ConAgra Foods, Inc. - Shareholder/Analyst Call

| About: ConAgra Brands, (CAG)

ConAgra Foods, Inc. (NYSE:CAG)

September 27, 2013 9:30 am ET


Steven F. Goldstone - Non-Executive Chairman, Chairman of Executive Committee and Member of Human Resources Committee

Colleen R. Batcheler - Executive Vice President, General Counsel and Corporate Secretary

Gary M. Rodkin - Chief Executive Officer, President, Executive Director and Member of Executive Committee

Steven F. Goldstone

Good morning. Welcome to ConAgra Foods 2013 Annual Meeting. On behalf of the Board of Directors and the entire management team, led by your CEO, Gary Rodkin, I thank you for coming and your continuing commitment to ConAgra Foods.

I now call the meeting to order. I'm Steve Goldstone, non-executive Chairman of the Board of Directors. And I'd like to begin by introducing to you the rest of our board, and I'll ask them to stand as they're introduced: Mogens Bay, Steve Butler, Joie Gregor, Rajive Johri, Gerry Jurgensen, Rick Lenny, Ruth Ann Marshall, Andy Schindler and Ken Stinson. Your CEO, Gary Rodkin, is -- also serves on the board, and he'll address you in a few minutes. But in the meantime, I really want to thank all of our directors for their work in fiscal 2013. It was a transformational year for ConAgra, and we really appreciate the work that you've done.

Gary will speak to you in a few minutes about our fiscal 2013 business performance and the start of our fiscal '14. But first, in my role as Chairman of the Board, we'll just focus on the formal and business portion of the meeting, and then we'll get to Gary's report.

Colleen Batcheler, Executive Vice President and General Counsel and Corporate Secretary, will convene the formal portion of our meeting. Colleen?

Colleen R. Batcheler

Thank you, Steve, and good morning. The -- during today's remarks, we'll be making some forward-looking statements. And we're making those statements in good faith and are confident about our company's direction, but we do not have any guarantee about the results that we'll achieve. And if you'd like to learn more about the risks and factors that could influence and affect our business, please refer to the documents we file with the SEC, which include cautionary language.

This Annual Meeting is convened in accordance with the notice and proxy statement first distributed on August 12, 2013, to stockholders of record as of July 31, 2013. Creig Dunlop of IVS Associates has been appointed our Independent Inspector of Elections. We've also entrusted Mr. Dunlop with a certified list of all stockholders of record eligible to vote at this meeting.

Mr. Dunlop has informed me that at least 84% of ConAgra Foods voting stock of record as of July 31st is represented at this meeting in person or by proxy. This means that a quorum is present and the legal requirements to proceed with the meeting have been met.

To promote the efficient conduct of the meeting, the Chairman has waived the formalities of requesting motions and seconds from the audience and has declared the order of business as stated in the agenda to be accepted by those present in the meeting room. The poll for voting is open and will remain open until officially closed later in the meeting.

Steven F. Goldstone

Thank you, Colleen. There are a few things I should mention before we move to the voting. First, as you entered the meeting today, you received an agenda and meeting procedures summary. Please take a minute to review those procedures if you haven't already.

And second, if you did not vote by proxy or if you choose to rescind your proxy and vote in person by ballot, please go at this time to the balloting table in the lobby outside the meeting entrance on this floor. You can hand in your proxy card there or obtain a ballot.

And third, our bylaws set out the procedures that must be followed for a proposal to be properly presented for a vote at this meeting and for a director nomination to be made. The proxy statement indicated 4 items that may be voted on, including the board nominees for Directors. There are no other proposals that may be presented for a vote at this meeting. No proposals or nominations from the floor will be heard other than one stockholder proposal included in the proxy statement.

And finally, during this portion of the meeting, discussion will be limited only to the voting items, and discussion of other topics will be ruled out of order. Gary is going to host a general Q&A session after his update on the business performance. But at this time, we're just discussing the items that may be voted on and discussion is limited to stockholders only.

If you'd like to discuss a voting item, please come to one of the microphones in the aisles. The microphones are labeled A and B. And when I acknowledge your microphone, please provide us with your name and tell us if you are a stockholder, then please proceed with your question or comment.

Now let's address the items that may be voted on. Item 1 is the election of our Directors for 1-year terms. The slate of Directors is listed here and was in your proxy materials. Is there any discussion on this item?


Steven F. Goldstone

Seeing none, we'll move to Item 2. Is the ratification -- excuse me, we'll move to Item 2, which is the ratification of the appointment of KPMG as the independent auditor for fiscal 2014. Is there any discussion of this item?


