Q1 2027 Conagra Brands Inc Earnings Call - Q&A

September 30, 2026

Speaker #1: Good morning, and welcome to the Conagra Brands Q1 Fiscal Year 2027 Earnings Q&A Conference Call. All participants will be in listen-only mode. Should you need assistance, please press * and then 0.

Operator 2: Good morning, and welcome to the Conagra Brands Q1 Fiscal Year 2027 Earnings Q&A conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Matthew Neisius, Head of Investor Relations. Please go ahead.

Operator: Good morning, and welcome to the Conagra Brands Q1 Fiscal Year 2027 Earnings Q&A Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Matthew Neisius, Head of Investor Relations. Please go ahead.

Speaker #1: Please also note that today's event is being recorded. At this time, I'd like to turn the floor over to Matthew Nicis, Head of Investor Relations.

Speaker #1: Please go ahead.

Speaker #2: Good morning, everyone, and thank you for joining us. Once again, I'm joined this morning by John Brossi, our CEO, and Dave Marberger, our CFO.

Matthew Neisius: Good morning, everyone, and thank you for joining us. Once again, I am joined this morning by John Brase, our CEO, and Dave Marberger, our CFO. We may be making some forward-looking statements in discussing non-GAAP financial measures during this Q&A session. Please see our earnings release, prepared remarks, presentation materials, and filings with the SEC in the investor relations section of our website for descriptions of our risk factors, GAAP to non-GAAP reconciliations, and information on our comparability items. I will now ask the operator to introduce the first question.

Speaker #2: We may be making some forward-looking statements in discussing non-GAAP financial measures during this Q&A session. Please see our earnings release, prepared remarks, presentation materials, and filings with the SEC in the Investor Relations section of our website for descriptions of our risk factors, GAAP to non-GAAP reconciliations, and information on our comparability items.

Speaker #2: I'll now ask the operator to introduce the first question.

Speaker #1: And at this time, we'll begin that question-and-answer session. To ask a question, you may press star and then one. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys.

Operator 2: At this time, we will begin that question and answer session. To ask a question, you may press star and then one. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys. To withdraw your questions, you may press star and two. In the interest of time, we do ask that you please limit yourselves to a single question. At this time, we will pause momentarily to assemble the roster. Our first question today comes from Andrew Lazar from Barclays. Please go ahead with your question.

Operator: At this time, we will begin that question and answer session. To ask a question, you may press star and then one. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys. To withdraw your questions, you may press star and two. In the interest of time, we do ask that you please limit yourselves to a single question. At this time, we will pause momentarily to assemble the roster. Our first question today comes from Andrew Lazar from Barclays. Please go ahead with your question.

Speaker #1: To withdraw your questions, you may press star and two. In the interest of time, we ask that you please limit yourselves to a single question.

Speaker #1: At this time, we'll pause momentarily to assemble the roster. Our first question today comes from Andrew Lazar from Barclays. Please go ahead with your question.

Speaker #2: Great. Thanks so much. Good

Andrew Lazar: Great. Thanks so much. Good morning, everybody.

Speaker #3: morning, everybody. To start, hey there. Maybe I want to start out CONAGRA's pointing to organic sales in fiscal Q2 to decline 2%. A bit heavier than current consensus.

Matthew Neisius: Morning.

Andrew Lazar: Hi there. Maybe want to start out, Conagra is pointing to organic sales in fiscal Q2 to decline 2%, a bit heavier than current consensus. It looks like quarter to date, maybe scanner looks to be running maybe closer to flattish. I guess I am just curious if anything has changed in your Q2 top-line outlook and whether it is elasticity or something else that might cause a sequential deceleration, or perhaps it is just more prudent planning. Thanks so much.

Speaker #3: It looks like quarter to date, maybe Scanner looks to be running maybe closer to flattish. So I guess I'm just curious if anything's changed in your Q2 top-line outlook and whether it's elasticity or something else that might cause a sequential deceleration or perhaps it's just more prudent planning.

Speaker #3: Thanks so much.

Speaker #2: Yeah, good morning, Andrew. Let me start, and then I'll turn it over to Dave. But I think in general, the pricing we discussed in the Q4 earnings call is really just hitting the market kind of as we speak.

John Brase: Yeah, good morning, Andrew. Let me start, and then I will turn it over to Dave. I think in general, the pricing we discussed in the Q4 earnings call is really just hitting the market as we speak. I would say in terms of our pricing assumptions, at this point, results are in line with how we plan the year. I like the word you used, Andrew. I think we have taken a very prudent approach to our elasticity assumptions, and these assumptions remained unchanged, which has really frozen at more of a 2 to 1 elasticity that we have modeled for the year in Grocery & Snacks at more of a 1 to 1 elasticity. In terms of competitors and followership, I would say we have not assumed any followership in our pricing moves.

Speaker #2: And so, I would say, in terms of our pricing assumptions at this point, results are in line with how we planned the year. And I like the word you used, Andrew.

Speaker #2: I think we've taken a very prudent approach to our elasticity assumptions, and these assumptions remain unchanged, which is really frozen at more of a two-to-one elasticity that we've modeled for the year.

John Brase: I think we have taken a very prudent approach to our elasticity assumptions, and these assumptions remained unchanged, which has really frozen at more of a two to 1 elasticity that we have modeled for the year in Grocery & Snacks at more of a 1 to 1 elasticity. In terms of competitors and followership, I would say we have not assumed any followership in our pricing moves. Obviously, if that happened, there could be some upside to those elasticity assumptions, but we have not modeled that in.

Speaker #2: And grocery and snacks at more of a one-to-one elasticity. Now, in terms of competitors and followership, I would say we have not assumed any followership in our pricing moves.

Speaker #2: Obviously, if that happened, there could be some upside to those elasticity assumptions, but we have not modeled that in.

John Brase: Obviously, if that happened, there could be some upside to those elasticity assumptions, but we have not modeled that in.

Speaker #3: Yep. Great. Thanks so much.

Andrew Lazar: Great. Thanks so much.

Speaker #1: And John, you're just one additional

Dave Marberger: Just, John, Dave, just one additional piece of color. We guided to -2% organic for Q2. This contemplates Thanksgiving timing because you have the second quarter of this year versus third quarter. We may ship a bit below consumption in the second quarter because of the seasonal items may have some more consumption versus shipment. But the -2% is consistent, like John said, with our original planning posture.

Speaker #2: Piece of color. So we got into 2%, down 2% organic for Q2. This complements Thanksgiving timing because you have the second quarter of this year versus third quarter.

Speaker #2: So, we may ship a bit below consumption in the second quarter because the seasonal items may have some more consumption versus ship. But the 2% is consistent, like John said, with our original planning posture.

Speaker #3: Great. Thanks so much.

Andrew Lazar: Great. Thanks so much.

Speaker #1: Our next question comes from Peter Galdo from Bank of America. Please go ahead with your question.

