Good morning and welcome to today’s ConAgra Foods Second Quarter Earnings Conference Call. This program is being recorded. My name is Jessica Morgan and I will be your conference facilitator. All audience lines are currently in a listen-only mode. However, our speakers’ will address your questions at the end of the presentation during the formal question-and-answer session. 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. Happy holidays and welcome to our second quarter earnings call. Thanks for joining us today. I’m Gary Rodkin here with John Gehring our CFO and Chris Klinefelter VP of Investor Relations. Before we get started Chris has a few words.

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 would like to learn more about the risks and factors that could influence and impact our expected results, perhaps materially, I'll refer you to the documents we filed with the SEC, which includes cautionary language. Also, we'll be discussing some non-GAAP financial measures during the call today, and the reconciliations of those measures to the most directly comparable measures for Regulation G compliance can be found in either the earnings press release, the Q&A or on our Web site. Now I'll turn it back over to Gary.

Thanks Chris. Our second quarter comparable EPS was $0.61, about where we expected to be when we gave our guidance. Keep in mind last year’s second quarter was our strongest for the last fiscal year. We saw good profit performances in both Consumer Foods and Commercial Foods this quarter. Our Private Brands segment performance is clearly not up to our expectations. We now expect recovery for this segment to take longer than originally planned and I’ll say more about all of that in a minute. Overall, we’re confident that we’re strengthening the foundation of our Company. This year was designed to deliver stabilization and recovery and on balance, that’s happening. The Consumer Foods brands with the biggest improvement opportunities are responding favorably. In our Commercial Foods segment, we’re gaining new business domestically and across the Company, we’re highly focused on a more efficient organization at all levels. We expect to meet our EPS commitment this fiscal year, despite the fact that Private Brands will be down for the year. Now I’ll offer more insight into each of our segments. Consumer Foods posted a 2% net sales decline, with volume and price mix both down one point, comparable profit increased 7%. We’re executing according to our plan which calls for a better share improvement, growth in specific faster growing retail channels and stabilization of those few big important brands where we’ve been struggling. We plan for fiscal ’15 to be a year of foundation building and it is. We’re making good progress particularly in light of the challenges everyone is experiencing in the marketplace. By focusing on where we can get growth, faster growing channels and retail fundamentals to be specific, we’re directing our resources toward our best opportunities for wins. In terms of domestic share gains one example is in…

Thank you, Gary and good morning and happy holidays to everyone. I am going to touch on four topics this morning. I’ll start with some comments on our fiscal second quarter performance including our additional impairment charge this quarter. Next I will cover comparability matters, then on to cash flow capital and balance sheet items and finally I will provide some comments on our outlook for the balance of the fiscal year. Let's start with our performance, overall the fiscal second quarter comparable results were in line with our expectations and reflect good progress against several key focus areas, as well as continuing challenges in our Private Brands segment. We have reaffirmed our full year goals and continue to expect fiscal 2015 results to reflect stabilization and recovery. Before I cover some of the details, I would remind everyone that with the formation of Ardent Mills joint venture in the fiscal first quarter, flour milling results prior to the formation of this JV are reflected as discontinued operations. Also our share of earnings from our 44% interest in Ardent Mills is included in equity method investment earnings. With the fiscal second quarter, we reported net sales of $4.2 billion, about 2% below the year ago quarter. We reported earnings per share from continuing operations of $0.05 versus $0.48 in the year ago period. The sharp decline in reported EPS was driven by a non-cash impairment charge that I will say more about in a few minutes. Adjusting for items impacting comparability, fully diluted earnings per share were $0.61, slightly below comparable year ago amounts reflecting weaker performance in our Private Brands segment and expected dilution from the Arden Mills transaction, offset by stronger performance in our Consumer Foods and Commercial Foods segments and lower interest in corporate expenses. Now I’ll…

Thank you. Now we’d like to get to an important part of today's call taking your questions. The question-and-answer session will be conducted via the telephone. [Operator Instructions] And our first question today will come from Andrew Lazar with Barclays Capital.

Two questions on Private Brands. First would be, I think last quarter Gary you’ve talked about service levels in that unit being up to, back up to sort of a 98% level and really the key was just getting past, lapping these pricing concessions and then there were a bunch of things that you’d listed, that start coming through in the fiscal second half, that would start to improve margins? And then on this call I think you did mention some service issues still lingering. So I am trying to get a sense was there a step back in service levels or I guess I am still not clear really on what changed that you wouldn't have know about last quarter, that's now going to sort of push back the timing on being able to improve the margin structure at Private Brands? And then I've got a follow-up there.

