Q4 2019 Earnings Call
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Making some references to total conagra brands as well as legacy Conagra brands.
References to legacy Conagra brands referred to measures that exclude any income or expenses associated with the recently acquired Pinnacle foods business.
With that I will turn it over to Sean.
Thanks, Brian Good morning, everyone and thanks for joining our fourth quarter fiscal 2019 earnings call.
We have a lot to discuss so let's start with what I want you to take away from today first we remain confident that we will deliver long term value by continuing to implement the conagra way to profitable growth.
Our unwavering commitment to the Conagra away will serve both legacy Conagra and pinnacle well into the future.
Fiscal 2019 was a year of remarkable transition we did a major deal that required more attention than originally anticipated, but I'm pleased to report that we continue to make progress stabilizing the pinnacle business Weve hit several key integration milestones and our deleveraging initiative is on track.
As you saw in our release this morning, our Q4 results were disappointing.
This was largely due to discrete issues on a few businesses as a result of non economic behavior from competitors as well as unfavorable market conditions for our ardent mills joint venture.
These issues accelerated late in the quarter, and we see them as transitory headwinds.
Now im going to unpack the drivers of our Q4 performance in a moment, but before I do I want to comment on the year.
Because fiscal 2019 in fiscal 2019, we took several very important steps, both organic and inorganic to enhance the long term health of our business.
These will help us play offense in fiscal 2020, as we bring to market another robust slate of on trend innovation.
That innovation is also a major factor in reiterating our earnings guidance and increasing our organic growth guidance for fiscal 2020.
Dave will provide more guidance information later.
I'll wrap up by sharing some some thoughts on our opportunities within plant based meat alternatives now that we own gardien, we're very well positioned to capitalize on the explosive growth in this exciting space.
So before I jump into the details of the quarter I'd want to frame up the big picture.
Fiscal 2019 was transformative for us and we made very good progress securing our foundation during the year.
We significantly advanced the Conagra way playbook by deploying our principles across the portfolio.
Our principles dictate that it's important to be lean. So you can be agile, but that you can't cut your way to prosperity growth is essential and not all growth is equal to consumer has to be top of mind.
And innovation capability counts.
Fiscal 2019 also brought the launch of our largest innovation slate to date.
Along with an emphasis on supporting our brands with efficient marketing programs.
As a result, you can see we've had sustained consumption growth over the past two years.
We also delivered organic net sales growth for the second year in a row, our disciplined approach to innovation and brand building, particularly across our frozen in snacking portfolios is paying off.
The result has provided us with a rock solid foundation from which to deliver on our new long term growth algorithm.
Our successful completion of the Pinnacle foods acquisition during the year accelerated the next wave of change at Conagra Pinnacle was an obvious fit that increased our scale enhanced our frozen platform and added leading iconic brands and attractive categories. We've made tremendous progress integrating the businesses, realizing synergies and positioning pinnacle's big three brands for a return to growth.
We also continued to reshape our overall portfolio for better growth and better margins during fiscal 19 by divesting non core assets.
Let's take a closer look at the pinnacle business.
Starting with the integration on slide nine we achieved a critical milestone at the end of the fiscal year, we successfully transitioned pinnacle's legacy order to cash and financial ERP systems onto Conagra's S&P platform.
This took a tremendous effort by the integration team and it went off without a hitch in fact across the board. The integration continues to run smoothly and our synergy capture remains on schedule.
Since the transaction closed in late October we have recognized $31 million of synergies.
From a balance sheet perspective, I'm pleased to report that we remain on track with our deleveraging plan, having reduced debt by $450 million in the fourth quarter and 886 million from the close of the acquisition through the end of the fiscal year.
We remain fully committed to achieving our goal of a net debt to adjusted EBITDA leverage ratio of 3.6 to 3.5 times in fiscal 2021, and maintaining a solid investment grade credit rating.
Turning to business performance the legacy Pinnacle business came in at the high end of our net sales guidance and operating profit expectations in the quarter.
I'm very happy to report that the big three brands birds eye wish bone and Duncan Hines all progressed towards stabilization in Q4.
We have begun to implement our value over volume playbook with the pinnacle portfolio and overall, we feel good about our progress just seven months after closing this major strategic acquisition.
As expected the implementation of our value over volume approach resulted in short term sales declines as we pruned the low performing skus to clear the decks for our new innovations.
The good news is that the products in the market are performing well the increase in base sales velocities as shown in the graphic on the right demonstrate that our approach is working we're building a stronger base on which to layer new innovations coming to the market later this year.
Let's move onto the legacy Conagra business.
While we are confident in our long term trajectory and that fiscal 2019 overall positioned us well for the future our financial results for Q4 did not meet our expectations.
Our Q4 results were hampered by several unique items each of which we will unpack for you today.
Q4, organic net sales growth in the legacy Conagra business missed our guidance by 240 basis points, which equates to about $43 million.
The unexpected items that drove this shortfall included negative impacts of intensified promotional competition in our Hans chef Boyardee and Murray calendars businesses.
This drove about three fourths of our sales Miss this quarter.
We view this as a transitory renting of market share that happens from time to time.
We're not going to let these near term events disrupt our disciplined approach to brand building.
We also experienced some unexpected manufacturing and co packer related challenges in the quarter. These issues were one off in nature and have been addressed.
Our EPS Miss was primarily due to these items combined with weak performance in our ardent mills joint venture during the quarter driven by lower than expected weak prices and a lack of market volatility.
Let's take a closer look at how this merchandising dynamic affected our Murray calendars brand.
Fiscal 19 was an important year for Murray calendars, as we undertook significant changes to modernize the brand and improve profitability.
These changes included adding modern attributes and flavor profiles with simplified higher quality ingredients.
Transitioning from trays bowls.
Rightsizing portions and optimizing lower performing skews.
As a result of these changes the underlying brand health is far better and our new Murray calendars items have significantly higher velocities than the meals. They replaced.
Unfortunately, some of our competitors took a different approach in recent months and prioritized short term growth via heavy promotion.
Slide 14 highlights. One example, where a competitors product was discounted to drive significant incremental or promoted growth.
As we moved through the fourth quarter, our competition became more aggressive on price and displaced some of the very valuable merchandising support that we had anticipated for Murray calendars.
We don't believe that the short term renting of our market share is this sustainable way to compete we will stay true to the Conagra way playbook and our principal principled approach.
Holding fast to principles can be difficult.
Especially when competitors are making different choices and heading down a path that could be viewed as profitless prosperity.
We will not adopt a volume over value approach here and will not return to the old habits that we've worked so hard to eradicate.
But we may from time to time take short term actions to protect our share as we look to continue to build for the long term.