Operator 2: Our next question comes from Peter Galbo from Bank of America. Please go ahead with your question.

Operator: Our next question comes from Peter Galbo from Bank of America. Please go ahead with your question.

Speaker #4: Hey, good morning. Thanks for the question. Dave, just wanted to touch on the updated inflation guidance for the year, having moved kind of to the higher end of the five to six.

Peter Galbo: Hey, good morning. Thanks for the question. Dave, just wanted to touch on the updated inflation guidance for the year, having moved to the higher end of the 5% to 6%. I know you had Q1 inflation in the 5% range, so more towards the low end, but just how you see it pacing over the balance of the year and maybe just help us think about exit rate. Are we above that 5% to 6% as we get to Q4, and how we might think about it again from a phasing perspective. Thanks very much.

Speaker #4: I know you had kind of Q1 inflation in the five-ish percent range, so more towards the low end. But just kind of how you see it pacing over the balance of the year, and maybe just help us think about the exit rate—are we above that five to six percent as we get to Q4? And kind of how we might think about it again from a phasing perspective?

Speaker #4: Thanks very much.

Speaker #2: Yeah, Peter, thanks for the question. Let me try to give you a little bit of color here. So, as we talked about for Q1, we did have some favorability in proteins relative to our planning.

Dave Marberger: Yeah, Peter, thanks for the question. Let me try to give you a little bit of color here. As we talked about for Q1, we did have some favorability in proteins relative to our planning. So we were a bit favorable, which drove some of the favorability we saw in Q1. But as we went through Q1, obviously, we've seen an acceleration in inflation around logistics, our transportation costs really driven by the driver shortage and oil prices as well. As we forecasted inflation, we're still in that 5% to 6% range for the year, we said towards the higher end of the range. And really what's happening is, the favorability that we've seen in proteins, which we would continue to see, is a little bit more than offset by basically the doubling of inflation in transportation versus where we planned it for the year.

Speaker #2: So we're a bit favorable, which drove some of the favorability we saw in Q1. But as we went through Q1, obviously, we've seen an acceleration in inflation around logistics and our transportation costs, really driven by the driver shortage.

Speaker #2: And oil prices as well. So as we forecasted inflation, we're still in that five to six percent range. For the year, we said towards the higher end of the range.

Speaker #2: And really, what's happening is the favorability that we've seen in proteins, which we would continue to see, is a little bit more than offset by basically the double leg of inflation in transportation versus where we planned it for the year.

Speaker #2: So it's kind of a trade-off there. In terms of the flow of the year, we would expect and we usually don't give this much detail, but I think it's important because I think there's some confusion on this inflation.

Dave Marberger: So it is kind of a trade-off there. In terms of the flow of the year, we would expect, and we usually do not give this much detail, but I think it is important because I think there is some confusion on this inflation. We would expect our inflation rate in Q2 and Q3 to be higher than Q1, and then to be about the same. Then we expect our Q4 inflation rate to actually be lower than Q3. So that is kind of the flow. As we sit here today, we have no reason to believe that we would not be wrapping on not just the transportation costs that we are seeing this year, but things like edible oils and kind of our corrugated aluminum. We have a lot of areas where we are still seeing high inflation, which we will have all during fiscal 2027.

Speaker #2: We would expect our inflation rate in Q2 and Q3 to be higher than Q1, and then to be about the same. Then, we expect our Q4 inflation rate to actually be lower than Q3.

Speaker #2: So that's kind of the flow. And as we sit here today, we have no reason to believe that we wouldn't be wrapping on not just the transportation costs that we're seeing this year, but things like edible oils and kind of our corrugated aluminum.

Speaker #2: We have a lot of areas where we're still seeing high inflation, which we will have all during fiscal '27. I don't see a reason why we couldn't expect that we would wrap on that.

Dave Marberger: We have a lot of areas where we are still seeing high inflation, which we will have all during fiscal 2027. I do not see a reason why we could not expect that we would wrap on that. So obviously we will have to get closer for that. But, I feel like Q4 will be lower than Q3, and we should be wrapping on a lot of these higher inflation categories in our materials when we get into fiscal 2028.

Dave Marberger: I do not see a reason why we could not expect that we would wrap on that. So obviously we will have to get closer for that. But, I feel like Q4 will be lower than Q3, and we should be wrapping on a lot of these higher inflation categories in our materials when we get into fiscal 2028.

Speaker #2: So obviously, we'll have to get closer for that. But I feel like Q4 will be lower than Q3, and we should be wrapping on a lot of these higher-inflation categories in our materials when we get into fiscal '28.

Speaker #4: Great. Thanks very much.

Peter Galbo: Great. Thanks very much.

Speaker #2: Yep.

Dave Marberger: Yep.

Speaker #1: Our next question comes from David Palmer from Evercore. Please go ahead with your question.

Operator 2: Our next question comes from David Palmer from Evercore. Please go ahead with your question.

Operator: Our next question comes from David Palmer from Evercore. Please go ahead with your question.

Speaker #4: Thanks. I wanted to ask you about pricing. The acceptance at retail, how much is that a factor into what you're thinking there? Or is your price elasticity modeling just basically a price impact to the consumer in a vacuum of competitors not also pricing?

David Palmer: Thanks. I wanted to ask you about the pricing, how much is that a factor into what you are thinking there? Or is your price elasticity modeling just basically a price impact to the consumer in a vacuum of competitors not also pricing? I have a quick follow-up.

Speaker #4: And I have a quick follow-up.

Speaker #2: Yeah, thanks for the question. I think in terms of pricing, I kind of go back to my opening comments. I'd really say, really, it's in line with our expectations.

John Brase: Yeah, thanks for the question. I think in terms of pricing, I go back to my opening comments. I would really say, really in line with our expectations, so we are really past the customer acceptance of that now pricing is effective in market. I would tell you that, customer acceptance there was no surprises versus our planning posture. That is how I would think about pricing as we move forward.

Speaker #2: And so we're really past kind of the customer acceptance of that now pricing is effective. In market, and I would tell you that customer acceptance, there was no surprises versus our planning posture.

Speaker #2: And so that's how I'd think about pricing as we move forward.

Speaker #4: And then I noticed you had some comments about not repeating a promotion from last year on the sandwich bros brand. Is that the kind of thing that you will be we'll be seeing throughout the year that there'll be promotions that you see that you already see that were not effective from a profitability standpoint?

David Palmer: I noticed you had some comments about not repeating a promotion from last year on the Sandwich Bros. brand. Is that the kind of thing that we will be seeing throughout the year, that there will be promotions that you already see that were not effective from a profitability standpoint? Is that baked into your guidance? I will pass it on.

Speaker #4: And is that baked into your guidance? And I'll pass it on.

Speaker #2: Yeah, great question. And again, I think we continue to look at our promotional dollars through a real ROI mindset. And I think we've been really prudent of saying, "Hey, we're not going to repeat promos.