All right, Andrew, I am going to let Paul tackle that one.

Yes, so the way I would frame it up for you Andrew is the a lot of the service progress that we have made clearly around just the on-time delivery, fill rate and structural improvements, a lot of the things we’re referencing were due to planned consolidations and their very structural nature. And we have made a lot of progress, but we have more work to do. Kind of the, what's new in the way we’re defining it is the overall service with our customer, clearly on-time fill rate those are important, but the way we interface with the customer in everything that we do to strengthen that partnership with them. And that's really what we’re getting at here is beyond those very service metric type of things, the overall relationship.

If we think about then what’s changed, if we look at what your expectation was for EBIT in the Private Brands based for the full year last quarter versus what it is today, I’m trying to get a sense of how much of that sort of downgrade if you will was just the timing lag between cost and pricing versus some of the other things that you sighted, competitive bidding and promotional levels by the brands and such. I think the general question here is, it seems to be still not nearly a level visibility right, but I think folks want to see whether it’d be internally or externally around kind of getting your arms around this business and I’ve gotten the question a lot this morning, it is a $45 million per quarter run-rate in EBIT is that the right just longer term run-rate in terms of profitability for this segment, because you’re supposed to have a lot of -- a lot of the synergies really ramping up in Private Brands in the back half of this year and again it doesn’t seem like any of that will flow through obviously in a positive way, so it’s a long way to question but trying to get a sense of really what’s changed because I don’t still have a great sense for that I have to say?

Yes and Andrew let me just -- I get what you’re saying and it’s a great question. I’m just going to add pretty quite a few different points of context that will I think help connect some of the dots. And I’d start by just acknowledging that the business is clearly not where we want it to be or expect it to be and it’s a point of frustration for our entire organization. To state the obvious, it’s been more difficult and taken longer than we originally planned, but I think an important point is these issues they are fixable. The earnings revision that you see is from my perspective it’s a delay in our recovery, but it’s not a long-term problem. One point that I would share with you, I expect and have a lot of confidence that the earnings growth in '16 is real, I have confidence that we will be able to deliver it and we continue to have a lot of confidence that the Private Brands industry will be a faster growing part of the overall food industry, so our vision and our belief and confidence in Private Brands in total hasn’t changed in spite of the short-term challenges. As far as the headwinds this year that maybe you could call it more of a surprise in nature. We are dealing with softer Private Brand category performance, that’s real, impacts volumes you see that in the results. We also as John mentioned the inflation and it is intense and it is impacting our snack, nut and pasta business, because the cost is immediate. We’re taking pricing actions but it lags. And that is an element where it ties to confidence in the improvements in '16, but I would say beyond the headwinds probably what’s most important…

And we will take a question now from David Driscoll with Citigroup.

Gary, Paul I add apologies but I do want to follow-up on private label here. I wanted to take just a slightly different direction. So TreeHouse has reported that it has seen three straight quarters of organic volume growth. So like Gary I as heard you on the comments about the intensity of the environment, but when I look over at another very big, I know it's a different portfolio of private label, they actually see pretty good strong volume growth that I mean they give us this commentary that some of the traditional retailers are really starting to see some strength when you look at Kroger and some of their numbers, I mean things look better but you guys are seeing I mean, what was the volume in private label, it was down 6%. I mean that's an enormous figure. Given the kind of price contraction that the Company took many months ago, I would think that the one thing you would have protected was your volume. So can you kind of marry up what's the difference between the strength that this other big private label entity and why just the volumes are just so weak?