We also experienced some unanticipated effects of our disciplined approach to pricing in our grocery portfolio.
As you can see on slide 15, the cost of steel cans increased 14% year over year.
As we took inflation justified pricing on Hudson chef Boyardee to partially offset the increased cost.
We experienced higher than expected volume declines.
In our Hans canned tomato business, our pricing actions translated to shelf price increases.
Last quarter, we said that we saw competition announcing price increases and you can see that reflected in the all other increase of 4.5%.
But what we did not anticipate is that private label would stay flat and in some instances actually decreased price.
By the end of the quarter price gaps were simply too wide for consumers to ignore and we lost volume.
Similarly on chef Boyardee, we took price increases throughout the year in Q4, the elasticities impacts of these increases were exacerbated by a decrease in merchandising support that was beyond our expectations.
Each of these brands Murray calendars, Hans and chef Boyardee has a leadership role in its respective category.
When on shelf price gaps grow too wide or merchandising becomes on competitive volume can be impacted quickly and significantly in the short term windows and that was the case in Q4.
In response, we will not change our principles. We continue to believe that profitable growth is key and historically aggressive pricing actions have proven to be unsustainable, but we will remain agile in the face of hyper promotional behavior by the competition and will tactically defend our share where it makes sense.
A second transitory factor that impacted us in Q4 was manufacturing and co packer issues.
Yep, Changs dues and Peter Pan were affected by isolated production challenges during the quarter.
Importantly, we are confident that we have the right resources in place to manage food safety and quality issues across the enterprise root cause for each of these issues has been identified and properly addressed.
And the related customer service disruptions have been corrected and restored.
Finally, our Q4 EPS was also impacted by weakness in the ardent mills joint venture.
Ardent mills profit eroded during the quarter lower than anticipated wheat prices and reduced volatility in the weak markets negatively impacted arden's results.
Q4 presented a variety of headwinds to navigate ultimately our results did not meet our expectations, but we were not thrown off course, while we had our challenges. There were also clear signs of continued progress during the quarter.
With respect to our legacy Conagra business.
Q4 saw a continuation of the strong performance in our snacks business and positive results from frozen single serve meals that we've talked about all year.
We also delivered solid performance in our international and foodservice segments during the quarter.
Finally, we over delivered our free cash flow target for the year and remain on track with our deleveraging goals, Dave will add more detail on our strong cash flow during his remarks.
Slide 19 shows the continued growth in total sales and average weekly tbds in our frozen single serve meals portfolio, notably in Q4, we lapped the 13% growth. We delivered in Q4 fiscal 2018, which was one of the best quarters, we've ever had in frozen single serve meals.
We still delivered nearly 6% growth on top of that this quarter. So as we look at the continuing trends in our sales in this key category as well as the trends in Tpds, we're very pleased with our progress.
Our approach is not only having a positive impact on our results.
It's also driving overall category growth in frozen single serve meals.
Our competition is aware of this growth and a certainly want in on the action. We believe it's part of why we're seeing some of the unsustainable promotional activity.
Our strategy is not driven by price, but a rigorous approach to modernizing and premiumizing our brand through renovation and innovation.
You can see on slide 21 that our innovation is driving growth and performing far better than that of our key competitors.
Let's turn to our snacks business, which continues to exceed our expectations.
Slide 22 details the growth we delivered in Q4, which included contributions from every key snacking vertical popcorn meat snacks sweet treats in seeds.
Overall retail dollar sales in our legacy Conagra snacking portfolio grew 12.6% on a two year basis in the fourth quarter you can see a sustained improvement in our performance following last year's NACS show, where we unveiled our new approach to snacks.
Our international segment performed extremely well throughout fiscal 19 and in the fourth quarter in particular.
These strong results have been driven by our successful efforts to reinvent frozen meals in Canada.
Dr. snacks growth in Mexico, modernize iconic brands internationally and implement our value over volume strategy to realize the power of our strong brand equities.
The continued execution of our value over volume strategy also benefited our foodservice segment in the quarter were continuing to build a higher quality revenue base in our foodservice segment and accomplishing considerable margin expansion.
Next I want to spend some time previewing our robust innovation slate for fiscal 2020.
Slide 26 shows just some of the frozen innovation, we have in store for this year.
Yet again, we'll be delivering products with modern brand attributes simplified labels and ingredients and bold flavor profiles retailers have responded very well to these products some of which will start shipping soon.
We expect to see these products, reaching the marketplace in the first half of fiscal 2020 and hitting their full stride in the second half.
We have plans to continue to build upon our snacking success in fiscal 2020 with the launch of our strongest lineup of snacking innovation to date.
That includes these provocative new meat snacks with bold flavors, new forms and optimized price pack architecture.
We're also launching our salty snacks into neglected and growing codes of the market, where we can extend our brands through innovation.
We are reaffirming our sweet treats brands to unlock significant growing demand spaces that meet modern trends.
We're reinvigorating snack pack and reaching out to Hispanic audiences with products like the Cobranded vantage else you see here.
With this innovation, we clearly have confidence that our snacking portfolio will maintain its momentum in fiscal 2020.
We also have big plans for the Pinnacle portfolio you can see some of those upcoming innovations on slide 30.
We believe we have a tremendous opportunity to contemporize, our newly acquired leadership brands to capitalize on key growth pockets.
One area of the Pinnacle portfolio, where we now see far greater growth and innovation opportunities than previously forecast is the Gardien brand.
Im sure Youve seen all the recent attention on the plant based meat alternatives space.
We think there is no brand that better illustrates the enormous long term opportunity ahead, then gardien real jewel in the portfolio that we Havent spent a lot of time talking to you about or capitalizing on end market.
Our team has a solid presence in foodservice and a leadership role in plant based meat alternatives at retail.
Here's how we're thinking about this exciting high growth space between now and fiscal 2022.
We start by sizing the total opportunity.
Based on our analysis of product substitution in other categories Almond milk for cow's milk as an example.
We can reasonably predict the opportunity for plant based meat alternatives, and here's where it gets really exciting because the opportunity shouldn't be viewed as just a percentage of fresh meat. We think the opportunity is a percentage of all foods that contain meat.
And based on this view our analysis shows that plant based meat alternatives could achieve a 15% share of both of these market segments.
That means the opportunity here could be in the range of $30 billion just in the U.S.
And you know, there's even more opportunity internationally.
So the financials are compelling I think many of you may be surprised by the numbers on slide 33.
Showing just how large the gardien brand is already.
It has quadrupled in size over the past four years and is now the second largest brand in the meat alternative space with annual sales of more than $170 million and retail and across foodservice channels.
Importantly, we will be well positioned to support continued growth because we have new capacity coming online in the coming months.
These expanded resources are already well underway and we expect them to be operational in the fall of 2019.
