FORWARD-LOOKING STATEMENTS
The information contained in this report includes forward-looking statements within the meaning of the federal securities laws. Examples of forward-looking statements include statements regarding our expected future financial performance or position, results of operations, business strategy, plans and objectives of management for future operations, and other statements that are not historical facts. You can identify forward-looking statements by their use of forward-looking words, such as "may", "will", "anticipate", "expect", "believe", "estimate", "intend", "plan", "should", "seek", or comparable terms.
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Readers of this report should understand that these forward-looking statements
are not guarantees of performance or results. Forward-looking statements provide
our current expectations and beliefs concerning future events and are subject to
risks, uncertainties, and factors relating to our business and operations, all
of which are difficult to predict and could cause our actual results to differ
materially from the expectations expressed in or implied by such forward-looking
statements. These risks, uncertainties, and factors include, among other things:
the risk that the cost savings and any other synergies from the acquisition of
The discussion that follows should be read together with the unaudited Condensed
Consolidated Financial Statements and related notes contained in this report and
with the financial statements, related notes, and Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in our
Annual Report on Form 10-K for the fiscal year ended
EXECUTIVE OVERVIEW
Fiscal 2023 First Quarter Results
In the first quarter of fiscal 2023, results reflected an increase in net sales, with organic (excludes the impact of foreign exchange) increases in all of our segments, in each case compared to the first quarter of fiscal 2022. Overall gross profit increased primarily as a result of higher net sales, which more than offset input cost inflation, elevated supply chain operating costs, and unfavorable operating leverage. Overall segment operating profit decreased in our Refrigerated & Frozen, International, and Foodservice segments, which was partially offset by an increase in our Grocery & Snacks segment. Corporate expenses were higher primarily due to higher share-based payment expense. Selling, general and administrative ("SG&A") expenses were higher due primarily to our goodwill and brand impairment charges in addition to other items impacting comparability as discussed below. We recognized higher equity method investment earnings, higher interest expense, and lower income tax expense, in each case compared to the first quarter of fiscal 2022. Excluding items impacting comparability, our effective tax rate was slightly lower compared to the first quarter of fiscal 2022.
Diluted loss per share in the first quarter of fiscal 2023 was
In the first quarter of fiscal 2023, we continued to experience significant input cost inflation, including elevated supply chain costs, that negatively impacted gross margins. We expect input cost inflation to remain elevated throughout the rest of fiscal 2023. Supply chain realized productivity and pricing actions are expected to mitigate some of the inflationary pressures. As our estimates of inflation for fiscal 2023 continue to change, it is impractical to quantify the impact at this time. As we approach our annual goodwill and brand impairment assessment in the fourth quarter of fiscal 2023, continued increases to interest rates coupled with the uncertainty in the inflationary environment creates a heightened risk for future impairments later in the fiscal year.
Although we are a North American focused company with no operations in or direct
exposure to
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Items Impacting Comparability
Segment presentation of gains and losses from derivatives used for economic hedging of anticipated commodity input costs and economic hedging of foreign currency exchange rate risks of anticipated transactions is discussed in the "Segment Review" below.
Items of note impacting comparability for the first quarter of fiscal 2023 included the following:
? charges totaling$385.7 million ($326.8 million after-tax) related to the goodwill and Birds Eye® brand impairments in connection with certain reporting unit changes within our Refrigerated & Frozen segment, ? charges totaling$26.7 million ($20.1 million after-tax) related to the impairment of businesses held for sale, and ? net charges totaling$4.9 million ($3.7 million after-tax) in connection with our restructuring plans.
Items of note impacting comparability for the first quarter of fiscal 2022 included the following:
? charges totaling$15.8 million ($11.9 million after-tax) in connection with our restructuring plans and ? an income tax benefit of$3.6 million related to the settlement of a tax matter that was previously reserved. Restructuring Plans
In fiscal 2019, senior management initiated a restructuring plan for costs
incurred in connection with actions taken to improve SG&A expense effectiveness
and efficiencies and to optimize our supply chain network (the "Conagra
Restructuring Plan"). Although we remain unable to make good faith estimates
relating to the entire Conagra Restructuring Plan, we are reporting on actions
initiated through the end of the first quarter of fiscal 2023, including the
estimated amounts or range of amounts for each major type of costs expected to
be incurred, and the charges that have resulted or will result in cash outflows.
