Good morning, ladies and gentlemen and welcome to the ConAgra Brands’ Acquisition of Pinnacle Foods and Fiscal Year 2018 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Brian Kearney, Director of Investor Relations. Please go ahead, sir.

Good morning, everyone. Thanks for adjusting your schedules and joining us today. This morning, we will be discussing both our agreement to acquire Pinnacle Foods and our fourth quarter results. I remind you that we will be making some forward-looking statements about ConAgra Brands, the proposed acquisition of Pinnacle Foods and the expected benefits of the proposed acquisition. While we are making those statements in good faith, we do not have any guarantee about the results that we will achieve. Descriptions of risk factors are included in the documents we filed with the SEC. Also, we will be discussing some non-GAAP financial measures during the call today. References to adjusted items refer to measures that exclude items impacting comparability. Please see the earnings press release for additional information on our comparability items. The reconciliations of those adjusted measures to the most directly comparable GAAP measures can be found in either the earnings press release or in the earnings slides, both of which can be found in the Investor Relations section of our website, conagrabrands.com. Now, I will turn it over to Sean.

Thanks, Brian. Good morning, everyone and thank you again for accommodating the date change and joining our conference call today to discuss our agreement to acquire Pinnacle Foods and our fiscal 2018 fourth quarter and full year earnings. We have got a lot to cover obviously. So, let’s go ahead and get started. Over the past 3 years, we have made significant progress against our plan to transform ConAgra into a pure-play branded food company and establish a solid platform for future growth. We have built industry leading innovation capabilities, completely overhauled our culture and unlocked significant shareholder value. The impact of these efforts is evident in the tremendous Q4 that we announced today, having delivered 2% organic net sales growth and approximately 16% adjusted operating profit growth. Clearly, our hard work is paying off with improved and more consistent performance. All of these actions have positioned us to take the next step in our evolution. Today’s announcement of our agreement to acquire Pinnacle Foods builds on the strong foundation we have established and serves as a catalyst to accelerate value creation for shareholders. It will enhance our scale by combining two growing portfolios of iconic brands and create a leader in frozen foods, while also expanding our presence in snacks. We are bringing together two highly complementary companies, with a strong combined balance sheet, positioning us to capture compelling financial benefits, including attractive synergies. Importantly, with a strong leadership team and proven capabilities driving brand building and innovation, we are confident in our ability to successfully integrate this acquisition and to build continued momentum and deliver meaningful shareholder value. Now, before I get into more detail about why we are so excited about this acquisition, I do want to take a step back for a moment and talk about…

Thank you, Sean and good morning everyone. Let me begin by reiterating how excited we are about this transaction. I will start by sharing some additional details pertaining to the deal and we will then briefly discuss our strong fourth quarter and fiscal year 2018 financial performance before we open it up for Q&A. Building on Sean’s comments, we are acquiring Pinnacle Foods in a cash and stock transaction valued at approximately $10.9 billion, including Pinnacle’s outstanding net debt of $2.7 billion. Under the terms of the agreement, Pinnacle’s shareholders will receive $43.11 in cash and 0.6494 shares of ConAgra stock for each share they hold, equating to an implied price of $68 per Pinnacle share. Pinnacle’s shareholders are expected to own approximately 16% of the combined company, assuming our issuance of incremental equity to the public to assist in funding the deal. This transaction price represents an adjusted EBITDA multiple of 15.8x pre-synergies based on Pinnacle Foods’ estimated fiscal year 2018 results and 12.1x adjusted EBITDA, including run-rate cost synergies. We secured a committed $9 billion bridge facility until permanent financing is raised. We expect to finance the $10.9 billion transaction by issuing $3 billion of ConAgra Brands’ stock to Pinnacle’s shareholders and raising $7.9 billion of cash. The cash is expected to be raised through the issuance of $7.3 billion of transaction debt and the generation of $600 million of incremental cash proceeds from either a public equity offering and/or divestitures. We have assumed that we would issue the full $600 million in equity in calculating the deal metrics, but the ultimate mix of equity issuance and divestitures will depend on timing considerations, credit implications and market conditions. ConAgra Brands’ pro forma net debt to EBITDA ratio is expected to be approximately 5x at closing. ConAgra is committed…

Thank you, sir. [Operator Instructions] And the first question will be from Ken Goldman of JPMorgan. Please go ahead.