John Brase: Yeah, great question. Again, I think we continue to look at our promotional dollars through a real ROI mindset. I think we have been really prudent of saying, "Hey, we are not going to repeat promos that have been dilutive to the company." I think that is what you are seeing in some of this simplification, really focusing on those high leverage elements that can bring value to not only the consumer but also to the shareholders. So we are going to continue to make that a part of how we operate. But I would tell you again, everything, all those assumptions have been embedded into the fiscal year forecast.

Speaker #2: They've been dilutive to the company." And I think that's what you're seeing in some of this simplification, really focusing on those high-leverage elements that can bring value to not only the consumer, but also to the shareholders.

Speaker #2: And so we're going to continue to make that a part of kind of how we operate. But I would tell you again, everything all those assumptions have been embedded into the fiscal year forecast.

Speaker #4: Thank you.

David Palmer: Thank you.

Speaker #1: Our next question comes from Tom Palmer from J.P. Morgan. Please go ahead with your question.

Operator 2: Our next question comes from Tom Palmer from JP Morgan. Please go ahead with your question.

Operator: Our next question comes from Tom Palmer from JP Morgan. Please go ahead with your question.

Speaker #5: Good morning. Thanks for the question. I wanted to maybe just clarify on your second quarter expectations. You've got this high single-digit operating margin outlook; incremental pricing is flowing through.

Tom Palmer: Good morning. Thanks for the question. I wanted to maybe just clarify on your Q2 expectations. You have this high single digit operating margin outlook. Incremental pricing is flowing through. There was the SG&A call-out. I just want to make sure I kind of have my arms around the gross margin cadence here. Is there a step down expected in gross margin as we move into Q2, or is this really about the timing of SG&A that swings the margin lower?

Speaker #5: There was the SG&A callout. I just want to make sure I kind of have my arms around the gross margin cadence here. Is there a step-down expected in gross margin as we move into Q2, or is this really about the timing of SG&A that swings the margin lower?

Speaker #2: Yeah, Tom, let me take that. There's really three drivers. If you would look at where we landed Q1 operating margin, let me just kind of go there.

Dave Marberger: Yeah, Tom, let me take that. There is really three drivers. If you would look at where we landed Q1 operating margin, let me just go there. At 11.5% for Q1, we said higher single digits for Q2, there is really three drivers. One, as I just mentioned, we expect higher inflation in Q2 versus Q1. The second piece is the SG&A favorability that we had in Q1. It was roughly three cents of our EPS beat. Half of that was a one-time benefit, and half of it was timing, where it did not hit in Q1, it is going to hit in Q2. The third piece is accelerating our investment in A&P. So we expect to increase A&P as a percentage of net sales to 3% versus 2.3% as it was in Q1. So they are really the three drivers.

Speaker #2: At 11 and a half percent for Q1, we said higher single digits for Q2. There's really three drivers. One, as I just mentioned, we expect higher inflation in Q2 versus Q1.

Speaker #2: The second piece is the SG&A favorability that we had in Q1. It was roughly $0.03 of our EPS beat. Half of that was a one-time benefit, and half of it was timing, where it didn't hit in Q1.

Dave Marberger: It was roughly three cents of our EPS beat. Half of that was a one-time benefit, and half of it was timing, where it did not hit in Q1, it is going to hit in Q2. The third piece is accelerating our investment in A&P. So we expect to increase A&P as a percentage of net sales to 3% versus 2.3% as it was in Q1. So they are really the three drivers. You will see a little bit of impact on gross margin from the higher inflation versus Q1.

Speaker #2: It's going to hit in Q2. And then the third piece is accelerating our investment in A and P. So we expect increased A and P as a percentage of net sales to 3% versus 2.3% as it was in Q1.

Speaker #2: So they're really the three drivers. So you will see a little bit of impact on gross margin from the higher inflation versus Q1.

Dave Marberger: You will see a little bit of impact on gross margin from the higher inflation versus Q1.

Speaker #5: Okay. Thank you.

Tom Palmer: Okay. Thank you.

Speaker #2: Yep.

Dave Marberger: Yep.

Speaker #1: Our next question comes from Alexia Howard from Bernstein. Please go ahead with your question.

Operator 2: Our next question comes from Alexia Howard from Bernstein. Please go ahead with your question.

Operator: Our next question comes from Alexia Howard from Bernstein. Please go ahead with your question.

Speaker #6: Great. Could I ask about leverage? So you've talked about the three times being the long-term target. And I think it increased a little bit this quarter.

Alexia Howard: Great. Could I ask about leverage? You have talked about the three times being the long-term target, and I think it increased a little bit this quarter to close to four times. I think you are saying that you will still probably be at four times by the end of the year, or you have said through fiscal 2027 it will remain at this four times. How quickly do you expect to start on that de-leveraging trajectory? And how quickly do you expect to achieve that goal? Thank you, and I will pass it on.

Speaker #6: So, close to four times. I think you're saying that you'll still probably be at four times by the end of the year, or you've said that through fiscal '27, it will remain at this four times.

Speaker #6: So, how quickly do you expect to start on that deleveraging trajectory, and how quickly do you expect to achieve that goal? Thank you, and I'll pass it on.

Speaker #4: Yeah. Hi, Alexia. If you start with this year, yeah, we guided to expecting to finish the year at approximately four times on our leverage.

Dave Marberger: Yeah. Hi, Alexia. If you start with this year, we guided to expecting to finish the year at approximately 4 times on our leverage. We finished Q1 at 3.99 times. That is actually favorable to where we thought. Usually what will happen in Q1 and Q2 is our leverage will click up because we are very seasonal with our inventory. With our seasonal businesses and things like our tomato operations, we build all the inventory in Q1 and Q2, so obviously we use cash in the H1, and then we have cash inflow in the H2. So that is very normal. We are still on track with the approximately 4 times. We do not get specific with this, but it is implied. We do expect to pay down debt in the year for the full year. Approximately $250 million of debt pay down is what we would expect for this year.

Speaker #4: We finished Q1 at 3.99 times. That's actually favorable to where we thought. Usually, what will happen in Q1 and Q2 is our leverage will click up because we're very seasonal with our inventory, right, with our seasonal businesses.

Speaker #4: And things like our tomato operations, we build all the inventory in Q1 and Q2. So obviously, we use cash in the first half and then we have cash inflow in the second half.

Speaker #4: So that's very normal. So we're still on track with the approximately four times. That we don't get specific with this, but it's implied we do expect to pay down debt in the year for the full year.

Dave Marberger: We are still on track with the approximately 4 times. We do not get specific with this, but it is implied. We do expect to pay down debt in the year for the full year. Approximately $250 million of debt pay down is what we would expect for this year. Our target is 3 times. We are maniacally focused on getting there as soon as possible. As we get into fiscal 2028, John talked about it, we are focused on improving margins and profitability of this business. With improved profitability and the dividend adjustment that we made, we feel like we are going to be able to make great progress in fiscal 2028 on getting that leverage down. We are not going to give you that number today. But we want to get to 3 times as soon as possible.

