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ConAgra Foods, Inc. (NYSE:CAG)

September 23, 2011 2:30 pm ET

Executives

Unknown Speaker -

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

Paul T. Maass - President of Commercial-Foods Business

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

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

Steven F. Goldstone

Good afternoon. Welcome to ConAgra Foods 2011 Annual Meeting. On behalf of our Board and our entire management team led by our CEO, Gary Rodkin, thanks for coming. And really, thank you for your commitment to ConAgra Foods. I now call our annual meeting to order. I'm Steve Goldstone, I'm Executive Chairman of ConAgra Foods' Board of Directors, and I'd like to begin by introducing the rest of our Board now. I'll ask them to stand as they are introduced. Mogens Bay, Steve Butler, Joie Gregor, Rajive Johri, Jerry Jurgensen, Rick Lenny, Ruth Ann Marshall, Andy Schindler, who unfortunately had an overseas commitment which prevents him from being here today, and Ken Stinson. Your CEO, Gary Rodkin, also serves on the Board, and he'll address you in a few minutes. In the mean time, I really want to thank all of our directors for their work during an especially challenging year marked by rising costs and a very challenging economic environment, so thank you very much.

Today's meeting will be brief. We'll focus on the business of the meeting first and then we'll have Gary provide a business update. Now it's time to hear from Colleen Batcheler, Executive Vice President, General Counsel and Corporate Secretary, who will convene the formal business portion of our meeting. Colleen?

Colleen R. Batcheler

Thanks, Steve, and good afternoon. During today's remarks, we will make 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. If you'd like to learn more about the risks and factors that could influence and affect our business, please refer to the documents that we file with the Securities and Exchange Commission, which include cautionary language.

This annual meeting is convened in accordance with the notice and proxy statement first mailed to shareholders on or about August 5, 2011, to stockholders of record as of July 29. Craig Dunlop [ph] of IBS Associates has been appointed our independent inspector of elections, and we've also intrusted 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 83% of ConAgra Foods' voting stock is represented at this meeting, this means that a quorum is present and the legal requirement 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. Now there's a few things I should mention before we move to the voting. First, as you entered the meeting today, you received an agenda and a meeting procedures summary. Please take a minute to review those procedures if you haven't already. Second, if you did not vote by proxy or if you choose to rescind your proxy and vote in person by ballot, this would be the time to go outside to the balloting table in the lobby and then you can hand in your proxy card there or obtain a ballot. 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 which was mailed to you indicated 4 items to be voted on and identified the Board's nominees for directors. There are no other proposals that will be presented for a vote at this meeting. No proposals or nominations from the floor will be heard. And finally, during this portion of the meeting, discussion will be limited only to the voting items. We'll hold the general Q&A session later, but at this time, we're just interested in dealing with the items to be voted on, and the discussion of other topics will be ruled out of order. Discussion is also limited to stockholders only. So let's go ahead and address the items to be voted on.

Number 1 is the election of our directors for one-year terms. The slate of candidates is listed here and was in your proxy materials. If you'd like to discuss this 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. Is there any discussion on this issue? Okay. Seeing none, item 2 is the ratification of the appointment of KPMG as the independent auditor for fiscal 2012. Is there any discussion on this item? Seeing none, we'll move to item 3, which is an advisory resolution approving the compensation of our named executive officers. Is there any discussion on this item? Seeing none, we'll move to item 4, which is an advisory recommendation on the frequency of future advisory vote on the compensation of our named executive officers. Is there any discussion on this issue? Seeing none, we'll move on with the meeting then.

We'll go ahead now and vote on the proposals. And those of you voting by ballot, please mark your ballots on items 1, 2, 3 and 4, and then raise your hand when completed and you've signed your ballot and we'll pick them up. If any proxies have been assigned to you or if you have a proxy card that you haven't yet returned, those should also be submitted now. This completes the items to 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 votes have been counted.

Now with that, we'll move on to a review of our business performance in fiscal 2011. And I'm very pleased to introduce your CEO, Gary Rodkin. Gary?