Good morning. Thank you. Hoping to get some color on why the synergies aren’t a little bit higher than the typical 7%ish rate in food. Just wondering are the supply chain synergies in frozen not as high as maybe we expected? Is it that Pinnacle’s SG&A is already very low and efficient or maybe is there – I am hoping maybe some – there is just some conservatism in there, so any help you guys can provide there would be greatly appreciated?

Ken, let me start and then Dave add whatever color you want to add versus some of the things I have read, Ken, I think probably the biggest modeling difference is within COGS in manufacturing. So we have got 7% synergies here, which we are highly confident in. We have scrubbed every opportunity and we are – we feel very good we can deliver this number. But I think sometimes there is a belief that when you put two companies together, you can take half of the manufacturing assets, half of the plants and consolidate them, that’s not how it actually works in practice. The example I would give you is a vegetable processing plant is not the same as a frozen food manufacturing plant. You have to process vegetables in very close proximity to the field, because of the delicacy of the vegetables, which is different than how we make say frozen meals. So I think some of – perhaps the assumptions around manufacturing assets were more aggressive than what exist in reality. The numbers we have got in here we feel very good about and obviously, it’s kind of like how we approach margins in general. We always look to over deliver, but this is the number that we believe is correct and it’s about on par with what we have seen elsewhere in the industry. Dave, what I missed?

No, I think you covered it. I think it’s also important to understand that the $215 million, that’s a real synergy number. So there is no – that’s going to hit the P&L and that’s going to be favorability that you will model. We feel – as Sean said, we feel very good about that, the ability to deliver that. As I mentioned in my comments, we believe 60% of that will come by the end of fiscal year ‘20 and then the rest will phase in. And I did quote cost to achieve which are really one-time costs and then some CapEx. So we feel really good about the synergy numbers and our ability to deliver them.

The next question will be from [indiscernible] of Bank of America. Please go ahead.

Hey, good morning everyone. I guess, there is – we fielded a few questions today just about the guidance for standalone ConAgra for 2019. And so I was hoping you can help I think just relative to where I guess consensus expectations were for ‘19. It seems like it’s more or less in line, but could you help us bridge I guess a little bit about what’s happening below the operating income line? Is interest expense going to be higher? I understand there won’t be share repurchases, but just trying to get a better understanding of where your ‘19 guide was maybe relative to where expectations were?

Yes, sure, Brian. It’s Dave. Let me take a shot at that. So yes, the main reason – we are not trying to hide anything. The reason we didn’t give EPS guidance for ‘19 is exactly that, because of the transaction and the impact that could have on interest expense and shares, right, given timing of the financing. But if you step back, the big thing I think today because some analysts have factored it in, some have not, is the pension accounting headwind. So, I think we have been very clear as to what the impact of that is and how that needs to be modeled now below the operating margin line. You are right you should assume no share repurchase now. According to our numbers, that doesn’t have a dramatic impact on EPS because of the way the weighted average share calculation works. And then interest expense, I mean I think probably the most prudent thing is to just model it as sort of the standalone business and then obviously when we know more about the timing and financing, then we can modify it from there. So I think if you factor those things in, you will be able to get kind of close to the consensus number. I don’t think you will have a problem. Let me just hit Q1 why I am on it. We did give guidance for Q1. We normally wouldn’t do that, but because of the timing of signing and the estimating closing by the end of the calendar year, we thought it would be prudent to give at least Q1 guidance. And from a sales perspective, it’s pretty consistent with how we finished Q4. We gave guidance on reported, but organic will be pretty consistent with where we were in the fourth quarter. You will notice that the operating margins are lower on a year-on-year basis and that is all timing of SG&A and some transition service income that we had in the prior year that we don’t have in this year. So, that’s just a wrapping on a one-time benefit there, but it’s really timing, because if you look at the full year and the operating margin guidance we give for the full year, you can see improvement. So, it’s a timing thing with SG&A for the first quarter. So hopefully, that gives you enough insight to get you there.

