CHICAGO, March 22, 2018 /PRNewswire/ -- Today Conagra
Brands, Inc. (NYSE: CAG) reported results for the third quarter
fiscal year 2018, which ended on February
25, 2018.
Highlights
(all comparisons are against the prior
year fiscal period, unless otherwise noted)
- Net sales grew 0.7% and organic net sales1 declined
2.2% in the quarter. Consumption trends continued to improve but
exceeded shipments to customers in the third quarter. This follows
shipments in excess of consumption in the second quarter.
- The Refrigerated & Frozen segment continued its growth
momentum in the third quarter with 3.2% net sales growth.
- Elevated input cost inflation, including transportation costs,
and increased investments to drive brand saliency, enhanced
distribution, and consumer trial of new innovation negatively
impacted gross margin.
- Aided by a lower effective tax rate, diluted earnings per share
(EPS) from continuing operations grew 112.2% from $0.41 to $0.87 in
the quarter, and adjusted2 diluted EPS from continuing
operations grew 27.1% from $0.48 to
$0.61.
- For fiscal 2018, the Company now expects adjusted
EPS3 to be in the range of $2.03 to $2.05,
above the previously estimated range of $1.95 to $2.02.
CEO Perspective
Sean
Connolly, president and chief executive officer of Conagra
Brands, commented, "I continue to be pleased with the progress we
are making on improving our fundamentals, particularly on the top
line. Our efforts are paying off, and our businesses are
gaining momentum. Our frozen portfolio, where we put most of
our innovation focus this year, continues to show strong growth and
share gains. Consumption in our Grocery & Snacks segment
also continues to strengthen, and non-promoted consumption exceeded
expectations in the quarter."
He added, "Overall, our transformation plan remains squarely on
track. We continue to invest to drive brand saliency, enhanced
distribution, and consumer trial in the face of higher inflation on
input and transportation costs, which is pressuring near-term
margins. Strong underlying trends are enabling us to increase
our fiscal 2018 adjusted EPS guidance above the range provided at
the CAGNY conference in February, which already accounted for the
impact of tax reform."
Total Company Results
Net sales grew 0.7%, aided by
recent acquisitions. Organic net sales decreased 2.2% as improving
performance in domestic retail consumption and increased price/mix
were offset by reductions in retailer inventory levels. Reductions
in customer inventory levels were expected in the quarter but were
higher than anticipated, particularly in the Grocery & Snacks
segment. Additionally, net sales were reduced by continued
investments with retail customers to drive brand saliency, enhanced
distribution, and consumer trial.
Gross profit decreased 3.6% to $599
million in the quarter and adjusted gross profit decreased
4.3% to $598 million. The
decreases were primarily driven by increased input costs and
transportation expenses, as well as investments to drive brand
saliency, enhanced distribution, and consumer trial, partially
offset by realized productivity savings, and increased net
sales. Although gross productivity was strong in the quarter,
realized productivity was suppressed by higher-than-normal
operating costs that were transitory in nature. Gross margin
and adjusted gross margin were 30.0% in the quarter.
Diluted EPS from continuing operations grew from $0.41 to $0.87 in
the quarter; adjusted diluted EPS from continuing operations grew
27.1% to $0.61, primarily reflecting
a reduction in the effective tax rate, fewer shares outstanding,
and favorable SG&A and A&P compared to the prior year
quarter, partially offset by lower gross profit as outlined
above.
Grocery & Snacks Segment Results
Net sales for the
Grocery & Snacks segment decreased 1% to $838 million in the quarter, and organic net
sales declined 6%. Consumption trends continued to improve in the
quarter, and non-promoted consumption exceeded
expectations. Volume declined 4%, driven by retailer inventory
reductions, which were higher than anticipated, and deliberate
actions to optimize distribution on certain lower-margin products,
consistent with the Company's value over volume strategy. Price/mix
declined 2% as the Company increased its investments with retail
customers to drive brand saliency, enhanced distribution, and
consumer trial. The acquisitions of the Duke's, BIGS, and
Angie's BOOMCHICKAPOP businesses added approximately 500 basis
points to the net sales growth rate.
Operating profit for the segment decreased 13%, and adjusted
operating profit decreased 16%. The decreases were driven by
higher input costs and transportation expenses, the
previously-mentioned volume declines, and lower than expected
supply chain realized productivity. Although gross
productivity was strong in the quarter, realized productivity was
suppressed by higher-than-normal operating costs that were
transitory in nature. Additionally, the recent growth-focused
acquisitions aided the segment's operating profit growth rate but
reduced the operating margin percentage as these businesses
maintained strong A&P investments as well as elevated SG&A
levels as they integrate into the Company.
Refrigerated & Frozen Segment Results
Net
sales for the Refrigerated & Frozen segment increased 3% to
$689 million in the
quarter. Organic net sales grew 3% behind volume growth of 2%
driven by core business improvements and innovation launches in the
Marie Callender's, Healthy Choice, and Banquet
businesses. Price/mix increased 1% as mix improvements from
recent innovation more than offset investments with retail
customers to drive brand saliency, enhanced distribution, and
consumer trial.
Operating profit for the segment decreased 2% in the
quarter. Adjusted operating profit decreased 1% as the
benefits of net sales growth and supply chain realized productivity
savings were more than offset by increased input costs and
transportation expenses.
International Segment Results
Net sales for the
International segment increased 9% to $223
million in the quarter, and organic net sales grew 4% as
foreign exchange favorably impacted the net sales growth rate by
approximately 500 basis points. Volume increased 1% and
price/mix increased 3%, reflecting the impacts of the ongoing value
over volume strategy.
Operating profit for the segment increased 63%, and adjusted
operating profit increased 67% in the quarter behind improved
price/mix, timing and optimization of A&P spending, and the
favorable impact of foreign exchange.
Foodservice Segment Results
Net sales for the
Foodservice segment decreased 6% to $244
million in the quarter. Volume decreased 13% behind
planned discontinuations of certain lower-performing businesses and
softness in certain categories. Price/mix increased 7% driven
by improved product mix as well as pricing to cover inflation.
Operating profit decreased 13% in the quarter primarily as the
benefits of favorable price/mix and supply chain realized
productivity were more than offset by the previously-mentioned
decrease in volume as well as increased input costs.
