Good morning. And welcome to the ConAgra Brand’s Second Quarter Fiscal Year 2019 Earnings Conference Call. All participants will be in listen-only mode [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Brian Kearney, Senior Director of Investor Relations. Mr. Kearney, please go ahead.

Good morning, everyone. Thanks for joining us and happy holidays. I’ll remind you that we will be making some forward-looking statements during today’s call. While we are making these 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. References to adjusted items, including organic net sales growth, refer to measures that exclude items management beliefs impact the comparability for the period referenced. Please see the earnings press release for additional information on our comparability items. The reconciliation of those adjusted measures to the most directly comparable GAAP measures can be found in either of the earnings press release or in the earnings slides, both of which can be found in the Investor Relations section of our Web site, ConAgrabrands.com. Finally, we will be making references to total ConAgra Brands, as well as legacy ConAgra Brands. References to legacy ConAgra Brands refer to measures that exclude any income or expenses associated with the recently acquired Pinnacle Foods Business. With that, I’ll turn it over to Sean.

Thanks, Brian. Good morning everyone and happy holidays. Thank you for joining our second quarter fiscal 2019 earnings conference call. On today’s call, we will unpack our driving consumption and growth, particularly in our frozen and snacks businesses and we will provide our initial perspective on and plans for the Pinnacle Business. There is lot to cover, so let’s jump right in. In terms of the legacy ConAgra Brands Business, we built on our recent momentum during the second quarter as we continued to gain share in key refrigerated and frozen, and grocery and snacks businesses. Given our performance to-date and our expectations for the year, we are reaffirming our fiscal 2019 sales and margin guidance for legacy ConAgra Brands. In addition to driving results in our legacy ConAgra Brands Business, we completed the acquisition of Pinnacle Foods. In the short time since we’ve owned the business, our team is been working hard on the integration, which is progressing seamlessly. Later in the call, we’ll share more on what we’ve learned about Pinnacle over the past several weeks, including our initial plans to address some of the challenges facing that portfolio. Importantly, we believe that we have the right playbook to address these issues and that work is already underway. While today’s comments regarding Pinnacle will be preliminary, we will have much more say about Pinnacle at our Investor Day on April 10, 2019 in Chicago where we plan to provide a comprehensive update on our progress, opportunities and outlook. We hope you can attend. Turning to the results for the quarter. From a high level, we continued to deliver consumption growth for legacy ConAgra Brands driven by Frozen and Snacks where we have focused our efforts on brand building and innovation. The optics of the quarter were affected by…

Thank you, Sean and good morning everyone. Slide 33 outlines our performance for the quarter. As Sean I mentioned, Q2 came in largely in line with our expectations for legacy ConAgra. I'll walk through the quarter and elements of both the legacy ConAgra and Pinnacle businesses, and share our perspectives on the balance of the year. So let's jump in. Net sales for the second quarter were up 9.7% compared to a year ago, reflecting the inclusion of pinnacle for 31 days. Organic net sales, excluding the effects of the sale of Trenton, were down 1.6%. Organic net sales were impacted by both the hurricanes in Q2 a year ago and some quarter-end shipments that moved into early Q3. For the quarter, adjusted gross profit increased 7.6% to $704 million and adjusted gross margins declined 58 basis points to 29.5%. The addition of Pinnacle's results drove the adjusted gross profit dollar improvement, and I'll walk you through the adjusted gross margin bridge in a moment. In the quarter, total company A&P expense decreased to $69 million or 2.9% of net sales. Although, down from the prior year, our investment was up from 2.3% of net sales in the first quarter due to seasonality. The year-on-year comparison reflects our continued shift from A&P investment to higher ROI retail retailer marketing. Adjusted SG&A for the quarter was down 4.4% compared to the prior year and was 9.1% of net sales. The decrease was primarily driven by lower incentive base compensation in the legacy ConAgra business. This included lower stock based compensation expense due to the lower share price, which was partially offset by the addition of expenses related to the Pinnacle Business. Adjusted operating profit increased 22.3% for the quarter and adjusted operating margin was 17.5%, up 181 basis points versus year…

Thank you. We will now begin the question-and-answer session [Operator Instructions]. Our first question today comes from Andrew Lazar with Barclays. Please go ahead.

