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Text: While we are making those statements in good faith, we do not have any guarantee about the results we will achieve.
Descriptions of the 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 refer to measures that exclude items management believes impact the comparability for the period referenced.
Today, Dave and I will discuss our results for the quarter, our updated outlook for the remainder of the year and why we believe that Conagra continues to be well-positioned for the future.
Slide 5 lays out our key messages for today.
First, as everyone is aware, the external environment is incredibly dynamic right now, and we see many of these challenges persisting.
But despite the complex operating situation, the ongoing dedication, resilience and agility of our team enabled us to deliver solid Q1 results on the back of strong sales.
We continue to benefit from our proven approach to brand building and the breadth of investments we're making to increase consumer demand.
These efforts drive brand health, which is evidenced by the continued strength of our sales, share and repeat rates across the portfolio.
As a result, we believe our brands are well-positioned to continue managing through the current inflationary challenges and support ongoing inflation-justified pricing actions.
Looking ahead, we're reaffirming our earnings per share outlook for the year.
However, we now see a slightly different path to achieving that EPS.
We expect inflation to be higher than originally forecasted but we also see continued strength in consumer demand even above our original expectations.
We believe that consumer demand, coupled with additional pricing and cost-saving actions, will enable us to deliver adjusted diluted earnings per share of about $2.50.
So with that as the backdrop, let's jump right in.
We know that our long-term performance is a function of the caliber and engagement of our team, and that has never been more true than today.
I'm extremely proud of the team's resilience and agility in adapting to the dynamic environment we're currently experiencing.
As a result of our team's continued hard work and dedication, we've been able to successfully execute through sustained elevated demand and challenging supply conditions.
First, as we've already mentioned, consumer demand has remained at higher levels than we expected due to macro forces, as well as the unique position of our portfolio.
This is a great problem to have, but it increases the demands on our supply chain at a time when the industry is navigating labor shortages, material supply issues and transportation cost and congestion challenges.
Taken together, these factors created an upper control limit on the amount of product we could produce and ship in Q1.
If we had the capacity to meet all of the demand, our numbers would likely have been even more impressive.
However, our ability to deliver solid results amid this dynamic environment is a testament to our team's ongoing commitment to executing the Conagra Way playbook each and every day.
The Conagra Way playbook to portfolio modernization remains our North Star in any operating environment.
Regardless of the external factors that may influence short-term demand and supply dynamics in any given quarter, we define long-term success as creating meaningful and lasting connections between consumers and our brands.
We believe that our playbook is the most effective framework for delivering on that objective.
Those of you who have followed us for a while will recall that our modern approach to brand building is more comprehensive than legacy industry practices.
Instead of anchoring our brand building predominantly in broadcast advertising that pushes new messages on old products, we anchor our investments and our efforts first in developing new modern and superior items.
Then once we've created these more modern and provocative products, we invest to drive the physical availability of those items in-store and online.
And finally, our investments to drive meaningful one-to-one communication to the right consumers at the right time, at the right place, enable us to remain salient and relevant.
This comprehensive approach and unwavering commitment to modernizing and premiumizing our portfolio continues to pay off and enables us to better manage our brands within any environment.
And as you can see on Slide 8, our team delivered solid results during the first quarter.
As you know, our year-over-year growth rates were impacted by the elevated demand we experienced during the first quarter of fiscal 2021 when we were still in the early months of the pandemic.
As you can see, on a two-year CAGR basis, organic net sales for the first quarter increased 7% and adjusted earnings per share grew by nearly 8%.
Importantly, our solid performance in the first quarter was broad-based.
Just take a look at Slide 9.
Total Conagra weighted dollar share grew 0.8 points on a two-year basis in the quarter with share gains in each of our domestic retail domains: frozen, snacks and staples.
Innovation remained a key to our success across the portfolio in Q1.
Slide 10 highlights the impact of our disciplined approach to delivering new products and modernizing our portfolio.