Steven F. Goldstone

All right. Seeing none, we'll move to Item 3. It's an advisory vote to approve the compensation of our named executive officers. Is there any discussion on this item?


Steven F. Goldstone

Okay. Seeing none, we'll move to Item 4. It's a stockholder proposal regarding a bylaw change in regard to vote counting. Is Mr. Jim Horlacher of Investor Voice, the designated representative of the stockholder, here to present the proposal?

Jim Horlacher

Yes, I am.

Steven F. Goldstone

All right. Yes, go ahead, state your name for the record and then present the proposal. And you may also make a brief supporting statement if you want.

Jim Horlacher

Thank you, Chairman. My name is Jim Horlacher. I'm an accredited investment fiduciary and investment manager from Lenexa, Kansas. I stand today on behalf of Investor Voice based out of Seattle and clients around the country to present Proposal #4, which calls for ConAgra to embrace fair and accurate vote counting. I won't belabor the issue by reading the entire proposal, but it is formally presented here.

And I have a few comments, just a couple of minutes. It is a deplorable yet surprisingly unknown fact that in corporate America, shareholder votes are not all counted the same way. At ConAgra, when shareholders open their ballots, they're presented with a choice to vote for, against or abstain on an item.

This seems simple enough. However, it's a false choice because these 3 options are not treated the same throughout the proxy. It may come as a surprise to shareholders to learn that ConAgra uses 2 distinct vote counting formulas in its proxy, each of which tends to favor management to the detriment of company shareholders. To be clear, ConAgra is not required to have 2 different vote counting formulas, they choose to do so.

We're [ph] incorporated, in the New York State or the home of the New York Stock Exchange or some other states, ConAgra would be mandated to use a single, fair and consistent vote counting formula across the board, and this is the formula that this proposal requests.

Here's how it works now. On Proposal #1, the director election, a vote to abstained does not get counted, which boosts the percent tally on this company-sponsored proposal of maximizes the appearance of support from management's slate of directors.

In stark contrast on Proposal #4 or any shareholder-sponsored resolution, the opposite takes place. And abstained vote, instead of being ignored, does get counted. Essentially, ConAgra takes every abstained vote and changes it to be against. Doing this lowers the percent tally and depresses support for shareholder-sponsored items.

Most folks would call this stacking the deck, which in the game of cards, is considered cheating. It's no different when a company counts votes in ways that improve management's chances while harming our shareholders. This matters because these practices manipulate vote tallies and can disrupt the outcome. A number of times, at various companies, the disruption has been enough to take a majority vote when that rightfully earned over 50% of shareholder votes cast and allowed management to claim that it had failed.

ConAgra's policies do not respect voter choice. Why does the company offer shareholders a misleading choice that ignores voter intent on shareholder-sponsored items and effectively changes each abstained vote to instead favor management?

These manipulations are not becoming of a company that excels to the point of greatness in many other parts of its operations. Therefore, to put ConAgra on the right track of good corporate governance in regard to fair and accurate vote counting, please vote for Proposal #4. And remember, until our voices are heard and these policies are changed, any vote to abstain on this proposal will be arbitrarily switched by the company to count against shareholder votes. Thank you.

Steven F. Goldstone

Thank you, sir. I'll just note that ConAgra's voting standard is consistent with Delaware law and is clearly communicated in our proxy statement. It also applies identically for management and shareholder proposals, other than director elections, for which we apply a majority standard rather than a lower plurality standard. Accordingly, the board has recommended a vote against this proposal.

Again, thank you, sir. And if there are no further questions or comments, we will vote on the proposals presented. Those of you voting by ballot, please mark your ballot on Items 1, 2, 3 and 4. Then raise your hand when you've completed and signed your ballot and we'll come and collect them from you. If any of you have proxies that have been assigned to you or if you have a proxy card that you haven't yet returned, those also should be submitted at this time.

Now this completes the items that may be voted on. The poll for voting is now closed. We'll announce the preliminary result of the votes later in the meeting once all the votes have been counted.

Now with that, we'll move on to a review of our business performance in fiscal 2013 and the beginning of this fiscal year 2014. I'm very pleased to introduce you to you our CEO, Gary Rodkin.

Gary M. Rodkin

Thanks, Steve. Very happy to be here today. I'd like to start by thanking all of you for your investment in ConAgra Foods. I'd like to tell you about our strategy for growing this company and the returns on your investment. But first, I want to provide a brief recap of fiscal 2013 and the start of fiscal 2014.

Fiscal 2013 was certainly transformational for our business, and we positioned ourselves for long-term growth. Last Thursday, we announced our results from the first quarter of fiscal year '14. And while it's clear that we are facing significant competitive pressures, we're confident that we have the right plans in place to address these issues and that we will meet our revised targets as well as deliver double-digit earnings per share growth long term. We took significant steps in fiscal year '13 to drive that growth.