Other Items
Corporate expenses decreased 18% to
$87 million in the
quarter. Adjusted corporate expenses decreased 27% to
$38 million, primarily driven by
timing of incentive compensation accruals in the year ago quarter
and planned reductions in project spending. This favorability
was partially offset by reduced transition service agreement
income.
A&P expense decreased 14% to $78
million in the quarter as the Company continued to shift
investments to drive brand saliency, enhanced distribution, and
consumer trial.
Equity method investment earnings increased 33% to $29 million. Adjusted equity method
investment earnings increased 14% to $25
million as the Ardent Mills joint venture benefitted from
continued improvements in operating efficiencies and favorable
market conditions.
Net interest expense decreased 13% to $40
million in the quarter, driven by effective debt
management.
On December 22, 2017, the 2017
U.S. Tax Cuts and Jobs Act (the "Tax Act") was signed into
law. The Tax Act reduces the corporate federal statutory tax
rate from a maximum of 35% to a flat 21%, and modifies certain
policies, credits and deductions applicable to the Company. It
also has certain international tax consequences. The Tax Act's
corporate rate reduction became effective January 1, 2018, in the middle of the Company's
third quarter. Given the Company's off calendar fiscal year end,
our fiscal 2018 federal statutory tax rate will be a blended
rate. The Company's federal statutory rate will reduce to 21%
in fiscal 2019. Among items recorded during the third quarter as a
result of the Tax Act are the revaluation of the Company's deferred
tax assets and liabilities to account for the future impact of
lower corporate tax rates and the transition tax related to the
change to a territorial foreign tax regime. These changes
resulted in a one-time estimated income tax benefit of $236.7 million in the quarter. This amount
may be adjusted in the future as further information and
interpretations of the Tax Act become available.
Capital Allocation
In the quarter, the Company paid a
quarterly dividend of $0.2125 per
share.
In the quarter, the Company repurchased approximately 8 million
shares of its common stock for $280
million.
As previously disclosed, on February 26,
2018, the Company borrowed $300
million pursuant to a term loan agreement entered into on
February 22, 2018. The term loan
bears interest at a rate equal to three-month LIBOR plus 0.75% per
annum or an alternate base rate described in the term loan
agreement. The Company used the proceeds from this borrowing
to make a voluntary pension plan contribution in the amount of
$300 million.
Portfolio Update
As previously disclosed, on
February 5, 2018, the Company
completed the acquisition of the Sandwich Bros. of Wisconsin business.
As previously disclosed, on February 20,
2018, the Company announced it entered into a definitive
agreement to sell its Del Monte
processed fruit and vegetable business in Canada to Bonduelle Group. The sale is
subject to customary closing conditions, including regulatory
approvals, and is expected to be completed by the end of fiscal
2018. The transaction is valued at approximately CA$43
million, which was approximately US$34
million at the exchange rate on the date of
announcement.
As previously disclosed, on March 6,
2018, Conagra Brands and The J.M. Smucker Company terminated
the agreement for the sale of Conagra's Wesson oil business to The
J.M. Smucker Company. This outcome follows the decision of the
Federal Trade Commission, announced on March
5, 2018, to challenge the pending transaction. The
Company intends to continue its evaluation of the role of the
Wesson oil business within its portfolio.
Fiscal 2018 Outlook
The Company is updating its fiscal
2018 guidance as summarized below:
Items being reiterated
- Organic net sales growth near the high end of the range of (2)%
to flat.
- Adjusted operating margin near the low end of the range of
15.9% to 16.3%.
- Effective tax rate of in the range of 29% to 30%.
- The repurchase of approximately $1.1
billion of shares of its common stock in the fiscal year,
subject to market and other conditions.
- Input cost inflation of approximately 3.7% for the full fiscal
year.
Items being updated
- Reported net sales growth approximately 150 basis points higher
than the organic net sales growth rate due to the impacts of
acquisitions and foreign exchange.
- Adjusted diluted EPS from continuing operations in the range of
$2.03 to $2.05.
The inability to predict the amount and timing of the impacts of
foreign exchange, acquisitions, divestitures, and other items
impacting comparability makes a detailed reconciliation of these
forward-looking non-GAAP financial measures
impracticable. Please see the end of this release for more
information.
Items Affecting Third Quarter Fiscal 2018
Comparability
Included in the $0.87 diluted EPS from continuing operations for
the third quarter of fiscal 2018 (EPS amounts rounded and after
tax)
- Approximately $0.03 per diluted
share of net expense, or $14.7
million pre-tax ($10.8 million
after tax), related to restructuring plans ($0.1 million benefit in cost of goods sold (COGS)
and $14.8 million expense in
SG&A)
- Approximately $0.01 per diluted
share of net expense, or $3.1 million
pre-tax ($2.1 million after tax),
related to costs associated with acquisitions and planned
divestitures ($0.6 million in COGS
and $2.5 million in SG&A)
- Approximately $0.06 of per
diluted share of net expense, or $34.9
million pre-tax ($25.6 million
after tax), related to the early exit of an unfavorable lease
contract by purchasing the building (SG&A)
- Approximately $0.01 per diluted
share of net benefit, or $4.3 million
pre-tax ($2.9 million after tax),
related to the substantial liquidation of an international joint
venture (Equity method investment earnings)
- Approximately $0.20 per diluted
share of net tax expense, or $78.6
million, associated with the termination of the sales
agreement for the Wesson oil business which resulted in an increase
to the valuation allowance on certain deferred tax assets
(Tax)
- Approximately $0.59 per diluted
share of net tax benefit, or $236.7
million, for the initial estimated one-time impact of the
Tax Act (Tax)
- Approximately $0.05 per diluted
share of net tax expense, or $19.4
million, for unusual tax items, including the indirect tax
effect of the recent pension contribution and the effect of a law
change in Mexico requiring
deconsolidation for tax reporting purposes (Tax)
Included in the $0.41 diluted
EPS from continuing operations for the third quarter of fiscal 2017
(EPS amounts rounded and after tax)
- Approximately $0.02 per diluted
share of net expense, or $13.7
million pre-tax ($8.9 million
after tax), related to restructuring plans ($4.7 million in COGS and $9.0 million in SG&A)
- Approximately $0.02 per diluted
share of net expense, or $13.8
million pre-tax ($8.5 million
after tax), related to a pension plan lump sum settlement
(SG&A)
- Approximately $0.05 per diluted
share of net expense, or $32.7
million pre-tax ($21.1 million
after tax), related to extinguishment of debt (SG&A)
- Approximately $0.02 per diluted
share of net tax benefit, or $7.1
million, primarily related to the receipt of foreign tax
incentives (Tax)
Discussion of Results
Conagra Brands will host a
webcast and conference call at 9:30 a.m.
