closely. If you look at the quarter, our productivity performance was really strong. Our supply chain organization does a phenomenal job.

Sean Connolly: Sure Dave, let me hit that. We're going to focus as we always do on our frozen and snacks businesses because those are the centerpiece of our strategy, but we also do have businesses within our portfolio now that are typically reliable contributors that are working really well in terms of meal creation, simple meals and things like that and our staples business which tends to be good mix. But I think between an improving consumer environment, more aggressive, but smart and selective merchandising environment, a really good innovation slate, and then A&P on some of our biggest businesses, you're not to mention we've got very favorable comps on some of our big businesses in the back half of the year.

Our supply chain organization does a phenomenal job, especially now that we're back to a more accommodative operating environment to drive our productivity and we're seeing that so that's a big driver obviously for US you look at SG&A.

Speaker 4: especially now that we're back to a more accommodative operating environment to drive our productivity and we're seeing that. So that's a big driver, obviously for us.

Speaker 4: You look at S-GNA where 9.1% is where we came in last year. We'll be around that again this year. We're very efficient. Where is efficient is any food company out there, but we're always looking for opportunities. And then we obviously have our ardent meals, join venture, which continues to do really well.

Nine 1% is where we came in last year will be around that again. This year, we're very efficient we're as efficient as any food company out there, but we're always looking for opportunities and then we obviously have our ardent mills joint venture, which continues to do really well we are holding to our guide for the year there, but there is still really strong momentum in ardent mills.

Speaker 4: You know, we're holding to our guide for the year there, but there's still really strong momentum in ardent mills. And that, you know, that generates cash for our business. And so, you know, there are places we're always looking, but we're always looking to just make sure we're finding opportunities to drive savings so that we can continue to invest in the business.

That generates cash for our business and so there are places we're always looking but we're always looking to just make sure. We're finding opportunities to drive savings. So that we can continue to invest in the business.

Sean Connolly: You know, I think all of that gives us a line of sight to delivering the kind of numbers that you just quoted. Dave, you want to add anything to that? Yeah, just a little more color on the disruptions in the prior year, which we're mostly second half last year, Dave, and we had a fire at our Jackson plant, which significantly impacted our frozen fish business, obviously lent is the big time for that.

Speaker 10: So, Dave, I'm going to put words in your mouth to see if I'm understanding this right. I appreciate what your guidance is predicated on. That's top line acceleration. But I think I heard if that doesn't come to fruition, there could be some more opportunities on cost and there could be some outside opportunity on art and mills. Did I hear that correct?

David I'm going to put words in your mouth to see if I understand this right.

I appreciate what you are what your guidance is predicated on Thats top line acceleration, but I think I heard if that doesn't come to fruition there could be some when we offered more opportunities on cost and there could be some upside opportunity on ardent mills did I hear that correct.

Sean Connolly: So it would be a much better position this year on that. You know, we had canning issues in our beans until he business, second half last year, and then as you remember, we had the can meet recall, which impacted Q3 and Q4. So, you know, more specifically, we should see strong improvement on those categories. Hey, one other point I'll make to David because you brought up our frozen business, it's not an inconsequential point that one slide and our prepared remarks today that showed the 40 year trend on frozen, it is literally not counting commodity category like frozen fruit.

Speaker 3: That's what we're always looking for. So we're gonna be coming and, you know, an ardent, soft, though good start. Part of it, Jason, is, you know, culturally the way we operate. We are wired to be a very lean.

That's what we're always looking for so we're okay productivity coming in and it's off to a good start yes part of it Jason is culturally the way. We operate we are wired to be a very lean very adaptable very agile team. We don't have a lot of orthodoxies around Europe things that we're we're not willing to do to.

Speaker 3: very adaptable, very agile team. We don't have a lot of orthodoxies around here of things that were...

Speaker 3: We're not willing to do to get to where we gotta go. So, you know, we've got a great team. They're gonna get us to do what we need to do throughout the balance of the year and we'll be super agile as we always are in an environment that's highly dynamic. Yeah, I would definitely recommend.