The next question will be from David Palmer of RBC Capital Markets. Please go ahead.

Thanks. Good morning. Looking back a couple of years now to that Analyst Day, you laid out some long-term supply chain opportunities, including network consolidation and ingredient sourcing. Could you give us an update as to where you were, where you are now on that journey that you saw then in terms of your own COGS realization and then talk about how Pinnacle really changes that and maybe perhaps adds to that? And then relatedly, how do you view your capital expenditure needs for the combined company over the next few years? Thanks.

Yes, David, let me start with that. So, yes, we gave very specific guidance and insight at Investor Day on our supply chain operations that we talked about a realized productivity metric and we are on track with everything we laid out. Our realized productivity has been coming in at 3%, a little north of 3%. The thing that we did not call right back then, nobody called right, was inflation, right. We thought inflation was going to be in the low 2%. As I just quoted, we finished at 3.8% this year. So clearly, much more of a headwind than we anticipated at that time, but our productivity programs are tracking right on. In terms of Pinnacle, it’s better to wait till we close and have an Investor Day to get into more of that, but I think Pinnacle has clearly proven their ability to drive productivity and margin improvement. They have had really strong results in that area. And as Sean mentioned in his comments, it’s a strong culture of productivity and cost savings. On the CapEx, I did quote some incremental CapEx related to – in my cost-to-achieve number. So that’s a number that you can pickup in addition to our base CapEx numbers for each business.

And the next question will be from Steve Strycula of UBS. Please go ahead.

Good morning and congratulations. So a quick question would be on, Sean, for the category overlap, is there anything that jumps off the page when you look at the two portfolios together as to what might draw some attention whether it’s in the frozen business with Hungry-Man or the chili brands? And lastly, are you able to utilize your NOLs for the foundation brands in the Pinnacle portfolio or only for legacy ConAgra? Thank you.

Let me take that in reverse order. The capital loss carry-forward just so everybody is clear can only be used for preexisting ConAgra assets, so just so everybody has got that. On the other one, we don’t anticipate any antitrust issues. This transaction involves very complementary products, but in highly competitive sectors and it benefits our customers by making ConAgra an even more effective competitor. Now, we are going to be able to deliver more innovation and value to consumers, but we don’t anticipate any antitrust issues here.

And the next question will be from Jonathan Feeney of Consumer Edge. Please go ahead.

Good morning, Jon. Thanks very much. I wanted to ask about well maybe bigger picture about the industry and your options, because it seems to me that we go back to a year ago and there will probably be some detail about your timing and extended conversations here. But go back to a year ago when there were some reports about you talking – valuations are a lot cheaper across the food group, your own fundamentals are a lot better, especially on a relative basis. And maybe – and you strike this transaction today, I am curious, it clearly makes sense now just like it made sense then, but when you think about other things you could have done in the near-term in the industry, maybe just a comment about what you are seeing – what today’s transaction maybe says about the industry as a whole and other opportunities? Thanks very much.

Sure. Well, in terms of what we look for big, big picture when it comes to M&A, just think about what we are trying to do as a company. We are a lean company, but we are a company that’s focused on growth. And for 3 years, we have been reshaping the portfolio for better margins and better growth profile. So finding – we have been on the lookout for a while now for a larger, smart synergistic acquisition, but those opportunities tend to be fewer and farther between. And when they come up, it’s important to us that the asset has real legitimate growth potential and the Pinnacle team has done an absolutely phenomenal job driving innovation and growth here and that meant a lot to us. We also have been very clear around our success criteria all along and the announced deal today reflects both an open-minded seller and the ability to meet our criteria. So, it’s a great combination overall and we are looking forward to getting at it.