As of
As of
COVID-19 Pandemic
We continue to monitor the impact of the COVID-19 pandemic on all aspects of our business. During the first quarter of fiscal 2023, we continued to experience elevated demand for our products in the retail segments versus pre-pandemic levels, but volumes were lower compared to the first quarter of fiscal 2022 primarily due to the elasticity impact from inflation-driven pricing actions. We experienced higher demand for our foodservice products across all of our major markets during the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022 as consumer traffic in away-from-home food outlets continues to recover from the impacts of the pandemic.
As we continue throughout fiscal 2023, we generally expect retail demand levels to remain elevated versus pre-pandemic levels and we continue to expect foodservice demand levels to return to more historical norms. However, uncertainty remains with the pandemic and such trends ultimately depend on the length and severity of the pandemic, inclusive of the introduction of new strains and variants of the virus; infection rates in the markets where we do business; the federal, state, and local government actions taken in response; vaccine effectiveness; and the macroeconomic environment. We also continue to expect a decrease in costs related to the COVID-19 pandemic and a decrease in supply chain costs as we continue to recover our service levels. We will continue to evaluate the extent to which the COVID-19 related uncertainty and attendant costs will impact those in our supply chain, including suppliers, distributors, and manufacturers, which may impact our business, consolidated results of operations, and financial condition.
SEGMENT REVIEW
We reflect our results of operations in four reporting segments: Grocery & Snacks, Refrigerated & Frozen, International, and Foodservice.
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The Grocery & Snacks reporting segment principally includes branded,
shelf-stable food products sold in various retail channels in
Refrigerated & Frozen
The Refrigerated & Frozen reporting segment principally includes branded,
temperature-controlled food products sold in various retail channels in
International
The International reporting segment principally includes branded food products,
in various temperature states, sold in various retail and foodservice channels
outside of
Foodservice
The Foodservice reporting segment includes branded and customized food products,
including meals, entrees, sauces, and a variety of custom-manufactured culinary
products that are packaged for sale to restaurants and other foodservice
establishments primarily in
Presentation of Derivative Gains (Losses) from Economic Hedges of Forecasted Cash Flows in Segment Results
Derivatives used to manage commodity price risk and foreign currency risk are not designated for hedge accounting treatment. We believe these derivatives provide economic hedges of certain forecasted transactions. As such, these derivatives are recognized at fair market value with realized and unrealized gains and losses recognized in general corporate expenses. The gains and losses are subsequently recognized in the operating results of the reporting segments in the period in which the underlying transaction being economically hedged is included in earnings. In the event that management determines a particular derivative entered into as an economic hedge of a forecasted commodity purchase has ceased to function as an economic hedge, we cease recognizing further gains and losses on such derivatives in corporate expense and begin recognizing such gains and losses within segment operating results, immediately. See Note 15 "Business Segments and Related Information", to the Condensed Consolidated Financial Statements contained in this report for further discussion.
Net Sales Net Sales ($ in millions) Thirteen Weeks Ended Reporting Segment August 28, 2022 August 29, 2021 % Inc (Dec) Grocery & Snacks $ 1,188.3 $ 1,075.1 11 % Refrigerated & Frozen 1,207.6 1,101.8 10 % International 233.5 236.6 (1 )% Foodservice 274.9 239.8 15 % Total $ 2,904.3 $ 2,653.3 9 %
Net sales for the first quarter of fiscal 2023 in our Grocery & Snacks segment included a decrease in volumes of 6% compared to the prior-year period. The decrease in volumes was primarily due to the elasticity impact from inflation-driven pricing actions. Price/mix increased 17% for the first quarter of fiscal 2023 when compared to the prior-year period due to favorability in inflation-driven pricing and favorable brand mix.
Net sales for the first quarter of fiscal 2023 in our Refrigerated & Frozen segment reflected a decrease in volumes of 2% compared to the prior-year period primarily due to the elasticity impact from inflation-driven pricing actions. Price/mix increased by 12% for the first quarter of fiscal 2023 when compared to the prior-year period due to favorability in inflation-driven pricing.