Dave, that's absolutely a fair question. I'd start by saying from an industry standpoint there are clearly players that are doing well. You referenced one big one. Consumers are more and more accepting of private brands and customers that are winning are emphasizing their own label and we know overtime, the up market trend is going to continue and that will play well into our skill set and we know that customers are going to be more and more demanding on supply chain efficiencies, food safety analytics and all that will leverage our infrastructure. But frankly, we are challenged from an execution standpoint. This is truly a tactical, not a strategic question. We haven't done a good enough job on things like speed and on customer service levels and there have been some specific issues on customer service levels, Paul referenced some but we've had some supplier issues as well, that have hit us, that's not an excuse. Overall, our issues are truly our own execution and what we need to do to drive growth is to level the playing the field on service of speed before we can really start to take advantage of any other kind of CPG capabilities that we've talked about. So I can't overemphasize the point that we do now have while the learning curve has been slower than it should have been, we should have moved faster, we do now have a turnaround plan that has four pieces to it, our effectiveness and efficiency work on Private Brands has addressed some of that, but we need to go further to address the pain points and we have to break some of the bottlenecks that we have but they are really around customer responsiveness and speed, improving our commercialization processes, better overall service levels and better connectivity between supply chain and sales. So I know that's a bit repetitive from Paul's answer but I just want to point the gun clearly at our own execution issues. I know that this is fixable. These things are fixable. We just need to do a much better job and move faster and I think we now have all the resources in the focused sense of urgency to do that. I wish it had been faster, but the bottom-line is we now have that action plan in process.

Okay, I’ll pass along…

And David, sorry David and clearly we will see a material impact in F16.

Well, that's very important. Thank you.

Hey, David just one thing I would add is the points you made on our competitor, it is an element of why I am still confident that the outlook on Private Brands is very positive. When we do all the things Gary just mentioned, there is a lot of opportunity here.

And we’ll move now to Eric Katzman with Deutsche Bank.

I guess, well just getting off of the private label topic for a second, John you’ve kind of written in the press release there was some hedge accounting adjustments that are going to happen going forward. I haven't heard that from other companies. Is that just a function of your ingredient base and its volatility? And then kind of what, so what should we expect, a little mark-to-market within the segments that you are going to pull out or you can't pull it out and it means it's more volatile? Maybe I’ll just, I’ll have that one and then a brief follow-up.

Yes, Eric good question. I am going to try not to get too technical, but historically a portion of our hedges have been, we've used some indexed hedges and this quarter we regularly look at how effective we think those hedges are and I think as we review those, the effect on this of some of these hedges this quarter, we determined that that effect in this was lower than we had planned, probably due to a lot of factors. When that happens, I think just good accounting requires that we change our methodology and recognize those mark-to-market impacts directly under the segments versus what we ordinarily do which is we temporarily defer them through corporate expense. I think in terms of what it means is, what you’ll see is that we’ll change the timing of when we recognize any of these losses or gains. And I think it could add some volatility to our results over the next couple of quarters as we unwind these positions. To be clear, it’s just a portion of the hedges we use and my sense is that this issue will be done once we unwind from these hedges, it was just the case where again because of a variety of factors we felt like the effectiveness or correlations if you will had dropped to a level where we felt like we should go to mark-to-market on that subset.

And Eric this is Chris I’ll build on John’s point and just say that, we’ve taken the volatility that John was talking about and the impact on our numbers, we’ve taken that into consideration when we are giving you our guidance.

And then Gary, this is a just kind of maybe focused on the Consumer segment for a second, obviously you’ve got a big frozen portfolio, that category in total has been really tough kind of going back to the great recession. And maybe there’s some signs out there that the consumer health particularly middle-class maybe even lower income is getting a little bit better with the gas price relief. Do you see any signs of recovery in that segment at all from -- with not just your business, but just in total and maybe a little broader perspective on what’s happening with the consumer there and I’ll pass it on? Thanks.

Sure Eric. Thanks for the question. I’ll start and then I am going to turn it over to Tom for some more color. The economy is still challenging for most Americans and I think we’re all aware there’s overcapacity on both sides of this industry, manufacturers and retailers, so that dynamic continues to play out. However, there are some positives you named one. The gas prices should be putting more discretionary income into the pockets of the core consumer who -- where that really could make a material difference so we hope they are going to spend some more of that on the food side, both at home and away from home. And we are now left -- have left the SNAP cuts from last November the food SNAP cuts, so both of those factors should be positives as we go forward. And it’s just important to remember, this is a really large landscape, so there’s room to grow by improving fundamentals like we’ve talked about in perfect at retail. But in general, I would say we hope that as an industry we’ve kind of bottomed out and are looking forward -- but let me turn it to Tom, because he can give you some really good color on frozen and the rest of this portfolio.

