Good morning and welcome to today's ConAgra Foods fourth quarter earnings conference call. This program is being recorded. My name is [John Daniels] and I will be your conference facilitator. (Operator Instructions) At this time I'd like to introduce your host for today's program, Gray Rodkin, Chief Executive Officer of ConAgra Foods. Please go ahead, Mr. Rodkin.

Good morning. This is Gary Rodkin, and I'm here with Andrew Hawaux, our CFO, Rob Sharpe, who also recently added the title of President of our Food and Ingredients segment to his existing duties ad EVP of External Affairs, and Chris Klinefelter, VP of Investor Relations. I'm proud of our team for the improved execution evidenced this quarter. In just a minute you'll understand why as I go through the results. I'll also emphasize why we're confident about next year, and Andre will go into some important details on financial matters. But before we get started, Chris will say a few words about housekeeping matters.

Good morning. During today's remarks we will make some forward-looking statements, and while we're making those statements in good faith and are confident about our company's direction, we do not have any guarantee about the results that we will achieve, so if you'd like to learn more about the risks and factors that could influence and affect our business, I'll refer you to the documents we file with the SEC that include cautionary language. Also, we'll be discussing some non-GAAP financial measures during the call today and the reconciliations of those measures for Regulation G compliance can be found on our website at Investor.ConAgraFoods.com under the Financial Reports and Filings link and then choosing Non-GAAP Reconciliations. One important point I would like to make before I turn it back over to Gary. As you see in the release, our EPS for the fourth quarter is comprised of significant contributions from continuing operations as well as discontinued operations. During the quarter we reclassified our entire trading and merchandising operations and our Knott's Berry Farm brand into discontinued operations. Both of those items are now sold. For this quarter, we believe the appropriate comparison versus consensus is EPS excluding items impacting comparability from continuing operations and the discontinued operations combined. Our earlier guidance comments included contribution from operations reclassified into discontinued operations during the quarter. I'll offer that perspective so that no one is comparing fourth quarter consensus to just EPS from continuing operations. Going forward, we will focus on continuing operations only as our guidance has been developed that way, as Andre will say more about in a few minutes. Now I'll turn it back over to Gary.

Thanks, Chris. We just released sales growth of 15% and diluted EPS growth of 5% to deliver EPS of $0.41 for the fiscal fourth quarter. Excluding items impacting comparability as detailed in the release, EPS was $0.44. Putting aside the over delivery from the discontinued trading and merchandising operations, the underlying performance was driven by continued growth in Food and Ingredients and marked a solid turnaround in Consumer Foods compared to recent quarters. I'm pleased with this Consumer Foods performance, where profits showed good sequential improvement due to our pricing actions. We implemented pricing across 95% of the Consumer Foods portfolio, and this happened toward the end of March, about a third of the way through the quarter. That, of course, helped defray some of the intense input cost inflation we've been experiencing. Together with marketing driven success and demonstrated traction and innovation, this delivered improved trends. Consumer Foods sales were up 6% and operating profits flat as reported, and on a comparable basis, Consumer Foods sales were up 4% and operating profit down 5%. Although comparable Consumer Foods profits declined 5%, it's a big sequential improvement and it needs to be considered in light of the fact that pricing was only in place for two months of the quarter. That gives us confidence as we enter fiscal '09, when we'll have the full quarterly impact in our comparisons. Overall pricing contributed 5% growth to the Consumer Foods top line in this quarter while volume dropped 1%. We have early signs that most consumers will pay more for our products if they're supported by the right marketing and the right product quality and that our insights-driven rapid innovation process is working. What I can tell you is that we are now much more aligned organizationally on the need to match…

Thanks, Gary, and good morning, everyone. Gary has been very detailed in the opening remarks, so I will make on several points of emphasis for the quarter. I'll discuss capital items, and provide guidance on how you should look at fiscal year 2009. With respect to the quarter, we feel good delivering $0.44 of EPS excluding items impacting comparability. We accomplished a lot in the quarter, which we feel provides the building blocks for a very strong fiscal year 2009. Our accomplishments were: We completed the sale of the trading group. This will help us focus on Consumer and Food and Ingredients businesses with no distractions. The proceeds will be used to buy back shares and pay down debt. Our cash flows going forward will be much more predictable. It will not have those working capital spikes you saw in fiscal year 2008. Our Food and Ingredients business had another great quarter to close what was a wonderful year. In our Consumer business, we took significant pricing in the quarter and it showed. I know some of you watch our IRI shares very closely, and while we lost two-tenths of a share point in IRI-measured channels for the 12 weeks ending 5/25/2008, which is the end of our quarter, this was driven by our pricing and merchandising actions. Our pricing and merchandising actions were an absolute must in order to rebuild margin, invest in our brands, and fight inflation. It's important to note that we had double-digit sales gains in our non-measured channels. Our supply chain delivered another $60 million in cost savings in the quarter and approximately $240 million for the full year. And as Gary mentioned, we've taken the necessary steps in Consumer, International and at Corporate to right-size our organization in order to deliver SG&A savings in…