During the first quarter, our innovation outperformed the strong results we delivered in the year-ago period.
This reflects not only the quality of the products launched, but also our efforts to support those launches with investments and capabilities that deliver deeper, more meaningful consumer connections.
And as you can see, our innovation rose to the top of the pack in several key categories, including snacks, sweet treats, frozen vegetables and frozen meals.
Our performance is a clear testament to the innovation and marketing engine at Conagra, and we believe the solid reputation we've built with customers and consumers.
In addition to developing superior products, we also remain focused on physical availability during the first quarter through both brick-and-mortar and online.
Slide 11 demonstrates how our ongoing investments in e-commerce continued to yield strong results.
Once again, we delivered quarterly growth in our $1 billion e-commerce business, both against our peers and as a percentage of our overall retail sales.
We outpaced the entire total edible category in terms of e-commerce retail sales growth during the first quarter, just as we did throughout fiscal 2021.
E-commerce sales now represent more than 9% of our total retail sales, more than double what they were just two years ago.
As we mentioned earlier, our solid top-line performance during the first quarter was driven by strong demand, robust brand-building investments and inflation-justified pricing actions.
Slide 12 details the extent of our pricing actions to date.
A few key points to keep in mind.
First, we began implementing actions on some of our domestic retail products in the fourth quarter of fiscal 2021 in response to the inflation we began to experience last fiscal year.
The majority of our domestic retail pricing actions, however, just started to hit the market at the end of Q1 in response to the inflation we spoke to you about on our Q4 earnings call in July.
As a result, the benefit in the quarter is less than what we expect to see going forward.
You can see this playing out in the consumption data from the last four weeks, all of which are part of our fiscal second quarter.
During this period, our on-shelf prices rose across all three domestic retail domains.
Looking ahead, our original plans for the year included additional inflation-justified pricing in future periods.
Given the heightened inflationary environment, however, we now expect to take incremental actions beyond those original plans.
Many of these actions have already been communicated to our customers and the benefits will be weighted toward the second half of the fiscal year.
We'll keep you apprised, but it's important that we stress that our pricing actions are not a blunt instrument.
We take a fact-based approach to pricing within the portfolio.
We use a data-driven approach to elasticities and thoughtfully execute actions to align with customer windows.
As we look ahead, we remain confident in the fiscal 2022 earnings per share guidance we outlined on the fourth-quarter call, but we now expect to take a different path to achieving that guidance.
As mentioned, we now expect inflation to be higher than originally forecasted.
However, we believe that the combination of continued strength in consumer demand, incremental inflation-justified pricing and additional cost savings actions will enable us to offset the impact of that inflation.
I'd like to briefly unpack these factors, starting with the update to our inflation expectations.
As you can see on Slide 14, we currently expect gross inflation to be approximately 11% for fiscal 2022, compared to the approximately 9% we anticipated at the time of our fourth-quarter call.
The bulk of the incremental inflation can be attributed to continued increases in the cost of proteins, edible fats and oils, grains and steel cans since our Q4 call.
I want to emphasize that this is our best current estimate of gross inflation for the full year and does not account for the impact of supply chain productivity improvements or hedging.
Dave will provide more color on inflation and the various levers we're able to pull to help offset its impact.
Even in the face of this acutely inflationary environment, we remain squarely focused on continuing to invest in our brands and capturing the strong consumer demand.
And we're pleased to share that the consumer demand we experienced during the first quarter exceeded our prior expectations.
As you can see on Slide 15, our total company retail sales on a two-year CAGR basis were up nearly 7% in the first quarter with strong growth across our frozen, snacks and staples domains.
And when you peel back the onion further you find even more evidence to underscore the durable strength of our top-line performance.
The chart on the left side of Slide 16 demonstrates that we continue to grow our household penetration during the first quarter, building upon the significant new consumer acquisition we've achieved over the past year and a half.
But what I believe is even more encouraging is the chart on the right.
