Good morning and welcome to today's ConAgra Foods second quarter earnings conference call. This program is being recorded. My name is [John Daniels] and I will be your conference facilitator. (Operator Instructions) At this time I'd like to introduce your host for today's program, Gary Rodkin, Chief Executive Officer of ConAgra Foods. Please go ahead, Mr. Rodkin.

Good morning. This is Gary Rodkin and I'm here with André Hawaux, our CFO, Rob Sharpe, President of our Commercial segment and EVP of External Affairs, and Chris Klinefelter, VP of Investor Relations. Over the next few minutes André and I will provide our views about the strategic, operating and financial aspects of the quarter, but before we get started Chris will say a few words about housekeeping matters.

Good morning. During today's remarks we will make some forward-looking statements and while we're making those statements in good faith and are confident about our company's direction, we do not have any guarantee about the results that we will achieve, so if you'd like to learn more about the risks and factors that could influence and affect our business, I'll refer you to the documents we file with the SEC, which include cautionary language. Also, we'll be discussing some non-GAAP financial measures during the call today, and the reconciliations of those measures for Regulation G compliance can be found in either the earnings press release or on our website under the Financial Reports and Filings link and in choosing Non-GAAP Reconciliations. In reference to Regulation G, I will note that our reported diluted EPS from continuing operations of $0.38 has $0.05 of net expense from items impacting comparability as detailed in the press release, resulting in an EPS of $0.43 on a comparable basis for this quarter. On that same basis, the $0.27 of diluted EPS from continuing operations reported in the prior year quarter contained $0.03 of expense from items impacting comparability, resulting in EPS of $0.30 on a comparable basis. Lastly, as detailed in the press release, Consumer Foods operating profit of $247 million was up 2% as reported this quarter and down 8% on a comparable basis. Now I'll turn it back over to Gary.

Thanks, Chris. Given the current market environment, I'm happy to be able to reconfirm our earnings outlook for fiscal 2009. Second quarter comparable EPS of $0.43 reinforce our full year outlook. For the quarter, our Commercial businesses delivered another strong performance. We saw good controllable cost performance across the company. Changes to our Consumer merchandising programs showed positive results late in the quarter, and our key new products performed well. At the same time, several challenges that we forecasted for Consumer Foods affected our results as we expected. As I said last quarter, we know what the issues are and we've taken significant actions to improve the operating performance in Consumer Foods. This has put us in a good position to deliver on our commitment for profit growth in this segment during the back half. Let me go through some of the segment highlights of the quarter. Consumer had a solid quarter in many respects. As expected, our non-measured channel business was very strong, and recent IRI numbers indicate the start of a more favorable trend in the mainstream grocery channel. Overall, Consumer sales were up a little more than 4% on a comparable basis and volumes were down a little less than 4%. Consumer volume reflected our need to work through some finetuning on our pricing. We chose to err on the side of somewhat aggressive list pricing and to course correct surgically with merchandising. I firmly believe we can grow net sales in a way that preserves the vitality of our brands. Competitive promotion remained fierce in the Frozen business, but we now have the right measured responses in place and we're starting to see better marketplace results toward the end of the quarter. We also remain very pleased with the performance of Healthy Choice Café Steamers, which…

Thank you. (Operator Instructions) Your first question comes from David Driscoll - Citi Investments.

Gary, big picture, can you really tell us that the situation is really starting to turn around? This November Nielsen data was quite encouraging, with it up 6.1%. I know it's only one month, but can you just give us your level of conviction here that takeaway trends can continue to look like this?

David, certainly numbers are always going to bounce around a bit, but we feel very good that over time, starting with the November numbers, you're going to see better trends from us. We've made some adjustments. We erred a bit on the side of more aggressive list pricing and have course correct in places where we've needed to, particularly on brands where we've got very high shares and happen to be good margin businesses as well. We've gone back and made sure that we have the right price and margin balance in place. That is certainly one key piece. Another is the fact that in the Frozen segment, as we talked last quarter, there's been some tough deep discounting from one of our key competitors. We've made some quite measured responses to that. We're hoping that rationality will return, but we're planning cautiously for that. But those kinds of adjustments that I just talked about clearly are trends that I think we'll see continue in the back half.

What volume growth do you expect in the back half in Consumer Foods?

We are still staying with a pretty conservative plan. Our algorithm stays in place. I wouldn't want to step out on a limb in terms of getting too aggressive on the volume and net sales mix, but I would tell you that we're comfortable that we'll see improving trends.

What share count do you expect by the end of the year?