To get to where we Gotta go so well we've got we've got a great team theyre going to get us to do what we need to do throughout the balance of the year and will be super agile.

As we always are in an environment that's highly dynamic.

Sean Connolly: It is in the top two, I think, of package goods in terms of long term growth in the category. It's been particularly strong in the last six or seven years as we've driven innovation. So, we remain incredibly bullish on our frozen business. And by the way, our unit share in frozen has grown consistently over the last seven or so years. And that included Q1, I saw it, David, you printed this morning and thought we were losing share in our frozen meals business.

Yes, I would definitely recognize and respect that thank you very much.

Thanks.

And our next question today comes from Steve Powers with Deutsche Bank. Please go ahead.

Speaker 1: And the next question today comes from Steve Powers with Richard Banks. Please go ahead.

Hey, Thanks, good morning.

Speaker 6: Hey, thanks. Good morning. So I kind of wanted to build on what Jason just asked about because it sounds, I guess the question I'm left with is is the consumer behavior shift that you're expecting doesn't play out as we go through the balance of the fiscal year? Are you committed because of looking forward to 25 and beyond? Are you committed to the investment spend that you've articulated in 2Q and 2H? Or…

I kind of wanted to build on.

Jason just asked about because it sounds I guess the question I have I'm left with is just the consumer behavior shifts that youre expecting doesn't play out as we go through the balance of the fiscal year.

Sean Connolly: That is actually not the case. Even with the consumer environment, the way it is right now, consumers making some of these trade-offs, we grew our unit share in our frozen meals business once again. And that is with some additional promotional activity from a larger competitor in the space during Q1. But frankly, that had no impact on us on a national basis. It impacted a different competitor in the space that happens to be a value oriented play. But had no impact on Conagra where we again gained unit share in our frozen meals business. Thanks for that. We're certainly seeing that promotional activity.

Unknown Attendee: No, I'll pass it on.

Are you are you committed because of looking forward to 'twenty five and beyond are you committed to the <unk>.

The investment spend that you've articulated in <unk> and <unk>.

Unknown Attendee: Thanks.

H R.

Speaker 6: Does that itself become a lever to pull, to preserve bottom line dynamics? And it sounds like in the first quarter, given what the environment gave you, you delayed some of the spending. Maybe that's the wrong way, but it feels like you delayed some of the investment spending because the demand was weaker. Now you're planning it later in the year as you expect the man to pick up. I guess the question is, if that consumer behavior shift doesn't happen, do you keep spent?

Does that itself become a lever to pull.

Unknown Attendee: Thanks, David. Thank you.

To preserve bottom line dynamics it sounds like in the first quarter given what the environment.

Gave you.

You delayed some of the spending maybe thats the wrong read but it feels like the delays some of the investment spending because the demand was weaker now you're planning. It later in the year as you expect demand to pick up.

I guess the question is if that consumer behavior shift doesn't happen do you keep spending.

Speaker 3: Yeah, Steve, I think the easy answer to your question is, we manage this business for long-term value creation and long-term success with the consumer.

Yeah, Steve I think.

Max Gumport: And our next question today comes from Max Gumpworth with BNP Paribah. Please go ahead. Hey, thanks for the question. I wanted to come back to the commentary around the improved outlook for the second half of the low single-digit organic sales growth. I hear what you're saying, but a lot of the factors that you've called out feels like they would have been knowable a couple of months ago in terms of the easier comps and the innovation and advertising and lacking the supply chain disruption.

Yeah.

Easy answer to your question is we manage this business for long term value creation and long term success with the consumer when you get caught up in the short term windows.

Speaker 3: When you get caught up in these short-term windows of consumer behavior shifts, people always ask the question, well, in this window, what's more important? Sales or profit? And, obviously, you always want both. But when you see short-term behavior shifts, sometimes you have to be smart and you've got to ride the wave in a patient and pragmatic way. And that means not trying to force things before they're poised to pivot. Otherwise, you can end up with need or metric work.

Consumer behavior shifts people always ask the question well in this window, what's more important sales or profit and obviously you always want both but when you see short term behavior shifts sometimes you have to be smart and you've got to ride the wave and a patient and pragmatic way and that means not trying to force things before they are poised to pivot otherwise you can.