Eastern Time today to discuss the results. The live
audio webcast and presentation slides will be available on
www.conagrabrands.com/investor-relations under Events &
Presentations. The conference call may be accessed by dialing
1-877-883-0383 for participants in the continental U.S. and
1-412-902-6506 for all other participants and using passcode
3125366. Please dial in 10 to 15 minutes prior to the call start
time. Following the Company's remarks, the conference call will
include a question-and-answer session with the investment
community.
A replay of the webcast will be available on
conagrabrands.com/investor-relations under Events &
Presentations until March 22,
2019.
About Conagra Brands
Conagra Brands, Inc. (NYSE:
CAG), headquartered in Chicago, is one of North
America's leading branded food companies. Guided by an
entrepreneurial spirit, Conagra Brands combines a rich heritage of
making great food with a sharpened focus on innovation. The
company's portfolio is evolving to satisfy people's changing food
preferences. Conagra's iconic brands, such as Marie
Callender's®, Reddi-wip®, Hunt's®, Healthy Choice®, Slim Jim®
and Orville Redenbacher's®, as well as emerging brands,
including Alexia®, Blake's®, Frontera®, Duke's® and Angie's®
BOOMCHICKAPOP®, offer choices for every occasion. For more
information, visit www.conagrabrands.com.
Note on Forward-looking Statements
This document
contains forward-looking statements within the meaning of the
federal securities laws. These forward-looking statements are based
on management's current expectations and are subject to uncertainty
and changes in circumstances. Readers of this document should
understand that these statements are not guarantees of performance
or results. Many factors could affect our actual financial results
and cause them to vary materially from the expectations contained
in the forward-looking statements, including those set forth in
this document. These risks and uncertainties include, among other
things: the ability and timing to obtain required regulatory
approvals and satisfy other closing conditions for the pending
divestitures of our Del Monte
processed fruit and vegetable business in Canada; our ability to achieve the intended
benefits of recent and pending acquisitions and divestitures,
including the recent spin-off of our Lamb Weston business; the
continued evaluation of the role of our Wesson oil business;
general economic and industry conditions; our ability to
successfully execute our long-term value creation strategy; our
ability to access capital; our ability to execute our operating and
restructuring plans and achieve our targeted operating efficiencies
from cost-saving initiatives and to benefit from trade optimization
programs; the effectiveness of our hedging activities, and our
ability to respond to volatility in commodities; the competitive
environment and related market conditions; our ability to respond
to changing consumer preferences and the success of our innovation
and marketing investments; the ultimate impact of any product
recalls and litigation, including litigation related to the lead
paint and pigment matters; actions of governments and regulatory
factors affecting our businesses, including the ultimate impact of
recently enacted U.S tax legislation and related regulations or
interpretations; the availability and prices of raw materials,
including any negative effects caused by inflation or weather
conditions; risks and uncertainties associated with intangible
assets, including any future goodwill or intangible assets
impairment charges; the costs, disruption, and diversion of
management's attention associated with campaigns commenced by
activist investors; and other risks described in our reports filed
from time to time with the Securities and Exchange Commission. We
caution readers not to place undue reliance on any forward-looking
statements included in this document, which speak only as of the
date of this document. We undertake no responsibility to update
these statements, except as required by law.
Note on Non-GAAP Financial Measures
This document
includes certain non-GAAP financial measures, including adjusted
diluted EPS from continuing operations, organic net sales, adjusted
gross profit, adjusted operating profit, adjusted corporate
expenses, adjusted SG&A, adjusted gross margin, adjusted
operating margin, and adjusted equity method investment earnings.
Management considers GAAP financial measures as well as such
non-GAAP financial information in its evaluation of the Company's
financial statements and believes these non-GAAP measures provide
useful supplemental information to assess the Company's operating
performance and financial position. These measures should be viewed
in addition to, and not in lieu of, the Company's diluted earnings
per share, operating performance and financial measures as
calculated in accordance with GAAP.
Certain of these non-GAAP measures, such as organic net sales,
adjusted operating margin, and adjusted diluted EPS from continuing
operations, are forward-looking. Historically, the Company has
excluded the impact of certain items impacting comparability, such
as, but not limited to, restructuring expenses, the impact of the
extinguishment of debt, the impact of foreign exchange, the impact
of acquisitions and divestitures, hedging gains and losses,
impairment charges, the impact of legacy legal contingencies, and
the impact of unusual tax items, from the non-GAAP financial
measures it presents. Reconciliations of these forward-looking
non-GAAP financial measures to the most directly comparable GAAP
financial measures are not provided because the Company is unable
to provide such reconciliations without unreasonable effort, due to
the uncertainty and inherent difficulty of predicting the
occurrence and the financial impact of such items impacting
comparability and the periods in which such items may be
recognized. For the same reasons, the Company is unable to
address the probable significance of the unavailable information,
which could be material to future results.
Hedge gains and losses are generally aggregated, and net amounts
are reclassified from unallocated corporate expense to the
operating segments when the underlying commodity or foreign
currency being hedged is expensed in segment cost of goods sold.
The Company identifies these amounts as items that impact
comparability within the discussion of unallocated Corporate
results.
For more information, please contact:
MEDIA:
Mike Cummins
312-549-5257
Michael.Cummins@conagra.com
INVESTORS: Brian Kearney
312-549-5002
ir@conagra.com
Conagra Brands,
Inc.