Gary M. Rodkin

Thank you. Thanks, Steve, and thank all of you for being here and for your commitment to ConAgra Foods. It's something we never take for granted, and it's something we keep in mind every day as we work to deliver sustainable, profitable long-term growth. Our fundamental purpose at ConAgra Foods is to deliver everyday food in extraordinary ways to our customers and to our consumers. So just what is everyday food? To start with, it tastes great. Not too fancy. It provides real value, and that means value beyond just price. For us, delivering everyday food means adding value to people's lives by finding new or improved ways to provide convenient meals and snacks. It means making sure that our food is available wherever people shop or eat, whether they're filling a grocery bag or scanning the menu at their favorite restaurant. Most of all, it means delivering the food you love and trust in extraordinary ways. Delivering value to customers and consumers is more important today than ever. As you know, from reading our annual report and following the market, fiscal 2011 was a tough year. And not just for us, everyone in our industry is searching for ways to cope with high cost inflation and changing consumer behavior. Despite this environment, we grew EPS, earnings per share, last year, and now we're aligning our resources to accelerate growth in what is continuing to be a very challenging marketplace. Many of the same dynamics from fiscal 2011 negatively impacted results for our fiscal 2012 first quarter, which we reported earlier this week. Uncertain economic prospects here in the U.S. and abroad have created a constantly changing marketplace that is pressuring us and our competitors to do things differently. Food consumption is flat here at home and input costs have risen dramatically, up approximately 11% in our Consumer Foods segment in the first quarter of fiscal 2012. At the same time, consumers are more price sensitive than ever before, and private label continues to increase its relevancy.

But I'm pleased to report that ConAgra Foods is well equipped to navigate its way through these challenges. Over the last several years, we've built a strong foundation and an integrated operating platform. We're focused on the fundamentals and our fundamentals are sound. Our fundamentals are basic elements of our operation. Core strengths like breakthrough innovation, bold marketing, focused and agile management, and ever improving supply chain, strong customer partnerships and widely recognized corporate citizenship. Of course, underlying and driving these core strengths are the more than 23,000 ConAgra Foods employees who are relentless in their efforts to make it happen everyday. Using these building blocks, we have continued to generate strong earnings and cash flow, $1.3 billion of cash flows from operations in fiscal 2011, and we ended the year with $972 million of cash on hand. Our balance sheet is healthy and our liquidity gives us the flexibility to invest our resources where they'll do the most good. That includes returning value to shareholders, doing that directly through our strong dividend and our regular cadence of share repurchases, and supporting long-term growth through investments in organic growth and smart acquisitions. I'll speak more about growth in a moment, but first I want to let you know, if you haven't already seen today's press release, that our Board of Directors has once again increased our dividend. To recognize our company's strong cash flow, the board increased the company's quarterly dividend from $0.23 to $0.24 per share, beginning with December 1, 2011, payment.

The annualized dividend will increase to $0.96 per share. In addition to underscoring our expectation that the company will continue to deliver strong operating cash flows, this increase also affirms our commitment to paying a top-tier dividend. In addition, as we told analysts in our earnings conference call earlier this week, we currently have $125 million of share repurchase authorization from our board. We continue to believe that a share repurchase program is an attractive option for returning value to shareholders. That said, we are very focused on delivering long-term sustainable growth for our stakeholders or all of us. I firmly believe that the fundamentals that I mentioned, innovation, supply chain, our customer partnerships, have enabled us to develop the resources, the speed and the adaptability that we need in this marketplace that many are calling the new normal. We have been ahead of the curve in understanding these changes that have taken place in consumer behavior, and have translated our insights to the products and strategies that are helping to reshape categories that make a difference for our customers. For example, in the U.S., the percent of household income that consumers are spending on the food they prepare and eat at home is at its lowest point since tracking began at just 6%. Consumers are demanding value and we are already there with more than 140 great tasting meals selling for $3 or less. Consumers also want better-for-you food that is as good for them as it tastes. And we're there too, with Healthy Choice frozen meals and entrées with our Hunt's and Ro*Tel tomato products, with Orville Redenbacher's SmartPop!, with Egg Beaters and more, and including a bold salt reduction initiative. That initiative which we announced in calendar 2009 will eliminate approximately 10 million pounds of salt from the American diet. What may be most remarkable about this assault on salt is that we're maintaining the quality and the taste of our products. Finally, consumers are insisting on the best possible quality at reasonable prices. And again, we're there. We've transformed our entire frozen meals platform, introducing steaming technologies that make frozen food taste fresher than it's ever tasted before and MicroRight tray technology that allows food to brown and crisp in the microwave and cook up to 80% faster than it would in a conventional oven. By telling our consumers all about it through innovative packaging and memorable marketing, we've generated revenue, volume and share growth in our Marie Callender's and Healthy Choice brands, which operate in highly competitive categories. But as good as we've been, we know our growth hasn't been good enough.