We completed the acquisition of Ralcorp and in doing so, become the largest private brand company in North America. We delivered double-digit comparable EPS growth. We also made significant progress toward our long-term debt reduction goal in 2013 and generated approximately $1.4 billion in cash flow from operations.

This performance enabled us to provide good returns for you, our shareholders, during fiscal '13, including through our strong dividend. As a reminder, last year, we raised our annual dividend rate to $1 per share and expect to maintain that rate for the next couple of years as we pay down a significant amount of debt associated with the Ralcorp deal. We're committed to paying a top-tier dividend. And just last night, your board approved this quarter's dividend at $0.25 per share.

Today, we're a bit more than a quarter into our fiscal 2014 and the marketplace is challenging. However, we're very focused on delivering against our recipe for growth, which is our comprehensive 5-year strategy introduced and shared with you in fiscal 2012. Our recipe for growth is our roadmap to achieving sustainable profitable growth through fiscal 2017. As a company, we're focused on both how we operate and where we compete. Our recipe for growth has given us a clear strategic focus.

I'd like to spend a few minutes talking to you about those areas of focus, first, growing our presence in private brands. With the acquisition of Ralcorp, we have increased our annualized net sales for private brand products fourfold, making us the largest private brand food company in North America.

We're energized by the progress that we've been making, integrating our capabilities with Ralcorp's. Our new larger-scale position makes us very, very -- excuse me, makes us very interested in driving product sourcing and supply-chain efficiencies with our, as I said, much larger scale. And we expect to achieve $300 million in annual cost savings by the end of fiscal 2017.

We see Private Brands has a substantial and sustainable growth opportunity. Private Brands growth has consistently outperformed that of branded food for the last 3 years. Currently, our private brands are #1 or #2 in the majority of product categories in which we compete. The breadth of our new product, new Private Brands portfolio and minimal overlap with our branded portfolio gives us a clear path to growth.

And our customers are excited about our capabilities that we bring to Private Brands, which have come a long way from the plain white labels we used to see. Customers are looking for differentiated product lines that leverage consumer insights, innovation and merchandising.

We're uniquely positioned to offer these capabilities, along with scale and supply-chain expertise to our key customers, taking the private brands business model from one that's very transactional to a strategic partnership. I personally have met with many of our top customers who are energized by our unique, branded and private branded portfolio, our scale and our functional expertise.

Leveraging our functional expertise is key to another strategic focus area, growing our core business. Growing our base businesses in the coming years will mean taking advantage of the strength of our portfolio, making selective enhancements to our portfolio and accelerating strategies related to innovation and marketing.

Investment in strategic adjacencies is a critical avenue for growth in our Consumer Foods business. We're pleased with the success of our frozen dessert pie business, where Marie Callender's continues to drive category growth. We've consistently gained share and grown sales over the last 3 years. Leveraging the success of our frozen pie business, we've introduced Bertolli branded desserts, which are just hitting the shelves now. Frozen dessert continues to be a significant growth area for us.

Based on consumer insights, we introduced a new reformulated PAM that leaves up to 99% less residue than another cooking sprays. PAM saw a 7% sales increase in fiscal '13 and drove 4% growth in the cooking spray category overall. You may have seen the advertising that highlights how scary cooking spray residue can be. So let's take a look.


Gary M. Rodkin

Our Commercial Foods business performed well in fiscal 2013, delivering a 16% increase in operating profits, driven entirely through organic growth. The business continues to focus on high potential, higher-margin products like sweet potatoes, proprietary whole grains and customized flavors and seasonings.

As many of you know, on March 5, we announced our intention to contribute our flour milling operations into a joint venture with Cargill and CHS called Ardent Mills. We expect the transaction to close in the fourth quarter of the calendar year, at which point, we will own 44% of Ardent Mills. We anticipate this transaction to be accretive to our earnings per share by the third year, and we expect to use the proceeds from the planned Ardent Mills transaction to accelerate and increase our targeted level of debt repayment through fiscal 2015.

Another key ingredient in our recipe for growth is the expansion of our international footprint. We've demonstrated our commitment to building our international business with last year's Del Monte Canada acquisition, our additional investment to take a majority stake in our affiliate in India and the organic international growth of our Lamb Weston business.

Our Lamb Weston brand has a strong presence internationally. Clearly, Lamb Weston sells to 2,500 customers in more than 100 countries. And in fiscal 2013, international sales reached $1 billion, including our joint ventures. Lamb Weston increased net sales internationally by 9% during fiscal '13.