End up with neither metric working for you and as I said, we will invest smartly, we'll pick our spots will focus on quality merch A&P and our biggest brands and awesome innovation and we will keep a strong determination to drive brand health and value creation for the long term.

Max Gumport: What's changed over the last couple months that's given you this? Increased Confidence in the second half because before it sounds like we were going to see organic sales would be strongest in the first quarter and then work its way down. Thanks.

Speaker 3: And as I said, we will invest smartly, we'll pick our spots, we'll focus on quality merch, A&P and our biggest brands and awesome innovation and we'll keep a strong determination to drive brand health and value creation for the...

Sean Connolly: You know, sometimes, you know, when you run in businesses like this and you're servicing consumers, you take what the field gives you. And I think what we're saying is in Q1, the consumer environment was more challenged. People were trying to create these offsets to cover expenditures that they were determined to make over the course of the summer. And we do believe that the consumer environment is going to be more favorable. There will be a bit of pent up demand here for some of the things that people have traded out of as they've created these kind of short term hacks to make their household balance.

Okay that makes sense is there any I guess.

Speaker 6: Okay, the next sentence. Is there any, I mean, I guess the, is there any? Okay.

Is there any <unk>.

Solidity to the thought that.

Because there was less spending in the first quarter exacerbated some of the weaker demand trends.

Speaker 6: because there was less spending in the first quarter, it exacerbated some of the...

Speaker 3: the weaker demand trends. And no, actually, I actually would say the opposite. We did see in one of our categories,

No actually I actually would say the opposite.

We did see.

In one of our categories.

Speaker 3: a competitor tried to do some promotional things to kind of force the issue and force and it did work and and it didn't have any impact on our business and I can't imagine what their bottom line looks like with such an inefficient spend but it's just that's that's what I mean by you have to be

A competitor try to do some promotional things to kind of force.

Sean Connolly: She work and you know, having the supply chain in the position it's in and getting off to a strong start on profit and having the ability to invest more. We think these are high ROI investments that are going to enable us to have the kind of consumer engagement impact that we want to have. But also be profitable by the way we want to be at the same time. And that's kind of our outlook. Yep.

The issue enforced and it didn't work and it didn't have any impact on our business and I can't imagine.

With their bottom line looks like with such an inefficient spend but it's just that's what I mean by you have to be sometimes be smart ride the wave and a patient and pragmatic way, if you're getting patient and you try to do something irrational enforced the consumer to do something they're not ready to do.

Speaker 3: Sometimes be smart, ride the wave in a patient in pragmatic way. If you get impatient and you try to do something irrational and force the consumer to do something, they're not ready to do.

Speaker 3: You know what you're going to do? You're going to spend a lot of money without having a lot of impact. And so we want to put our dollars and our investment out there in the marketplace on the right levers at the right time when the consumer is going to be responsive to it, and that's why we've got the cadence of our spend laid out the way we've got across the full year. Others.

You're going to do even spent a lot of money without having a lot of impact and so we want to put our dollars and our investment out there in the marketplace on the right levers at the right time, when the consumer is going to be responsive to it and that's why we've got the cadence of our spend laid out the way we've got across the full year.

Dave Marberger: And just in our international and food service businesses are up to a really strong start. And they're really tracking ahead. Got it.

Dave Marberger: And then the one on gross margin if I can. So you talk to how you expect to step down and gross margin from the first quarter to the second quarter. And then to remain at a similar level in the second half. And so I'm getting that might imply a gross margin of around 27% for the year or roughly in line with the last year. A few months ago it sounded like you were expecting some improvement in fiscal 24 given price mix and productivity, the laughing of supply chain disruptions all outweighing negative overhead adoption and business investment.

Okay. That's very helpful. Thank you.

Speaker 11: And the next question comes from Alexia Howard with Bernstein. Let's go ahead. Good morning, everyone.

And our next question comes from Alexia Howard with Bernstein. Please go ahead.

Good morning, everyone.

Good morning.