And the next question will be from Chris Growe of Stifel. Please go ahead.

Hi, good morning. I will add my congratulations as well. I just wanted to ask you in relation to synergies, if I could. First of all, are there any explicit revenue synergies you expect from the transaction? And then also just related to that, when you think about the $215 million of synergies, is there any need to invest in say capabilities at Pinnacle, which runs at a really low level of overhead? Is there some investment that you are building into your synergy expectation as well?

First, on growth synergies, nothing we have shared today assumes any growth synergies. So, we kind of gave you a preview of directionally how we are thinking about the long-term algorithm of the combined companies and both of these companies have probably among the higher long-term growth forecast as it exists already. So we are not at a point where we are going to change that, but I think it goes without saying that when you take two strong portfolios and you combine them into a single bigger portfolio, just the consistency and the sustainability of that growth profile almost by deductive reasoning has to go up. So, that’s in there. We haven’t baked in any growth synergies. I can tell you I personally have plenty of ideas for our innovation team to start thinking about, but that’s for a conversation down the road. And in terms of capabilities that the Pinnacle team like ConAgra is a lean team, but obviously it is a highly capable team. And so we are really looking forward between now and close to getting to know the team to try to understand what their towering strengths are and frankly we like the idea of continuing to enhance our capabilities by the combination of the two. Dave, you want to add something?

Yes. Just so, Chris, on the synergy, the $215 million we put out there. So everything we reflect in our forecast, our accretion estimates of high single-digit by fiscal ‘22 reflects all the costs we need to incur to get there. I do want to remind everybody too, because companies do this differently. Our accretion estimates include amortization of intangibles, the estimated purchase accounting on this transaction. Lot of companies just quote cash EPS accretion. If we were to look at cash EPS accretion, we are double-digits. So we are quoting EPS accretion as a GAAP number that includes amortization estimates. I just want to make sure that’s clear, because sometimes it’s confusing.

And the next question will be from Robert Moskow of Credit Suisse. Please go ahead.

Hi, Sean. Can you help give a little more color on the decision to reduce the advertising line item in SG&A or just the direct-to-consumer kind of approach and push more in terms of retailer spending? Do you foresee any kind of long-term impact on your brands as a result of that? And what makes you feel comfortable that the spending with the retailer is going to be sufficient to maintain, I guess, the intangible equities?

Well, I think the answer to the question is we expect that the long-term impact to our brands is positive. We view it as a positive change. For almost a year now, we have been outspoken about the marketing ROI improvement we believe we could get by moving some ineffective A&P marketing investments to retailer marketing investments. And accordingly, we have shifted some of our investments above net sales and it is clearly working. Our sales are up. Our promotion levels remain reduced and our pricing is ahead of our categories on average. And because we plan to maintain this marketing profile coupled with the pension accounting change, we needed to true up our algorithm, but fundamentally, nothing has changed. But I’d like to give you just a case study here, because I think your question is really about is this a lower quality marketing investment and is it ultimately going to hurt brand equities over time? The opposite is actually true, Rob. We are seeing very different marketing programs with customers today than when I started out in the industry and it was all high low trade. Look at Healthy Choice as an example. Healthy Choice is about a $400 million brand at retail. It had been declining for years. We have modernized the brand. We are investing with customers to make sure we get the right placement and get the product clearly in front of consumers when they are shopping. And in Q4 that $400 million business at retail grew its top line about 20%. So, that is unheard of to see a brand of that scale that’s been around that long that was that outdated, put up those kinds of trends. And I would say it’s a combination of both the below-the-line marketing spend and the above-the-line spend, but the total marketing spend has actually increased and it is far more effective and the investments we are making above the line are not in contrast to building brand equity. They actually enhance brand equity. The easy one to describe is when we make an investment with e-tailers as an example on search. Search is a bit of a pay-to-play game. But by paying to play, we are able to get the story of our brands in front of consumers so they understand the ingredients, they understand the founders, they understand all of that. That is good old-fashioned brand building and it is a far superior investment than buying a commercial on Home and Garden TV at 2:30 in the morning on the Thursday night. So overall, we feel excellent about the shift. It’s working. We plan to continue to do it and that’s why we are truing it up, so you guys can model it properly.