I guess, first off, just I know Sean that Pinnacle had its own gross margin targets before the deal was announced. And it seems to us that maybe some of this could be incremental to the Pinnacle deal synergy target that you had put out there. So a more optimistic scenario could have led maybe closer to 10% of sales as synergies rather than the stated 7%. And I admit that that was before the deal closed. But it certainly sounded to us that you thought maybe initially that some of that Pinnacle margin opportunity could be delivered upon under ConAgra’s ownership. So it certainly doesn’t seem like that’s the case at this point. Is it a matter of just digging in the Pinnacle once the deal closed and finding out some of the things that you mentioned? Or I guess just another way of asking. Is the pinnacle asset just in a completely different place than maybe you thought it was when you agreed to the deal, because I’m still -- I guess I’m seeing some of the -- hearing some of the language that you’re using in describing the asset and the position its currently in. And we’ve all seen the scanner data. But it just -- that seems far more severe right than I think at least I would have expected?

Let me try to tackle that, Andrew, there’s a lot in there. Clearly, we’ve coveted this portfolio for a while, because of the long-term value creation potential it offers. Unfortunately, as you know, there is only so much you can see in the public company diligence, particularly when you buy a competitor. But as you’ve heard in our prepared remarks, we can see it all now. And from the beginning, we took a conservative approach, both to the price we offer and our synergy commitments and now we are glad we did. Because while we are starting from a lower base, we anticipate delivering strong EPS growth off of that new base and actually hitting the 2022 EPS target that drove our original EPS accretion guidance for this transaction. Clearly, the gross margin status within the Pinnacle portfolio right now is not where we expected it to be or wanted it to be, but make no mistake about it. The gross margin potential for business is still there. Gross margin in many ways is a symptom of the health of the brands. And as we laid out earlier today in our prepared remarks, there are really three brands that are driving the vast majority of the weakness here, Birds Eye, Duncan Hines and Wish-Bone. And those are the businesses that we got to get on stack. It's not going to be overnight. We’ve got some work to do. But there is not a doubt in our mind that there is significant opportunity to get those brands back where they need to be. It’s just going to take some work. We’ve got to apply basically the ConAgra playbook we applied to our own portfolio back in 2015. We’ve got to do it to Pinnacle, particularly on those three businesses.

And could you just briefly remind us the initial accretion target that you speak of going out to 2022, because very back of the envelope math. Maybe you have suggested that possible double-digit EPS CAGR off of that fiscal '19 base would be possible to get you to where you expected to be by 2022 initially. Is that a fair way of looking at it in terms of how we should we interpret the go forward guidance off of this lower 2019 base at this point?

We’ll give you the entire algorithm and the full story around Pinnacle and our total company at Investor Day. But let me break it down, because I think it’s the importance to the folks on the call just in terms of how we think about this 2022 EPS. Before we bought Pinnacle, we had a base plan that excluded major acquisitions and included share buybacks. And that previous base plan was the EPS benchmark we’ve looked deep in the context of the deal. So when evaluating Pinnacle the assumptions we had at the time, we concluded the acquisition would deliver high single-digit EPS accretion relative to that previous base plan. Obviously, that accretion translated to an absolute EPS number in our model. What we’re telling you today is that the starting point is lower due to Pinnacle’s year end business weakness. But given the synergy over delivery we now expect and the business recovery, we expect to get right back to the same place at EPS by 2022. Clearly, the year-on-year EPS growth will now be higher since 2019 is lower, so the CAGR will be higher.

The next question comes from David Driscoll with Citi. Please go ahead.

John, I wanted just to go back over Pinnacle, I mean, I’ve heard that we can -- you said it. But I wanted to just try to ask question about your 2022 target that we look at differently. North of 5% inflation is a very strong number, you don’t see that number very often in package view companies, typically results in gross margin compression but the target enough price to offset that level of inflation. You've also shown very clearly all these distribution losses. I'm going to boil it down. I think, what I think you're trying to tell us that I need you to course correct me. Is this confidence that you can get to the 2022 numbers really based upon a very significant over delivery on synergies or are there some really big things that need to happen on the Pinnacle business, i. e. sales half that really start to improve, pricing needs to accelerate dramatically? I guess I just want to get this out in the open, because I think people will really worry about if you have to do something heroic to Pinnacle in order to get to that 2022 goal. Thank you.