Speaker #4: Approximately $250 million of debt paydown is what we would expect for this year. Our target is three times. We are maniacally focused on getting there as soon as possible.

Dave Marberger: Our target is 3 times. We are maniacally focused on getting there as soon as possible. As we get into fiscal 2028, John talked about it, we are focused on improving margins and profitability of this business. With improved profitability and the dividend adjustment that we made, we feel like we are going to be able to make great progress in fiscal 2028 on getting that leverage down. We are not going to give you that number today. But we want to get to 3 times as soon as possible.

Speaker #4: As we get into fiscal '28, John talked about it. We're focused on improving margins and profitability of this business. So with improved profitability and the dividend adjustment that we made, we feel like we're going to be able to make great progress in fiscal '28 on getting that leverage down.

Speaker #4: We're not going to give you that number today, but we want to get to three times as soon as possible.

Speaker #6: Great, thank you very much. I'll pass it on.

Alexia Howard: Great. Thank you very much. I will pass it on.

Speaker #1: Our next question comes from Wells Fargo Securities. Please go ahead with your question.

Operator 2: Our next question comes from Wells Fargo Securities. Please go ahead with your question.

Operator: Our next question comes from Wells Fargo Securities. Please go ahead with your question.

Speaker #7: Hi. Morning, everybody. Chris Carey. I wanted to ask about the next portfolio. Can you just give us a sense of maybe where you are on some of the interventions to improve performance?

Chris Carey: Hi. Good morning, everybody. Chris Carey.

Dave Marberger: Hi, Chris.

Chris Carey: I wanted to ask about the snacks portfolio. Can you just give us a sense of maybe where you are on some of the interventions to improve performance? You talked about, I think, popcorn, Slim Jim. What are the expectations, more from a volume standpoint, as you look forward and perhaps lap some of the elasticities over the medium term? Then just maybe, not like a clarification, but just curious whether you're seeing or you thought you saw any benefit in your frozen business from Cyclospora-related demand, and if that's a factor in how you're viewing the next few quarters in frozen. Thanks.

Speaker #7: You talked about, I think, popcorn, Slim Jim—yeah. What are the expectations, more from a volume standpoint, as you look forward and perhaps lapse some of the elasticities over the medium term?

Speaker #7: And then just to maybe not like a clarification, but just curious whether you're seeing or you thought you saw any benefit in your frozen business from Cyclospore-related demand.

Speaker #7: And if that's a factor in how you're viewing the next few quarters in frozen. Thanks.

Speaker #2: Great. I'll take both of those. As you think about snacking, let's start with the positives. Really, our sweet treats portfolio continues to perform really, really well and had a very strong quarter.

John Brase: Great. I'll take both of those. If you think about snacking, let's start with the positives. Really, our sweet treats portfolio continues to perform really well and had a very strong Q1, and that's really behind both Snack Pack and Swiss Miss continue to really be performing very well in the market. I think permissible snacking, as you said, we're not where we want to be there. I think a couple of points of drivers there. The first is obviously we're very overdeveloped in our meat snacks and our seeds business in the C-store channel, which has been really challenged lately with the higher gas prices.

Speaker #2: Q1, and that's really behind both Snack Pack and Swiss Miss continue to really be performing very well in the market. I think permissible snacking, as you said, is really where we're not where we want to be there.

Speaker #2: And I think a couple of points of drivers there. The first is, obviously, we're very overdeveloped in our meat snacks and our seeds business in the convenience channel, which has been really challenged lately with the higher gas prices.

Speaker #2: But I think aside that, there's work to do from my standpoint in terms of from an execution and a channel lens, we need to do a better job of participating where the growth is really coming from, specifically in the meat snacks category.

John Brase: But I think aside that, there is work to do from my standpoint in terms of from an execution and a channel lens. We need to do a better job of participating where the growth is really coming from, specifically in the meat snacks category. As you take a step back and you think about meat snacks and popcorn and seeds, these are fantastic categories, and we are the market leader. So it is our responsibility to drive these categories forward. So I think what you are going to see, and you are already seeing as we go into Q2, a significant step up in our brand building and marketing, specifically pinpointed at meat snacks and popcorn specifically there, but also innovation, a major step up in innovation.

Speaker #2: As you take a step back and you think about meat snacks and popcorn and seeds, these are fantastic categories. And we are the market leader.

Speaker #2: And so it's our responsibility to kind of drive these categories forward. And so I think what you're going to see, and you're already seeing as we go into Q2, is a significant step up in our brand building and marketing, specifically pinpointed at meat snacks and popcorn.

Speaker #2: But then also innovation—a major step up in innovation. We think those are the two critical levers to get us back to a growth trajectory in those important businesses.

John Brase: We think those are the two critical levers to get us back to a growth trajectory in those important businesses. On Cyclospora, just a quick one there. We did see some benefit, but I would tell you, nothing material as we think about Q1. We also actually saw some offsets from Cyclospora as you think about our Wish-Bone salad dressing as an example. So again, nothing material there. But I think more than the one-time benefit, I think what is really important is this is a reflection of consumers coming to a brand they know and trust with Birds Eye, and we did a great job of delivering for them. So I think as you think about that brand, we have got such an opportunity to drive more trial and more engagement with consumers.

Speaker #2: On Cyclospora, just a quick one there. We did see some benefit, but I would tell you, nothing material. As we think about Q1, and we also actually saw some offsets from Cyclospora as you think about our wishbone salad dressing as an example.

Speaker #2: So again, nothing material. But I think, more than the one-time benefit, what's really important is this is a reflection of consumers coming to a brand they know and trust with Bird's Eye.

John Brase: So again, nothing material there. But I think more than the one-time benefit, I think what is really important is this is a reflection of consumers coming to a brand they know and trust with Birds Eye, and we did a great job of delivering for them. So I think as you think about that brand, we have got such an opportunity to drive more trial and more engagement with consumers. We deliver great taste, a great convenience, and honestly, reliability that they are looking for in their vegetables. So we think a great opportunity to continue to drive Birds Eye.

Speaker #2: And we did a great job of delivering for them. So I think, as you think about that brand, we've got such an opportunity to drive better, more trial, and more engagement with consumers.

Speaker #2: We deliver great taste. Great convenience. And honestly, reliability that they're looking for in their vegetables. So we think a great opportunity to continue to drive bird's eye.

John Brase: We deliver great taste, a great convenience, and honestly, reliability that they are looking for in their vegetables. So we think a great opportunity to continue to drive Birds Eye.

Speaker #7: Okay. Thank you.

Dave Marberger: Okay. Thank you.

Chris Carey: Okay. Thank you.

Speaker #1: Our next question comes from Max Gumpert from BMP. Please go ahead with your question.

Operator 2: Our next question comes from Max Gumport from BNP Paribas Exane. Please go ahead with your question.

Operator: Our next question comes from Max Gumport from BNP Paribas Exane. Please go ahead with your question.