Consolidated
Statements of Operations
(in
millions)
(unaudited)
|
|
|
|
THIRD
QUARTER
|
|
|
Thirteen weeks
ended
|
|
Thirteen weeks
ended
|
|
|
|
|
February 25,
2018
|
|
February 26,
2017
|
|
Percent
Change
|
Net sales
|
|
$
|
1,994.5
|
|
|
$
|
1,981.2
|
|
|
0.7
|
%
|
Costs and
expenses:
|
|
|
|
|
|
|
Cost of goods
sold
|
|
1,395.7
|
|
|
1,360.2
|
|
|
2.6
|
%
|
Selling, general and
administrative expenses
|
|
330.2
|
|
|
349.7
|
|
|
(5.6)
|
%
|
Interest expense,
net
|
|
39.8
|
|
|
45.7
|
|
|
(12.7)
|
%
|
Income from
continuing operations before income taxes and equity method
investment earnings
|
|
228.8
|
|
|
225.6
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
Income tax expense
(benefit)
|
|
(91.4)
|
|
|
67.9
|
|
|
N/A
|
|
Equity method
investment earnings
|
|
29.0
|
|
|
21.8
|
|
|
33.1
|
%
|
Income from
continuing operations
|
|
349.2
|
|
|
179.5
|
|
|
94.6
|
%
|
Income from
discontinued operations, net of tax
|
|
14.5
|
|
|
0.7
|
|
|
1,869.0
|
%
|
Net income
|
|
$
|
363.7
|
|
|
$
|
180.2
|
|
|
101.8
|
%
|
Less: Net income
attributable to noncontrolling interests
|
|
0.9
|
|
|
0.5
|
|
|
75.4
|
%
|
Net income
attributable to Conagra Brands, Inc.
|
|
$
|
362.8
|
|
|
$
|
179.7
|
|
|
101.9
|
%
|
|
|
|
|
|
|
|
Earnings per share -
basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
continuing operations
|
|
$
|
0.87
|
|
|
$
|
0.41
|
|
|
112.2
|
%
|
Income from
discontinued operations
|
|
0.04
|
|
|
0.01
|
|
|
300.0
|
%
|
Net income
attributable to Conagra Brands, Inc.
|
|
$
|
0.91
|
|
|
$
|
0.42
|
|
|
116.7
|
%
|
|
|
|
|
|
|
|
Weighted average
shares outstanding
|
|
399.1
|
|
|
431.7
|
|
|
(7.6)
|
%
|
|
|
|
|
|
|
|
Earnings per share -
diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
continuing operations
|
|
$
|
0.87
|
|
|
$
|
0.41
|
|
|
112.2
|
%
|
Income from
discontinued operations
|
|
0.03
|
|
|
—
|
|
|
100.0
|
%
|
Net income
attributable to Conagra Brands, Inc.
|
|
$
|
0.90
|
|
|
$
|
0.41
|
|
|
119.5
|
%
|
|
|
|
|
|
|
|
Weighted average
share and share equivalents outstanding
|
|
402.5
|
|
|
436.4
|
|
|
(7.8)
|
%
|
Conagra Brands,
Inc.
Consolidated
Statements of Operations
(in
millions)
(unaudited)
|
|
|
|
THIRD QUARTER YEAR TO
DATE
|
|
|
Thirty-nine weeks
ended
|
|
Thirty-nine weeks
ended
|
|
|
|
|
February 25,
2018
|
|
February 26,
2017
|
|
Percent
Change
|
Net sales
|
|
$
|
5,972.1
|
|
|
$
|
5,965.2
|
|
|
0.1
|
%
|
Costs and
expenses:
|
|
|
|
|
|
|
Cost of goods
sold
|
|
4,196.0
|
|
|
4,152.1
|
|
|
1.1
|
%
|
Selling, general and
administrative expenses
|
|
876.5
|
|
|
999.3
|
|
|
(12.3)
|
%
|
Interest expense,
net
|
|
114.2
|
|
|
158.0
|
|
|
(27.7)
|
%
|
Income from
continuing operations before income taxes and equity method
investment earnings
|
|
785.4
|
|
|
655.8
|
|
|
19.8
|
%
|
|
|
|
|
|
|
|
Income tax
expense
|
|
138.1
|
|
|
315.5
|
|
|
(56.3)
|
%
|
Equity method
investment earnings
|
|
79.6
|
|
|
52.1
|
|
|
52.7
|
%
|
Income from
continuing operations
|
|
726.9
|
|
|
392.4
|
|
|
85.3
|
%
|
Income from
discontinued operations, net of tax
|
|
14.6
|
|
|
103.7
|
|
|
(85.9)
|
%
|
Net income
|
|
$
|
741.5
|
|
|
$
|
496.1
|
|
|
49.5
|
%
|
Less: Net income
attributable to noncontrolling interests
|
|
2.7
|
|
|
8.1
|
|
|
(66.6)
|
%
|
Net income
attributable to Conagra Brands, Inc.
|
|
$
|
738.8
|
|
|
$
|
488.0
|
|
|
51.4
|
%
|
|
|
|
|
|
|
|
Earnings per share -
basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
continuing operations
|
|
$
|
1.78
|
|
|
$
|
0.90
|
|
|
97.8
|
%
|
Income from
discontinued operations
|
|
0.03
|
|
|
0.22
|
|
|
(86.4)
|
%
|
Net income
attributable to Conagra Brands, Inc.
|
|
$
|
1.81
|
|
|
$
|
1.12
|
|
|
61.6
|
%
|
|
|
|
|
|
|
|
Weighted average
shares outstanding
|
|
407.3
|
|
|
436.0
|
|
|
(6.6)
|
%
|
|
|
|
|
|
|
|
Earnings per share -
diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
continuing operations
|
|
$
|
1.76
|
|
|
$
|
0.89
|
|
|
97.8
|
%
|
Income from
discontinued operations
|
|
0.04
|
|
|
0.22
|
|
|
(81.8)
|
%
|
Net income
attributable to Conagra Brands, Inc.
|
|
$
|
1.80
|
|
|
$
|
1.11
|
|
|
62.2
|
%
|
|
|
|
|
|
|
|
Weighted average
share and share equivalents outstanding
|
|
411.1
|
|
|
440.0
|
|
|
(6.6)
|
%
|
Conagra Brands,
Inc.