I think we put it in the Q&A. Where we ended the quarter was roughly 450, and then the share repurchase arrangement that we have has got some open items that could be trued up in the back half where that number could come down. We'd rather have that firm before we give you a new number, but if you use something in the range of 450, you're not going to be too far off.

Your next question comes from Ann Gurkin - Davenport & Co. of Virginia, Inc. Ann Gurkin - Davenport & Co. of Virginia, Inc.: Can you help me with corporate expense, what level we should use for the second half? André Hawaux: Well, I think, Ann, we're really happy. I don't actually want to quote a number, but we're really happy with the performance and, as I mentioned, the culture that's taking root here relative to really strong cost management. So I think you'll see a number that will be better than - well, I know that it will be better than last year's, but right now we feel very comfortable with where we are. We actually don't want to provide guidance on that particular line item for the back half of the year. Ann Gurkin - Davenport & Co. of Virginia, Inc.: And then secondly, there's been a lot of talk about retailers pushing back on pricing and Gary, you talked about you all have been very aggressive with pricing. Can you just give a little more detail on any adjustments you're making to pricing? Is it more in reaction to volume or in reaction to retailers pushing back?

Ann, I think that clearly we're not deaf to the marketplace, that being consumers and customers. We are making smart adjustments, as I just referenced; we'll continue to do that. But we do need to keep in mind that costs are still greater than they were a year ago or two years ago. Inflation is clearly moderating, but it's not deflationary versus a year ago. We are also making some product line adjustments like re-engineering our Banquet line to make sure that we've got the prices and the margins in balance. Ann Gurkin - Davenport & Co. of Virginia, Inc.: And then have you all hedged a number of your commodity needs for the next couple quarters or can you give us an update on where you are with hedges? André Hawaux: Last quarter I think I talked a little bit about this. So as we go through the year, I think we get closer to having obviously the year get closer to having our positions fully hedged. And again, it runs the gamut based on there's some items that we actually can't hedge as an organization, as you know. But again, I would talk to you about a range like I talked last quarter. We have some commodities right now for the full year that are in the 30% - 40% range, and we have some commodities that we have fully hedged for the balance of the year. So again, against our basket of things that we purchase, it's kind of in different places based on the commodity and based on what we can put hedges on for.

Your next question comes from Christine McCracken - Cleveland Research.

Just looking at the segment data that you provided in the Q&A on Snacks and Store Brands, you called out obviously several of the Snack brands as being particularly strong. I'm just curious if you could give any comment on your Store Brand business and whether or not you're seeing any trade down.

Sure. I can tell you Snacks is strong, particularly Orville Redenbacher, which is a brand that's very important to us and that we support strongly with marketing. But you also mentioned our Store Brands. In the Snacks business, we do have a very strong business in our Bars, you know, bars like granola bars, etc. And that is doing extremely well, as that category is. And we're clearly seeing that strength as innovation plays out, but we're also seeing strength in other parts of our private label business, like our potatoes at Lamb Weston. So we feel good that we've got a very good value proposition there. But it's also, as you said, on the branded side in Snacks as well. Another brand in particular is DAVID Seeds that are doing very well.

On potatoes, you did highlight that there are some higher-cost impacting your international JVs. Can you talk about your Lamb Weston business in light of higher potato costs, if you've been able to pass through pricing to Food Service, if that's part of what's driving that strong performance there and then if Food Service contracts in any way limit your ability to recover that pricing?

Let me basically say that the Lamb Weston business experienced inflation pretty much in line with what you saw in the Consumer business. They were very successful at managing that through pricing and through cost reductions in other areas, so net-net, they've covered it. Clearly, as you price Food Service contracts, it does affect some of the timing and obviously, in a number of the contracts, it reflects your ability to immediately price through. But we consider all that when we're kind of making these long-term commitments and we consider also our purchase contracts with growers that are going to help us manage those costs. On the international venture side, the issue there is really a flood of low-cost potatoes in the spot market. That business didn't make a lot of money in the first half. Sequentially, it's going to make very decent money in the third quarter, although it's up against a very tough lap from last year's third quarter, which was a record quarter, so on a lap basis you'll see some shortfall in the third quarter. But the fourth quarter that lap will turn around and you'll see a pretty good positive contribution.

Your next question comes from Andrew Lazar - Barclays Capital.

First, you're obviously calling out and talking about over delivery on the cost savings side. I want to get a sense how do you gauge if you are pushing too hard on that front? Obviously, I'm thinking of a year ago and what have you, when you pushed too hard on the supply chain and felt some of the pain associated with that. André Hawaux: Let me try to tackle that because one of the things that we're very optimistic on is how we've looked at our cost savings. So if you take a look at our total cost structure, we are still making investments and I'd say the two primaries, one of which you hit on already. So in supply chain, we're making cost investments there. And the other area is in terms of the research quality and innovation platforms that we're doing. So we're actually putting money into those areas and those respective cost centers, if you will, and where we're providing the fuel in that area is more what I call the back office and some of the other costs in our cost structure. So we're not taking our focus off quality. We're putting quality first, and innovation is right quickly right behind there in terms of what you will see from us in the marketplace. So it is very much a balanced approach.