Let me start there and Dave you can fill in more detail on inflation and things like that, because you want to come back to a threshold point here. The vast majority of Pinnacle's challenges reside within three businesses, and I talked a little earlier around what's driven the challenges there. There is no question in my mind that we will make progress on these three businesses, one of them for example is Birds Eye. Birds Eye is an extraordinary brand. It is number one in the veggie and veggie-based meal space. And good things are still happening within the franchise like the Veggie Meal. But the brand architecture has become too fragmented in this finalized space within vegetables with flat out passed over for being too low margin. And when the consumer is hyper passionate about our space as they are about spiralized, you just can't opt out. You've got to give the consumer what they want and figure the margin challenge out as you go. If you opt out, the competitor will fill the vacuum and that's exactly what happened. The good news is as the number one brand you've always got the opportunity to get back in. And if you look at the Bird's Eye performance in the market over the last few years five years or so it's been nothing short of extraordinary. If you look at Duncan Hine, this is another good news bad news story. Good news is that Duncan Hines has gotten a fair amount of attention over the past two years, and it's been highly responsive. And that makes sense to me, because Duncan Hines is an iconic brand. However, the mental model at Pinnacle was to think of Duncan Hines as a cake mix brand. And accordingly, last year's innovation was…

Yes. So just to build on that, if you look at the calendar year 2018 chart that Sean showed. The gross margins are 220 basis points below the Pinnacle forecast. Half of that mix was from inflation on freight transportation and also as Sean just mentioned coming out of the fresh pack season with higher vegetable inflation. Another part of that though was given the volumes of clients that Sean discussed in the big 3 Pinnacle attempted to add price promotions in the second half to make up for the volume. These were not efficient programs and result in additional gross margin erosion. So to Sean’s point, the inflation is transitory. We’re on it. And we’re also in the process of eliminating these inefficient trade deals. So we’re confident that we’re going to work through this. But the forecast that we put out through the end of fiscal ’19 reflects the continued inflation on vegetables and us working through the inefficient trade.

The next question comes from Ken Goldman with JP Morgan. Please go ahead.

One thing I wanted to understand a little bit better is I understand the virtue less cycle that you've talked about. But I don’t quite understand why Pinnacle’s performance worsened so suddenly. And I imagine it’s largely because of the disappointed customers you talked about with shelf reset, so there’s that. And then I guess adjacent to that, I understand you can’t do all of your due-diligence that you want to do on a competitor. But it still feels I think to some people I’ve talked to this morning and I'll admit to me too like the due-diligence could have been better, right? And I wanted to ask you about that, because why weren’t the conversations being held with customers to see that this was going to come? So this feels like a really big surprise to most of us, something that maybe could have been a little bit avoided but maybe not. I just wanted to get your thought on that.

I appreciate that Ken. I will tell you that our passion for this business did not lead us to overlook anything at all as already mentioned, there’s only so much you can’t see in public due diligence. There were, Pinnacle it's not a brand, it’s a diverse company of brands. And so there were obviously businesses that were up and businesses that were down, we were back that in the middle diligence, Wish-Bone as an example with the business, one of the businesses that was beginning to show challenges. But as you can see in your own charts, a lot of what we’re talking about here has really accelerated very dramatically in the second half of this calendar year. So that’s pretty late in the equation. It’s disappointing I’m not going to tell you that we are not disappointed with the State of the Union. But by the same token, I would tell you we are very confident that we know exactly what to do here, not an overnight trip. This is going to be fundamentals and hard work as we’ve done before. But these are very good brands. I just pointed out we’ve got a concentration here on three businesses. The big one is Birds Eye. Birds Eye was the latest one to emerge, to your question, in terms of it's really showing its weakness. And it was for the reasons that I just described and a more active competitor there. So these are not structural issues we’re talking about here. These are real business performance issues but there are executional issues, and they’re ones that we will be on top of as we go forward. And we’re going to share with you what exactly those plans look like and what the cadence is about getting these businesses right where they need to be when we do our Investor Day in April.

The next question comes from Steve Strycula with UBS. Please go ahead.

So two questions, the first would be for you I guess Sean or Dave. On the revenue, slight miss in the second quarter for the base ConAgra business. It sounds like it was a calendar shift. Can you walk us through that a little bit more, maybe like what caught you off guard? What business gets better sequential? And then I’ve got a follow up. Thanks.