Segment Operating
Results
(in
millions)
(unaudited)
|
|
|
|
THIRD
QUARTER
|
|
|
Thirteen weeks
ended
|
|
Thirteen weeks
ended
|
|
|
|
|
February 25,
2018
|
|
February 26,
2017
|
|
Percent
Change
|
SALES
|
|
|
|
|
|
|
Grocery &
Snacks
|
|
$
|
838.3
|
|
|
$
|
849.0
|
|
|
(1.3)
|
%
|
Refrigerated &
Frozen
|
|
688.5
|
|
|
667.2
|
|
|
3.2
|
%
|
International
|
|
223.4
|
|
|
205.2
|
|
|
8.9
|
%
|
Foodservice
|
|
244.3
|
|
|
259.8
|
|
|
(6.0)
|
%
|
Commercial
|
|
—
|
|
|
—
|
|
|
—
|
%
|
Total
|
|
$
|
1,994.5
|
|
|
$
|
1,981.2
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
OPERATING
PROFIT
|
|
|
|
|
|
|
Grocery &
Snacks
|
|
$
|
175.6
|
|
|
$
|
202.1
|
|
|
(13.1)
|
%
|
Refrigerated &
Frozen
|
|
126.1
|
|
|
128.7
|
|
|
(2.1)
|
%
|
International
|
|
29.5
|
|
|
18.1
|
|
|
63.0
|
%
|
Foodservice
|
|
24.0
|
|
|
27.8
|
|
|
(13.4)
|
%
|
Commercial
|
|
—
|
|
|
(0.2)
|
|
|
(100.0)
|
%
|
Total operating
profit for segments
|
|
$
|
355.2
|
|
|
$
|
376.5
|
|
|
(5.6)
|
%
|
|
|
|
|
|
|
|
Reconciliation of
total operating profit to income from continuing operations before
income taxes and equity method investment earnings
|
|
|
|
|
|
|
Items excluded from
segment operating profit:
|
|
|
|
|
|
|
General corporate
expense
|
|
(86.6)
|
|
|
(105.2)
|
|
|
(17.7)
|
%
|
Interest expense,
net
|
|
(39.8)
|
|
|
(45.7)
|
|
|
(12.7)
|
%
|
Income from
continuing operations before income taxes and equity method
investment earnings
|
|
$
|
228.8
|
|
|
$
|
225.6
|
|
|
1.4
|
%
|
|
Segment operating
profit excludes general corporate expense, equity method investment
earnings, and net interest expense. Management believes such
amounts are not directly associated with segment performance
results for the period. Management believes the presentation of
total operating profit for segments facilitates period-to-period
comparison of results of segment operations.
|
Conagra Brands,
Inc.
Segment Operating
Results
(in
millions)
(unaudited)
|
|
|
|
THIRD QUARTER YEAR TO
DATE
|
|
|
Thirty-nine weeks
ended
|
|
Thirty-nine weeks
ended
|
|
|
|
|
February 25,
2018
|
|
February 26,
2017
|
|
Percent
Change
|
SALES
|
|
|
|
|
|
|
Grocery &
Snacks
|
|
$
|
2,484.5
|
|
|
$
|
2,459.4
|
|
|
1.0
|
%
|
Refrigerated &
Frozen
|
|
2,062.3
|
|
|
2,012.5
|
|
|
2.5
|
%
|
International
|
|
634.6
|
|
|
611.3
|
|
|
3.8
|
%
|
Foodservice
|
|
790.7
|
|
|
810.9
|
|
|
(2.5)
|
%
|
Commercial
|
|
—
|
|
|
71.1
|
|
|
(100.0)
|
%
|
Total
|
|
$
|
5,972.1
|
|
|
$
|
5,965.2
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
OPERATING
PROFIT
|
|
|
|
|
|
|
Grocery &
Snacks
|
|
$
|
551.6
|
|
|
$
|
602.8
|
|
|
(8.5)
|
%
|
Refrigerated &
Frozen
|
|
356.5
|
|
|
338.9
|
|
|
5.2
|
%
|
International
|
|
68.6
|
|
|
(157.8)
|
|
|
N/A
|
|
Foodservice
|
|
94.6
|
|
|
81.4
|
|
|
16.2
|
%
|
Commercial
|
|
—
|
|
|
202.6
|
|
|
(100.0)
|
%
|
Total operating
profit for segments
|
|
$
|
1,071.3
|
|
|
$
|
1,067.9
|
|
|
0.3
|
%
|
|
|
|
|
|
|
|
Reconciliation of
total operating profit to income from continuing operations before
income taxes and equity method investment earnings
|
|
|
|
|
|
|
Items excluded from
segment operating profit:
|
|
|
|
|
|
|
General corporate
expense
|
|
(171.7)
|
|
|
(254.1)
|
|
|
(32.4)
|
%
|
Interest expense,
net
|
|
(114.2)
|
|
|
(158.0)
|
|
|
(27.7)
|
%
|
Income from
continuing operations before income taxes and equity method
investment earnings
|
|
$
|
785.4
|
|
|
$
|
655.8
|
|
|
19.8
|
%
|
|
Segment operating
profit excludes general corporate expense, equity method investment
earnings, and net interest expense. Management believes such
amounts are not directly associated with segment performance
results for the period. Management believes the presentation of
total operating profit for segments facilitates period-to-period
comparison of results of segment operations.
|
Conagra Brands,
Inc.