We didn't just acquire new consumers, we kept them.
The data shows growth in repeat rates that demonstrates our new consumers discovered the incredible products and tremendous value proposition of our portfolio.
We're proud that our products are resonating with consumers and that those shoppers keep coming back for more.
Importantly, our performance on these metrics, household penetration and repeat rates has not only been strong in the absolute but relative to the competition as well.
We're also encouraged by the elasticity of demand for our portfolio, which has been better than previously expected.
Slide 17 demonstrates that our pricing actions to date have had limited impact on demand.
As I mentioned, most of our pricing actions taken to date began to appear on shelf at the end of Q1.
And you can see how that dynamic is being reflected in the data for September, which is part of our second quarter.
We continue to be cautiously optimistic that our elasticities will remain favorable as the full array of pricing enters the market.
As evidenced by our strong penetration and repeat rates, a growing number of consumers have clearly discovered the convenience and value that our retail portfolio provides.
Taken together, the net result of these factors I just detailed is the reaffirmation of our earnings per share guidance and margin and a few updates on how we expect to get there.
We're increasing our organic net sales guidance to be approximately plus 1%, up from approximately flat at the time of our Q4 call.
We are reaffirming our adjusted operating margin guidance to remain at approximately 16%.
We're updating our gross inflation guidance to about 11%, and we are reaffirming our adjusted earnings per share guidance of approximately $2.50.
This includes enduring trends that predate the COVID-19 pandemic and new consumer behaviors adopted over the past 18 months.
As a reminder, we have a proven track record of successfully attracting millennial and Gen Z consumers at a higher rate than our categories as a whole.
By attracting younger consumers now we create the groundwork for future growth.
Not only do these younger generations offer the opportunity to drive lifetime value, they're larger than the Gen X generation that immediately preceded them.
Historically, younger adults have eaten at home less than older generations.
The meaningful shift toward at-home eating tends to happen during the family formation years.
In particular, we know that annual frozen category spend per buyer increases in households with young kids, and it increases further as the kids grow up.
Importantly, almost half of millennials have yet to begin having kids, and we fully expect their consumption of Conagra products will grow along with the growth of their families.
Another enduring trend is the growth of snacking, which has long been the fastest-growing occasion in food and shows no signs of slowing down.
We have a very strong $2 billion ready-to-eat snacks business that spans multiple subcategories where we either have the fastest-growing brand, the largest brand or both.
The COVID-19 pandemic has only served to accelerate these existing trends and create additional long-term growth drivers.
One of the primary drivers for more at-home eating is the shifting workplace dynamics that are meaningfully changing weekday eating behavior.
This includes both the contracting workforce and the rise of remote work.
As more people work from home or exit the workforce, the more likely these people are to eat at home, particularly on weekdays.
Importantly, some aspects of remote workforce adoption are expected to be permanent.
The way we work is changing and that's driving changes in consumer eating habits as well.
More time at home also means more time devoted to preparing meals.
Younger consumers are acquiring new skills and developing new food habits at a formative age.
The behavioral science tells us that when people learn to cook at an early age, they continue to cook at elevated levels as they get older, and consumers of all ages are rediscovering their kitchens and cooking more at home.
Across all these long-term tailwinds, we believe our portfolio is uniquely positioned to meet the needs of today's consumers.
Our frozen portfolio offers hyper convenient meals and sides perfect for the quick work lunch or family dinner.
Our snacks and sweet treats portfolio caters to those looking to experience bold, anytime flavors at home while enjoying time with friends and family.
And our staples portfolio offers the simple cooking aids and meal enhancers that both experienced and first-time cooks are seeking.
In summary, Conagra's portfolio has delivered against the recent behavioral shift better than the competition.
And as we move beyond the pandemic and millennials and Gen Z-ers continue to age, we believe that our brands are well-positioned to become an even more regular part of their routines.
I'll start by going over some highlights from the quarter shown on Slide 21.