Yes, glad to be brought this up. Let me talk net sales, because I know you all see the ramp in net sales in the second half and therefore it'd be on your mind. I wanted you to just be very clear of where we stand on this. Overall, we are very pleased with our top line strength. I think you can see from our presentations, and I’m talking legacy CAG here. I think you could see from our presentations, we have been very successful innovating and modernizing our brands. And because of the Pinnacle acquisition, we have done something out of ordinary for us, which is provide quarterly guidance for past two quarters, which is something we prefer not to do given typical shipment volatility around quarter close. We saw a bit of that this quarter as some of our shipments fell after ThanksGiving and into December. So you’re really talking about a small shift here really between ThanksGiving and Christmas. And as I mentioned earlier that is not a typical, and it can add some unpredictability to how our revenue was recognized in the quarter. But most importantly, our consumption patterns have continued to build, which is the real story we want to stress, and that will translate to a very strong second half. And the way to think about that ramp is that our first half innovation is now hitting its stride fully out there in the marketing programs they're on and our second half slate, which includes the snacking initiatives I just showed, is very strong and it's also very good mix. And on top of that, the pricing that we have taken is now in the marketplace and being realized, particularly in the second half; so all of that conspires to result in continued momentum on our top line, which we feel very good about for the balance of the year, and the reiteration of our standalone legacy ConAgra guidance.

And then I’m sure you addressed this at Investor Day. But can you walk us through preliminary, like how frequent are the shelves reset in some of these core problematic Pinnacle categories, my understand is maybe twice a year. Clearly, the March window seems like that’s probably going to be a miss in terms of refreshing innovation pipeline. But can you speak to from a calendar perspective whether new product can be in place by September, or is this really a much deeper turn in the base business. Thanks.

Well, a couple of points here. One is as you might imagine when we really got a handle on that what’s going to happen in some of these TPDs, because of the weakness of the Pinnacle innovation, we have sprung into action to stop further proliferation of similar types of SKUs. But we’ve also sprung in action in terms of rebuilding a new innovation pipeline with the Pinnacle team and the ConAgra team working arm and arm to do that, but that’s going to take some time. It’s not going to be all at the exact same window, so it won’t all be the beginning of the second half of 2020. Whatever we can get into the marketplace faster, we will get in. And by the way, on TPDs and shelf set, different categories have different numbers of modes that are reset during the year and they happen at different times. But just a couple of words on TPDs, because I think it is top of mind for everybody. Big picture, the key to strong distribution for any given brand are, A, superior innovation and B, the category leading velocities that follow. So if you think about legacy CAG, we have industry leading velocities and key businesses like frozen single serve meals. But we’re actually under skewed today, which is why we continue to grow TPDs and we see further upside from here. Pinnacle, obviously has had their innovation challenges at the same time and better innovation from competition and that's translated to TPD losses. We will fix that. Another point I want to make on TPDs that you need to keep in mind as you look at TPD, because I think it can be a helpful metric but it also can be misleading, which is the case right now…

The next question comes from Jason English with Goldman Sachs. Please go ahead.

I want to come back like many people to really make sure I understand what's happening in Pinnacle. We saw the first half of the year delivered right through and you reported that. And I know you mentioned that the profit contribution from Pinnacle's blow your expectations this quarter. But it looks like it's flowed through around 22% EBIT margin, which isn't that bad. It's just a shade of what we were expecting. So I look at those data points and I contemplate what you're saying about profitability on the forward. And it sounds like the vast majority of the drop is what's happening now and what's going to be happening over the next few quarters, not necessarily what's happened already to reported results. Is that fair? And related to that, for me to bridge to your EBIT guidance and there’s a lot of guess work here to recalendarize the base. I have to cut profit by almost 30% year-on-year for the back half of the year, which seems very, very jarring. Can you help walk me to what's going to drive that such a substantial downtick on the forward, especially when I contemplate what you're saying about point out inefficiency point out inefficient promotions and some other things that sound like they may actually help you?

First, I’m going to take the big picture, Jason, just to come back to the Pinnacle business. And I think I've talked about this in quite a bit of detail today. But the way this virtuous cycle, as I described it manifests itself, is when your innovation is subpar, it does not show out of the gates. It shows up eventually. And it's clearly -- the side effects of it are showing up in the back half of this calendar year frankly very recently. And it is manifesting itself in increased significant distribution cuts on the three businesses as I talked about. As you can imagine, once you’re cut and you’ve got half way to get back in, but it's not going to be with the exact same items that have just been discontinued. You basically got to rebuild the innovation pipe and get it back in when the products are ready and when the window is open. And hence the amount of time it’s going to take to get this thing back. But if you look at whether or not that is executional or structural, it's clearly executional in nature. These brands are still number one in their categories, Birds Eye's example by a country mile. So we've got work to do but we’ll get it back in. In terms of the near-term flows, Dave?