Consolidated Balance
Sheet
(in
millions)
(unaudited)
|
|
|
|
February 25,
2018
|
|
May 28,
2017
|
ASSETS
|
|
|
|
|
Current
assets
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
132.9
|
|
|
$
|
251.4
|
|
Receivables, less
allowance for doubtful accounts
|
|
|
|
|
of $3.4 and
$3.1
|
|
603.4
|
|
|
563.4
|
|
Inventories
|
|
1,016.7
|
|
|
927.9
|
|
Prepaid expenses and
other current assets
|
|
253.3
|
|
|
228.7
|
|
Current assets held
for sale
|
|
51.8
|
|
|
41.8
|
|
Total
current assets
|
|
2,058.1
|
|
|
2,013.2
|
|
Property, plant and
equipment, net
|
|
1,627.3
|
|
|
1,647.7
|
|
Goodwill
|
|
4,506.7
|
|
|
4,295.3
|
|
Brands, trademarks
and other intangibles, net
|
|
1,300.4
|
|
|
1,223.7
|
|
Other
assets
|
|
853.6
|
|
|
790.6
|
|
Noncurrent assets
held for sale
|
|
117.1
|
|
|
125.8
|
|
|
|
$
|
10,463.2
|
|
|
$
|
10,096.3
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
Current
liabilities
|
|
|
|
|
Notes
payable
|
|
$
|
352.3
|
|
|
$
|
28.2
|
|
Current installments
of long-term debt
|
|
77.3
|
|
|
199.0
|
|
Accounts
payable
|
|
869.6
|
|
|
773.1
|
|
Accrued
payroll
|
|
141.0
|
|
|
167.6
|
|
Other accrued
liabilities
|
|
550.5
|
|
|
552.6
|
|
Total
current liabilities
|
|
1,990.7
|
|
|
1,720.5
|
|
Senior long-term
debt, excluding current installments
|
|
3,037.0
|
|
|
2,573.3
|
|
Subordinated
debt
|
|
195.9
|
|
|
195.9
|
|
Other noncurrent
liabilities
|
|
1,430.1
|
|
|
1,528.8
|
|
Total stockholders'
equity
|
|
3,809.5
|
|
|
4,077.8
|
|
|
|
$
|
10,463.2
|
|
|
$
|
10,096.3
|
|
CONAGRA
BRANDS
Condensed
Consolidated Statements of Cash Flows
(in
millions)
|
|
(unaudited)
|
Thirty-nine weeks
ended
|
|
February
25, 2018
|
|
February
26, 2017
|
Cash flows from
operating activities:
|
|
|
|
Net income
|
$
|
741.5
|
|
|
$
|
496.1
|
|
Income from
discontinued operations
|
14.6
|
|
|
103.7
|
|
Income from
continuing operations
|
726.9
|
|
|
392.4
|
|
Adjustments to
reconcile income from continuing operations to net cash flows from
operating activities:
|
|
|
|
Depreciation and
amortization
|
193.4
|
|
|
199.8
|
|
Asset impairment
charges
|
9.4
|
|
|
221.9
|
|
Gain on
divestitures
|
—
|
|
|
(197.4)
|
|
Loss on
extinguishment of debt
|
—
|
|
|
93.3
|
|
Earnings of
affiliates in excess of distributions
|
(53.1)
|
|
|
(21.6)
|
|
Stock-settled
share-based payments expense
|
26.7
|
|
|
28.1
|
|
Contributions to
pension plans
|
(9.7)
|
|
|
(9.8)
|
|
Pension
benefit
|
(38.7)
|
|
|
(16.2)
|
|
Lease cancellation
expense
|
48.2
|
|
|
—
|
|
Other
items
|
(31.0)
|
|
|
25.5
|
|
Change in operating
assets and liabilities excluding effects of business acquisitions
and dispositions:
|
|
|
|
Receivables
|
(25.8)
|
|
|
49.5
|
|
Inventories
|
(89.8)
|
|
|
35.0
|
|
Deferred income taxes
and income taxes payable, net
|
(10.2)
|
|
|
135.6
|
|
Prepaid expenses and
other current assets
|
(5.5)
|
|
|
8.2
|
|
Accounts
payable
|
101.2
|
|
|
13.3
|
|
Accrued
payroll
|
(30.9)
|
|
|
(71.5)
|
|
Other accrued
liabilities
|
(3.0)
|
|
|
(82.6)
|
|
Net cash flows from
operating activities — continuing operations
|
808.1
|
|
|
803.5
|
|
Net cash flows from
operating activities — discontinued operations
|
34.2
|
|
|
43.0
|
|
Net cash flows from
operating activities
|
842.3
|
|
|
846.5
|
|
Cash flows from
investing activities:
|
|
|
|
Additions to
property, plant and equipment
|
(175.9)
|
|
|
(158.5)
|
|
Sale of property,
plant and equipment
|
7.5
|
|
|
12.5
|
|
Proceeds from
divestitures
|
—
|
|
|
489.0
|
|
Purchase of
businesses
|
(337.1)
|
|
|
(108.1)
|
|
Other
items
|
4.3
|
|
|
—
|
|
Net cash flows from
investing activities — continuing operations
|
(501.2)
|
|
|
234.9
|
|
Net cash flows from
investing activities — discontinued operations
|
—
|
|
|
(123.7)
|
|
Net cash flows from
investing activities
|
(501.2)
|
|
|
111.2
|
|
Cash flows from
financing activities:
|
|
|
|
Net short-term
borrowings
|
324.1
|
|
|
(10.1)
|
|
Issuance of long-term
debt, net of debt issuance costs
|
497.1
|
|
|
—
|
|
Repayment of
long-term debt
|
(170.1)
|
|
|
(1,062.3)
|
|
Payment of intangible
asset financing arrangement
|
(14.4)
|
|
|
(14.9)
|
|
Repurchase of Conagra
Brands, Inc. common shares
|
(860.0)
|
|
|
(594.6)
|
|
Cash dividends
paid
|
(257.7)
|
|
|
(328.9)
|
|
Exercise of stock
options and issuance of other stock awards, including tax
withholdings
|
13.0
|
|
|
66.6
|
|
Other
items
|
—
|
|
|
(1.9)
|
|
Net cash flows from
financing activities — continuing operations
|
(468.0)
|
|
|
(1,946.1)
|
|
Net cash flows from