Speaker 12: So it seems as though the industry this year has been caught fairly flatfooted with the surprising lack of recovery in volumes as price growth has slowed. Now it's obviously still too way too early to tell where the impact of the GLP1 drugs is gonna go, what the uptake is gonna be over the next 5, 10, 15 years.

It seems as though the industry this year it's been.

Fairly flat with a surprising lack of recovery in volumes as price growth has slowed now it's obviously still way too early to tell where the impacts of the J L. P. Button drugs is going to go what the uptake is going to be over the next 510 15 years, but in a similar vein how can we start thinking about.

Dave Marberger: I didn't see an updated inflation number today but assuming it's stayed at around 3% of the year. I'm just curious what's changed. I'm assuming it's maybe a bit more business investment that has moved up. I'm just curious for any any color there. Thanks. I'll leave it there. Yes. So yes, we're holding our inflation assumption at 3% at this point. We've had some, you know, category some items where there is more inflation than we expected but we have some that have gone the other way.

Speaker 12: But in a similar vein, how can you start thinking about different scenarios for how that could play out, which parts of your portfolio might be most affected either positively or negatively? And how do you start getting data to...

Different scenario as to how that could play out which parts of your portfolio might be most affected either positively or negatively and how do you stop getting data tab.

Dave Marberger: So we're still holding to the 3% and that's that's important that that remain that way for us to hit the margin guidance that we gave. You know, we were impacted in Q1. We're really pleased with our productivity in the first quarter embedded in the productivity numbers are actual headwinds from absorption. So the second half with volumes us, you know, being confident that our volumes will be up. We'll have a benefit in absorption.

Speaker 12: decide which of those paths you might want to pursue. I mean, how do you plan for another potentially big consumer behavior shift that might be coming down the pike over the next few years?

Right.

Paul you might want to pursue I mean, how do you plan for another potentially big consumer behavior shifts that might be coming down the pike over the next few years.

Alexia I view that one a little bit differently.

Speaker 3: You know, Alex, I view that one a little bit differently.

Speaker 3: If you think about it, we've got an entire department of demand scientists here who are everyday studying changes in consumer behavior, particularly, a particular important one for our company has been the ever evolving consumer definition of what constitutes healthy and how they want to keep in order to be responsive to healthy. Back.

If you think about it we've got an entire department of demand scientists here, who are every day studying changes in consumer behavior, particularly.

Dave Marberger: So the incremental investment can drive incremental volume and help with absorption offsets which benefits margin. So but I would just remind you we gave a range for margin for a reason because of that. You know, we're not going to get precise with an absolute gross margin number. You know, you're directionally correct but that's why we gave a range on operating margin for our guide. Got it. Thanks very much. Thank you.

A particularly important one for our company has been the ever evolving consumer definition of what constitutes healthy and how they want to key in order to be responsive to help back.

Speaker 3: In the 90s, with snack wells, it was all about fat and calories. And if you're just looking the last few years, we've gone from grain-free to cauliflower to keto. I mean, it's constantly evolving. So what our demand science folks do is they're constantly studying the trends.

In the nineties with Snackwell's. It was all about fat and calories and if you just look in the last few years, we've gone from grain free cauliflower Quito I mean, it's constantly evolving so what our demand science folks do as they are constantly studying the trends that consumers are chasing figuring out which of those need to be.

Speaker 3: that consumers are chasing, figuring out which of those need to be designed into our products and then adapting our products through our innovation program relentlessly so that we're staying up with consumer trends. So if we end up seeing changes in consumer eating patterns, let's say they go to smaller portions.

Robert Moskow: And our next question today comes from Robert Moscow with PD Cohen. Hi. Thanks for the question. Sean, I think you said in your script that in the Nielsen tracking data, you had started to see signs of some sequential improvement. I didn't quite see it in the slide and I haven't seen it in our data yet. So I was wondering if you could give a little more color on that.

Designed into our products and then adapting our products through our innovation program relentlessly. So that we're staying up with consumer trends. So if we end up seeing changes in consumer eating patterns, let's say they go to smaller portions than we evolve the innovations and we designed smaller portions if they switch to different types of neutral.