To get where we want to as a company, we need more than faster growth. So we took a long hard look at our businesses during fiscal 2011. We talked with our employees, our customers, suppliers, studied what our competitors were doing and consulted with outside experts to figure out how can we accelerate growth. All of this research confirmed a simple truth that where we compete can have an even greater impact on growth than how we compete. The key to accelerating growth will be making smart choices about where we compete. That will mean investing in fast-growing strategic adjacent categories to grow our core businesses as we did in fiscal 2010 when we launched Banquet Fruit Pies. In fiscal 2011, we acquired the Marie Callender's deserts business, and subsequently, we posted double-digit top line growth for that product line. So last month, we launched a line of 10-ounce microwavable frozen mini fruit pies under the Marie Callender's label. The pies are made across the river in Council Bluffs and used the same production lines as Marie Callender's pot pies, which helps us leverage our existing infrastructure.

We'll also be aligning our resources with growing markets in Asia and Latin America where it makes sense, because we've already established Consumer and Commercial Food businesses there. We know we have an opportunity to grow internationally and we'll do it in smart measured steps. For instance, we've used the tray-in-tray steaming technology that we developed here in Omaha to make real inroads in Frozen Foods in Canada with the introduction of Healthy Choice gourmet steamers and VH steamers. And in Mexico, we introduced an innovative new direct sales model that's helping us improve distribution and execution through traditional mom-and-pop stores, which sell 80% of the salty snacks in the country, snacks like Act II popcorn that consumers in Mexico purchase. Finally, we'll pursue growth in private label where we have a significant presence already, which brings me to Ralcorp. I trust that all of you have seen the news on Ralcorp Holdings. Despite our strong offer, their Board of Directors chose not to talk with us so we withdrew our proposal. While that did not turn out the way that we had hoped, I want to be very clear that we will pursue other avenues for growth, including private label. As we've said before, we remain committed to organic growth and growth through acquisitions, and there are plenty of opportunities as we look forward.

Our customers and consumers already look to us for innovation. For example, we knew that sweet potatoes are in a high-growth food category, and that we needed to capitalize on that trend. Servings of sweet potatoes sold in restaurants have increased by 135% over the past 4 years. Just a little over a year ago, we opened Lamb Weston's new state-of-the-art sweet potato processing facility in Delhi, Louisiana in the heart of prime sweet potato-growing region. It became the first frozen food manufacturing plant in the world to earn platinum certification from the U.S. Green Building Council. Finding new and better ways to do things, even practices as well-developed as french fry production, is at the heart of imagination.

Our ConAgra Mills team has found better ways of making whole grains relevant to consumers' lives by pioneering Ultragrain whole grain flour, and Sustagrain ultra high fiber barley. Most recently, ConAgra Mills set a new standard for flour safety and performance with its revolutionary new safeguard treatment and delivery system, a patent pending integrated treatment and distribution process that mitigates microbiological risks associated with raw flour. ConAgra Mills' grain base innovations and its ability to consistently perform at a high level will be key contributors to our future growth. Right now, food makers need a very specific kind of innovation to grow, and it has to do with how we think just as much as the products we make. We have to continue to work on the productivity side to drive costs down, and we need to take that fuel and reinvest it in innovation and marketing to recapture the hearts of consumers and grab some of that buzz back. We're certainly continuing to create that fuel. During fiscal 2011, we realized $280 million of cost savings in our Consumer Foods supply chain. Over the past 5 years, we've generated $1.4 billion of savings and we're not done yet. We're targeting $290 million of savings this year. What's important to remember is that we're treating these savings as fuel to reinvest, including marketing and innovation.