financing activities — discontinued operations
|
—
|
|
|
839.1
|
|
Net cash flows from
financing activities
|
(468.0)
|
|
|
(1,107.0)
|
|
Effect of exchange
rate changes on cash and cash equivalents
|
8.4
|
|
|
(1.6)
|
|
Net change in cash
and cash equivalents
|
(118.5)
|
|
|
(150.9)
|
|
Add: Cash balance
included in assets held for sale and discontinued operations at
beginning of period
|
—
|
|
|
36.4
|
|
Less: Cash balance
included in assets held for sale and discontinued operations at end
of period
|
—
|
|
|
—
|
|
Cash and cash
equivalents at beginning of period
|
251.4
|
|
|
798.1
|
|
Cash and cash
equivalents at end of period
|
$
|
132.9
|
|
|
$
|
683.6
|
|
Q3 FY18 & Q3
FY17 Diluted EPS from Continuing Operations
|
|
|
Q3
FY18
|
|
Q3
FY17
|
|
%
Change
|
Diluted EPS from
continuing operations
|
$
|
0.87
|
|
|
$
|
0.41
|
|
|
112.2
|
%
|
Net expense related
to restructuring plans
|
0.03
|
|
|
0.02
|
|
|
|
Net expense related
to acquisitions and planned divestitures
|
0.01
|
|
|
—
|
|
|
|
Net expense related
to the early exit of an unfavorable lease contract by purchasing
the building
|
0.06
|
|
|
—
|
|
|
|
Net expense related
to pension plan lump sum settlement
|
—
|
|
|
0.02
|
|
|
|
Net expense related
to extinguishment of debt
|
—
|
|
|
0.05
|
|
|
|
Net benefit related
to gain on substantial liquidation of an international joint
venture
|
(0.01)
|
|
|
—
|
|
|
|
Net expense related
to an increase to the valuation allowance on certain deferred tax
assets
|
0.20
|
|
|
—
|
|
|
|
Net tax benefit
related to tax reform adjustments
|
(0.59)
|
|
|
—
|
|
|
|
Net expense (benefit)
related to unusual tax items
|
0.05
|
|
|
(0.02)
|
|
|
|
Rounding
|
(0.01)
|
|
|
—
|
|
|
|
Adjusted diluted
EPS from continuing operations
|
$
|
0.61
|
|
|
$
|
0.48
|
|
|
27.1
|
%
|
Grocery &
Snacks Segment Operating Profit Reconciliation
|
|
(Dollars in
millions)
|
Q3
FY18
|
|
Q3
FY17
|
|
%
Change
|
Grocery &
Snacks Segment Operating Profit
|
$
|
175.6
|
|
|
$
|
202.1
|
|
|
(13.1)
|
%
|
Net expense related
to restructuring plans
|
0.4
|
|
|
9.1
|
|
|
|
Net expense related
to acquisitions and planned divestitures
|
2.4
|
|
|
—
|
|
|
|
Net expense related
to intangible impairment charges
|
—
|
|
|
1.1
|
|
|
|
Grocery &
Snacks Segment Adjusted Operating Profit
|
$
|
178.4
|
|
|
$
|
212.3
|
|
|
(16.0)
|
%
|
Refrigerated &
Frozen Segment Operating Profit Reconciliation
|
|
(Dollars in
millions)
|
Q3
FY18
|
|
Q3
FY17
|
|
%
Change
|
Refrigerated &
Frozen Segment Operating Profit
|
$
|
126.1
|
|
|
$
|
128.7
|
|
|
(2.1)
|
%
|
Net expense (benefit)
related to restructuring plans
|
0.1
|
|
|
(1.1)
|
|
|
|
Net expense related
to acquisitions and planned divestitures
|
0.7
|
|
|
—
|
|
|
|
Refrigerated &
Frozen Segment Adjusted Operating Profit
|
$
|
126.9
|
|
|
$
|
127.6
|
|
|
(0.6)
|
%
|
International
Segment Operating Profit Reconciliation
|
|
|
|
(Dollars in
millions)
|
Q3
FY18
|
|
Q3
FY17
|
|
%
Change
|
International
Segment Operating Profit
|
$
|
29.5
|
|
|
$
|
18.1
|
|
|
63.0
|
%
|
Net expense (benefit)
related to restructuring plans
|
0.2
|
|
|
(0.3)
|
|
|
|
International
Segment Adjusted Operating Profit
|
$
|
29.7
|
|
|
$
|
17.8
|
|
|
66.5
|
%
|
Foodservice
Segment Operating Profit Reconciliation
|
|
(Dollars in
millions)
|
Q3
FY18
|
|
Q3
FY17
|
|
%
Change
|
Foodservice
Segment Operating Profit
|
$
|
24.0
|
|
|
$
|
27.8
|
|
|
(13.4)
|
%
|
Net expense related
to restructuring plans
|
—
|
|
|
—
|
|
|
|
Foodservice
Segment Adjusted Operating Profit
|
$
|
24.0
|
|
|
$
|
27.8
|
|
|
(13.4)
|
%
|
Commercial Segment
Operating Profit Reconciliation
|
|
(Dollars in
millions)
|
Q3
FY18
|
|
Q3
FY17
|
|
%
Change
|
Commercial Segment
Operating Loss
|
$
|
—
|
|
|
$
|
(0.2)
|
|
|
100.0
|
%
|
Adjustment to the
gain on sale of Spicetec and J.M. Swank businesses
|
—
|
|
|
0.2
|
|
|
|
Commercial Segment
Adjusted Operating Profit
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
%
|
Corporate Expense
Reconciliation
|
|
(Dollars in
millions)
|
Q3
FY18
|
|
Q3
FY17
|
|
%
Change
|
Selling, general
and administrative expenses
|
$
|
330.2
|
|
|
$
|
349.7
|
|
|
(5.6)
|
%
|
Less: selling,
general and administrative expenses from reporting
segments
|
242.8
|
|
|
244.0
|
|
|
|
Plus: Corporate cost
of goods sold
|
(0.8)
|
|
|
(0.5)
|
|
|
|
Corporate
expenses
|
$
|
86.6
|
|
|
$
|
105.2
|
|
|
(17.7)
|
%
|
Net expense related
to restructuring plans
|
(14.0)
|
|
|
(6.0)
|
|
|
|
Net expense related
to early extinguishment of debt
|
—
|
|
|