Yes. One housekeeping item before we turn it over to the Q&A part of today's call. Given the trading and merchandising transaction, we will have different segments by the time we report our first quarter of fiscal 2009, and of course we will provide comparable history for those segments so that you will have them for your model. At this time I'll turn this back over to the operator to moderate the Q&A.

(Operator Instructions) Your first question comes from Eric Serotta - Merrill Lynch.

First of all, in terms of the brand performance in the quarter, in the Q&A document you showed Banquet down in the quarter. Was that a function of price elasticity that you were seeing? I would think that given the value proposition of that brand, even if you're taking a large percentage price increase it would not be really material in terms of overall dollar price increases. Second, a question on the capital allocation. Andre, you mentioned uncertainty as to the timing of the share repurchase. Why wouldn't you, since you have the cash in hand, why wouldn't you do an accelerated share buyback, as you've done in the past, to get the immediate EPS accretion?

Well, let me go first on your second question there, Eric. We are going to use an accelerated share repurchase mechanism. We're working that through right now with our advisors. But as you know, with those mechanisms, what they'll be able to provide us with - 70% of the shares roughly is what they'll do on the day we strike that agreement, and then they have a period of time in which they then have to tender the rest of the shares and go out and get the rest of the shares in the market. So it's simply due to timing. We will execute that as quickly as possible, and then we will just monitor that over time with the folks that we're using. So we get a lion's share of those shares out early, but we don't go all the way to bright right away. There is a timing mechanism that has to take place.

Yeah, you're right on Banquet. This was a quarter while we were eliminating some inefficient trade spends, so we took some business that really wasn't profitable out. But on top of that we also have a couple of segments - basically our Crock Pots and our bulk poultry - that are soft. We're working on both of those - Crock Pots, working to replace that product, and poultry, we've changed strategy a bit and started to see that business stabilize. But the biggest piece is taking out inefficient trade spend.

Your next question comes from David Driscoll - Citi Investments.

I really think, Gary, the heart of the matter here is the Consumer Foods operations, so the fourth quarter profits were still down year-on-year even after adjusting for the restructuring charges. Margins were hit a little bit more right there. And I think what folks out there are going to be thinking today is that there's a sizeable contrast between the trends that we have seen in Consumer Foods versus what's embedded within the guidance. I have two questions here. Number one, kind of what's the underlying nature of your confidence here? And what I'm driving at is the differences between your expectations of pricing and your confidence in the cost structure of that operation? And Andre, if you might be able to give us a little detail on the pacing of profit improvement in the Consumer Foods, I think it would be very helpful for folks here to understand what we're looking for over the course of fiscal '09.

Yeah, David, I can tell you, first of all, this was our toughest quarter from an inflation standpoint. There's no question about it. And our pricing took place a third of the way through the quarter, so we didn't have the full impact on that. But the reason that we are confident in the algorithm is the fact that we've got a good amount of innovation, not just what we've talked about but a lot more coming. We'll have the full quarterly benefit of our pricing, plus what we also intend to do on a go forward basis as we have planned. We believe our brands are stronger, with more effective marketing now. We're very confident in our productivity, both from a supply chain standpoint as well as SG&A. Importantly, you will remember we talked last year about some operational inefficiencies in the first half of the year. Those have been fixed and will not be repeated. And we'll also have a full year of having peanut butter and some of our acquisitions - Alexia, Lincoln and Watts Brothers in our numbers.

And David, if I could just comment, I think Gary's articulated a lot of that but, again, I don't want to, at this point in time, provide you all with quarter-by-quarter guidance exactly where we're going to be in the Consumer business, but I think one of the big enablers that happens is our pricing and the lapping effect of our pricing year-on-year. But we're going to be, you know, the Q4 for us represented probably the highest dollar amount of inflation. We see that happening again in Q1 of fiscal year 2009. And then the spreads in other words, the pricing spread to inflation gets significantly better for us as we move out into the back half of the year. So that's probably one of the questions you have, given what we talked about in our release with respect to Q1. So I would expect our Q1 to be roughly where we talked about it and then the significant improvements starting to really move in the back half of the year, with respect to your question.