Speaker #4: Hey, thanks for that question. Just coming back to the Q1 and your reaffirmed outlook for the year. Obviously, this is a sizable EPS beat versus consensus.

Max Gumport: Hey, thanks for the question. Just coming back to the Q1 beat and your reaffirmed outlook for the year. Obviously, it was a sizable EPS beat versus consensus and I think versus your expectations, too. You did get some help from inflation. There was some SG&A timing benefit as well, and your inflation outlook for the remainder of the year has ticked up. I am curious to what degree the reaffirmed outlook maybe has embedded additional conservatism in it, especially with regard to Ardent Mills as well, given the wheat price volatility. Thanks very much.

Speaker #4: And I think, versus your expectations, too, you did get some help from inflation. There were some SG&A timing benefits as well. Your inflation outlook for the remainder of the year has ticked up.

Speaker #4: But I'm curious to what degree the reaffirmed outlook maybe has embedded additional conservatism in it, especially with regard to Ardent Mills as well, given the weak price volatility.

Speaker #4: Thanks very much.

Speaker #7: Yeah, Max. Let me take that. Starting with Q1, you kind of hit it. We had a beat to our expectations, really driven by, I'd say, four things.

Dave Marberger: Well, Max, let me take that. Starting with Q1, you kind of hit it. We had a beat to our expectations, really driven by, I would say, four things. Our SG&A, which was the timing, and then the one-time. We had the Ardent Mills benefit. We had the inflation lower than our internal forecast. Then we did get a bit of benefit on a tariff refund that we got in the quarter, which was close to a cent. When you look for the full year, SG&A, we talked about it, the one time is the one time, and then you have the timing. But that is pretty much on track. The big impact is the acceleration of transportation inflation. It is double the rate that we and we had assumed inflation for transportation, and it is double the rate.

Speaker #7: Our SG&A, which was the timing, and then the one-time we had the Ardent Mills benefit. We had the inflation lower than our internal forecast.

Speaker #7: And then we did get a bit of benefit on a tariff refund that we got in the quarter, which was close to a cent.

Speaker #7: When you look for the full year, SG&A, we talked about it. The one-time is the one-time. And then you have the timing. But that's pretty much on track.

Speaker #7: The big impact is the acceleration of transportation inflation. It's double the rate that we and we had assumed inflation for transportation. And that's double the rate.

Speaker #7: The good news is that we have some other areas and materials where we're favorable to that. So there's a lot of puts and takes there.

Dave Marberger: The good news is that we have some other areas in materials where we are favorable to that. So there is a lot of puts and takes there. The other dynamic is we are just starting with our frozen pricing, and so we really need to see how this plays out. We have been very clear on how we have modeled elasticities. There could be a scenario where maybe that winds up being conservative, maybe not. So we just need to see how that plays out. Then Ardent Mills, we were favorable about 3 cents in the quarter to our expectations for Ardent Mills. Wheat prices have been extremely volatile, right? If you just look from May to now, they are up significantly, but they have been up and down. So that creates trading opportunities for the commodity side of the Ardent business.

Speaker #7: The other dynamic is we're just starting with our frozen pricing. And so we really need to see how this plays out. We've been very clear on how we've modeled elasticities.

Speaker #7: There could be a scenario where maybe that winds up being conservative, maybe not. So we just need to see how that plays out. And then Ardent Mills—we were favorable about $0.03 in the quarter to our expectations for Ardent Mills.

Speaker #7: Weed prices have been extremely volatile, right? If you just kind of look from May to now, they're up significantly, but they've been up and down.

Speaker #7: And so, that creates trading opportunities for the commodity side of the Ardent business. The thing with that is, it's a little more difficult to forecast with precision for the full year.

Dave Marberger: The thing with that is it is a little bit more difficult to forecast that with precision for the full year. We thought it was prudent to hold the year. It is one quarter, and then we will update at the H1. If things continue as they do in Q1, then maybe we have some upside there, but we want to wait a little longer to see.

Speaker #7: So we thought it was prudent to hold the year. It's one quarter. And then we'll update at the half and if things continue as they do in Q1, then maybe we have some upside there.

Speaker #7: But we want to wait a little longer to see.

Speaker #4: Very helpful. Thanks very much.

Max Gumport: Very helpful. Thanks very much.

Speaker #1: Our next question comes from Robert Moscow from TD Callan. Please go ahead with your question.

Operator 2: Our next question comes from Robert Moskow from TD Cowen. Please go ahead with your question.

Operator: Our next question comes from Robert Moskow from TD Cowen. Please go ahead with your question.

Speaker #3: Hey, thanks for the question. I don't know if I saw kind of a firm guide on gross margin for the year, three months ago.

Robert Moskow: Hey, thanks for the question. I do not know if I saw a firm guide on gross margin for the year. Three months ago, I think the guide was kind of flattish, but now you have the higher cost. The other element that I wanted to ask about, Dave, is in the frozen and refrigerated division, the volumes are going to be down, like, 10%. At the same time, you were also increasing capacity, particularly in frozen chicken. I am just wondering if there is How are you managing through the leverage consequences of that? Is that a drag? Have you already put into your numbers a drag from that dynamic?

Speaker #3: I think the guide was kind of flattish. But now you have the higher costs. And the other element that I wanted to ask about, Dave, is in the Frozen and Refrigerated division—the volumes are going to be down about 10%.

Speaker #3: And at the same time, you were also increasing capacity, particularly in frozen chicken. So I'm just wondering, how are you managing through the leverage consequences of that?

Speaker #3: Is that a drag? Have you already put into your numbers a drag from that dynamic?

Speaker #7: Yeah, Rob, good questions. On the first one, we've held our guidance for operating margin for the year. So obviously, gross margin is a big part of that.

Dave Marberger: Yeah, Rob, good questions. On the first one, we have held our guidance for operating margin for the year, so obviously gross margin is a big part of that. We have had puts and takes in the cost, so we are still where we were before, which is relatively flat to the prior year in terms of gross margin. To your second question, yeah, obviously, we have modeled the pricing and the elasticity impacts, and there is volume impacts where we have decreases in volume in our frozen business. We have modeled that. We have taken into account the absorption impact. So all of that is included in the guidance that we have provided, and we will just see how that plays out.

Speaker #7: We've had puts and takes in the cost. And so we're still where we were before, which is relatively flat to the prior year in terms of gross margin.

Speaker #7: To your second question, yeah, obviously, we have modeled the pricing and the elasticity impacts. And there are volume impacts, where we have a decrease in volume in our frozen business.

Speaker #7: We've modeled that. We've taken into account the absorption impact, so all of that is included in the guidance that we've provided. And we'll just see how that plays out.

Speaker #3: Sounds good. Thank you.

Robert Moskow: Sounds good. Thank you.

Speaker #7: Thanks.

Dave Marberger: Thanks.

Speaker #1: Our next question comes from Rob Dickerson from U.S. Bancorp. Please go ahead with your question.