And we anticipate that capacity will be used to produce more than just burgers. While plant based burgers are getting a lot of press. These days, it's instructive to take a step back and look at what's really going on in meat consumption.
Slide 35 outlines overall consumption of animal proteins.
The numbers to the right of the bars demonstrate the average annual number of meals eaten per person by type of animal proteins.
As you can see burgers are important but this market extends well beyond beef patties or even beef chicken is by far the most popular animal protein in the us.
Both in home and away from home.
I would also highlight the significant consumption of pork hot dogs and fish.
Importantly, eating occasions for animal proteins cover all dayparts.
Our view is that the relative size of animal protein consumption serves as a useful guide for how to think about the market opportunity for plant based alternatives.
And if you're wondering whether chicken leaders are really interested in trying plant based alternatives. The answer is clearly yes.
Slide 36 focus is just on the plant based meat alternatives space within the retail channel and as you can see here plant based alternatives to beef are the largest protein alternative today driven by the fact that products like veggie burgers have been available at retail for a long time, however, alternatives to chicken have built a substantial beachhead and this space is the fastest growing plant based alternative by far.
We believe that over the next several years Gardien is extremely well positioned to capitalize on the rapid growth of plant based meat alternatives. The brand already provides a diversified portfolio of products, particularly in the underappreciated alternative to chicken segment.
And if there is a segment of the meat space that consumers care about there's a good chance that guardian is already there or will be soon with a delicious lean meat free product.
This includes offerings across all Dayparts.
We're also going to expand Guardians reach 30 is well established and well known but we see plenty of opportunities to grow. This brand first up is an improved Burger Guardians current Burger platform is underdeveloped and we are in the process of creating the next generation of beef was burger to better compete in this popular segment.
As we do this we expect accelerated growth at retail and in food service.
But we also plan to compete across the important hotdog and sausage categories.
We believe the winner in each of these categories will have the best taste appearance and aroma, which is what we're focusing on delivering across our plant based alternative portfolio.
What we believe conagra can do better than anyone else is leverage iconic brands superior culinary capabilities and proven innovation muscle to reach consumers across multiple categories in plant based protein.
During our Investor Day, you heard me talk about a key tenant of the conagra way to profitable growth.
Iconic brands plus modern attributes equals superior velocities.
And that Formula is perfect for this space.
Across foodservice and retail channels of trade, we believe that Conagra brands, leveraging and co branded with Gardien is ideally positioned.
We have the best culinary capability differentiated packaging and the broadest portfolio of power brands to leverage.
13 contributes the minor benefit.
Overall, we're excited about the opportunities in plant based meat alternatives.
This together with our entire innovation pipeline will help us reach our long term algorithm.
Looking ahead, we remain confident that we will continue to deliver quality long term growth conagra by implementing the conagra away and prioritizing value over volume.
We will continue to introduce on trend innovation to the marketplace will also continue to execute our pinnacle action plan, including leveraging the Gardien brand to tap into the plant based meat alternative opportunity.
We expect the market will continue to be highly dynamic we will need to stay both principle based and agile as we remain committed to delivering our guidance and navigate a dynamic marketplace, but notwithstanding a difficult Q4, we're confident that we will meet our fiscal 2020 guidance and deliver on our long term goals.
With that I'll turn it over to Dave.
Thank you Shawn and good morning, everyone. This morning.
Ill walk through Q4 and fiscal year 2019 for both the legacy Conagra and pinnacle businesses before we open it up for questions.
Slide 42 outlines our performance for the quarter and the full fiscal year.
I'll walk through more detail in a moment, but I'll start here by hitting the key points.
Compared to the year ago period, net sales for the fourth quarter and full fiscal year were up 32.9, and 20.2% respectively.
Primarily reflecting the acquisition of Pinnacle foods.
Organic net sales, excluding Trenton were down 2.7% for the quarter.
While the quarter did not come in as we expected we believe the issues in the quarter are transitory as Sean discussed and do not impact our fiscal year 20 guidance or long term algorithm.
Despite the Q4 challenges we delivered organic net sales growth of 8.3% for the fiscal year, which is above last year's organic growth rate.
Adjusted operating profit was up 25.7% in the fourth quarter and up 23.4% for the full year.
These increases are primarily driven by the inclusion of pinnacle's profit.
A few points on margins.
Our fourth quarter adjusted operating margin was 13.2% and full year was 15.4% up 40 basis points versus the prior year and above our guidance range.
While adjusted gross margin decreased for the full year adjusted operating margin increased 40 basis points. This relationship reflects the gross margin impact of our ongoing shift of marketing investments from a NP two above the line retailer marketing.
As well as leverage at the SG in a line, where we have benefited from our commitment to a lean operating environment and pinnacle synergies.
For the quarter, adjusted EBITDA increased 22.2% versus the previous year.
While full fiscal year, adjusted EBITDA rose, 16.7% to approximately 1.9 billion, reflecting the inclusion of approximately seven months of pinnacle's results.
Adjusted diluted EPS was 36 cents for the quarter down 28% from the prior year.
For the full year adjusted diluted EPS was $2 and one set down 4.7% as the Q4 transitory items and the shortfall in ardent mills negatively impacted our performance versus expectations.
Slide 43 outlines the drivers of our fourth quarter and full year net sales changes versus the same period a year ago.
It should be noted that for both the fourth quarter and full fiscal year, we saw improvements in price mix, even after taking into account our increases in retail and investments to support brand building.
Slide 44 provides a summary of net sales by segment for the quarter and fiscal year 2019.
For the quarter.
Grocery and snacks net sales and organic net sales declined 7.1% and 2.5% respectively.
As the divestiture of the Western oil business subtracted 460 basis points from the net sales growth rate.
Despite continued strong end market performance by our snacking businesses.
Net sales were impacted by the Q4 transitory items Sean discussed.
For the full fiscal year grocery and snacks organic net sales remains largely in line with the prior year.
The refrigerated and frozen segment continued to benefit from innovation during Q4 across multiple brands, including banquet healthy choice Marie calendars and Reddi wip.
However, these benefits were more than offset by lower than expected merchandising support on re calendars.
The Pf Changs manufacturing challenges that resulted in a recall and to a lesser extent continued declines in certain refrigerated businesses.
These headwinds led to a decrease in reported and organic net sales in Q4.
For the full year. However, the segment reported good growth with net sales and organic net sales up 1.9% and 0.9% respectively.
As Sean mentioned, the implementation of our Conagra playbook led to improved results in international for the quarter and full year.
The segment's fourth quarter reported numbers were impacted by the divestitures of the Canadian del Monte business, and West and oil business, which combined to reduce the net sales growth rate by approximately 10.2%.