Speaker 3: Then we evolve the innovations and we design smaller portions.

Speaker 3: If they switch to different types of nutrients, we evolve the innovation. We switch to different types of nutrients.

Since we have all of the innovation, we switch to different types of nutrients. If they change the kind of pack sizes. They snack on will change that.

Sean Connolly: Sure, happy to do that. If you look at the slide we share today, notably it's units, it's not dollars, and that's the metric that we are looking at is units not dollars, because to us that is going to be the marker of when we start to see this change. Frankly, if you look at the slide that I shared today, it's got 52 weeks, 13 weeks, four weeks. What the competitive set would expect to have seen is that as you move from 52 to 13 to 4, you see improvement in trend and as you can see on that slide, it was fairly flat.

Speaker 3: If they change the kind of pack sizes they snack on, we'll change that. So this is the kind of stuff that will happen over 5, 10, 15 years, not over the next six months. But I think the key to navigating these kinds of just, constantly evolving consumer environment is you have to be externally focused, you've got to study these consumer trends, and you've got to rapidly design in what the consumer is looking for into your products. And that's what we do every.

This is the kind of stuff that will happen over 510 15 years not over the next six months, but I think the key to navigating these kinds of just constantly evolving consumer environment is you have to be externally focused you've got to study these consumer trends and you've got a rapidly design and what the consumers love.

<unk> core into your products and Thats, what we do every year.

Sean Connolly: So what we're looking for is is bend in the trend in unit movement as a proxy for this consumer behavior shift beginning to move. So if you look at the more recent period, which is, it just came out I think this week, which is, you know, the, the forward period following what we shared today, you see the first noteworthy change in unit movement for Conagra, and there may have been one or two other competitors.

Speaker 12: Great, thank you very much, that's very helpful. And just a quick follow up, your leverage is obviously coming down, it's expected to come down further. Apertide for additional M&A and what parts of the portfolio you might be focused on for that, and I'll pass it on.

Great. Thank you very much that's very helpful and just as a quick follow up your Leverages, obviously coming down is expected to come down further.

Appetite for additional M&A.

What parts of the portfolio you might be focused on for that and I'll pass it on.

Speaker 3: Yeah, let me say this first, because I never want our...

Yeah, Let me say this first because.

I never want our investors to misunderstand. This we always follow kind of a balanced approach to capital allocation, but we've said now for some time and I'll continue to say it our top priority is delevering.

Speaker 3: We always follow a balanced approach to capital allocation, but we've said now for some time, and I'll continue to say it, our top priority is be lever.

Sean Connolly: It saw some movement there as well. That's important because, you know, that's the kind of movement that we, we thought we would see across the industry back at, you know, around Memorial Day or so, and it didn't materialize and it, you know, we've got our first data point now that's showing it's, it's going in the right direction. That's the metric we need to move. If units move the way that we expect them to move everything else will take care of itself at dollars. And so that's why we're focused on that.

The importance of having a clean balance sheet in the current screened external macro environment is very important to our investors our ratings agencies and that is our top priority.

Speaker 3: The importance of having a clean balance sheet and the current, strange, external, macro environment is very important to our investors, our ratings agencies, and that is our top priority.

Speaker 3: You know when the time comes that we've got our balance sheet where we want it to be

When the time comes that we've got our balance sheet, where we want it to be.

Speaker 3: M&A has always been part of it. We've always said there are two kinds of big picture M&A. There's big synergistic acquisitions that rarely come along once in a blue moon.

<unk> has always been part of it. We've always said there are two kinds of big picture M&A, There's big.

Synergistic acquisitions that rarely come along once in a blue Moon and then there are bolt on more growth through smaller acquisitions.

Dave Marberger: Okay, and a quick follow up for Dave. You mentioned a lot of little supply chain issues that affected last year, Dave, like the frozen fish issue and then the beans and the chili. Is there any way to add it all up and help us understand, like what kind of easy comp this provides, either on sales profits in the back half. Rob, I would just, you know, kind of go back to what we said last year.

Speaker 3: And then there are both on more growthy smaller acquisitions.