Net sales for the first quarter of fiscal 2023 in our International segment reflected a 7% decrease in volumes, a 2% decrease due to unfavorable foreign exchange rates, and an 8% increase in price/mix, in each case compared to the prior-year period. The decrease in volumes was driven by the elasticity impact from inflation-driven pricing actions. The increase in price/mix was primarily due to favorability in inflation-driven pricing.
Net sales for the first quarter of fiscal 2023 in our Foodservice segment reflected a 4% decrease in volumes compared to the prior-year period. The decrease in volumes was driven by the elasticity impact from inflation-driven pricing actions. Price/mix increased by 19% in the first quarter of fiscal 2023 compared to the prior-year period, reflecting inflation-driven pricing.
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SG&A Expenses (includes general corporate expenses)
SG&A expenses totaled
Items impacting comparability of earnings
? charges totaling$385.7 million related to the goodwill and Birds Eye® brand impairments in connection with certain reporting unit changes within our Refrigerated & Frozen segment, ? charges totaling$26.7 million related to the impairment of businesses held for sale, and ? net charges of$4.7 million in connection with our restructuring plans.
Other changes in expenses compared to the first quarter of fiscal 2022
? an increase in share-based payment expense of$20.3 million primarily due to a decrease in our share price in the prior-year period and more significant award vesting in the current period, ? a decrease in deferred compensation expense of$3.9 million primarily due to market gains in the prior-year period, ? an increase in salary, wage, and fringe benefit expense of$2.7 million , ? an increase consulting and professional fees of$2.1 million , and ? an increase in travel and entertainment expense of$2.1 million .
SG&A expenses for the first quarter of fiscal 2022 included the following items impacting the comparability of earnings:
? expenses of$9.4 million in connection with our restructuring plans and ? expenses of$1.0 million associated with costs incurred for planned divestitures.
Segment Operating Profit (Loss) (Earnings (loss) before general corporate expenses, pension and postretirement non-service income, interest expense, net, income taxes, and equity method investment earnings)
Operating Profit (Loss) ($ in millions) Thirteen Weeks Ended Reporting Segment August 28, 2022 August 29, 2021 % Inc (Dec) Grocery & Snacks $ 250.4 $ 215.9 16 % Refrigerated & Frozen (216.3 ) 157.6 N/A International 26.9 34.1 (21 )% Foodservice 1.2 20.3 (94 )%
Operating profit in our Grocery & Snacks segment for the first quarter of fiscal
2023 reflected an increase in gross profits of
Operating loss in our Refrigerated & Frozen segment for the first quarter of
fiscal 2023 reflected an increase in gross profits of
Operating profit in our International segment for the first quarter of fiscal
2023 reflected a decrease in gross profits of
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Operating profit in our Foodservice segment for the first quarter of fiscal 2023
reflected an increase in gross profits of
Pension and Postretirement Non-service Income
In the first quarter of fiscal 2023, pension and postretirement non-service
income was
Interest Expense, Net
Net interest expense was
Income Taxes
In the first quarter of fiscal 2023 and 2022, we recognized income tax expense
of
Equity Method Investment Earnings
Equity method investment earnings were
Earnings (Loss) Per Share
Diluted loss per share in the first quarter of fiscal 2023 was
LIQUIDITY AND CAPITAL RESOURCES
Sources of Liquidity and Capital
The primary objective of our financing strategy is to maintain a prudent capital structure that provides us flexibility to pursue our growth objectives. We use a combination of equity and short- and long-term debt. We use short-term debt principally to finance ongoing operations, including our seasonal requirements for working capital (accounts receivable, prepaid expenses and other current assets, and inventories, less accounts payable, accrued payroll, and other accrued liabilities). We are committed to maintaining solid investment grade credit ratings.
Management believes that existing cash balances, cash flows from operations, existing credit facilities, our commercial paper program and access to capital markets will provide sufficient liquidity to meet our debt obligations, including any repayment of debt or refinancing of debt, working capital needs, planned capital expenditures, other contractual obligations, and payment of anticipated quarterly dividends for at least the next twelve months.