So, Jason I understand the confusion right, because it's a stop here, because we closed October and there is a lot here. So let me try to break it down for you little bit if you look at our quarter that is basically the month of November for Pinnacle. And you’re right it shows a higher operating margin relative to what we forecast. November is probably the highest single margin month for Pinnacle, because their margins are higher in the second half of their year than the first half. So, we’re basically capturing one month where gross margins are in the 29. But if we look at that month relative to the prior year month, which you don’t see, it's down about 200 basis points. So the first point is and it's reflected on that calendar year 2018 chart. The gross margin versus prior year trending down to 220 basis points is directionally. The second piece is that and we did say it and in our comments is that we have made some decisions to pull low ROI programs, which had an impact on sales of about $30 million. So that is also in our forecast, because you're pulling volume out and you have short-term impact of doing that. But we have long-term benefits when you’re trade rate improves. When you get into the second half of ConAgra, that’s really the first half of what Pinnacle would be in their calendar year. That’s always been a lower absolute gross margin, right. So a little bit of this is we’re cutting off of our May fiscal year and you’re seeing a forecast of gross margin that only picks up the first half of Pinnacle. Having said that, that forecast reflects coming out of the recent tax season for vegetables inflation on vegetables. So, now that’s layering into the forecast as well plus the additional transportation inflation that will continue. So I know it’s complicated but there is a lot of dynamics and because we cut off in May, it’s doesn’t allow you to show the full calendar 2019 Pinnacle, because it’s our fiscal year. So hopefully that gives you -- sheds a little light on the gross margin dynamics.

And for me to get my model down there I also need to take out -- one way to get there is to take out a good chunk of the product, the base Pinnacle productivity. Is that reasonable? In other words, is it possible that some of productivity initiatives that they would have had that could have helped gross margin have been put on hold or been disrupted through this transition phase and as you look to resolve some of the other issues?

No, we’re staying full theme ahead on the productivity efforts that are underway, both for Pinnacle’s business and for ConAgra’s business. What we’ll happen though, Jason, is we will -- now that we’ve got hold of the company, our supply chain team is all over Pinnacle assets to see if there is additional value that we can add. We talked about our synergies today that’s already a work here, things like applying our CPS program, ConAgra Performance System to the Pinnacle manufacturing assets and supply chain overall. So all of that work is underway and Dave will give you a full update on that as part of our Investor Day, Dave Marberger -- Dave Biegger when we're bigger when we're together in April.

The next question comes from Rob Dickerson with Deutsche Bank. Please go ahead.

So quick question on the fiscal '22 guidance just to be clear, so I'd say the guidance held so high single digit accretive relative to the base before that would have included some buy backs. Obviously, you have talked a lot about Pinnacle today what potentially has change now relative to diligence process and pretty close. But then you're saying the guidance is held, synergies are higher and we expect to get the margin profile back to where it was, because of the playbook that's obviously been implemented across a number of different businesses historically and worked well. So that's the case. The excitement is there and the confidence is there. And we understand the problems and we know how to address it, and we have high confidence in how we're going to fix it and get it back to where it was despite there's a lower starting point. At the end game on the base -- and relative to your original expectations, would probably still be similar plus you have the synergies. So I guess the question is why wouldn't those expectations then be a little bit higher or are you just playing it safe, because obviously we're in ‘19 and we're talking ‘22 so a time in between that maybe you need a little bit more investment, maybe you don’t. But just walk me through why it would be the same and not higher given the synergies are higher and you think you can get back to the original Pinnacle margin profile? Thanks.

From an EPS standpoint, Rob, we can get back there in large part because we've now gotten under the hood and we see more synergies and we've modeled a certain cadence very preliminary of business recovery year. As you might imagine, between now on our Investor Day, that's the work that we're going to be scrubbing, that's the work that we're going to be building out for the next few years. So as we think about this for the long haul, there is no question in our own mind that there's significant opportunity here. In fact the scale and the combination of these two companies make as much strategic sense as ever. But we've got some hard work to do short term and so that's what we got to deal with. It's a good reminder to me of the importance of focus. Our company has been laser like focused on getting our brands right for the last few years. Here's a portfolio that is clearly suffering right now and needs focus, and we're bring that focus. And how high is up over in the fullness of time, we'll talk more about that later. But we know we've got to do here and we are on the case. Dave, do you want to add some?