Speaker 3: they tend to happen more frequently. So we'll always, over the long term, keep an eye on both of those things, but right now our focus is on continuing to pay down debt. And then when we get to the time when we can add something to the portfolio odds are, it would be in our key strategic domains of frozen instincts.

Happen more frequently.

So we will always over the long term keep an eye on both of those things, but right now our focus is on <unk>.

Continuing to pay down debt and then when we get to the time when we can add something to the portfolio odds are it would be in our key strategic domains of frozen and snacks.

Perfect. Thank you very much I'll pass it on.

Dave Marberger: We didn't quantify everything exactly. So I wouldn't want to give you a number here. But if you go back and look at what we communicated, you know, last year, second half, I think you'll get, you know, a pretty good feel for the magnitude, you know, generally speaking, but we didn't give a precise number on that. Okay, all right. Thanks. Right. Thank you.

Thank you. Thank you. This concludes our question and answer session I would like to turn the conference back over to most of them they appear for closing remarks.

Speaker 1: Thank you. This includes a question and answer session. I'd like to turn the conference back over to most of the peer-focusing remarks.

Speaker 2: Thank you everyone for joining us this morning. Investor relations is available. If anyone has any follow-up questions, have a great day.

Thank you everyone for joining us this morning Investor Relations is available if anyone has any follow up questions have a great day.

Thank you ladies and gentlemen. This concludes today's conference call. You May now disconnect your lines and have a wonderful day.

Speaker 1: Thank you. Ladies and gentlemen, this includes today's conference hall. You may now be snatching lines and have a wonderful day.

Nick Murty: And our next question comes from Nick Murty with RBC. Please go ahead. Yeah, thank you.

Sean Connolly: Good morning. Sean, it's clear your brands within frozen are doing well and you see that in the share games, but I'm just curious if you have made any observations regarding the perimeter. [inaudible] And what you've seen over the last quarter are more of this consumer pivot to what we'll call meals for many instead of meals for one. It's more of a speed scratch type of thing where you can stretch your buck and feed more mouths.

Sean Connolly: But that's a laborious effort. And it's also not exactly the food that people are habitually accustomed to eating. So, you know, when I look back over the last 50, 60 years and you look at consumer trends, by far the most unshakable trend in the consumer packaged goods space is the trend toward convenience. And so we know, and you saw it in the long term frozen data that I put up that consumers don't have the time to make stuff from scratch.

Sean Connolly: They don't have the culinary skills and they don't want the waste associated with it. Does that mean they won't do it from time to time and buy a bag of rice and a can of beans and some ground beef? No, they will do that. Those are the kind of the short term cheat codes that I referenced. But they tend not to be very lasting behaviors because as I pointed out consumer habits and practices are highly entrenched.

Sean Connolly: So, really, we're focused on that. We know that this is a short term dynamic and we expect it to change. And we certainly within frozen have the brands that drive the growth and drive the share with the innovation we've delivered. I think our categories over the last five years have accounted for about 70% of the growth and all the frozen and we expect that kind of highly competitive performance to continue.

Dave Marberger: Great. And then maybe once for Dave will quick just, you know, wage inflation obviously has been a big issue as it relates to conversion costs in terms of finished goods that you may find you have all these union negotiations going on in other industries. And I'm just curious like, you know, what are you seeing right now in terms of conversion costs kind of coming upstream in terms of how your cost of goods is shaping up?

Dave Marberger: Yeah, and our inflation assumption for 3%. You know, we had assumptions on conversion costs, which, you know, kind of in that mid to upper single digit area. So that hasn't changed, you know, we're very. We spent a lot of time on our compensation benefits working hard to be competitive as part of our overall strategy for all of our employees. So we feel like we've captured it in our estimates for inflation.

Unknown Attendee: Excellent. I'll pass it on.

Jason English: Thank you.

Jason English: And our next question today comes from Jason English with Goldman Sachs. Please go ahead. Hey, good morning folks. Thanks for spot me in and congrats on the momentum and international food service. Great to see.