The segment was also negatively impacted 2.8% by foreign exchange.
Notwithstanding these factors International's organic net sales were up 5.6% for the quarter and up 3.7% for the full year.
For the quarter, the foodservice segments reported and organic net sales were down 12.6% and 0.6% respectively.
The sale of the trend facility and divestiture of the west and oil business reduced the net sales growth rate by 12% in the aggregate.
The segment's Q4 organic net sales results reflect continued execution of our value over volume strategy and the impact of inflation justified pricing.
Volume declined 5.9% in the quarter, but price mix increased 5.3%.
Organic net sales were down 2.7% for the full year.
Pinnacle sales for the quarter and full fiscal year were 756 million and 1.7 billion respectively.
In line with our expertise expectations for the quarter and full year.
Slide 45 outlines the puts and takes on our Q4 and full year adjusted gross margin versus the prior year.
It's important to keep in mind that for Q4, the 1% benefit you see on the left side of the page includes a headwind of approximately 50 basis points related to the isolated manufacturing challenges in recalls we experienced during the quarter.
Moving to slide 46, you can see that legacy Conagra adjusted operating profit decreased 9.2% during the quarter and legacy Conagra's adjusted operating margin was 13.4%.
Total adjusted operating profit, including Pinnacle increased 25.7% in Q4.
In the grocery and snacks segment adjusted operating profit was down in Q4 due to the loss of profit associated with the divestiture of the Wessel Wesson oil business.
As well as higher transportation and packaging costs, primarily in metal packaging.
The grocery and snacks segment was also negatively impacted by the manufacturing challenges we faced in the quarter.
The refrigerated and frozen segment's adjusted operating profit decreased 6.1% in Q4.
Realized productivity improvements were offset by lower net sales in part due to the manufacturing and merchandising impacts we discussed earlier.
As well as higher transportation and input costs.
The foodservice segment's adjusted operating profit increased 4% in Q4, while operating margin expanded to 12.2% due to the impact of favorable price mix supply chain realized productivity.
And the sale of the lower margin business produced in our trend facility.
Pinnacle's adjusted operating profit, including the corporate expense related to pinnacle totaled $95 million for the quarter and adjusted operating margin was 12.6% in line with our expectations.
On Slide 47, you can see that legacy Conagra adjusted operating profit increased 1.2% for the full year.
And legacy Conagra's, adjusted operating margin increased by 43 basis points to 15.4%.
The pinnacle segment's adjusted operating profit totaled 264 million and adjusted operating margin was 15.3% above our fiscal year 19 guidance range of 40.6% to 14.9%.
Total Conagra adjusted operating profit was up 23.4% versus a year ago.
And adjusted operating margin was 15.4%.
Above our fiscal year 19 guidance range of 14.9% to 15.2%.
Slide 48 outlines the drivers of our adjusted EPS decrease versus Q4, a year ago.
As you can see legacy Conagra adjusted EPS decreased seven cents.
Approximately two cents of this decline was from divested businesses.
Two cents was from the manufacturing challenges discussed.
Two cents was from a larger than expected decline in ardent mills.
And two cents was from lower pension and post retirement service income, resulting from fully funding the pension plan in fiscal 18.
Which we have now ramped as we head into fiscal 2000.
The Pinnacle acquisition reduced total company adjusted EPS by seven cents during the quarter.
Slide 49 outlines the drivers of our 4.7% decrease in full year, adjusted EPS versus a year ago.
Adjusted EPS for legacy Conagra increased four cents for the year. Despite eight cents of headwind from the reduced pension retirement service income I, just mentioned and six cents of headwind from ardent mills.
The Pinnacle acquisition reduced total company adjusted EPS by 14 cents for fiscal 2019.
Slide 15 summarizes net debt and cash flow information and demonstrates the clear progress we continue to make in enhancing our overall financial position this year.
Overall, we remain on schedule with our fiscal 21 target of a net debt to trailing 12 month adjusted EBITDA ratio of 3.6 to 3.5 times.
Between the close of the Pinnacle acquisition in Q2 and fiscal year end, we reduced total debt by $886 million.
And our estimated ratio for pro forma net debt to trailing 12 month adjusted EBITDA was 4.8 times as of the end of fiscal 19.
For the full fiscal year, Conagra generated $761 million of free cash flow exceeding our guidance of $700 million.
As we consistently state we are committed to solid investment grade credit ratings.
As noted in our release, we are essentially reaffirming our fiscal 20 EPS guidance. This morning.
On slide 51.
You can see that Weve reduced our estimated fiscal 20 earnings by two cents solely to remove the historical profit contribution from the now divested gelett business.
Excluding the adjustment for Gelett, our earnings guidance range has not changed from what we provided at the Companys Investor Day in April 2019.
And slide 52 outlines our fiscal 2020 outlook across all metrics.
We are updating our organic net sales guidance to be in the range of 1% to 1.5%.
Compared to our prior expectation of approximately 1% provided at Investor day.
Note that this growth rate excludes the impact of the fiscal Twentys 50 Threerd week.
All other metrics on this slide include the impact of the 50 Threerd week.
We expect adjusted operating margin to improve to a range of 16.2% to 16.8% in fiscal 20.
As we continue the integration of pinnacle to generate estimated synergies while implementing the conagra away playbook.
Also we expect free cash flow to continue to improve in fiscal 2000.
Benefiting from the expected pinnacle cost synergies and the expected increase in organic net sales.
We expect free cash flow to reach approximately $1 billion for fiscal 2000.
Importantly, we also remain committed to the long term algorithm, we provided at our Investor day.
As our financial progress accelerate through fiscal year, 22, and we benefit from the full synergy opportunity of the Pinnacle acquisition, we look to capitalize on new sources of growth like the gardien opportunities Sean highlighted earlier.
To conclude my formal remarks today I'd like to turn to slide 53.
Here I would summarize the more important planning assumptions that underpin our fiscal year 20 guidance.
These can be broken into two buckets organic growth and margins.
Overall, we see results being more heavily weighted towards the second half of fiscal 2000.
With respect to our organic net sales growth, we anticipate higher innovation related investment during the first half of fiscal 2000.
With the related sales growth weighted towards the second half as our distribution trial and repeat builds throughout the year.
We also expect the highly promotional environment in select categories that we experienced in Q4 to continue in the near term.
As Sean mentioned, we have seen these situations before and will remain agile and how we respond to competition.
Consistent with what we've been saying since December we continue to expect legacy pinnacle sales trends to improve in the second half of fiscal 2000.
We also expect margins to improve during the second half of fiscal 20 as the innovation related investment will be higher in the first half as I just mentioned.
And for Pinnacle by the second half of fiscal 20, we expect to lap the elevated input cost inflation in transportation and crops that the business has been experiencing.