The next question will be from Alexia Howard of Bernstein. Please go ahead.

Good morning, everyone.

Hi, Alexia. Good morning.

Do you have any read at the moment about how quickly your de-levering will happen to get from 5x to 3.5x?

Yes, Alexia. So that’s clearly our target. Right now, we are looking at a glide path assuming we would close by the end of the calendar year. By the end of fiscal ‘21, we should be pretty close to the 3.5x.

And the next question will be from Rob Dickerson of Deutsche Bank. Please go ahead.

Thank you very much. Congrats from me as well. Just a broader question really, your own perspective, Sean, as to really why upon the announcement this morning both the ConAgra shares and the Pinnacle shares are obviously – have come under some near-term pressure. And from my perspective, it sounds like this is the transaction that’s kind of been a long time coming and it made logical sense and there is obvious value creation, and you have outlined that today. So really just very simplistically just why do you think both stocks are down and why would you be happy owning ConAgra equity, especially if you were a Pinnacle shareholder? Thanks.

Rob, I am not going to speculate as to what the market is going to do in the course of a couple of hour window. What I can tell you is I have total confidence that by combining these two companies we will only accelerate the strong shareholder value creation track record that we have been delivering. There has been a lot of commentary about deals that perhaps don’t make sense to investors in recent days. These are two portfolios that fit perfectly together and in fact looking at it right now, I think it’s just an outstanding investment opportunity.

And just to add to what Sean says, with our information today, we are putting a lot out there and there is a lot of things like the pension reclassifications, our shift of A&P. Looking at that the wrong way, people could look at that as, oh, your operating margins are down or gross margin, you didn’t hit the 32%, when that’s not correct. But we tried in the materials to be very descriptive as to what we are doing here. So I think as people look at it and understand, wait a minute, actually, the core business is doing very strong. I just wonder if there is a little bit of confusion given all the changes that are taking place in our numbers, just another opinion.

And the next question will be from David Driscoll of Citigroup. Please go ahead.

Good morning. This is actually Cornell Burnette on with a few questions for David. Just wanted to ask you obviously when you look at the deal, some of the logic of bringing the Pinnacle Foods’ frozen assets and combining them with ConAgra seems pretty obvious, just wondered your take on maybe some of the parts of the portfolio at Pinnacle that are less obvious with ConAgra. And I am thinking of things such as like baking mixes and perhaps salad dressings and wondering kind of over the long-term, how do you see that fitting in with what you want to do and is this like a good long-term fit for the company?

Yes, those two examples that you bring up are actually examples of excellent fits. We talk about our portfolio as spanning four consumer domains, frozen meals, snacks and sweet treats, condiments and enhancers and shelf-stable meals and sides, Duncan Hines, if you look at the fantastic innovation that’s come out of Pinnacle team on Duncan Hines in the last year or so, it’s really demonstrating that Duncan Hines operates well as a sweet treat, a convenient sweet treat and we think there is real innovation opportunity still ahead there and it fits squarely with what we do in sweet treats where we have great brands like Swiss Miss and Snack Packs. So, that’s very close to home for us. Within our center store grocery business, we do look at it two ways, condiments and enhancers and shelf-stable meals and sides, both of those businesses play important roles. But interestingly, when you look at millennial behavior in particular, they are very interested in condiments and enhancers as a simple way to add flavor, texture, moisture to food and obviously, the Wish-Bone business kind of is – it fits very close to home with what we do with brands like Hunt’s ketchup, Frontera salsa, things like that. So, it’s actually extremely close in. I struggle to find something in the Pinnacle portfolio that’s actually not close in when I look at it. These are categories that are very similar to the kinds of benefits that we bring to consumer households everyday.