And then it's interesting that when you talk about all the pricing that you've taken and then kind of course corrected a bit when you learned kind of what some of the elasticities are, in many ways you're no different than a lot of others, where it's kind of a real-time in-market test, right, in terms of the power of one's brands when we all see kind of how these brands react to the kind of pricing that the industry's really had to take over the last year or two. Your conversation on these calls and around elasticity tend to be a little bit different than what we've heard maybe than some others, where you've got to make some tactical adjustments and things like that, and that can tend to play into what you hear often about where your brands may stand versus the power of other brands and things like that. I curious if you could just talk about your learnings on that and maybe why I shouldn't take away from some of the comments you've made around having to course correct that your brands aren't less well positioned than others or in categories that are less compelling than others. Are there things you've learned in this process that actually help you get more comfortable with that, or should I just take a look at the course corrections that were needed and make the assumption that well, you know, maybe what folks sort of talk about over time is right?

Well, I would tell you, Andrew, that you know we were a little bit late to the pricing game, so it was concentrated much more than many of our competitors, where it was spread out over a number of quarters. We took it in a couple of big slugs. That was probably a bit more difficult for us and required us to do a bit more course correcting. I'll also tell you that our biggest issue, I'd say, in net pricing was in the frozen category, where we led. And I don't want to go drag everybody through that story again, but we've seen some very irrational pricing from one of our competitors; hard to figure that out. We did not want to go all the way there because we believe the strength of our brands does not require us to get down to those levels, so our measured responses have worked quite well. We saw that come back to us in the latter part of the quarter. And, more importantly, we fortunately had already begun a lot of work on a major transformation of our Frozen portfolio that I think is going to help negate some of the pricing pressures as we go forward. And you're going to see more of that probably at CAGNY and you'll see it in the marketplace at the end of the third quarter on our Frozen portfolio. That's where we've had the biggest pricing issues.

Your next question comes from Eric Katzman - Deutsche Bank Securities.

I kind of want to follow up on Andrew's question a bit. I guess historically, you know, the previous management teams at ConAgra have been known to be very aggressive on promotion, and Gary, you've done an admirable job of trying to pull back on that. Maybe you've had to course correct a little bit because of irrational competition, but I'm kind of wondering how do you think your relationship with the retailers in your brands will play out as hedges roll off if we have some relief in input cost pressure? Do you think the retailers come back to you and look for historical, whatever it was, 10 for $10 on Banquet and that kind of crazy stuff or have they kind of recognized that hey, this is a new ConAgra and we're not going to be the kind of let's say sales allowance bucket of choice out of the major players?

Well, Eric, we have committed to more efficiencies in our trade spend and we continue to believe that that will be the case. We are certainly not opposed to smart merchandising, but we're looking at it in a very measured and balanced way, so there are products where we've got a significant market share position and good margins and we know what kind of price points it's going to take in this environment to get the job done. The retailers also very much appreciate the kind of value products, like a Banquet, where, frankly, we know that it's going to take a 10 for $10 pricing to be able to get there. What we're doing is working backwards from that. So, as I said, on our Frozen transformation, Banquet is one piece of that. We're working backward to ensure that we can make good margins on Banquet at the kind of merchandising - pulsing the kind of merchandising price points that we need. And that will be in the marketplace at the end of Q3. In other places where we've got private label as our primary competitor - let's say, in cooking spray, Pam - there we've got very good margins and we know the right balance between value and merchandising price points. But I can assure you what you're not going to see is us going back to, let's say, 10 for $10 pricing on our core Healthy Choice and Marie Callender dinners. That kind of crazy pricing where we bought volume is not in our DNA any longer.

Your next question comes from Terry Bivens - J.P. Morgan.

Gary, just as you kind of do a little bit of quick and dirty math, as you look at your pricing that you guys reported for the quarter and basically look at the comparable period in Nielsen, it looks as though your pricing was negative to the tune of maybe 5% or so in alternate channels. Is that true and, if it is, were there particular brands that you went at especially hard there?