As a reminder, our year-over-year comparisons reflect the lapping of extremely strong demand for at-home food consumption during the early months of the pandemic.
For that reason, we are also including two-year comparisons for a number of important metrics to provide helpful context regarding the underlying health of our business.
We are pleased with the overall results of the first quarter, which, as Sean discussed, reflected our ability to successfully navigate the current dynamic environment.
Organic net sales declined by 0.4%, compared to a year ago and increased 7% on a two-year CAGR.
Adjusted gross profit and adjusted operating profit both decreased year over year but were flat on a two-year basis, demonstrating our ability to offset the double-digit inflation experienced in the business during the quarter.
I also want to highlight the increase in our advertising and promotional spend on both a one- and two-year basis.
These investments reflect our continued commitment to building and maintaining strong brands.
Turning to Slide 22.
I'd like to spend a few minutes discussing our net sales for the quarter.
On an organic net-sales basis, the 0.4% decrease during the quarter was driven by a 2% decline in volume from lapping last year's elevated demand.
This decline was almost entirely offset by favorable brand mix and the pricing actions we've taken to date in response to the inflationary environment.
There are two items I want to call out on price/mix.
First, as a reminder, the majority of our domestic retail pricing actions just started to hit shelves at the end of Q1.
So the benefit in the quarter was limited compared to the benefits we expect to receive over the course of fiscal '22.
Second, our 1.6% benefit from price/mix laps a 70-basis-point benefit in the prior-year period that was associated with the true-up of fiscal '20 fourth-quarter trade expense accrual.
Without that item, the current quarter's price mix benefit would have been plus 2.3%.
Divestitures resulted in a 110-basis-point decline in net sales during the quarter, and foreign exchange provided a 50-basis-point benefit.
Together, these factors drove a 1% decline in total Conagra net sales for the quarter compared to a year ago.
Slide 23 shows our net sales summary by segment, both on a year-over-year and a two-year compounded basis.
As you can see, we've had strong two-year compounded net sales growth in each of our three retail segments with a slight decline in our food service segment.
Net sales for the entire company have increased 7% on a two-year CAGR basis.
Our two-year annual sales growth rate for the domestic retail segments is tracking closely with the retail consumption growth achieved over the same period.
Turning to adjusted operating margin.
Slide 24 details the puts and takes of our first-quarter results.
First-quarter inflation was 16.6%, driving our adjusted gross margin decline of 530 basis points compared to a year ago.
We delivered 550 points of benefit from our margin lever actions in the quarter, inflation-justified pricing, supply chain realized productivity, cost synergies associated with the Pinnacle Foods acquisition and lower pandemic-related expenses.
However, these benefits were more than offset by the very significant inflation.
Note that the 16.6% inflation shown on the slide represents gross market inflation for Q1 and does not include hedging or sourcing benefits.
We capture hedging as part of our realized productivity.
For the first quarter, our net inflation inclusive of hedging was high single digits.
Our Q1 adjusted operating margin was also impacted by year-over-year changes to A&P and adjusted SG&A.
As I previously mentioned, we continue to increase our investments in A&P in the quarter.
The adjusted operating profit and margin by segment for the quarter are shown on Slide 25.
As a reminder, we expect our first quarter this fiscal year to benefit the least from our inflation-justified pricing actions.
It's also worth highlighting again that our adjusted operating profit is flat on a two-year basis.
Over a two-year period, we have completely offset double-digit inflation while also increasing investment in the business.
As you can see on Slide 26, our Q1 adjusted earnings per share of $0.50 was heavily impacted by inflation, as well as by a slightly higher tax rate.
These headwinds were partially offset by strong performance from our Ardent Mills joint venture, lower net interest expense and a slightly lower average diluted share count due to our share repurchases during the quarter.
Turning to Slide 27.
We ended the quarter with a net debt-to-EBITDA ratio of four times, which was in line with our expectations and reflects the seasonality of the business.
Our cash flow from operations and free cash flow were also both in line with our expectations for the quarter.