We know that we have to change the conversation with consumers by creating a little magic, creating excitement for our brands and introducing consumer-focused innovations that people can't resist. We're in 97% of America's households. We make the food people love, but we have to earn that love that everyday and constantly remind consumers why we are their best choice. And that's one of the reasons we're putting a new focus on the high quality and great taste of our food in our advertising campaigns. Take this commercial for Marie Callender's line of multi-serve meals, with a look and a feel that contemporize the brand. Our Time to Savor campaign draws from Marie Callender's deep roots, which emphasize the importance of slowing down to savor a great meal, a platform that presents a key point of difference in the Frozen Foods category today. Take a look.

[Video Presentation]

Highlighting the exceptional taste and quality of the food that we make helps differentiate our brands from both our branded and private label competitors. In this next spot for Orville Redenbacher's, notice how we focus on one of the key benefits of eating popcorn as a snack. It's 100% whole grain.

[Video Presentation]

With commercials like these, we're emphasizing the inherent value of our brands and reminding consumers why they love the food that we make. For the first time in its history, ConAgra Foods was added to the Dow Jones sustainability index, giving consumers one more reason to feel good about the food they love. The Dow Jones sustainability index is recognized around the world as a vigorous economic, environmental and social assessment of a company's sustainability efforts, with a strong focus on stockholder value. We're very proud to be listed and committed to continuing in a work that supports our good for you, good for the community, good for the planet corporate responsibility platform, which is what led to our appearance in the index. To sum up, we're focused on delivering a strong return on your investment in ConAgra Foods. We'll continue to balance capital allocation priorities with our relentless focus on executing our plan to deliver growth. I'm confident in our ability to not only navigate the tough macroeconomic environment, but also to deliver for all stakeholders including each of you. 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 voting. Colleen?

Colleen R. Batcheler

The inspector has given me a preliminary tally and all 4 items have been approved with the necessary vote. Stockholders have elected Mogens Bay, Steve Butler, Rajive Johri, Jerry Jurgensen, Steve Goldstone, Joie Gregor, 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 2012. Stockholders have approved the compensation of our named executive officers and have approved a proposal to vote once a year, on an annual basis, to approve the compensation of our named executive officers. The final tally of votes certified by the inspector of elections will be incorporated with the minutes of this meeting and made publicly available on a Form 8-K that we will file with the SEC in the next few days.

Steven F. Goldstone

Thank you, Colleen. And with that, I'll, as Chairman, officially adjourn the business portion of our meeting and turn it over to you, Gary, for any questions from stockholders or comments. And in that question-and-answer period, we'll follow the same microphone procedures we talked about earlier in the meeting.

Gary M. Rodkin

Thank you, Steve. And now, I will take your questions.

Question-and-Answer Session

Unknown Speaker

My name is Don Hutchins [ph], I'm a shareholder. I was looking at this proxy statement and it talks about stock ownership guidelines for the directors and senior leadership. And I don't know if the question would have been more appropriate earlier, but anyway it says that all nonemployee directors are expected to acquire and hold shares of the value of at least $425? I was curious if that stock had to be purchased with their earnings after tax dollars. Like all the stock that I own, I had to earn probably $1.30 for each dollar that I invested in ConAgra. And I just wondered if that's what they have to do or if they can just hold on to the grants that they're given. I see that they are given grants.

Gary M. Rodkin

Colleen?

Colleen R. Batcheler

So the board members -- the equity that board members receive as the component of their compensations does count toward their ownership guidelines.

Unknown Speaker

My name is Josh Balkam [ph] here representing the Humane Society of United States. We're the nation's largest animal protection organization of more than 12 million supporters. I'm here today to thank ConAgra for your great work to improve the lives of animals. As noted in your CSR report, ConAgra switched 1 million of its eggs to cage free, thereby bringing thousands of hens who are being confined in barren wire cages so small they can't spread their wings. I just wanted to thank a couple of your staff members in particular. Chris in corporate affairs is leading the effort, as we know, on CSR sustainability efforts, and he's been a wonderful partner in working on the cage free issue. I can't thank him enough. Also Russ and his team in procurement found a way to make it happen. We all know that part of the battle is trying to figure out how to spread cage free into the supply chain. Russ and his staff figured out a way, I want to thank his team, and overall, the executive team, the Board of Directors. And the shareholders should be very proud of the work that you did to improve the lives of animals. It's a pleasure to me to work on such an important issue with your team, and I'm looking forward to working with you guys for years to come. So thank you so much.