Quick-serve restaurants are expecting 40% international growth by 2017. And we're looking to work very closely with key customers to develop new products to serve this growing consumer base.

Before I sum up my comments today, I want to highlight 2 other important aspects of our recipe for growth, our people and our citizenship. We believe that inspired and engaged people to make great food and deliver great results. We're committed to creating a culture of best-in-class safety, and I'm proud to share that 27 facilities had 0 recordable injuries in fiscal 2013.

We're also continuing our efforts to make wellness our priority. This past year, 40% of our employees participated out our wellness program with a 79% participation from salaried employees. This puts our engagement in wellness above almost benchmarks for a world-class participation, which is important, as employee healthcare continues to rise in costs.

We're proud of our achievements in the area of citizenship, and we've been named to the North America Dow Jones Sustainability Index as well as the Carbon Disclosure Leadership Index and The Civic 50. The Dow Jones index is recognized around the world as a vigorous economic, environmental and social assessment of a company's citizenship with a strong focus on stockholder value. We've very proud to be recognized for our work in corporate responsibility.

With that, I will conclude the business review. Thank you again for your continuing support. And I'll turn the meeting over to Colleen, who will let us know about the votes. Colleen?

Colleen R. Batcheler

Thanks, Gary. The inspector has given me a preliminary tally, and 3 items have been approved with the necessary votes. Stockholders have elected Mogens Bay, Steve Butler, Steve Goldstone, Joie Gregor, Rajive Johri, Gerry Jurgensen, Rick Lenny, Ruth Ann Marshall, Gary Rodkin, Andy Schindler and Ken Stinson as Directors of ConAgra Foods.

Stockholders have ratified the appointment of the independent auditors for fiscal 2014 and stockholders have approved the compensation of our named executive officers. The stockholder proposal regarding a bylaw change to vote counting did not receive the necessary votes to pass.

The final tally of votes certified by the Inspector of Elections will be incorporated with the minutes of this meeting and made publicly available with the Securities and Exchange Commission in -- within the next few days.

With that, I'll officially adjourn the business portion of our meeting and turn it over to Gary for your questions or comments. We'll follow the same microphone procedures as we did earlier in the meeting. Thanks.

Julian Martinez

Thank you. My name is Julian Martinez and I'm representing SER-Jobs for Progress National, Inc. SER is a national nonprofit 501(c)(3) corporation, serving the needs of Hispanic Americans. SER was organized in 1964 by the League of United Latin American Citizens and the American GI Forum to help Hispanics prepare for and find jobs. SER now operates charter schools, day care centers, one-stop centers, programs for the elderly, teaches financial literacy courses, English courses and we recently added an accredited online high school, as well as many other services to help individuals become productive members of our society.

SER is made up of 30 affiliate organizations across the country, operating in over 200 cities and serving more than 1.3 million individuals a year. We are recognized by the U.S. Department of Labor as a premier community-based organization, serving the employment needs of the Hispanic community. HispanicBusiness Magazine recognizes SER as one of the top 25 nonprofit Hispanic organizations in the nation.

Now at this point, I was going to ask for some help, but your capable and crack staff cornered me outside and the issues that I had is getting resolved, so I appreciate your kind and thoughtful remarks. And so we're going to be meeting later, and I just want to say thank you for that.

Just one last comment. According to the last census, the U.S. Hispanic population grew from 35.3 million to 50.5 million from 2000 to 2010, and accounted for over half of our nation's growth rate. One of 4 children are now Latino and the number of Hispanic-owned businesses grew by 44% from 2002 to 2007 compared to 15% for non-Hispanic firms. The combined Latino population of the U.S. is greater than the total population of Canada and larger than any Latin American country, except Mexico and Brazil, and would be the nation's 14th largest economy -- I'm sorry, the world's 14th largest economy.

Thank you for letting me present these remarks.

Gary M. Rodkin

Thank you for your kind words, and thank you for joining us today.

Don Hudgens

My name is Don Hudgens and I have been a shareholder for quite a while. I have a comment, not a question, and perhaps it should have been made during the previous portion. But in light of the fact that the dividends were reduced substantially a number of years ago, I think it was shortly after you took over, and in light of the fact that there have been some increases since, but we still haven't achieved the level it was before it was cut. And in light of the fact of the rather poor first quarter performance and in light of the fact that the dividends have not been increased this year and in light of the fact that guidance is reduced, I think it would be quite fitting if the executives' pay would be held constant until dividends are increased. Thank you.

Gary M. Rodkin

Thank you, Mr. Hudgens. If there are no other questions, we will call the meeting to a close. Thank you all for coming. We'll see you next year.

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