Sean Connolly: Sean, a lot of questions obviously today on your back half guidance and I'm sure it's not lost to you that there's clearly some skepticism on the ability to get to the volume growth you're promising the back half. If that doesn't come for fruition, what if any offsets are in your P&L to allow you to get to the bottom line guidance? Well, look, you know, it is a quarter of the year is behind us then as I've said many other years a quarter doesn't make a year.

Sean Connolly: So, you know, we are on or ahead of pace on most of our goals after one quarter and the challenge has been this consumer behavior shift, which as I mentioned, we view as a temporary dynamic. Between that are favorable comps, the increased investment, we do expect, you know, meaningful top line progress in in the second half. And, you know, that's that's our playbook. We're we feel good about it. We are investing more to drive the business we are trying to do a couple things here, which is deliver a strong 24, but also set our business up to have excellent momentum as we go out of 24 into 25, which we're confident will be a very different environment.

Dave Marberger: Dave, you want to add anything to that? Yeah, sure. So, you know, Jason obviously we're looking at our costs very closely. If you look at the quarter, you know, our productivity performance was really strong, you know, our supply chain organization does a phenomenal job, especially now that we're back to a kind of more accommodative operating environment to drive our productivity and we're seeing that. So, that's a big driver. Obviously for us, you look at SGNA where, you know, 9.1% is where we came in last year will be around that again this year.

Dave Marberger: We're very efficient. Where is efficient is any food company out there, but we're always looking for opportunities and then we obviously have our ardent mills join venture, which continues to do really well. You know, we're holding to our guide for the year there, but they're still really strong momentum and ardent mills and that, you know, that generates cash for our business. And so, you know, there are places we're always looking, but we're always looking to just make sure we're finding opportunities to drive, saving so that we can continue to invest in the business.

Sean Connolly: David, I'm going to put words in your mouth to see if I'm understanding this right. I appreciate what your guidance is predicated on. That's top line acceleration. But I think I heard, if that doesn't come from fruition, there could be some more opportunities on cost, and there could be some outside opportunity on Arden Mills. Did I hear that correct? That's what we're always looking for. So we're probably going to be coming in and, you know, an Arden's off to a good start.

Sean Connolly: Yeah, part of it, Jason is, you know, culturally the way we operate. We are wired to be a very lean, very adaptable, very agile team. We don't have a lot of orthodoxies around here of things that we're not willing to do to get to where we got to go. So, you know, we've got a great team. They're going to get us to do what we need to do throughout the balance of the year, and we'll be super agile, as we always are in an environment that's highly dynamic.

Jason English: Yeah, I would definitely recognize and respect that. Thank you very much. Thanks.

Steve Powers: And then, next question today comes from Steve Powers with Richard Banks. Please go ahead. Hey, thanks. Good morning. So, I kind of wanted to build on what Jason just asked about, because it sounds, I guess the question I'm left with is if the consumer behavior shift that you're expecting doesn't play out as we go through the balance of the fiscal year, are you committed because of looking forward to 25 and beyond?

Steve Powers: Are you committed to the investment spend that you've articulated in 2Q and 2H? Or, you know, does that itself become a lever to pull, you know, to preserve bottom line dynamics? It sounds like in the first quarter, given what the environment gave you delayed some of the spending, maybe that's the wrong way, but it feels like you delayed some of the investment spending because the demand was was weaker. Now, you're planning it later in the year as you expect the man to pick up. I guess the question is if that consumer behavior shift doesn't happen, do you keep spending?

Sean Connolly: Yeah, Steve, I think the easy answer to your question is, we managed this business for long-term value creation and long-term success with the consumer. When you get caught up in the short-term windows of consumer behavior shifts, people always ask the question, well, in this window, what's more important, sales or profit? And obviously, you always want both, but when you see short-term behavior shifts, sometimes you have to be smart and you've got to ride the wave in a patient and pragmatic way. And that means not trying to force things before they're poised to pivot, otherwise you can end up with need or metric working for you.

Sean Connolly: And as I said, we will invest smartly, we'll pick our spots, we'll focus on quality merch, A&P and our biggest brands and awesome innovation, and we'll keep a strong determination to drive brand health and value creation for the long-term. Okay, the next sense. Is there any validity to the thought that because there was less spending in the first quarter, it exacerbated some of the weaker demand trends? And no, I actually would say the opposite.