Your next question comes from Terry Bivens - J.P. Morgan.

I wanted to get at the sequencing of the pricing, particularly in light - as you guys are probably aware, General Mills announced looking forward about a 9% more in commodity input pressure next year. What I'm really trying to get at here is do you think your pricing that you have gotten in now is going to be enough or do you think it's possible you're going to have to go back and make similar pricing moves as we go through the year?

Terry, I would tell you that we will take pricing actions as needed. With input costs continuing to surge the way they are, there's basically no choice, and we have that built into our plan. We have a much more disciplined process, and net pricing is high on senior management's radar screen, including myself. So I think the answer is a resounding yes, that there's more pricing to come.

And just quickly on frozen, Gary, I was a little bit disappointed to see that wasn't any better there. Can you talk just a little bit about where your spreads are now with your competitors in the frozen case?

Yeah, we led in frozen. We were pretty aggressive, and that net pricing was a combination of taking some trade inefficiencies out as well as raising our list. And to oversimplify, Terry, if you take brands like Healthy Choice and Marie Callender's, we basically moved from a feature price of two for $4 to a feature price of two for $5. And in some cases in Q4, we frankly removed all the deals. So as we go forward and as we see as we speak that business trend is improving and will continue to improve, and most importantly, we've got a very strong agenda of innovation coming in frozen, the first of which is Asian Steamers, which will start appearing on the shelves very shortly. And we think that's going to be a big boost.

Your next question comes from Ann Gurkin - Davenport & Co. of Virginia, Inc. Ann Gurkin - Davenport & Co. of Virginia, Inc.: Just to follow a little bit along with pricing, Gary, you made the statement that you feel like you were more aligned with pricing versus the input costs and I guess just there's some discussion on this in the prior couple of questions, but have you built in additional pricing that you plan to take in the back half of the year?

We have built additional pricing in, and clearly that is coming when needed. So I'm not at liberty to tell you exactly when that is, but it clearly is in the plan and a bit sooner than you might think.

Your next question comes from Eric Katzman - Deutsche Bank Securities.

I guess my question has to do - or first question has to do with just how stuff that we hear from the field and kind of retailers and some competitors, Gary, since Consumers really kind of under your watch list, so, for example, peanut butter, you know, I understand that you were selling stuff at like $1 with heaving couponing, and it was so aggressive that you actually ran out of product because of supply issues on peanuts. And I'm just kind of wondering if that's - one, if that's true, and two, you know, how does that jive with, you know, controls over the organization and what's happening versus a culture that's traditionally been very, very promotional? And then second, to Andre, in terms of your repurchase activity, obviously you're taking a lot of cash from the sale and you're plowing it back into repo. I guess what assumptions are you making in terms of an outlook, meaning is it a - you're thinking longer term, that 8% to 9% - 8% to 10% earnings growth is sustainable and that's why buying back stock here is the right move?

Yeah, I'll answer that first question. Yes, absolutely, Eric. That's - we believe that is the right move for that.

And Eric, I'll tackle the peanut butter issue. That was a very deliberate strategy. As we said, we were going to come back into the marketplace and get trial, retrial. We drove a tremendous amount of penetration, and the price point was there specifically for that reason. We didn't cut product. We just were much, more successful in that. Our penetration of households, I believe we got to over 20 million households, if I'm not mistaken. That's over. That was short term. That's done, and we are back with pricing that's very in line with the category, much greater than that $1 price point. That's over. It accomplished what we wanted to, and that business is back on track where we expected it to be. So very deliberate, not a control issue.

Your next question comes from Robert Moskow - Credit Suisse.

A couple of questions. One, you did mention that you're watching very closely the threat of private label in categories like Pam or brands like Pam, Wesson and Egg Beaters. That sounds a little different from the tone I think you took last quarter, where you thought that you didn't really think of private label as a threat, so has anything changing there? Second, just broadly, you know, when I think about your situation, Gary, I think the companies that are performing well in a challenging inflationary environment and the challenging consumer environment, they seem to have put aside a lot of the distractions that you seem to be facing. I mean, asset sales, management turnover, SAP, a cultural change, big price increases. Also, you've changed the way that you're going after cost savings with a completely different cost-saving strategy than you had a year ago. Do you think that - when are you going to get past all these distractions, I guess, and maybe after that it'll be a little bit easier for you to execute in what I think is a very challenging environment?