Terry, I don't track with those numbers. I think what we've reported is what we're actually seeing, and clearly, those alternate channels that are not picked up in Nielsen, there's some different dynamics going on there. We in no way, shape or form took pricing down. It's clearly up across the board. André Hawaux: Terry, let me just add to that. I won't get into anything channel specific or customer specific, but in the four-week ending November 23rd for us, which was the last quarter, the last period in the quarter that we're talking about, every single spread was positive between unit growth in those other channels and our pricing, and in many cases it was significant, as much if not more than what we saw in IRI or what you're looking at in Nielsen. So no, that was not the case.

For the four weeks? André Hawaux: For the four weeks, and I think the same is true of the 12-week period as well, but I thought your question at first referenced your most recent Nielsen that you had looked at. But it's true in both cases.

Your next question comes from Robert Moskow - Credit Suisse.

I had a question about the marked-to-market loss in the quarter, which obviously we're all going to be excluding - and I guess I could have gotten on the call; I could have asked that for General Mills, too - but my question is: Is the statement saying that you have some hedges some place that are underwater right now, but it also means that commodity costs are going to be lower in the future, so you probably get some margin expansion as a result of that? But I guess you only have that margin expansion if you're able to maintain price and not have to discount it away, so I guess my question is: Are there any commodities there that relate to highly commoditized categories, like margarine or bottled oils, where pricing is tied to the commodity and it's going to be very, very hard to maintain price in those categories so that you could be experiencing some price erosion or are those commodities related to kind of typical categories where pricing tends to be rather sticky? André Hawaux: I think I get your question, although you were breaking up somewhat. That's absolutely the only place where we have that dynamic going on right now is Wesson Oil. And we have, as Gary mentioned, sequentially as we move out of the higher-priced oil that we have and go into lower- priced oil, you will see the sequential profitability of that brand get better. We have it built into our plans to actually work through the oil that we have all through the balance of the year. So it's embedded in our algorithm for the balance of the year, but that point you make is very valid for one brand for us and that's Wesson.

And much of the marked-to-market loss is related to vegetable oil in and of itself? André Hawaux: For the quarter specifically?

Yes.

We're really not in the habit of disclosing the marked-to-market by specific commodity. If there's something that's material, as we go forward we'll help you understand it in that context, but we're not really going to break down the $48 million in terms of oil or gas, what have you. We're going to leave it at the consolidated level. We need to be consistent on the disclosures.

Your next question comes from Chris Growe - Stifel Nicolaus.

I wonder if I could follow up a bit on Rob's question and ask in relation to Wesson and Banquet, which were two brands you called out as a bit more challenging in the quarter, just how much of your underlying profit weakness in the business was related to Wesson and Banquet? Could you give us rough numbers around that?

It's roughly two-thirds and one-third. I mean, if you break down the Banquet and Wesson.

What I'm trying to figure out is how much that hurt overall Consumer Foods. You're saying twothirds of it was Wesson?

No, no, no, I'm sorry. I thought you were talking about just how did Banquet and Wesson break down among that subset. I thought that's what you were asking.

I would tell you that there's a lot of puts and takes. We have a huge portfolio. Those clearly were some of the bigger pieces that were the down elevators, but we've got, as everybody does, some ups and downs. I'd also tell you that we feel very good that we've got fixes in place for both. That high-cost inventory, we continue to work it off on Wesson. That's built into our numbers. That'll bleed out across the rest of the year. And on Banquet, that re-engineered line will be in place at the end of Q3. So both of those significant issues for us have fixes in place.

And then I wonder if you could just - I don't know if you have this kind of composite number for your Consumer Foods business, but can you say what private label market share was up in your categories or perhaps if you're seeing collectively private label prices coming down in your categories of late?

I'm not sure that I've got those numbers at our fingertips because there's a bunch of different categories. Clearly, private label is up and the real strength of our private label business is in the Bars business and Snacks and in the potatoes on the Lamb Weston side. But it really varies by category. But no, we're not seeing tremendous pricing volatility there.

And then my last one - and perhaps I missed this - but have you confirmed a cost inflation figure or percentage for the year then? I know what it was for the quarter, but what are we looking at for the year now? André Hawaux: Well, remember, Chris, we had about 15% in Q1. We have about 12% in Q2. I think we're going to see as this runs out probably, I would say, low double digits is what we're actually calling for the year.

Did I hear that you're hedging, then? It sounds like it runs the gamut, but is it like around half of your costs are hedged? Is that right? André Hawaux: It's going to depend, again, commodity by commodity. Balance of the year, we have some positions where we've got coverage on and we've got some that are less than at 100% and some that are items that we can't hedge.

You couldn't say just 50% or some number like that? André Hawaux: No, I wouldn't want to get that specific.

Your next question comes from David Palmer - UBS Investment Research.