Operator 2: Our next question comes from Rob Dickerson from U.S. Bancorp. Please go ahead with your question.

Operator: Our next question comes from Rob Dickerson from U.S. Bancorp. Please go ahead with your question.

Speaker #8: Great, thanks so much. John, I just want to ask you about the simplification process—kind of how you're thinking about SKU rationalization and then maybe even brand rationalization, right?

Rob Dickerson: Great. Thanks so much. John, I just want to ask you about the simplification process, how you are thinking about SKU rationalization and then maybe even brand rationalization, right? I realize you said last quarter, prepared remarks this quarter again, kind of looking at everything. But it was noted in those prepared remarks that, I guess, you exited Celeste Pizza. I am just curious, I mean, clearly when you exit that rationalizes SKUs. So are there parts of the portfolio such that you could simplify by just stepping away from certain brands that are on lines that you have? Then I guess secondly, just broadly, how are you thinking at this point about the manufacturing footprint? Thanks.

Speaker #8: I realize, instead of last quarter, you prepared remarks this quarter again, kind of looking at everything. But it was noted in those prepared remarks that, I guess, you exited less pizza.

Speaker #8: And I'm just curious, I mean, clearly, when you exit that, that rationalized the SKUs. So are there parts of the portfolio such that you could simplify by just kind of stepping away from certain brands or lines that you have?

Speaker #8: And then, I guess secondly, just kind of broadly, how are you thinking at this point about the manufacturing footprint? Thanks.

Speaker #6: Hey Rob, thanks for the question. And if you guys will indulge me, I'm going to go a bit long on this one, because I think it really is important.

John Brase: Hey, Rob. Thanks for the question. If you guys will indulge me, I am going to go a bit long on this one because I think it really is important for you to understand how we are thinking about this. I am incredibly excited about the opportunity we have to really reduce complexity across the enterprise. I will tell you, SKU optimization is definitely one of those areas. As we have discussed before, we have an extremely long tail of SKUs that we are getting after. Right now, we stood up an internal work stream that is really looking to significantly reduce SKU count. I would put this work into two buckets. The smaller bucket, which you just alluded to, is there are certain brands and categories where we simply just do not see a future.

Speaker #6: For you to kind of understand how we're thinking about this, I am incredibly excited about the opportunity we have to really reduce complexity across the enterprise.

Speaker #6: And I will tell you, SKU optimization is definitely one of those areas. As we've discussed before, we have an extremely long tail of SKUs that we are going after.

Speaker #6: Right now, we've stood up an internal workstream that's really looking to significantly reduce SKU count. And I'd put this work into two buckets, which you just alluded to. There are certain brands and categories where we simply just don't see a future.

Speaker #6: And it just makes sense to exit those small, really unprofitable brands, or low-profit brands, as soon as possible. And so, we made the decision, as you saw, with Celeste Pizza, which had a minor impact on net sales.

John Brase: It just makes sense to exit those small, really unprofitable brands or low-profit brands as soon as possible. We made the decision, as you saw, with Celeste Pizza, which had a minor impact on net sales for Q1, about a 15 BPS impact, but it was actually profit accretive to the enterprise. I think we will continue to look for more of those small opportunities that we do see in front of us. I think the larger opportunity, though, is what I am really calling the simplification of our core platforms. I want to use an example here that I think will bring this to life. Single-serve meals. We have got over 400 single-serve meal SKUs, and I believe there is a future where we can have a much simpler, more productive assortment.

Speaker #6: For Q1, it was about a 15 basis points impact, but it was actually profit accretive to the enterprise. And I think we'll continue to look for more of those small opportunities that we do see in front of us.

Speaker #6: I think the larger opportunity, though, is what I'm really calling the simplification of our core platforms. And I want to use an example here that I think will bring this to life.

Speaker #6: Single-serve meals. We've got over 400 single-serve meal SKUs, and I believe there's a future where we can have a much simpler, more productive assortment.

Speaker #6: That doesn't mean for a second that we don't believe in the category, that we have any plans to seed distribution, or that we're going to stop innovating.

John Brase: That does not mean for a second that we do not believe in the category, that we have any plans to cede distribution, or that we are going to stop innovating. I would say just the opposite. We want to double down in this business, and we think an optimized assortment can help drive velocity on our most impactful SKUs. In terms of SKU complexity, that is one component. I would also tell you, we are looking to optimize our formats and formulations. We just have to do a better job of eliminating non-value-added complexity that the consumer, quite frankly, isn't willing to pay for. As we are looking at this, we are not just looking at SKUs, we are looking at formats and formulation as well. I think as you fast-forward, this is going to do several things for us. It is going to drive stronger operational efficiency.

Speaker #6: I would say just the opposite. We want to double down in this business, and we think an optimized assortment can help drive velocity on our most impactful SKUs.

Speaker #6: And so, in terms of SKU complexity, that's one component. But I would also tell you we're looking to optimize our formats and formulations.

Speaker #6: We just have to do a better job of eliminating non-value-added complexity that the consumer, quite frankly, isn't willing to pay for. So, as we're looking at this, we're not just looking at SKUs.

Speaker #6: We're looking at formats and formulation as well. And I think, as you fast forward, this is going to do several things for us. It's going to drive stronger operational efficiency.

Speaker #6: It's going to drive procurement savings, as we're procuring fewer items but with greater scale. It's going to help us drive improved focus, which I think is so important—when we get focused on something, we execute with excellence.

John Brase: It is going to drive procurement savings as we are procuring fewer items, but with greater scale. It is going to help us drive improved focus, which I think is so important. When we get focused on something, we execute with excellence. We need to focus our organization a bit more, and this will do that. Finally, improve velocity on shelf, which is good for us, good for our customers. The last thing I would say here is we are going to take a real measured approach in how we roll out the SKU simplification. We really need to coordinate this with our customer reset timing and look at inventory impacts. I would see the majority of this benefit from this work to happen more in fiscal 2028, but the decisions are happening right now.

Speaker #6: We need to focus our organization a bit more, and this will do that. And then finally, improved velocity on shelf, which is good for us and good for our customers.

Speaker #6: And so, the last thing I'd say here is we're going to take a real measured approach in how we roll out the SKU simplification.

Speaker #6: We really need to coordinate this with our customer reset timing and look at inventory impacts. So, I would see the majority of this benefit from this work happening more in fiscal 2028, but the decisions are happening right now.

Speaker #7: All right. Great. That's very helpful. Thank you so much.

Rob Dickerson: All right, great. That's very helpful. Thank you so much.

Speaker #1: Our next question comes from Scott Marks from Jefferies. Please go ahead with your question.

Operator 2: Our next question comes from Scott Marks from Jefferies. Please go ahead with your question.

Operator: Our next question comes from Scott Marks from Jefferies. Please go ahead with your question.