We also expect synergies to increase as we move through the course of the year. Finally, we expect pinnacle will continue to be dilutive to our year over year gross margin until we anniversary the acquisition in late October .
Thank you for listening that concludes my remarks ill now pass it to the operator is Sean Tom Mcgough, Darren surround I are ready to take your questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if you Anthony Speakerphone. Please pick up your handset before pressing the keys.
To answer your question. Please press Star then too.
As a reminder, we ask that you limit your questions to one question and one follow up to allow equal access to all participants.
At this time, we will cause momentarily to assemble our roster.
The first question today comes from Andrew.
Barclays. Please go ahead.
Good morning, everyone and thanks for the question.
Good morning, good morning.
I guess, a sort of a two parter here given given the topline challenges experienced in.
Fiscal 19.
Some of the inventory reductions some of the merchandising and competitive challenges that you noted today that are expected to continue at least in the near term similar to the I guess the question is why raise.
The fiscal 2000 topline guidance range, and then more broadly with the pinnacle deal there is.
Some concern among investors that maybe the company could could well do some focus and momentum on its core or legacy business as a result.
And in light of the four key results when you're talking to investors have confidence that that that's not the case in terms of what were seeing play out.
More recently thank you.
Let me take that in reverse order Andrew in terms of this.
First is this notion of.
Distraction I can appreciate that thats, an easy notion to grab onto but it's just not accurate.
The issues, we faced in Q4 literally had nothing to do with Pinnacle, which has been a highly efficient work stream for us as I pointed out in my remarks few minutes ago. They were mostly the Q4 issues, mostly about macro factors that were not assumed.
In our forecast so things like non economic decisions by competitors isolated recalls.
And Arden Mills as an example, but each of these items they were not expected. They did add up to the Miss you saw in Q4, but they are transitory events that we do not expect to repeat and that really is the story, but if I step back here's how I think about the big picture the quarter end and fiscal 20.
Up in kind of one one thought if you look at 19 as a whole 19 undoubtedly was a was a year of remarkable transition for Conagra brands. We did advance our innovation agenda and we did see continued traction in frozen meals and snacks and we made a transformative acquisition that did end up requiring more near term fixes than than we had expected, but we wrapped our arms around those very quickly and efficiently and now we've got that business stabilizing and on track in terms of integration Q Q4, clearly was disappointing, but the fact is it was largely due to transitory issues, but now we are in a position to play offense.
And our innovation pipeline is both broad and full so despite the speed bump we are clearly still advancing our playbook.
And that's why in terms of 20 fiscal 20, we feel very good about the topline drivers we have in place our innovation pipeline is the best we've had yet and as it works its way into the marketplace really hit its stride in the second half we're very confident that we will all like what we see in terms of raising the high end of the sales growth guidance for fiscal 20, you can think about that is largely recovering the transitory volume losses, we experienced at the end of this year and.
It doesn't hurt that we're beginning to see some improvement in our scanner data as well, Dave you want to build on that yes.
So we haven't changed our estimate of net sales in fiscal 2008 from where we were previously so because we missed Q4 driven by transitory reasons, we expect that business will come back so the fiscal 19 basis, lower but we're holding our estimate for fiscal 20 sales. So the math adds 50 basis points of growth. So we added that to the guidance.
Thanks very much.
Our next question comes from Ken Goldman with JP Morgan. Please go ahead.
Hi, good morning.
It seems that one each 19, the first half will be a little bit worse than what you previously expected and I'm I'm seeing that because you talked about the headwinds in the fourth quarter being late in the quarter. So I assume the bleed into one Q2 0.
But you are maintaining your annual guidance and I guess the implication is the back half of the year, we'll have to be somewhat better than you initially anticipated or maybe you're thinking about the the bottom half of guidance I. Just was curious what's bettering to H 20, right. The second half if anything than you initially modeled.
Ken Let me.
We're not going to guide to quarters, obviously, but you've got the shape of the curve right. As we said all along H two is going to be a stronger year are stronger half than H, one and obviously now that Q4 came in light due to transitory issues. We expect recovery of that transitory loss next Q4 in terms of the things like Q4 issues lingering into Q1 and does that mean, it's worse Q1, I wouldn't think about it that way we've got a vast portfolio here things are always moving around some things will come in below what we initially anticipate we manage risk and opportunity approach to dealing with that which means we look for other opportunities that offset things. We didnt expect so today on the call I talked a little bit about Gardien. We've got other things snacks, obviously in the back half of this year exceeded our expectations. So we've got a lot of that we feel really good about that probably has some upside to it on the year. We've got some other things like these near term competitive dynamics that we've got to navigate we got.
Multiple multiple ways, we can do that but I think to your point Big picture is really we havent changed our cadence on a year, we're expecting our innovation to go into the marketplace in the first half get its footing and really build momentum in the second half and then on Pinnacle and particular as we've talked before.
Getting those tpds back that were lost last year that should really start to kick in as we get to the middle part of the year in the back half of the year, Dave you want to add to that yes, I'd just add one thing and I mentioned in my comments that we are increasing pretty significantly our investment for innovation and that hits in the first half relative to prior year, so that that impacts not just profit, but net sales. So that that died at flows first half second half as well.
Thank you and then a follow up from me.
I am surprised a competitor you talked about in frozen took some merchandising business from you.
Do you have enough visibility from your customers as to when your competitors are going to promote like that so that your merchandising isn't redundant with payers and I guess.
The broader question is is it really this one of the risks of shifting marketing to promotions from advertising that you become more reliant on some of the wins of merchandising and what your competitors can do.
Now that on that latter piece the answer is no because as we've talked before that to the degree we have moved below the line money. It's below the line money that wasn't doing anything so when you're moving money away, that's not doing anything you're not taking anything away and instead you know a lot of the spend as we've talked many times. It covers a multitude of tools across a multitude of Brant here Murray, we're talking about one brand and we're talking about.
A particular.
By the time, a year, where we count on some high quality merchandising that we got displaced from a a very aggressive competitor and what I would say is that it is very hard to anticipate those things. It is not the first time, we have seen this in this industry. In fact, if you know kind of aggregate history. You know we know this move as well as anybody is called volume over value and it does happen from time to time, but it is not sustainable because as we learned when you put all your human and financial resources into price based competition. There is very little left in the enterprise to actually study consumer behavior or design, new quality innovation, and then market. It in a personalized fashion and what you're left with overtime is weak product weak product lineup and a consumer that is trying to buy a deal and that's that's not our playbook from time to time, we will encounter it and we've got to deal with it but thats side, that's really not what we're after we'd rather follow our approach stake consistently focused on moving the center line of our profitability had our sales north over time.