Borrowing Facilities and Long-Term Debt
At
As of
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During the first quarter of fiscal 2023, we entered into an unsecured term loan
agreement (the "Term Loan Agreement") with a financial institution. The Term
Loan Agreement provides for delayed draw term loans to the Company in an
aggregate principal amount of up to
For additional information about our long-term debt balances, refer to Note 4,
"Long-Term Debt and Revolving Credit Facility", to the Condensed Consolidated
Financial Statements contained in this report and Note 3, "Long-Term Debt", to
the Consolidated Financial Statements contained in the Company's Annual Report
on Form 10-K for the fiscal year ended
We expect to maintain or have access to sufficient liquidity to retire or refinance long-term debt at maturity or otherwise, from operating cash flows, our commercial paper program, access to the capital markets, and our Revolving Credit Facility. We continuously evaluate opportunities to refinance our debt; however, any refinancing is subject to market conditions and other factors, including financing options that may be available to us from time to time, and there can be no assurance that we will be able to successfully refinance any debt on commercially acceptable terms at all.
As of the end of the first quarter of fiscal 2023, our senior long-term debt ratings were all investment grade. A significant downgrade in our credit ratings would not affect our ability to borrow amounts under the Revolving Credit Facility, although borrowing costs would increase. A downgrade of our short-term credit ratings would impact our ability to borrow under our commercial paper program by negatively impacting borrowing costs and causing shorter durations, as well as making access to commercial paper more difficult, or impossible.
Our most restrictive debt agreement (the Revolving Credit Facility) generally
requires our ratio of earnings before interest, taxes, depreciation and
amortization ("EBITDA") to interest expense not be less than 3.0 to 1.0 and our
ratio of funded net debt to EBITDA not to exceed 4.75 to 1.0 through the third
quarter of fiscal 2023 and 4.5 to 1.0 for each quarter there-after. Each ratio
is to be calculated on a rolling four-quarter basis. As of
Equity and Dividends
We repurchase shares of our common stock from time to time after considering
market conditions and in accordance with repurchase limits authorized by our
Board. Under the share repurchase authorization, we may repurchase our shares
periodically over several years, depending on market conditions and other
factors, and may do so in open market purchases or privately negotiated
transactions. The share repurchase authorization has no expiration date. During
the first quarter of fiscal 2023, we repurchased 1.4 million shares of our
common stock under this authorization for an aggregate of
On
Contractual Obligations
As part of our ongoing operations, we enter into contractual arrangements that obligate us to make future cash payments. These obligations impact our liquidity and capital resource needs. In addition to principal and interest payments on our outstanding long-term debt and notes payable balances, discussed above, our contractual obligations primarily consist of lease payments, income taxes, pension and postretirement benefits, and unconditional purchase obligations.
As of
The liability for gross unrecognized tax benefits related to uncertain tax
positions was
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As of
As of
We expect to have sufficient cash flows from the above cited sources to meet the material cash requirements of these contractual obligations as they become settleable in the ordinary course of business.
Capital Expenditures
We continue to make investments in our business and operating facilities. Our
estimate of capital expenditures for fiscal 2023 is approximately
Supplier Arrangements
We offer certain suppliers access to a third-party service that allows them to
view our scheduled payments online. The third-party service also allows
suppliers to finance advances on our scheduled payments at the sole discretion
of the supplier and the third party. We have no economic interest in these
financing arrangements and no direct relationship with the suppliers, the third
party, or any financial institutions concerning this service. All balances
remain as obligations to our suppliers as stated in our supplier agreements and
are reflected in accounts payable within our Condensed Consolidated Balance
Sheets. The associated payments are included in net cash flows from operating
activities within our Condensed Consolidated Statements of Cash Flows. As of
The program commenced at about the same time that we began an initiative to negotiate extended payment terms with our suppliers. Although difficult to predict, we generally expect the incremental cash flow benefits associated with these extended payment terms to increase at a slower rate in the future. A number of factors may impact our future payment terms, including our relative creditworthiness, overall market liquidity, and changes in interest rates and other general economic conditions.
Cash Flows
During the first quarter of fiscal 2023, we used
Cash generated from operating activities totaled
Cash used in investing activities totaled
Cash used in financing activities totaled
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Cash Held by International Subsidiaries
The Company had cash and cash equivalents of
CRITICAL ACCOUNTING ESTIMATES
For further discussion of our critical accounting estimates, please refer to the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section in Part II, Item 7, of our Annual Report on Form 10-K for
the fiscal year ended
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