Eric this is Tom McGough and let me just provide a little bit of context in frozen and what we’re seeing. As you know, it’s a big and important category not only within our company but with our customers. And as you noted, overall category has been down. But overall I think it’s important to note that those declines have been concentrated primarily in the nutrition segment. The premium and value segments are relatively stable and that’s where our two largest brands are positioned in those segments. As Gary highlighted today and as we spoke about last quarter, we captured the number one share position in single-serve meals last quarter and we actually extended our share of leadership this quarter. And I think what’s important to note, this second quarter we posted the highest profit we ever have in the second quarter on our frozen portfolio. So we built our share of leadership and we also delivered record results. If you look at the fundamentals of our business, we continue to invest to grow Marie Callender's and we’ve achieved great results not only in our single-serve meals but in the other platforms. We had a great holiday season on frozen desserts and our frozen multi-serve platform continues to grow. As I said the nutritional segment is challenged and we are building share in that segment with Healthy Choice. We’re posting very strong gains on Café Steamers and we continue to build our business around that platform. And as Gary highlighted, we introduced a line called Simply Steamers this quarter and those are products that are made with no artificial ingredients contain, and 100% all natural chicken. And it’s really on trend with the desire from consumers of minimally processed foods. And we also price those at a higher price point. And that residence with the consumer despite the higher price point we’re off to a very good start. Finally as we look at the rest of our frozen portfolio, we invested heavily in P.F. Chang's. When you go to a restaurant you then typically order an appetizer and your entrées are served with a rice side dish. And we have restaged our business to sell that bundle, improved the appetizers, improved our multi-serve meals and we just introduced a line of frozen rice and we are off to an incredibly strong start on that restage. So overall while the frozen business is challenged in aggregate, our performance has been very strong this quarter and over the last year. And this is a category that we are going to continue to invest smartly to build the category to our brands.

We’ll take a question now from Sanford Bernstein's Alexia Howard.

Can I ask about the sticking on the Consumer side, the advertising spending being cut down, that's something we heard about from a number of companies recently, what's the thinking behind that particularly in terms of the long-term investment behind the brands and do you expect that to change going forward or do you expect to stick with setting up promotional activity? Thank you.

Sure, Alexia. This is Tom McGough and let me address that. I think there is a couple of perspectives here; first and foremost as with any investment we have an ROI approach to allocating our resources. And I think you can appreciate given the breadth of our portfolio, we focus our resources where we are getting the highest return and we are increasing spending on several brands. Marie Callender's, our tomato platform of Hunt's and RoTel, Slim Jim, and specially brands Reddi-Wip and PAM. We have the fundamentals right on those businesses, we continue to invest our volume and share continues to increase. But our perspective is that traditional marketing is only one investment in our brands and we take a more holistic look at the investments that we are making in our brands particularly in getting the fundamentals right. And where we've invested rather significantly has been on, I can highlight a couple of businesses, Chef Boyardee we invested to improve our products, packaging through the easier lid. The business has responded very-very nicely with our volume up fairly significantly over the last quarter. Importantly, that's coming from non-promoted based volume grow and we see a good trajectory and a higher return from that investment. I just talked a little bit about P.F. Chang's, but we invested to get the product, the pricing, the package right at retail that's resonating incredibly well with consumers and we are seeing strong double-digit growth. And the last thing I’d highlight is that as a company, we placed a much bigger emphasis and we've made more investments to grow in alternative channels. As you know, increasingly consumers are shopping in Club and Dollar stores. The win in these channels requires us to have customized product and packaging. But marketing in these channels is very different. Driving trials, if you go through a Club store, driving trial happens in-store, that's how you get the trial and awareness and that's very different than the traditional broad-based advertising, but we are reconfiguring our go-to-market approach, how we invest to drive trial and awareness in our brands and we are investing in many of these customer specific programs that are reflected in our P&L as trade spending and not as traditional A&P. Because you take a step back, we are investing in our business, we do it in a very holistic manner, we are having very good impact from those investments and we will continue to have that lens of ROI, effectiveness and impact that drives our investment decisions.

And we’ll take a question now from Chris Growe with Stifel.

Do you mind if I could just ask two questions if I could. The first would just be in relation to the cost savings commentary that you shared if I recall you have given like an overall cost savings figure. Are we still on-track for the -- I think it's 125 to 150 for the Private Brands division?

Yes, we are still in that range for the Private Brands and overall we are looking at 350 to 375 across the entire enterprise. Hello? Chris did we lose you?

I am there, can you hear me?