Our capex increased year over year as we remain focused on continued capacity investments to maximize physical availability of our products.
We also continued to return capital to shareholders during the first quarter.
We repurchased approximately $50 million of common stock and paid approximately $132 million in cash dividends.
As a reminder, the board of directors approved a 14% increase to our annual dividend in July.
We paid our first dividend at the increased quarterly rate of $0.3125 per share or $1.25 per share on an annualized basis shortly after the conclusion of Q1.
As we have already detailed today, we continue to experience cost of goods sold inflation at a level that is both significant and in excess of the level projected at the time of our Q4 fiscal '21 earnings call.
We now expect gross cost of goods sold inflation to be approximately 11% for fiscal '22.
We previously expected gross inflation of approximately 9%.
This heightened inflationary pressure is coming from increases across many inputs, particularly proteins, edible fats and oils, grains and metal-based packaging.
We are also seeing increasing costs in transportation given marketplace dynamics.
We have strong plans in place to mitigate the impact of this inflation.
First, we will leverage sourcing and hedging.
Given our sourcing and hedging positions, we only expect two-thirds of the 200-basis-point increase in gross inflation to impact the fiscal '22 P&L.
Regarding quarterly flow, we expect about half of the net impact from this heightened inflation to hit in the fourth quarter.
We expect the other half to impact Q2 and Q3 about equally.
As a reminder, the benefit of hedging actions is classified as realized productivity in our schedules.
In addition to hedging and sourcing, we expect to have a number of drivers to help offset inflation in fiscal '22.
As Sean already detailed, these drivers include higher-than-expected consumer demand, lower-than-expected elasticities of demand and incremental inflation-justified pricing beyond our original plan.
As Sean noted, the benefits of our incremental pricing actions will be weighted toward the second half of the fiscal year.
We are also taking additional actions to enhance supply chain productivity through the balance of fiscal '22.
And as always, we will maintain a disciplined approach to cost control, which continues to be a hallmark of our culture.
We now have additional cost savings actions planned beyond what was included as part of our initial guidance for the year.
In summary, we intend to leverage our full range of margin drivers to offset the impact of inflation.
We expect to realize the benefits from these drivers as the year progresses with the benefits weighted toward the second half of the year.
We continue to expect margins to improve sequentially over the remainder of fiscal '22.
We remain confident in our original adjusted earnings per share guidance of approximately $2.50 for the year, but the path to achieve that guidance has changed.
We now expect organic net sales growth of approximately 1% compared to our prior expectations of approximately flat growth.
Also, we expect our adjusted operating margin to continue to be approximately 16% but sees some modest compression versus our original forecast.
We expect the increase in dollar profit from higher net sales together with incremental cost savings to offset the incremental net inflation dollars.
As I explained on last quarter's call, this guidance is our best estimate of how we will perform in fiscal '22.
But our ultimate performance will be highly dependent on multiple factors, including: first, how consumers purchase food as food service establishments continue to reopen and people return to in-office work and in-person school; second, the level of inflation we ultimately experience; third, the elasticity of demand impact as consumers respond to higher prices; and finally, the ability of our end-to-end supply chain to continue to operate effectively as the pandemic continues to evolve.
Before turning it over to the operator for Q&A, I want to reiterate Sean's comments regarding our confidence in the resiliency of our business.
Our ability to deliver solid results amid such a dynamic environment reflects the continued dedication of our team, as well as the strength of our brands and the Conagra Way playbook.
That concludes my remarks.

user
q1 adjusted earnings per share $0.50.
reaffirming its fiscal 2022 adjusted earnings per share guidance and updating its expected path to achieving that guidance.
continues to experience elevated cost of goods sold inflation, rate of which continued to increase during q1 of fiscal 2022.
continues to expect margins to improve sequentially over remainder of year.
fy2022 organic net sales growth is expected to be approximately +1% versus prior guidance of approximately flat.

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