Sean Connolly: You know, we did see in one of our categories a competitor tried to do some promotional things to kind of force the issue and force, and it didn't work, and it didn't have any impact on our business, and I can't imagine what their bottom line looks like with such an inefficient spend, but it's just, that's what I mean by, you have to be sometimes to be smart, ride the wave in a patient in pragmatic way, if you get impatient and you try to do something irrational and force the consumer to do something they're not ready to do. You know what you're going to do?

Sean Connolly: You're going to spend a lot of money without having a lot of impact, and so we want to put our dollars and our investment out there in the marketplace on the right levers at the right time when the consumer is going to be responsive to it, and that's why we've got the cadence of our spend laid out the way we've got across, of the whole year.

Steve Powers: Okay, that's very helpful.

Alexia Howard: Thank you. And the next question comes from Alexia Howard with Bernstein. Good morning, everyone. So it seems as though the industry this year has been quite fairly flatfooted with the surprising lack of recovery in volumes as price growth has slowed. Now it's obviously still too way too early to tell where the impact of the GLP1 drugs is going to go, what the uptake is going to be over the next 5, 10, 15 years.

Alexia Howard: But in a similar vein, how can you start thinking about different scenarios for how that could play out which parts of your portfolio might be most affected either positively or negatively? And how do you start getting data to decide which of those parts you might want to pursue? I mean, how do you plan for another potentially big consumer behavior shift that might be coming down the pike over the next few years?

Sean Connolly: You know, Alexia, I view that one a little bit differently. If you think about it, we've got an entire department of demand scientists here who are every day studying changes in consumer behavior, particularly a particularly important one for our company has been the ever-evolving consumer definition of what constitutes healthy and how they want to keep in order to be responsive to healthy. Back in the 90s with Snackwells, it was all about fat and calories.

Sean Connolly: And if you're just looking the last few years, we've gone from grain-free to cauliflower to keto. I mean, it's constantly evolving. So what our demand science folks do is they're constantly studying the trends that consumers are chasing, figuring out which of those need to be designed into our products and then adapting our products through our innovation program relentlessly so that we're staying up with consumer trends. So if we end up seeing changes in consumer eating patterns, let's say they go to smaller portions, then we evolve the innovations and we design smaller portions.

Sean Connolly: If they switch to different types of nutrients, we evolve the innovation, we switch to different types of nutrients. If they change the kind of pack sizes they snack on, we'll change that. So this is the kind of stuff that will happen over 5, 10, 15 years, not over the next six months. But I think the key to navigating these kinds of just constantly evolving consumer environment is you have to be externally focused.

Sean Connolly: You've got to study these consumer trends and you've got a rapidly designed in what the consumer is looking for into your products. And that's what we do every year. Great. Thank you very much. That's very helpful. And just a quick follow-up. Your leverage is obviously coming down. It's expected to come down further. Appetite for additional M&A and what parts of the portfolio you might be focused on for that. And I'll pass it on.

Sean Connolly: Yeah, let me say this first because I never want our investors to misunderstand this. We always follow kind of a balanced approach to capital allocation. But we've said now for some time and I'll continue to say it. Our top priority is delivery. The importance of having a clean balance sheet in the current, strange, external macro environment is very important to our investors, our ratings agencies, and that is our top priority. When the time comes that we've got our balance sheet where we want it to be, M&A has always been part of it.

Sean Connolly: We've always said there are two kinds of big picture M&A. There's big synergistic acquisitions that rarely come along once in a blue moon. And then there are both on more growthy, smaller acquisitions. They tend to happen more frequently. So we'll always, over the long term, keep an eye on both of those things. But right now our focus is on continuing to pay down debt. And then when we get to the time when we can add something to the portfolio, odds are, it would be in our key strategic eye domains of growth.

Operator: Thank you for joining us this morning. Invest relations is available if anyone has any follow-up questions. Have a great day. Thank you.

Operator: Ladies and gentlemen, this includes today's conference hall. You may now listen to our lines and have a wonderful day.