Gary M. Rodkin

And thank you. We appreciate the way that you have worked with us to achieve this. So thank you very much.

Unknown Speaker

My name is still Don Hutchins [ph], I have another question. After what I considered the very, very disappointing earnings report last Tuesday, I called up and looked at some of the news reports and Reuters had a little article and it said that ConAgra Foods reported lower than expected quarterly earnings on Tuesday. And then it says, hurt by higher costs for flour and said that commodity costs for the year rising more than previously expected. We make flour, don't we? Where did that come from? How does that...

Gary M. Rodkin

We do make flour, but we have to buy the wheat to make the flour. Paul, would you like to give a short explanation?

Paul T. Maass

Yes. Frankly, Don, I think it was a bad headline. I saw that same one and the impact wasn't high flour costs. So we did have some challenges in the Commercial Food segment, driven by weak market dynamics, but it was more the transition from expensive old crop to lower cost new crop and just the value of that inventory. The headline kind of inferred higher flour costs that you would say probably would be consumed in André's business. I just figure it was a misleading headline.

Unknown Speaker

I would think that higher cost for flour would be what we sold to customers, and that would bring in more revenue. I was confused by that.

Gary M. Rodkin

Yes. Again, I think the headline was really misleading versus our results.

Unknown Speaker

You saw that you say?

Gary M. Rodkin

I saw the result. Yes. I saw the headline. And when I saw it, it really didn't make sense.

Unknown Speaker

[Spanish] Mr. President, Mr. Chairman, Board of Directors, my fellow stockholders I'm here -- I flew in last night from Detroit, another great and old but great city. A little tired, it's gone through some rough times. And I just wanted to come today, as I've come in the years before, to thank you for what you are doing in our communities across this country for the working poor. It has changed significantly in the last several years, and I think that the idea that corporations like ConAgra still gives back to the community is extremely important to a consumer and a stockholder. And as an advocate for my community, I just want to make sure that you all know how much we appreciate it, because I think it's very important that the economics have changed significance as a city. I come from a very, very different city than I did 20 years ago where they're going back to if they can even make a car and sell it to the consumers, so we've come with unemployment, foreclosure and all the other things that happened, that ConAgra is still here, it needs to be commended because I think it's very important that as a consumer coming from the Hispanic community, I do use your products. I continue, I tried a couple of times going to the less known enchiladas and the arroz and see they don't come out as good. I want to make sure that I do know that I do see the commercials on the Latino programs and I do appreciate it. I represent National Fair [ph] here and we do know that you've had a great deal of importance giving back to the community. And I'm here to expand and embrace, whatever we need to do to make sure that your product is on our tables. [Spanish] A special thanks to Maria Valentin who's always out there representing you so well. And like all of you that represents this corporation, my extreme gratitude to all of you. [Spanish]

Gary M. Rodkin

[Spanish] We take our corporate citizenship very seriously.

Unknown Speaker

My name is Clint Russian [ph] and I'm a stockholder. I was hoping you could share with us this afternoon maybe the firm's strategy for international expansion. In particular, if you were to make a acquisition with more of an international bend to it, would it be in markets that you currently participate in or would it be adjacent markets, maybe perhaps in Europe or Asia?

Gary M. Rodkin

Our international strategy is to double the business in the next 5 years. The way we want to do that is to do it smartly and build out from the infrastructure that we have today, so places like Mexico or a joint venture that we've got in India, both within those markets and adjacent markets to those. So it's unlikely we would go to a market where we've got no presence whatsoever. It's more likely that we will try and build off of what we have today.

If there are no more questions, that will conclude our 2011 Annual Stockholders Meeting. And I want to thank you once again for joining us today. Thank you.

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