That's a fair question. When I came into this job a little less than three years ago, I knew this was a major turnaround. This is a big battleship to turn around. We've done a tremendous amount of heavy lifting, had a few bumps in the road along the way. But I can tell you that that heavy lifting we see paying off this fiscal year. We believe we've got the organizational wiring in place. We've had a lot of success on our SAP implementations. We believe our brands are stronger. And yes, we have had some changeover in management, but we believe we now have the company in shape to feel very confident about being able to deliver our algorithm. Your first question was on private label, and frankly, we have changed our tune just a bit because of the intensity of the inflation continuing and not seeing private label move up as much as we thought they might. When I say that's high on our radar screen and that we intend to course correct, we will do what we need to to ensure that those businesses like Pam continue to remain strong. But, you know, we're rolling with the punches. This is a very difficult, intense environment and we believe that, you know, we have to call it like it is. So that's why we're going to stay nimble on our strategies.

And Rob, if I could just make one point of clarification with what Gary said as well, on SAP, we don't view that as a distraction. We actually view that as an enabler for our business. And on our cost savings reductions that we've had in the supply chain, this is an organization that this year delivered $240 million in cost saves and next year is going to deliver another $225. We don't consider those distractions. We do consider those enablers in our ability to fight inflation and continue to drive the top line.

Your next question comes from Chris Growe - Stifel Nicolaus.

I just had a few questions for you, quick ones. The first one is, for your guidance for 2009, Andre, does that include that little bit of discontinued operations you'll have in the first quarter?

No. The $1.56 to $1.59 does not include any discontinued operations, Chris.

And then two, a question, I guess, for Gary, on these priority investment brands, where the growth was a little slower than your overall sales growth in the quarter. And you cited some of the key brands that may have done a little worse than we expected, but would you call that just a really competitive environment? Were there private label increases there that maybe hurt you? And I guess my bigger question is do we need more marketing here to really kind of stimulate some of these key brands' sales growth?

Well, again, I think, you know, that was the quarter that we took very significant pricing and trade, made some changes in our trade program. So it wasn't dramatically different from what we had planned. Is it a competitive environment? It is, but we believe that we've got the right programs in place, that we have a lot of innovation, strong marketing and selling programs, as we look ahead into fiscal '09, and are confident that the priority brands will grow well, accordingly to plan in fiscal '09.

Your next question comes from [Tom Trucillo] - Banc of America Securities.

I appreciate the comment that you plan to pay down a significant amount of your commercial paper balance with transaction proceeds, but I was wondering if you could comment on whether or not your debt pay down will be significant enough to maintain the credit metrics that you had prior to the transaction? And if not, do you have a new target for your leverage going forward?

We believe, you know, we're paying off and have paid off a significant amount of the commercial paper that was required to support largely the trading and merchandising business, so we have done that. And we do believe going forward, Tom, that we will maintain the investment grade credit rating that we have today. I think I've captured most of your questions that you asked.

Your next question comes from Eric Serotta - Merrill Lynch.

In terms of the press release, you mentioned a benefit from 53rd week. Some other companies in the sector have been pretty explicit that they were going to be reinvesting that benefit in incremental marketing or productivity projects. Can you make any comments as to what the benefit from the 53rd week will be and whether you'll reinvest it? And then second, on another [topic], we haven't seen a - or I don't think the press release had a full year cash flow statement, and I guess even if it does, even when we see it it'll be - the underlying trends will be somewhat obscured by the big working capital swings from the trading and merchandising business, which will, I suppose, be on the cash flow statement be restated as in disc ops. But could you give us an idea as to what cash from operations was for fiscal '08 for continuing operations and how you see that growing going forward?

I'm going to start and then turn it over to Andre or Gary, as needed. On your first question, regarding the 53rd week, obviously we did take this into account in our planning, and the algorithm that you see takes that into consideration and yes, we will be reinvesting some. The thing I would caution you on is that not all weeks are pro rata, so it's not necessarily easy to take, you know, 1/52nd of your earnings and push that out. Different weeks have different earnings. But yes, we have taken that into consideration, and we are reinvesting some. As far as the cash from operations, I think Andre has got the detail here, but I think it's in the range of $300 million from continuing operations. The thing to keep in mind is that even on the cash flow there will be a differentiation between cash flow from continuing and cash flow from discontinued. Andre?