We can now, yes.

Okay, sorry for that. Just a question about the Private Brands division and with the volume weakness, what seems to be persistent volume weakness, is there anymore activity, I guess I am trying to get to are there more cost saving potential here now, while things have been a little slower in terms of their rebuild, are there plant closures are things you can do because of the volume environments get a little bit more aggressive on cost on that division?

Fundamentally yes, and one of the things that we referenced was just the accelerated cost that we have in our business today around supply chain initiatives where the benefits are getting stretched out and that does, it’s around improved distribution network, consolidation, production consolidation and we will continue to drive optimization on that it’s a really important part of the overall plan.

And I guess the only other thing I'd add Chris is as we work through the execution of the plan that Paul and Gary have talked about, certainly as we try to more tightly wire the business, that might also result in less touches, that’s a certain things that might give us a chance to streamline some processes even further than we have through the first phase of our effectiveness and efficiency work.

We’ll move now to Akshay Jagdale with KeyBanc Capital Markets.

This is actually Lubi on for Akshay, just had a question on your Consumer Foods business. So the margins in that business where really strong this quarter, I mean I think looking at our model it seems like strongest has been since at least the second quarter of 2010. So trying to get your thoughts on sort of sustainability of that margin performance in Consumer Foods for instance and I think there was a question earlier about sort of your level of brand support, but what gives you comfort that you are not cutting brand support too deep maybe in Consumer Foods such that it could affect the long-term performance there?

Sure our margins well this is Tom McGough and our margins are what you reflect and it’s a combination of strong productivity, being able to execute pricing to offset commodities, a strong discipline on the trade side to be very surgical, to meet marketplace conditions and we believe we’ve balanced those very-very well and our margins have been very strong. And as I previously said, we look at our investments very holistically. And we are investing in our business for the long-term, making sure we have the right fundamentals on the businesses that I highlighted as well as continuing to invest in businesses to sustain long-term performance. So our focus is certainly around building a foundation that sustains growth overtime. And I think we feel we’ve hit that sweet-spot of discipline, while still investing behind our businesses not just in traditional A&P but in other areas to make sure we have the fundamentals right. And that’s going to provide a foundation that we will consistently grow from.

Another we’ll hear a question now from Robert Moskow with Credit Suisse.

I think every question, every possible question has been asked. I’ll ask about international though. You mentioned some customer specific issues. I want to know if you could give us a little more color on what that is and how much did it affect the quarter and is it a short-term or is it something that affects the back half of the year? And maybe quantify the West Coast labor strikes and how much that affected the quarter and why that would just be a short-term issue as well?

Yes, so Rob this is Paul and I feel that commentary is all around our Lamb Weston business and the softness in those Asian markets are really fundamentally rooted in the -- there is a food safety issue from a meat supplier with some of our key customers it hurts our business. It is sequentially improving. And the outlook is that it will continue to improve. There are commitments on building out the market there, opening new stores continues to be very positive and the right outlook and we’ve positioned ourselves to partner with them and enable that growth. The West Coast the port slowdown very real, our exports do go through those ports. They’re running I think you see that publicly but it’s running around 50% of capacity. And like every other industry we’re working through it, the sooner it gets resolved the better. Not a real big impact on the second quarter, but something that we’d definitely want to see get resolved so we can serve our customers and hit everything that they need.

And there are no further questions Mr. Klinefelter, I’ll hand the conference back to you for final remarks or closing comments.

Thank you. Before I close I know that Gary wants to offer some thoughts.

Yes just in closing, I want to reiterate that basically three quarters of our business, the two biggest sectors are performing well their foundations are much stronger than year ago. And that we’re managing our cost structure very well, the effectiveness and efficiency work is really playing a part there. The Private Brand business has an intensely focused sense of urgency and resources aimed at this turnaround, but I want to reiterate we believe in the strategy. It’s a bold move that we undertook and it’s a big transformation. We have strong conviction that Private Brand will be a growth sector in the food industry long-term the issues we have again to repeat are our own execution, there’s no escaping that. These issues are fixable. We will drive growth long-term from this business. And with that, I will wish everyone happy holidays see you in the New Year.

Thank you, Gary. This concludes our call today. And just as a reminder, this conference call is being recorded and it will be archived on the Web as detailed in our news release. And as always we are available for discussions. Happy holidays and thank you very much for your interest in ConAgra Foods.