Even if we've got to deal with some standard deviation in any given quarter based on this kind of behavior.
Thank you.
Our next question comes from Brian .
Same with Bank of America. Please go ahead.
Hey, good morning, everyone.
Okay great.
David I guess I, just wanted to get a little bit more color from you on gross profit that how we should be thinking about growth gross profits for 20, I think talk a little bit about some investment and.
Above the line in terms of supporting new products, but if you could just give us some sense of.
Cogs inflation for fiscal 20.
If there is any pricing contemplated to cover inflation.
And just.
So some of the other factors that might might influence gross margins for 2020.
Yes, Brian we let me try it on on.
And feel that that so overall, we have not given specific guidance on gross margin. We gave it on operating margin because of the dynamics, but to your question generally speaking inflation.
Right now there's there's a lot of moving pieces that the transportation inflation, we saw heavy in the first half of the year and 19 is moderated although now we're seeing increases in areas like proteins and then there's obviously.
Some of the weather related inflation that we're dealing with but as we go into fiscal 20, we think given the overall mix of the portfolio and inflation, we're probably going to be close to where we finished this year.
So 2.72, 0.8% something in that area, we expect to continue deliver on our realized productivity.
And we do have pricing pricing actions that we've taken this year that will roll into next year and then as inflation comes and as you saw we had a lot of inflation related to steel and we took pricing to deal with that as 20 develops and we see inflation and if it hits certain brands, we will plan on taking pricing where its inflation justified. So we just have to manage those those dynamics as we go as it relates to the investment I think overall for the year.
There's definitely going to be more of an increase in the innovation related investment in the first half.
And in the second half, although we will still have a healthy rate of investment and a year on year. It wont be up so that will be another kind of benefit to the second half. So so overall you put all those things together.
There's puts and takes that kind of even out over the whole year for gross margin, but it's clearly more investment first half.
You know more benefit second half and then there's synergies that come in as well.
Thats split between SGN, AE and cost of goods sold so as the year ramps up.
The synergies will increase and that will improve margins as well as we move into the second half.
All right. Thanks for that and just just I don't know if I missed it but did you give guidance on capital spending for the year.
No we did not not in our remarks.
We gave it on on free cash flow. So overall free cash flow, we're still estimating approximately a 1 billion.
Dollars and free cash flow.
Okay. Thank you.
Our next question comes from Steve Nicola. Please go ahead.
Hi, good morning.
Sean just to kind of piggyback on Angela's ours question wanted to kind of understand a little bit of the glide path of the organic sales as they get better as you move throughout the year.
Given where we started in Q4 should leased out of the gate in Q1 should we be definitionally positive organic sales just to kind of help investors understand the trajectory of the business and then I've got a follow up.
Yes, I think again, Steve I don't want to give quarterly guidance here, it's not something that that we typically like to do we were in a position where you had do last year and.
Didn't and Didnt like that whole lot heck of a lot I think what I can tell you is that this is kind of a first half second half story, obviously as Dave pointed out we've got.
Some investments in the first half of the year, obviously that means in Q1 as well because we've got.
In new items coming in in the marketplace that we will invest behind we also are in the midst of doing some value over volume in particular on the pinnacle business as we cleared the decks for our new innovation. So in terms of the year. What we've said before is that we expect that trend to bend.
As we move from the first half into the second half without giving kind of quarter to quarter month to month specificity on the slopes of those curves I think we'd leave it at that in part because as as Weve said many times with respect to the Pinnacle Tpds, we are trying to accelerate.
Where possible getting some of these new innovations into the marketplace ahead of a normal.
Atlanta, Graham cadence and that work as it has been going on continues especially.
When we get in some customers some of these new innovations in there and can demonstrate that they are working and we've got traction. So we'll we'll stay.
Flexible on that and continue to kind of update you should we see that the trajectory is changing but that's that's how we view that's how we see it right now.
Okay, and then Dave on the synergy piece should we still think that about 150 million contribution in fiscal 20 is the right number with maybe a third to Cogs two thirds SSG nay.
Is that the right way to kind of frame it.
For this year.
Yes, Thats right, Steve we had guided to by the end of fiscal 2000 will be at about 55% of our synergy realized and we're still to $285 million of total synergy and the split between SGN, a and cost of goods sold hasn't changed.
Okay. So with that piece, if you're getting 50 million coming through Cogs should that be an uptick for the full year, nothing quarterly but should that give us.
Close about flat gross margins for the full year.
Here again, I don't want to give specific gross margin guidance, but it's clearly going to be a tailwind for us.
All right. Thank you.
Our next question comes from Jason English with Goldman Sachs. Please go ahead.
Hey, good morning folks.
Thank you, Jason Kidd facility man.
Sean I suppose you can part you've probably condition is to think about your business this way but.
Looking at the base performance and kind of the cycles, you've gone through a cleansing the portfolio in entering a rebuild mode with innovation, which is what I think we were really looking for this year was as you mentioned the biggest slate of innovation you had.
But as we look at the the total points of distribution and the progression through the year.
We came in with growth and as we mine the data it looks like Weve seen accelerating declines on distribution, including the three brands that you are you are highlighting.
Murray calendars Hans.
Chef Boyardee, all seen sort of distribution declines.
Can you talk about what's what's driving that is.
Are we sort of in innovation replacement cycle, where the innovations kind of netting out past innovations falling away or how we found sort of another leg of rationalization that may be weighing on performance.
It's it's a little bit of everything Jason Let me try to break it down for you give you. An example of kind of the diversity of it. So for example on highlights we've got some restage is coming out which means we've got the old products going out the new products coming in there will be a gap between the two where the new product Doesnt scan and that will show up in a short term window as if the TPS have gone down then they come back. So that's a dynamic but we also have things going on Murray calendar is a good example of it.
Slim, Jim and Swiss Miss or other good examples were part of our playbook is to actually reduce tpds and put more facings against high velocity Tbds and drive growth I'll point you back to the case study I gave I think it was last quarter on slim, Jim where were doing that pretty aggressively that's a piece of it as well as one of the reasons I point to point out usually every other quarter that tpds can be helpful. But they can also be a bit misleading at times, you've got to look at the kind of the total results of the business as well as in particular, the velocities because when we when we intentionally reduced tpds, it's usually to pickup facings, a higher velocity items and it drives overall sales growth. So that's what you've got going on I think.
Just as I look back on this this this whole year, we build these plans based on certain planning assumptions and clearly for fiscal 19 overall something's played out differently than we expected when we built the plan for example, we Didnt plan for acute Tinplate inflation, we didn't plan for the ensuing need to price or the non economic follow on behaviors by certain players in some of our categories. We didn't obviously plan for recalls and co Packer issue. So it's been a dynamic environment, including some of pinnacle's challenges, but all things considered as we think about fiscal 20 in the innovation slate Weve got the fact that we've got our arms wrapped around pinnacle pretty well right now.