Speaker #8: Good morning, everyone. Thanks very much for taking my questions. I wanted to ask a little bit about the consumer. You made some comments in the prepared remarks about the consumer being thoughtful regarding where they're spending their dollars.

Scott Marks: Hey, good morning, all. Thanks very much for taking our questions. Wanted to just ask a little bit about the consumer. You made some comments in your prepared remarks talking about the consumer just being thoughtful about where they're spending their dollars, obviously managing through a volatile environment. Any updates you can share with us in terms of what you're seeing? Have things improved, gotten worse? Just any changes that you've seen recently. Thanks very much.

Speaker #8: Obviously, managing through a volatile environment. Any updates you can share with us in terms of what you're seeing—have things improved, gotten worse, just any changes that you've seen recently?

Speaker #8: Thanks very much.

Speaker #6: Yeah, thanks for the question. I think I would describe the macro environment as dynamic—that’s probably an understatement. But, in terms of the consumer, I would say the words I’d use are muted, and that continues to be kind of bifurcated by income, no doubt about it.

John Brase: Yeah. Thanks for the question. I think I would describe the macro environment as dynamic. That's probably an understatement. But in terms of the consumer, I would say, the words I would use is muted and it continues to be kind of bifurcated by income, no doubt about it. But having said that, we really haven't seen any material step change in consumer behavior. There's pockets, C-store is an example, that's been a bit more pressured in recent months because of the gas prices. But overall, I would say the consumer's been relatively stable and resilient. But our job is to continue to stay incredibly close to the consumer. We've got to evolve alongside how they're evolving and delivering the food they want, where they want it, but also importantly, at the right value. This is what I love about our portfolio.

Speaker #6: But having said that, we really haven't seen any material step change in consumer behavior. There are pockets—C-store as an example—that have been a bit more pressured in recent months because of the gas prices.

Speaker #6: But overall, I would say the consumer has been relatively stable and resilient. But our job is to continue to stay incredibly close to the consumer, and we've got to evolve alongside how they're evolving.

John Brase: But our job is to continue to stay incredibly close to the consumer. We've got to evolve alongside how they're evolving and delivering the food they want, where they want it, but also importantly, at the right value. This is what I love about our portfolio. We have got brands that compete all across the value spectrum. Value brands like Banquet, all the way up to more premium offerings like Healthy Choice. We have got a portfolio that can meet this dynamic consumer wherever they are.

Speaker #6: And delivering the food they want, where they want it, but also, importantly, at the right value. This is what I love about our portfolio.

Speaker #6: We've got brands that compete all across the value spectrum—value brands like Banquet, all the way up to more premium offerings like Healthy Choice.

John Brase: We have got brands that compete all across the value spectrum. Value brands like Banquet, all the way up to more premium offerings like Healthy Choice. We have got a portfolio that can meet this dynamic consumer wherever they are.

Speaker #6: And so we've got a portfolio that can meet this dynamic consumer wherever they are.

Speaker #1: Our next question comes from Lee Jordan from Goldman Sachs. Please go ahead with your question.

Operator 2: Our next question comes from Leah Jordan from Goldman Sachs. Please go ahead with your question.

Operator: Our next question comes from Leah Jordan from Goldman Sachs. Please go ahead with your question.

Speaker #5: Hi, thank you. Good morning, and thanks for taking my question. I'm just seeing if you could provide more detail on the changes in your approach for the step-up in the A&P spend.

Leah Jordan: Hi. Thank you. Good morning, and thanks for taking my question. Just wondering if you could provide more detail on the changes in your approach for the step-up in the A&P spend. It sounds like you have had some early traction. Just curious, what has been working, how are you measuring that return, and where are you allocating the step-up in spend you are planning to do in Q2?

Speaker #5: It sounds like you've had some early traction. Just curious, what's been working? How are you measuring that return? And where are you allocating the step-up in spend you're planning to do in Q2?

Speaker #6: Yeah. As you think about A&P, this is a big one for me. We have so many great brands, but if I'm being truthful, we haven't consistently invested behind them at the levels that are required to drive that brand affinity and awareness.

John Brase: Yeah. As you think about A&P, this is a big one for me. We have so many great brands, but if I am being truthful, we have not consistently invested behind them at the levels that are required to drive that brand affinity and awareness. We have a tremendous opportunity to communicate more with consumers to ensure they understand we have got great value propositions out there, and our job is to make sure they fully understand it. As you think about the investments, I am really pleased in two fronts. One, we are investing more, and two, we are getting that money to work a lot harder for us. This is kind of this new modern marketing machine that we are building internally that I think can become a real competitive advantage.

Speaker #6: And so we have a tremendous opportunity to communicate more with consumers to ensure they understand. We've got great value propositions out there, and our job is to make sure they fully understand them.

Speaker #6: And so, as you think about the investments, I'm really pleased on two fronts. One, we're investing more. And two, we're getting that money to work a lot harder for us.

Speaker #6: And this is kind of this new, modern marketing machine that we're building internally, that I think can become a real competitive advantage. And so, as you think about where we're focusing these investments, it's really in three places.

John Brase: As you think about where we are focusing these investments, it is really in three places, single-serve meals, meat snacks, and popcorn. We are going to be very targeted in those important growth ambitions. Your last point is a good one, too. We are already seeing some really positive results in terms of improved reach and engagement from some of the changes that we are doing. We have gotten a lot more targeted in who we are going after, how we are going after them, and our messaging is just sharper and more compelling. I think this is a tremendous opportunity to use this increased focus on brand building to help kind of return us to growth and drive brand relevance.

Speaker #6: Single-serve meals, meat snacks, and popcorn. We're going to be very, very targeted. And those important growth ambitions and your last point is a good one too.

Speaker #6: We're already seeing some really positive results in terms of improved reach and engagement from some of the changes that we're doing. We've gotten a lot more targeted in who we're going after, how we're going after them, and our messaging is just sharper and more compelling.

Speaker #6: And so, I think this is a tremendous opportunity to use this increased focus on brand building to help kind of return us to growth and drive brand relevance.

Speaker #5: That's very helpful, thank you. And then my follow-up was just on interest expense. I saw it was reiterated for the year. We've had the move higher in rates here recently.

Leah Jordan: That is very helpful. Thank you. My follow-up was just on interest expense. I saw it was reiterated for the year. We have had to move higher in rates here recently. I think you are mostly fixed exposure, but I did think you had a little bit of floating, so just kind of touch up, remind us where your exposure is there. I also thought you may have some refinancing needs in the relative near term. So just how are you thinking about that in this interest rate environment as well? Thank you.

Speaker #5: I think you're mostly fixed exposure, but I did think you had a little bit of floating. So just kind of catch up, remind us where your exposure is there.

Speaker #5: And then I also thought you may have some refinancing needs in the relative near term. So just how are you thinking about that in this interest rate environment as well?

Speaker #5: Thank you.

Speaker #7: Yeah, let me take that. For the first one, we're pretty much 100% fixed right now. The only variable debt that we have is our commercial paper.