The next question will be from Akshay Jagdale of Jefferies. Please go ahead.

Good morning. This is actually Lubi filling in for Akshay. I just wanted to ask a bit of a big picture question. So you have obviously completed a number of acquisitions. You have done some divestitures over the last few years as part of your portfolio reshaping efforts and obviously you still have a fair amount of the tax loss carry-forward remaining to do more. So I am just wondering at a high level in terms of your portfolio reshaping efforts, how close do you think you are to being at sort of an optimal portfolio mix? And are there any sort of particular segments of the market where you feel you are maybe under or overexposed, such that 5 years from now in a perfect world, are there any parts of the portfolio that might look probably meaningfully different than where we are today? Thanks.

Yes. Lubi, I think the big picture view on what we do as brand builders, is we look externally at what is working with the consumer and then we constantly or we should be refine our portfolio and modernize our brands, so that they are meeting emerging and current consumer trends, not yesterday’s trends. So, that means everything is always in a state of flux in terms of the way our brands present themselves to consumers and there maybe over the course of 10, 15 years, you may see certain segments improve their growth rates and certain slowing. You have to be agile and flexible and go with that. For us right now, as I have said many times, I see years and years and years of runway in frozen. Frozen is a big piece of real estate in the grocery store that just recently is beginning to undergo the kind of modernization that it needs. And I think there is a long way to go there. Also for us, we see a clear opportunity in snacks and sweet treats. We have a $2 billion snack business at retail. It plays in the four of the fastest growing snack sub-segments around and now we are going to be able to add some snacks assets to that mix with some of the Pinnacle snack brands. So, those are the two biggies. We see surgical opportunities in condiments and enhancers as we have talked previously, but I’d say, frozen and snacking are the two areas where we will continue to put the most momentum.

And the next question will be from Pamela Kaufman of Morgan Stanley. Please go ahead.

Hi, good morning. I was wondering if you can comment on how you are evaluating potential divestiture candidates across the portfolio. And just related to that, I know you said that you don’t envision any antitrust issues, but is this view taking into account potentially divesting assets where there could be overlap? Thank you.

Well, I think we are really – again, we don’t anticipate any antitrust issues. When it comes to divestiture strategy more broadly, we have been on the record a long, long time saying that M&A is part of our strategy and we expect inbounds and as we reshape the portfolio, we expect some outbound things and we can do that very efficiently. With this announcement and the fact that the whole world basically knows we have a capital loss carry-forward tax asset, I think it’s plausible that somebody could inquire about an asset that they covet. And we have always been open-minded to that as evidenced by the actions we have taken on Spicetec, Swank, Del Monte, Wesson, etcetera and we will continue to be open-minded if it makes good strategic and financial sense.

And the next question will be from Priya Ohri-Gupta of Barclays. Please go ahead.

Okay, thank you for taking the questions. Just a quick clarification for me. In terms of the pro forma leverage target of 5x that you see at deal close, it’s indicated that, that’s on a net basis. As we think about the 3.5x target that you have laid out there is that also on a net basis or is that on a gross basis? Thank you.

It’s on a gross basis. So, the 5x and yes, it’s on a gross basis.

And with that, we will close the question-and-answer session. I would like to hand the conference back to Brian Kearney for any closing remarks.

Great. Thank you. As a reminder, this conference has been recorded and will be archived on the web as detailed in our press release. As a reminder, Investor Relations is available for discussions. Thank you for your interest in ConAgra Brands.

Thank you. Ladies and gentlemen, the conference has concluded. Thank you for attending today’s presentation. At this time, you may disconnect your lines.