In categories where private label is your top competitor, I'm wondering, have you gotten any sense of the retailers' plans for pricing and promoting retailer brands in early 2009? I suppose this is a bit of a follow up with a focus on prices potentially coming down in the early calendar '09 period.

Clearly, there's a focus from the retailer on private label. And their percentage costs or pricing went up a bit faster than branded did, and it will probably go a bit the other way as well. But, again, that's some of the places, the key places, where we've been making adjustments as we look forward in terms of what our cost of goods are going to be to make sure that we've got the right price gapping in place. You know, it's really not a surprise, this phenomenon of private label doing well in this tough economic environment. Again, we've seen some strength in some of our pieces of the private label business. And on the branded side, more importantly, we are staying very close to the price gap management and course correct to make sure we've got that right balance in place. So it's clearly on our radar screen and we feel good that we're in a better position now, with our granular look, than we historically have been.

And do you feel like prices will come down in the first calendar quarter of '09 for many of your categories, in particular, the private label competitor, or do you feel like the timing of that might be more similar to what it feels like many of the branded competitors have in terms of cost structures, which might be more closer to mid-2009?

That's really hard to forecast. We'll stay close to it, but again, let's remember, cost of goods versus year ago is still greater. So yes, we're seeing some sequential decreases as the quarters progress, but still, the water level has risen. That's the same for private label competitors as well.

Are you seeing retailers increasingly rationalizing SKUs and, if so, have you seen any impact from this where you might have brands that are ranked third or lower in a category? Is this a factor at all?

We've seen a little bit of that, but not dramatically. We've also seen some rationalization on the manufacturers side. One example might be in our pudding category, with Kraft exiting the shelf stable pudding where we've got the number one market share with Snack Pack. And we are proactive in SKU rationalization because we recognize the pressures that the retailers are under and we want to be smarter about is. So a good example would be the frozen transformation that I've talked about. Clearly, SKU rationalization is a part of that and that is part of what has given us such strong customer reaction, positive reaction, to programs like that, that we're being proactive in that regard.

Your next question comes from David Driscoll - Citi Investments.

Gary, two questions here. The first one is - it's just a general question - I do find one of the most popular questions out there from so many folks is this general issue of increasing commodity costs or decreasing commodity costs and what actually is good for a branded food company like ConAgra? It seems when commodity costs were going higher, everyone was quite paranoid that we couldn't get pricing. Now that commodity costs are going down, now everyone's terrified that prices aren't going to be able to be maintained and we're going to lose pricing to private label. Can you kind of boil this down, because we know what happened in the rising commodity cost environment - ConAgra had a tough time. In the declining commodity cost environment which we appear to be headed into, is this flat out good news or are you more cautionary than my statement?

No, I think it is good news. In a perfect world we wouldn't have to spend so much time talking about things like hedging. That clearly has been a fairly challenging ride for all of us, certainly ConAgra included in terms of being able to respond in such a volatile market. But anytime that there's less need to take the prices up is a good thing, so I welcome this environment and I think we're going to have the right balance in place. I think we're looking forward to the environment.

The second question is about the Enabler brands. I see in the quarter they were fairly strong, with sales up 11%, but profits were down modestly. Number one, can you just talk about that Enabler portfolio itself? Again, there's been a great deal of concern about that segment of the portfolio in particular, basically from day one of when you took over, and yet, to my memory, that group has actually done reasonably well. But can you give us your characterization as to where it is today and your outlook for it?

Yes, I could probably sum it up in one word - Wesson. It's really a tale of two cities. If you took the Wesson issue which, as I've said, is really we got upside down - and this is a big brand for us, so there's heavy weighting on this - we got upside down on input costs. We were long on high-priced oil. We got in it closer to the peak than I wish we had. Our pricing was too aggressive, and we've had to course correct. But that issue is still with us. As we work through that inventory, it gets better and better as the year goes on, but that really is what impacts, which takes the leverage away from the good top line performance in Enablers. Virtually every other brand there is doing well because they are strong value brands. And we've also got some really good regional stars in there; a brand like a Rosarita or a Wolf Chili is clearly a strong, strong player. So the rest of our Enabler portfolio is doing well. Everything is colored a bit by our continuing but sequentially improving issue on Wesson Oil.

Thank you. There are no further questions. Mr. Klinefelter, I'll hand the conference back to you for final remarks or closing comments.

Thank you. This concludes our conference call and, as a reminder, this conference is being recorded and will be archived on the Web as detailed in our news release. As always, we're available for discussions. Happy holidays and thank you for your interest in ConAgra Foods.

This concludes today's ConAgra Foods second quarter earnings conference call. Thank you again for attending and have a good day.