(32.7)
|
|
|
|
Net expense related
to pension lump sum settlement
|
—
|
|
|
(13.8)
|
|
|
|
Net expense related
to the early exit of an unfavorable lease
|
(34.9)
|
|
|
—
|
|
|
|
Net income related to
hedging
|
0.8
|
|
|
0.5
|
|
|
|
Corporate adjusted
expenses
|
$
|
38.5
|
|
|
$
|
53.2
|
|
|
(27.4)
|
%
|
Net Sales
Reconciliation
|
|
|
|
|
|
Q3 FY18
(Dollars in millions)
|
Grocery &
Snacks
|
|
Refrigerated
& Frozen
|
|
International
|
|
Foodservice
|
|
Total
Conagra
Brands
|
Net
Sales
|
$
|
838.3
|
|
|
$
|
688.5
|
|
|
$
|
223.4
|
|
|
$
|
244.3
|
|
|
$
|
1,994.5
|
|
Impact of foreign
exchange
|
—
|
|
|
—
|
|
|
(10.9)
|
|
|
—
|
|
|
(10.9)
|
|
Net sales from
acquired businesses
|
(42.7)
|
|
|
(4.0)
|
|
|
—
|
|
|
—
|
|
|
(46.7)
|
|
Organic Net
Sales
|
$
|
795.6
|
|
|
$
|
684.5
|
|
|
$
|
212.5
|
|
|
$
|
244.3
|
|
|
$
|
1,936.9
|
|
|
|
|
|
|
|
|
|
|
|
Q3 FY17
(Dollars in millions)
|
Grocery &
Snacks
|
|
Refrigerated
& Frozen
|
|
International
|
|
Foodservice
|
|
Total
Conagra
Brands
|
Net
Sales
|
$
|
849.0
|
|
|
$
|
667.2
|
|
|
$
|
205.2
|
|
|
$
|
259.8
|
|
|
$
|
1,981.2
|
|
Net sales from
divested businesses
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Organic Net
Sales
|
$
|
849.0
|
|
|
$
|
667.2
|
|
|
$
|
205.2
|
|
|
$
|
259.8
|
|
|
$
|
1,981.2
|
|
|
|
|
|
|
|
|
|
|
|
%
Change
|
Grocery &
Snacks
|
|
Refrigerated
& Frozen
|
|
International
|
|
Foodservice
|
|
Total
Conagra
Brands
|
Net
Sales
|
(1.3)
|
%
|
|
3.2
|
%
|
|
8.9
|
%
|
|
(6.0)
|
%
|
|
0.7
|
%
|
Impact of foreign
exchange (pp)
|
—
|
|
|
—
|
|
|
(5.3)
|
|
|
—
|
|
|
(0.5)
|
|
Net sales from
acquired businesses (pp)
|
(5.0)
|
|
|
(0.6)
|
|
|
—
|
|
|
—
|
|
|
(2.4)
|
|
Organic Net
Sales
|
(6.3)
|
%
|
|
2.6
|
%
|
|
3.6
|
%
|
|
(6.0)
|
%
|
|
(2.2)
|
%
|
|
|
|
|
|
|
|
|
|
|
Volume
(Organic)
|
(4.1)
|
%
|
|
1.8
|
%
|
|
0.8
|
%
|
|
(13.2)
|
%
|
|
(2.8)
|
%
|
Price/Mix
|
(2.2)
|
%
|
|
0.8
|
%
|
|
2.8
|
%
|
|
7.2
|
%
|
|
0.6
|
%
|
Gross Profit and
Gross Margin Reconciliations
|
|
Gross Margin: Gross
Profit as a % of Net sales
|
|
|
|
|
Q3
FY18
|
|
Q3
FY17
|
Net sales
|
$
|
1,994.5
|
|
|
$
|
1,981.2
|
|
Cost of goods
sold
|
1,395.7
|
|
|
1,360.2
|
|
Gross
Profit
|
$
|
598.8
|
|
|
$
|
621.0
|
|
|
|
|
|
Net expense related
to acquisitions
|
0.6
|
|
|
—
|
|
Net expense (benefit)
related to restructuring plans included in cost of goods
sold
|
(0.1)
|
|
|
4.7
|
|
Net income related to
hedging
|
(0.8)
|
|
|
(0.5)
|
|
Adjusted Gross
Profit
|
$
|
598.5
|
|
|
$
|
625.2
|
|
Adjusted Gross
Margin
|
30.0
|
%
|
|
31.6
|
%
|
SG&A
Reconciliation
|
|
|
Q3
FY18
|
|
Q3
FY17
|
Selling, general,
and administrative (SG&A) expenses
|
$
|
330.2
|
|
|
$
|
349.7
|
|
Adjustment to gain on
sale of Spicetec and J.M. Swank businesses
|
—
|
|
|
0.2
|
|
Advertising and
promotion expenses
|
78.2
|
|
|
90.7
|
|
Net expense related
to restructuring plans
|
14.8
|
|
|
9.0
|
|
Net expense related
to goodwill and intangible impairment charges
|
—
|
|
|
1.1
|
|
Net expense related
to early extinguishment of debt
|
—
|
|
|
32.7
|
|
Net expense related
to pension lump sum settlement
|
—
|
|
|
13.8
|
|
Net expense related
to the early exit of an unfavorable lease
|
34.9
|
|
|
—
|
|
Net expense related
to acquisitions and planned divestitures
|
2.5
|
|
|
—
|
|
Adjusted SG&A
expenses
|
$
|
199.8
|
|
|
$
|
202.2
|
|
Equity Method
Investment Earnings Reconciliation
|
|
|
Q3
FY18
|
|
Q3
FY17
|
|
%
Change
|
Equity Method
Investment Earnings
|
$
|
29.0
|
|
|
$
|
21.8
|
|
|
33.1
|
%
|
Net benefit related
to gain on substantial liquidation of an international joint
venture
|
(4.3)
|
|
|
—
|
|
|
|
Adjusted Equity
Method Investment Earnings
|
$
|
24.7
|
|
|
$
|
21.8
|
|
|
13.6
|
%
|
__________________
1 Organic net sales excludes the impact of foreign
exchange and divested businesses, as well as acquisitions (until
the anniversary date of the acquisitions). All references to
changes in volume and price/mix are based on organic net sales.
2 "Adjusted" financial measures, including organic net
sales, are non-GAAP financial measures. Please see the end of
this release for reconciliations to the most directly comparable
GAAP financial measures.
3 The inability to predict the amount and timing of the
impacts of certain items impacting comparability makes a detailed
reconciliation of this forward-looking non-GAAP financial measure
impracticable. Please see the end of this release for more
information.
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SOURCE Conagra Brands, Inc.