We think weve navigated some of these things, we didnt anticipate pretty well we have posted our second consecutive year of organic growth, which is something that not all can point to in this environment and as we pointed out earlier I think that gives us a solid foundation on which to build going forward here with our best innovation slate, yet so overall pretty positive about kind of how things stack up as we move from first half to second half in throughout our our strategic planning horizon.
That's helpful and one more for me you mentioned the planning assumptions that you start with the beginning of the year.
You've you've suggested that you expect this competitive intensity to abate as you progress through the year, but as we've seen before when companies pursue volume over value.
It can take years before it ends up at ends poorly.
So what gives you confidence that it will be and second part to that question, what's the risk to your guidance. If it does not in fact abate.
Well if you look at our company as an example, it can take years to abate as a total portfolio, but it usually doesn't take a long time to abate at a category level, because you simply can't afford to sustain it for very long across multiple categories. So if you're doing that as a as a portfolio enterprise.
It it's just too expensive to do this for too long, especially when you're doing it in the face of inflation to using that tomato example, today just is not an affordable strategy. It just draws too many resources from other parts of the PNM to be able to hold it. So we've seen it before it historically has almost always proven to be transitory and there are some things that we can do from time to time that help it.
To be transitory, if we need to do those things so.
That's that's how we'll navigate it.
Okay. Thank you.
Thanks.
Our next question comes from Chris Farley with Stifel. Please go ahead.
Hi, good morning.
Exactly Chris Hi, I just had a question for you first on this obviously you kind of abrupt change in the promotional environment in the quarter and it's unclear to me how you're responding to these challenges. So it sounds like you're selectively responding to is that the way to think about it in.
Is that a pressure point on gross margin in the first half of the year as you slipped slightly respond to these challenges.
Yes, I think what we're conveying is we're not going to we're not going to kind of unveil our.
Our response on each and every case study that probably wouldn't be a wise.
Competitive approach to doing things, but.
Principally we don't want to.
Look at all these things and just say automatically hey, we think we should respond because these things tend to be transitory in nature, even in the absence of a response from us, but I should somebody want to rent market share and try to sustain it for longer than a narrow window, then and we will absolutely consider responding you will look at each and every.
Thankfully, we don't see a lot of these things across the portfolio. We havent seen this kind of behavior and quite some time now, but it does come up and we will look at it on a case by case basis.
And that's probably as much details I can get into line.
Okay.
And then just another question in relation to fiscal 20, so think about some of the unique factors that occurred in fiscal 19, I, just want understand which ones get better don't recur, maybe improve a bit year over year. Obviously, one that comes to mind is ardent mills do you expect that to get to make up that sort of six cents differential this coming year based on your outlook any other unique factors you called out for fiscal 20 that help support that rate of EPS growth for the year.
Hey, Chris.
Related to Hardinge.
Given the volatility of the business.
We don't give specific guidance, but generally our planning posture is were roughly in line for fiscal 20 of where we landed for fiscal 90. So just that's that's generally how we will plan that.
In terms of year on year. Thanks, there are a lot of puts and takes as you go into fiscal 2008.
I think specific to Q4, clearly we had some manufacturing challenges I called out specifically 50 basis points of impact on our gross margins in Q4 that were just pure costs of the recall and some write offs. So they will not recur in Q4 next year Im so they're discrete costs. We have synergies that are obviously ramping up so thats going to be a big benefit, but we're also investing some of that synergy back in to drive our innovation plate, so theres going to be a clear increase in our.
Innovation related investment so.
Realized productivity work or humming on that but we also have inflation, we have price. So there's just a lot of puts and takes in balances, but as we went through it all we planned it we.
Scenario plan, we came up with our fiscal year 20 plan and that drove our guidance and we feel good about it.
Okay. Thank you for that.
Our next question comes from Robert Moskow with Credit Suisse. Please go ahead.
Hi, Thanks.
The Gardien brand.
Really good brand really good products and you are clearly.
Talking about plans to leverage it further here.
Is this an incremental investment beyond what you've already planned for the next few years and if not.
Where is it coming from are you are you having to take it from other brands that you you had plans to.
Invest behind particularly in pinnacle.
And then just a tactical question.
I noticed that your co branding gardien.
In the frozen category.
That tends to be a risky proposition gets a little confusing for the consumer.
Have you thought through.
The risks of of having two brands on one pack. Thanks.
Yes.
First of all Rob.
We've always since we acquired it viewed gardien is an attractive growth asset Thats why we talked about it at Investor Day, We served at Cagney and we spent capital build the capacity I think what's changed I think we can all acknowledge that it was hard to see the consumer fever pitch for this space gathering quite the head of steam it has done as quickly as it's done so the upshot of all of this is that the market opportunity is quite a bit bigger than we are counting on does that mean that the investment behind it will be bigger.
Potentially so to take advantage of it but keep in mind that investment is not a tax on EBIT Guardians got pretty good gross margins. So as we sell more and if we pick up the kind of Tailwinds, we get anik, a compounding curve over the strategic plan horizon. Those sales will generate additional fuel for growth that we will invest back to to even accelerate those sales further so it's kind of a virtuous cycle here, we've got going on on on Guardian and help overall that the additional upside to it just helps us feel that much better about our long term prospects and our fiscal 2022 outlook with respect to this kind of partner branding approach.
Let me just try to explain how we're thinking about gardening to the degree we sell kind of a pure blood mean product. So a chicken alternative Burger alternative a hotdog alternative a sausage alternative that will stand alone as a gardien brand, but one of the things we have learned over and over and over again at Conagra is that the name of the game is velocity and velocity is always stronger when it's not a new brand and an established space. For example single serve frozen meals, but it's an icon brand that has brought modern attributes into that space. In this case, we have a power brands such as healthy choice. As an example, healthy choice is an absolute juggernaut, an icon in single serve meals, but each and every year, we will look to find new modern attributes to bring to the consumer in this particular window that we're in here now over the next several years one of these new attributes that we know the consumer is going to be looking for is meat alternatives in.
The space, where meat used to be so for example in healthy choice, where if they if they if a consumer use to buy 20 chicken based healthy choice bowls, a year, they may buy 16 and by 4%.
Meat alternative add gardien, because we will have a presence in the meat space, we already have it almost a $200 million business out there.
Has tremendous credentials ended the plant alternative space credentials in taste credentials in texture credentials and aroma and credentials across all day parts breakfast lunch dinner and protein types. So instead of showing up as that thousand thousand brand.