Just to add on to that. The synergies we say in the upside, these are the cost synergies right. So the 215 were cost synergies. We did not build any revenue synergies into our model. Now obviously the business is down relative to what we had modeled, so we have to do all the things we discussed to bring that business back. But when you talk about upside going out long-term, we believe that there could be a side on revenue synergies. That's not in the updated cost synergy number that we will have.

And then secondly and particularly just on divestments, I know it's been a topic that's come up for a couple of years since you've had the tax asset. There was announcement this week on Wesson. There is no financial disclosure on that. So any additional color we can receive on Wesson will be helpful. And then outside of that, now that you have Pinnacle in and you’ve looked under the hood. Is the expectation still that while we might try to leverage that tax asset on the legacy ConAgra piece and all of the Pinnacle piece, there could be some areas we will potentially look to divest or rationalize SKUs? That’s it, thanks.

Let me start off there, Rob, and turn it over to Dave for more color on Wesson. As we said many times, we do view our capital loss carry forward as an asset and we are open to divestitures that help us strengthen the company and enhance value. And as you point out, the Western news this week is illustrative of that. But it's not our strategy use the tax asset just for the sake of using it. The aim is to perpetually reshape the portfolio for stronger growth and better margins, while maintaining our investment grade credit rating and that has not changed. With respect to Pinnacle assets, the goal here is to perpetual reshape this portfolio to be stronger. So, it's great to have a tax asset but if it's strategic to divest another piece of business that is a chronic drag that doesn’t have the benefit of the tax asset that’s still possibility. I mean, we’re open to anything open the lay that maximizes value for our shareholders, so that will always to be part of our consideration set. And Dave, on Wesson?

So on Wesson, we have an agreement to sell the Wesson business for $180 million in cash. As I mentioned, we expect to close by the end of the first quarter of calendar year 2019. So assuming we close at the end of our third quarter for fiscal 2019, the sale would impact our sales about 50 basis points and EPS $0.01 to $0.02 for this fiscal year. On an annual basis, the sale would impact net sales about 200 basis points or about $0.05 EPS on an annual basis. And just again on the capital loss carry forward, there will be very little leakage on this divestiture in terms of the tax paid. So if we didn’t have that asset, for example, the $180 million would really be given the net proceeds we’ll have would be equivalent to a transaction or about $220 million. So that just shows you the value we have of that capital loss carry forward and eliminating the leakage.

The next question comes from David Palmer with RBC Capital Markets. Please go ahead.

Just wanted to dig into Birds Eye little bit, because that was clearly a leader among those so called leadership brands. How much of that Birds Eye loss destruction is a result of shelf loss at one major retailer that happen to introduce retailers branded SKUs and if that’s a fairly local big reason why we’re seeing the loss shelf and pain here. Have we seen the biggest impact from that in the consumption data or might the year-over-year in the data look even worse from now?

That is a piece of it, Rob. I think another significant piece that I already talk -- big piece of this whole spiralized space has been a very, very big opportunity and a competitor has really taken that business at major customers. With respect to private label in frozen overtime, here’s how I think about that. As we’ve said before, private label make sense in highly commoditized subcategories but it really has never made sense for work historically in finished meals, side dishes, enhancers, appetizers and things like that. Every few years that I've been around the frozen space, you will have a retailer give it a go but it has never taken hold and it probably will happen again from time to time. It's happening a little bit now in vegetables, but the outcome is unlikely to be any different in these more -- these less commoditized subcategories. Ultimately, when customers see that their store brand advocacy is resulting in declining category sale, there is the there will be the exact same reversal we've seen before. So that's the dynamic that I've seen over and over again, and it plays out the same way almost every single time.

I mean just to be clear. Have they had that - have we seen the maximum impact from that in the data? And do you see the resultant impact or reversal in your velocities such that this is going to prove to be a one year divot, because your velocities are so strong there's almost pretty good odds that you're going to get back some of that shelf a year from then?

