ConAgra Foods, Inc. (NYSE:CAG) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.
Full-Year EPS Guidance
Andrew Lazar – Barclays Capital: Just got two questions for you to start it off. I guess, first thing, Gary, when you provided fiscal 2014 guidance, ConAgra was about a month into your first quarter. And at the time, you were quite bullish around volume momentum in consumer and the prospects for Consumer Foods at the time. So something that would seem very dramatic must have changed in kind of a month time from then to sort of cause ConAgra to lower, not only the first quarter, but the full-year EPS, so significantly. And you mentioned on the call some category weakness and some customer weakness, but frankly I’m still not sure kind of what that means and whether that was just overall industry issues because it seems to have hit ConAgra maybe more significantly. So I was hoping maybe you could run us through a little bit around, specifically what categories were real differentiators versus what you had thought a month before. And then these customer issues, were these things that were perhaps more discreet to ConAgra in terms of the impact to you and the reason I asked is because this all goes towards how achievable the new full-year EPS guidance is? That’s the first question.
Gary Rodkin – CEO: Andrew, I appreciate that. That’s a fair question. I think we all acknowledge that we’re still in a relatively sluggish industry environment, but as the summer went on, we saw trade spending accelerate and this is because customers – key customers were competing for traffic and manufacturers really heated up their competition for market share. You know that we’ve been on a path of shifting toward more pull via marketing and advertising, but with the increased merchandising intensity in some key customers and some key categories, we frankly lost some share of quality merchandising and in turn market share, and of course, volume. We are now in the process of course correcting that, rebalancing and shifting some advertising dollars selectively in a more competitive merchandising support all within responsible financial constraints. We’ll see the benefits starting late in Q2, but primarily in the second half of that ’14, but to get more specifics on the categories, let me turn it over to Tom McGough.
Tom McGough – President, Consumer Foods: Yeah. This is Tom. Our volume decline was concentrated in a couple businesses most notably in frozen and on Chef Boyardee as a result of the strong competitive activity that Gary highlighted. First in frozen, there is two things that are driving this activity. First of all, frozen is a big category, but volume has been weak and this is an important category for our customers and as a result, it has become the share battle in frozen meals. As a result, we saw a big increase in competitive promotional activity at several key customers during Q1. Similar situation on Chef Boyardee, as you know, we lead in the canned pasta category, but we really compete in a broader shelf-stable convenient meal arena and the reality in Q1 was that we saw a much stronger promotional activity, particularly at the back-to-school period in that broader category. In both instances, we are strengthening our promotional program to be more competitive. We anticipate that activity will be comparable going forward and we know that when we achieve our share of merchandising support we can improve our volume trends…
Andrew Lazar – Barclays Capital: Thanks for that additional clarity. I guess my second question would be, back in 2009, I think, when the industry went through a somewhat similar dynamic where there was some deflation and most industry players had ramped up promotional spend to try and drive – to drive volume, which was weak at that time. As I recall, it didn’t end up really helping industry volume very much at all and it seem that none of the players in the food industry really ended up benefiting relative to anybody else. They just ended up taking sort of a big chunk of profitability I guess out of these categories as a whole. So, I don’t know, maybe Gary you could just address that? Do I have that sort of right and so, I’m trying to get a sense of why maybe if everyone starts to – it has been and promotes more aggressively, the consumer sees certainly a better value, but it doesn’t seem like anyone gets a relative benefit or advantage?
Gary Rodkin – CEO: Yeah, Andrew, again, this is not our most desired way to see the industry operate, but we do, as responsible stewards, we do need to course correct. And frankly, the customer and the competitive environment along with this moderating inflation means that we have to smartly rebalance our push and pull, again not black-and-white not either/or, but we got to put the dollars against where we think we will get the most effective returns. We need to bend the trends on our market share. It is a market share gain. It’s category by category, customer by customer. We’ve got smarter analytics. So, we’ve got to put them to better use. But we truly need to grow our share in this environment and we need to do it by driving quality merchandising. We have found ways in our P&L to make certain that it is beneficial to us financially, but again, this is what the environment calls for and we will stay within those guidelines.
Competitor Promotional Activity
David Driscoll – Citigroup: So, I’d just like to go back to the competitor promotional activity and maybe just try to get a bit more on this one. So, because, I would say Gary that when you cite this as a negative factor, I mean, it’s always troubling to hear on the outside and what I find is that, no one knows how, on our side of the fence, how to dimensionalize how bad this thing is going to be. So, maybe, can you just give us, as best you can, just specifics on what happened and I think the most important thing is how rational is this pricing environment? I mean, when you have a quarter like this, it feels like the environment is completely irrational, and I think Andrew was maybe even trying to get at the same point, if your forward view is based upon the return of rationality, then how strong is that at this point in time and how much confidence can you really give us today?
Gary Rodkin – CEO: Obviously, David, there’s only so much that we can share for competitive and customer reasons, but within that, I can tell you in our largest category in Frozen, we’ve been winning market share as you know, over a number of years, within this large category. A lot of that’s been driven by really strong innovation, marketing, et cetera, but we can tell you that the intensity of the merchandising really ramped up in some pieces of some segments of that Frozen category. For example, in one large part of the segment, merchandising that was on average about four for $10 or $2.50 a piece, went to about five for $10 or $2 a piece and in some cases harder than that. We had been trying to stay on a path of driving towards more pull, but frankly given the fact that we’ve won a lot of market share in several of these segments, we’ve seen competitors really dial it up this summer. So, we’ve got to do what we need to do to win back that market share and it’s really not a return and hoping for an immediate return to rationality. It’s really in the near term a return to our fair share of merchandising. Tom, want to add anything to that?
Tom McGough – President, Consumer Foods: What I would add is that we’ve seen the promotional activities focused primarily in the premium segment. This is a portion of the category that has grown. As you know we’re well positioned in that category with Marie Callender, with a very strong brand. We’re investing in A&P innovation. But going forward, we need to ensure that we’re getting our fair share of that merchandising support. As you know, we’re investing in this premium segment. We’ve just launched for totally premium meals and we’re very pleased with those results. So, we are having a balanced approach, making sure that we have a compelling message, but we’ve got to make sure that we have competitive merchandising to sustain our business momentum…
David Driscoll – Citigroup: And one follow-up for me. You made the comment that you expected inflation to come in better than expected, can you dimensionalize that what is your inflation expectation for the year? And just some sense of, I mean, it sounds pretty obvious that the pacing gets much better into the back half. But, John, anything you can tell us there I think would be greatly helpful?
John Gehring – EVP and CFO: I think at this point, David, what I’d say is we’re probably looking at inflation probably slightly under 2%. Net-net, we still do see inflation when we look at all of our components of cost, including conversion and T&W. What I would say is, the material commodity piece of that has come down somewhat since the first part of the year. So, that’s where we’re seeing the lift over the balance of the year. The other thing I would just add is, we feel very good about how we’re positioned, with our commodities and our hedges. So, we feel confident about our ability to capture that benefit as the year progresses.