In this plant based alternative space with no credentials, we think the power of Guardian, which has tremendous credentials and plant based with the icon of healthy choice in single serve healthy meals.
Works, even stronger for US we are doing similar things right now by the way in our Sweet treats business with Duncan Hines perfect size, where we co branded with Oreo and we we like what we see there we've done it before so this is not kind of an ingredient inside piece. This is a way to really quickly breakthrough at the point of purchase and make it immediately evident to the consumer within two seconds flat, what they're getting and give them confidence that's going to be a good eating experience. So we actually think that that is not a risky proposition, but that is that's the optimum way to build ubiquity and kind of holistic meals in this plant base space.
Okay. Thank you.
Our next question comes from Citi. Please go ahead.
Great. Thank you and I appreciate you taking the question given the hour.
Active this is going to go back over some ground, but I wanted to be clear on something so in your stock is obviously reacting negative negatively upgraded your revenue guidance for the next year. Sean can you can you just be clear about something it sounded like the problems within the fourth quarter got worse as the quarter progressed.
So you Didnt mentioned in one of your question one of your responses to a question that Nielsen data was giving you maybe some confidence that things are getting better. So maybe can you just bridge the gap year things were getting worse is it is it got closer to the end of the fourth quarter.
Give you have knowledge that the pricing and can tomatoes has recovered from private label do you have confidence that these negative promotional events going on in frozen single serve meals has that ended at this point is that why you can be so confident to raise the revenue guidance for fiscal 20.
Well, David when you were looking at quarterly results and change versus year ago. It's not just a function of what's happening right now it's a function of what happened in the year ago period right. So as an example, if you look at more recent chef results, you'll see you'll see better optics than we saw at the end of Q4 and that reflects the fact that there were significant merchandising activities in the end of Q4 year ago that we didn't get this year it dropped off.
In terms of the drop off as the quarter unfolded simply put we were expecting a fairly strong period 11 and period 12, which are the last two months of our year end at the end of the fourth quarter and we just didn't get it at the level, we discussed which was the marine merge.
The the chef merge and the the private label pricing actions within canned Tomatoes, as well as some of these manufacturing challenges that that really hit us toward the end of the quarter.
So thats really what it's about.
We will we will have things that will improve in Q1, we will still be doing things to upgrade the portfolio and do value over volume as we move Q1 and Q2, but then we will also be folding in the new innovation slate. So.
A lot going on this year as we as we get the pinnacle business back up and running but thats really kind of how it unfolded there in the fourth quarter, particularly in our period 11 in period 12.
If I could do a follow up it's related but a bit separate but given the difficulties that you had in the canned operations I mean, it's pretty disappointing private label doesn't raise prices when the cost of the can goes up so much so what I what I hear from you guys at your analyst day and today, it's amazing amount of new products in very exciting portions of the portfolio, but the cash portion just doesn't feel like it and then we get this negative hit with private label, just not acting well why not sell those t. and portions of the portfolio. So that the residual left over we really just get to focus on all these exciting.
New product opportunities that you lay out I mean, they all sound great, but it's it see it hurts when you when you suddenly get these.
Odd ball activities going on within Mccann portion of the portfolio. How do you think about that how would you respond to that yes. We've got it's a fair question, David We've got a number of grocery businesses that we put under this heading we call reliable contributors, which is basically saying thats. What we expect of them, we expect them to contribute reliably in the fullness of time, we have a variety canned food businesses that have quite frankly been very reliable contributors over the last several years. Hans is a good example of one of those businesses as has chef.
It is quite possible that it from time to time for all the reasons, we've discussed quite a bit today that we can see kind of this non economic behavior by competition that will happen from time to time, but it doesnt tend to happen often and it does tend to be transitory. So to label of a reliable contributor as no longer reliably contributing as if thats a perpetual notion is a bit of an overreaction, but im not going to say that we don't evaluate these kinds of things all the time I don't think you'll find a company in our space that's been as active as we have over the last five years in reshaping the portfolio and that includes divesting things that are kind of a chronic drag on what we're trying to accomplish so we're always looking at that we did more of that this quarter I just wouldn't want you to paint to label canned foods as not reliably contributing as a perpetual notion when that's just not been what we experienced in fact, what weve experiences historically its been a high cash flow business and it's it's thrown off a lot of cash for us and a lot of fuel for growth elsewhere in the portfolio.
Like frozen.
I appreciate the color. Thank you.
Thank you.
Our last question today comes from David Palmer with Evercore ISI. Please go ahead.
Thanks.
I can imagine investors are coming out of today with the impression that your that your guidance for fiscal Twentys is more optimistic than it was in the past or at least eating into a margin of safety as you need more things to come together to hit the plan given what you said about Hans and chef Boyardee and Murray calendars.
Which are likely negative versus original planning into the first half if that if thats true, perhaps you could tell us what positive offset your thinking about versus your original thinking for fiscal 20 that are keeping at that same guidance and I have a quick follow up.
Well I think.
Again, we're not sitting here patting ourselves on the back for for what I would call a real raise for the 20 guidance at the high end of sales, it's not that it's really a recovery of Q4, because the issues. We experienced in Q4, we don't expect to repeat so really we are just getting back to basically the same place we plan to all along and underpinning that is is a is an operating plan that is counting on a lot from some very robust innovation that transcends our not only our most strategic segments frozen and snacks and legacy CAG, but also some of the big businesses.
And pinnacle, which will contribute for part of the year as organic so we're counting on.
Continued performance like we've seen on our innovation in the last few years, but now we're seeing it on a on a bigger slate and we're we're excited about this guardian opportunity, which is really not just a 20 opportunity, but thats to tee up the point that that will continue to serve us well and help us navigate other things we're doing as we move through fiscal 2022.
And then just a follow up you've talked about Hans canned Tomatoes in jeopardy. After the pricing actions.
What's the confidence and the potential timing of a recovery there is.
Perhaps even visibility already that thats.
Going to get out of the promotion penalty box. Thanks, we will get out of it I'm not going to give you exact timing. We these are good businesses I mean.
Unbelievable relative market share on both of those businesses how we.
Navigate through it I'm not going to disclose that it may come a number of different ways.
But we'll we'll keep our powder dry on that but you're you're talking about two brands here that our number one market share by far in their categories and when we as I mentioned earlier, when we get our price gaps right in our merchandising rights, we can recover volume rather quickly on these businesses. So it's just a question of.
How is that going to unfold and exactly when is that going to AFFO will we're not going to get into that detail quite here today.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Brian Cronin for any closing remarks.
Great. Thank you. So as a reminder, this call has been recorded and will be archived on the web as detailed in our press release.
The Investor Relations team is available for any follow up discussions anyone may have thank you for your interest in Conagra brands.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.