Well, it's customer by customer, David. So if there's a customer right now that is taking a stronger advocacy position on a private label, you easily could have other customers that are going in the opposite direction. So this is a never ending dynamic that we deal with in all of our categories and vegetables is a newer one also managed. You all know within Birds Eye, it's a vast franchise from more commoditized looking vegetables to side dishes all the way through complete meals. So you've got different dynamics in each of those and they will continue to evolve over time with pluses and negatives across the customer base and within any given customer across the mix of those sub-segments.

The next question comes from Robert Moskow with Credit Suisse. Please go ahead.

Sean, most of the problems that you've brought up for Pinnacle are product and innovation related. You talked about how it is -- Birds Eye had extended too far and missed some segments of the market. And then you also talked about perfect size for one. But a lot of those issues are very visible on shelf I guess, if you were looking for them. I mean I can't see them, or I haven't seen them. Had anyone from your team noticed these issues this year or over the past couple of years, because it's truly product issues I guess it would have been more visible. And do you think it was just like this year's problem or a multi-year problem over at Pinnacle?

Well, this is obviously a very recent problem. As I pointed out today, Pinnacle previously had delivered strong and sustained performance through pretty good execution on these leadership brands. And these innovations that we talked about today did garner good trial. So if you look at Duncan Hines perfect size for one as an example, the sales in the trial window were very strong. So when you look at something like that the early read on it is a positive, but you don't ultimately know what the stickiness of an innovation is going to be until you start to work your way through several repeat cycles. And frankly in the case of Duncan Hines that's exactly the thing that started manifesting itself this year along with a convergence of new competitive products coming into the marketplace that really solve for some of the gaps in the initial innovation. So that really speaks to the Duncan Hines story. With the Birds Eye story, as I pointed out, the real hot piece of the category has been this spiralized space where that is a space where out of the gate there is a new very novel innovation, the margin profile on that for anybody who got into the game would be lower. And one of the key competitors was okay with that and went in and built the beachhead while Birds Eye did not. That was a mistake and it allows competitor to gain some significant market share and continue to build on that momentum. All of that is reversible but that’s the thing that as you can in the data is really emerged as we've gone through the course of this summer.

And then just a quick question for Dave. Just so I’m clear on how this accretion guidance works and what base we're talking about. First of all, is there any accretion guidance for fiscal 2020 specifically, or we don’t know that yet. Because it sounds like the plans really don’t go into place until fiscal 2021?

So, we’re going -- any commentary for fiscal 2020, we’re going hold off until the April 10th Investor Day. We don’t want to give piece of this thing. We want to give the complete picture with the synergies with our plans. And so we’re going to through all of that and get into our algorithm and cadence at Investor Day.

The next question comes from Bryan Spillane with Bank of America Merrill Lynch. Please go ahead.

Just two really quick ones for me. One, one of the questions we’ve been getting a lot this morning is just like is a there a question about whether there is a significant need to step up investment behind Pinnacle, so was it underfunded. So, I guess my first question is just simply as you kind of think about that plan between now and 2022, net of synergies. Does it also contemplate a step up in investment behind Pinnacle’s Brands?

I don’t, right now, envision that Bryan. Again, we spend a lot of time talking to the street around the concepts of total marketing spend, which include dollars above net sales and below net sales. In my estimation, there is plenty of investment in these branded assets you cannot see all of it in AMP that AMP line, as you can see, looks fairly lien. But there is a significant amount of spend above the line. A lot of that is different from the way we spend at ConAgra trade above the line, which is really in high quality retailer oriented marketing programs. There is a lot of promotional behavior here. And as we pointed out, one of the first things we did when we close the deal is we killed a lot of deep discount highly inefficient promotion deals. Since you reminded me greatly of some of the bad habits we had to break at ConAgra when I first got here, it was Pinnacle chasing volume over value. So, there is inefficiency baked into the existing spending base. We’ve got to extract that inefficiency. We’ve got redeployed it against high quality brand building product improvements, packaging improvements, brand architecture improvements, all the stuff that we talked about. And so I am very confident in our ability to do this, because we have built, over the last four years what I think is industry leading analytics, insights and innovation capability. And we’re incredibly flexible and agile organization reflects to the work. So it is abundantly clear now where we’ve got to flex to. We’ve already begun that as you can imagine and now we’ve got played out.

And Dave just quick one on the credit ratings. So is part of -- I imagine part of the discussions with the rating agencies initially in terms of your rating was giving a path towards getting the deleveraging down to the 3.5 target. So I guess as where starting point is lower than you originally thought, is the path important? Meaning, is there a certain level of EBITDA that you're going to have to deliver in fiscal '20 in order to maintain that investment grade? Or is there a risk that that might slip if you don't deliver a certain amount even in fiscal ‘20.