Dave Marberger: Leah, let me take that. The first one, we are pretty much 100% fixed right now. The only variable debt that we have is our commercial paper. So we use that as sort of our working capital needs. So we are very high percentage fixed, so we are really not exposed to the interest rate environment now. Yes, we do have two bonds coming due this month. We have a $500 million note and a $260 million note. We actually went into the market in July and financed ahead, and so we issued a $500 million note. The rate came in at 5.4%. At the time, it was actually pretty good there, given what rates have done since then. So from the proceeds of that and just our normal kind of borrowing capacity, we are very comfortable refinancing these notes this month.

Speaker #7: And so we use that as sort of our working capital needs. So we're a very high percentage fixed. So we're really not exposed to the interest rate environment now.

Speaker #7: Yes, we do have two bonds coming due this month. We have a $500 million note and a $260 million note. We actually went into the market in July and financed ahead.

Speaker #7: And so, we issued a $500 million note; that rate came in at 5.4%. At the time, it was actually pretty good, given what rates have done since then.

Speaker #7: So, between the proceeds from that and just our normal kind of borrowing capacity, we're very comfortable refinancing these notes this month.

Speaker #5: Very helpful. Thank you.

Leah Jordan: Very helpful. Thank you.

Speaker #1: And our next question comes from Carlo Casella from J.P. Morgan. Please go ahead with your question.

Dave Marberger: Yeah.

Operator 2: Our next question comes from Carla Casella from JP Morgan. Please go ahead with your question.

Operator: Our next question comes from Carla Casella from JP Morgan. Please go ahead with your question.

Speaker #3: Hi. Someone on that last question as well as Alexius earlier question on leverage. Have you had conversations with the agencies? Because we've seen in some cases, other peers that have cut their dividend and focused on deleveraging, but still gotten downgraded.

Carla Casella: Hi. Somewhat on that last question as well as Alexia Howard's earlier question on leverage. Have you had conversations with the agencies? Because we've seen, in some cases, other peers that have cut their dividend and focused on deleveraging but still gotten downgraded. Do you think they're kind of changing their view at all on your business?

Speaker #3: Do you think they're kind of changing their view at all on your business?

Speaker #7: Yeah, Carlo. We talk to the agencies all the time, so they're very clear on our financial policy and our priority of using our discretionary cash flow to pay down our debt as quickly as possible.

Dave Marberger: Yeah, Carla, we talk to the agencies all the time, so they're very clear on our financial policy, our priority of using our discretionary cash flow to pay down our debt as quickly as possible. So we're always working and talking to the agencies. They obviously looked at our cut of the dividend as a positive in terms of our credit rating and our position. So they know where we're going. They know what our priorities are. So now it's a matter of just continuing to get that leverage down. We know the markers for levels where if leverage exceeds certain levels, you may be putting investment grade at risk. We're not near those levels, and we're moving in the right direction, which is down with our leverage. They know that. So that's our strategy, that's our focus, and they're very aligned with that.

Speaker #7: So we're always working and talking to the agencies. They obviously looked at our cut of the dividend as a positive in terms of our credit rating.

Speaker #7: And our position—so they know where we're going, they know what our priorities are. So now it's a matter of just continuing to get that leverage down.

Speaker #7: We know the markers for levels where if you leverage exceeds certain levels, you may be putting investment grade at risk. We're not near those levels.

Speaker #7: And we're moving in the right direction, which is down with our leverage. And they know that. So that's our strategy. That's our focus. And they're very aligned with that.

Speaker #3: Okay, that's great. And just one follow-up on Ardent Mills: how do we think about the volatility in wheat and how that flows through the numbers?

Carla Casella: Okay, that's great. Just one follow-up on Ardent Mills. How do we think about the volatility in wheat and how that flows through the numbers? I know it was a benefit for this quarter, but how should we think about that going forward?

Speaker #3: I know it's a benefit for this quarter but how should we think about that going forward?

Speaker #7: Yeah. So think of Ardent Mills as really two different businesses. They have the business where they mill flour, and they sell flour at a margin.

Dave Marberger: Yeah, so think of Ardent Mills as really two different businesses. They have the business where they mill flour and they sell flour at a margin, and they are selling flour to the Domino's Pizza of the world and everything. So they are dealing with the same volume dynamics that this entire food industry is, but they do an amazing job of providing great customer service that is a competitive advantage for them. But that business is more stable and more flattish. If you look at the other part of their business, it is what we call commodity revenue, and that is the trading opportunities they create when you have volatility in the wheat markets. That is what we saw in Q1. And the hard part there is when that comes, it is a little bit difficult to forecast with precision.

Speaker #7: And they're selling flour to the Domino's Pizzas of the world and everything. So they're dealing with the same volume dynamics that this entire food industry is.

Speaker #7: But they do an amazing job of providing great customer service that's a competitive advantage for them. But that business is more stable and more flattish.

Speaker #7: If you look at the other part of their business, it's what we call commodity revenue. That's the trading opportunities they create when you have volatility in the wheat markets.

Speaker #7: And so that's what we saw in Q1. The hard part there is, when that comes, it's a little bit difficult to forecast with precision.

Speaker #7: But generally, with more volatility, Ardent Mills will benefit from that volatility with their commodity trading business. And so and the good news for us is we're very aligned from a capital allocation perspective.

Dave Marberger: But generally, with more volatility, Ardent Mills will benefit from that volatility with their commodity trading business. And the good news for us is we are very aligned from a capital allocation perspective. So in terms of profit, we have a minimum of 80% cash flow conversion on that profit. And we are very aligned with Ardent and our partners on that philosophy.

Speaker #7: So in terms of profit, we have a minimum of 80% cash flow conversion on that profit. And we're very aligned with Ardent and our partners on that philosophy.

Speaker #3: Okay. That's great. That's super helpful. Thanks.

Carla Casella: Okay, that is great. That is super helpful. Thanks.

Speaker #7: Thank you.

Dave Marberger: Thank you.

Speaker #1: And, ladies and gentlemen, at this time, we'll be ending today's question and answer session. I'd like to turn the floor back over to Matthew Nicis for closing remarks.

Operator 2: Ladies and gentlemen, at this time we will be ending today's question and answer session. I would like to turn the floor back over to Matthew Neisius for closing remarks.

Operator: Ladies and gentlemen, at this time we will be ending today's question and answer session. I would like to turn the floor back over to Matthew Neisius for closing remarks.

Speaker #6: Thank you, Jamie. And thank you all for joining us today. Feel free to reach out to Investor Relations with any additional questions. Have a good day.

Matthew Neisius: Thank you, Jamie, and thank you all for joining us today. Feel free to reach out to investor relations with any additional questions. Have a good day.

Operator 2: With that, we will conclude today's Q&A session and conference call. We do thank you for joining. You may now disconnect your lines.

Operator: With that, we will conclude today's Q&A session and conference call. We do thank you for joining. You may now disconnect your lines.