So as Sean and I both commented, we’re strongly committed to the solid investment grade. We're at 5 times levered at the end of the second quarter, which is where we expect it to be. So with EBITDA off a little bit, we've also come out and have a lower debt. So we've maintained that ratio. Based on our updated estimates of EBITDA and the debt pay down, we have a clear path towards the 3.5 times leverage through the end of '21. But we also have other levers to generate cash for debt pay down. For example, working capital improvement on Pinnacle is a big opportunity, and then just general contingencies we build into our CapEx budget. So we feel comfortable that we have the clear path and flexibility to manage to the target.

The last question today comes from Akshay Jagdale with Jefferies. Please go ahead.

Thanks for squeezing me. My question is related to structural versus transitory issue. That the industry and ConAgra is facing in the context of the fact that markets value and the entire industry and ConAgra has structurally flawed. So I'd like to ask two questions, one related to the Pinnacle business and one related to the base business in that context right. So you're probably aware of our view, which is that execution is really the big winner for the large CPGs rather than really brand equity erosion. So with Pinnacle, I mean there's a long history here of really good innovation and really good brand building, a very long history and it's been best-in-class, right. And so it seems like the markets are a little bit confused, because your commentary was pretty harsh on the near-term performance. So maybe you can give us an example of the innovation not hitting the mark and how that's execution versus structural. So that's on the legacy -- on the Pinnacle business? And then on your base business, which you lost in all the Pinnacle focus. Aren’t you actually seeing the execution getting better, right? You've executed better. Pricing is ahead of investments on retailer initiatives. Aren't we actually now seeing the fact that if you execute on a portfolio strategy, the brand is actually in good shape. So help me on that if you can. Thanks.

Akshay, I don't think there should be any confusion here. We fully agree with your statement that when you have iconic legacy brands, they're not entitled to performance they are capable of performance. And they're capable of performance depending upon whether or not the enterprise can innovate them in ways that drive good profitability and do a fantastic job delighting the consumer. When you look at what we've done with our ConAgra Brands over the last four years, we have taken brands that were once iconic that many folks had written off, like a banquet or a healthy choice. We've dramatically modernized them. We’ve dramatically modernize. We’ve improve the margins. We’ve raised the price points to levels no one felt was possible. And the brands are growing at audacious clips now, some of the north of 20%. And so, that’s a good example of exactly what you’re saying. Pinnacle, as I’ve mentioned in the prepared remarks, has had equal kinds of success in the past. But just because you’re successful in any given window, doesn’t mean that that brand is entitled for that success to carry on forever. Each year brand folks brand companies like ours bring new innovations in the marketplace or have the opportunity to, or they can pass and they can let their brands atrophy. They can also innovate superior innovations or they could innovate subpar innovations. And so clearly the prove is always in the pudding. I would say, my commentary was not harsh but the results in the marketplace were harsh. And that is what we’ve got to correct with the exactly the same as you’re talking about, which is a return to superior execution on the three key leadership brands that we talked about today. It means not missing big consumer opportunities like spiralized with Birds Eye. It equally means making sure the execution is really buttoned up to communicate the benefit that is being delivered to the consumer. So for example, Duncan Hines, Mug Treats being positioned as sweet treat not as portion size cake. These may sound like nuance but they are very important to repeat purchase and the size of the market you create to household penetration, and that’s exactly what we’ve got to go do.

So, just one follow up related to Pinnacle. So, the issues we’ve seen in the marketplace given the impending transaction and the back and forth that went about. Can we -- given the previously five years of really solid execution. How much of it is just execution related to that driven by distractions, right? Is it a good chunk of what’s happening and that’s what gives you confidence that it can be reversed?

Well, I’ll leave the prognostication as to what the root cause is up to you guys. What I’m going to stay focused is putting all of our energy and getting these brands right where they are. What I’m telling you is what we’re seeing is entirely executional in nature and not structural in nature. And given that, we’re going to put all our energy in getting these businesses where they need to be as fast as generally possible.

This concludes our question-and-answer session. I would like to turn the conference back over to Brian Kearney 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. Investor Relations is available for any follow up discussions. Thank you for your interest in ConAgra Brands.

This conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.