Yeah. So, well, Chris, you kind of answered the question. But yeah, there isn't a lot noise because there will be a little bit of this continuing operations cash flow and discontinued operations cash flow and the use of cash that we had in the trading and merchandising business. But again, the way to think about our cash flow going forward, Eric, is, as you know, we've provided guidance in terms of we're going to have strong healthy net income next year. You'll see us spend about - we talked about $475 million in Capex. We're going to have about $300 million, give or take, in terms of depreciation, so there's a slight spread there. And we also expect as we move forward as a much more focused company that we will actually see a small amount of benefit from us continuing to work hard at making our working capital better for us, so you can expect that as well as we go into next year.

Your next question comes from Andrew Lazar - Lehman Brothers.

Just three quick things. One, did you mention - and I'm sorry if you did and I missed it - what you're expecting in fiscal '09 for your percent increase in input cost pressure and how covered you might be around sort of key inputs for the year? Second, what was the change, I guess, in marketing in the quarter, and what are you sort of building into your plan for next year? Do you feel like marketing's got to go up - again, I guess, core consumer is the best way to think about it - at a rate in excess of sales growth or not? And then third and last, it's interesting, you know, a number of companies have now mentioned in this space that, you know, they've seen private label tick up a bit, but they've also seen branded tick up a bit at the same time, obviously benefiting from folks eating more at home. It doesn't seem like you've seen that same sort of trend. Yes, your portfolio's different than others, but maybe you can comment on that. Thank you.

Let me take a stab at that, if I remember. Let me go first, I think your first one was on what are the implications for input costs and what do we have for inflation in fiscal year 2009 in Consumer. Our numbers right now, what we're tracking, is 10% to 12%, so that was, I think, the first piece. The second piece is where were we for the quarter with respect to A&P. We were down versus a year ago in Consumer, but I'd just like to remind you in Q4 of last year, because of the outsized trading profits, we made significant investments, one-time investments, behind certain brands in the quarter itself. So the comparison year-on-year is a little difficult because Q4 of last year was fattened up, if you will, for lack of a better term, because of the fact that we had those outsize trading profits. We are targeting right now, as we talked about at CAGNY, approximately about 5% to 6% of our net sales in Consumer to be our A&P spending for next year. That translates to, when you look at where that money goes, which is priority brands, around 8% to 9%. And again, back to Gary's points on efficiency and effectiveness, it's really what we're striving for with respect to A&P. Now, I apologize. I don't know that I remember what your third question was.

I think you were asking about private label and branded goods, and we think the key is innovation. Clearly, you know, we think that we've planned conservatively for this coming year. In order to have high confidence in our algorithm, we've planned the volume a bit conservatively. But we do believe that we've got some underlying strength as people do move more toward eating at home, and, in the other side of our business, as people move down more toward quick-serve restaurants, we do believe that we've got both the value part of our portfolio in Consumer as well as the value add part, health and wellness oriented, particularly well set up to take advantage of this environment.

Your next question comes from David Driscoll - Citi Investments.

I just wanted to follow up on that 53rd week question. I just want to put it a different way. The other way these companies have been stating it is that by reinvesting the number, that 53rd week benefit, there's no then kind of growth slowdown in the subsequent year. Can you guys make that statement? And I'm just trying to isolate this effect. I'm not asking you for fiscal 2010 guidance. I'm just trying to isolate that 53rd week. Would it be a true statement to say there's no sort of negative hangover in fiscal 2010 because of the 53rd week, Andre?

I think that would be fair to say, that we don't see ourselves with any sort of hangover in fiscal 2010 because we had a 53rd week in fiscal 2009. I think that's a fair statement.

Yeah, David, we clearly will not plan like that. You know, to oversimplify, the 53rd week gives us even greater conviction in the algorithm that we have this year.

Your next question comes from Ann Gurkin - Davenport & Co. of Virginia, Inc. Ann Gurkin - Davenport & Co. of Virginia, Inc.: I just wanted to ask about what opportunities you see in traditional grocery stores to drive incremental sales of your products? It seems like there's an intense effort by some of your competitors to look for opportunities, particularly on the perimeter of the stores, to drive incremental sales of products. And I know this was an effort of yours over the past 12 months or so, but I was just curious if you had an update.

Besides the very robust innovation pipeline that we have, the other piece that I think we feel very, very good about is the leap forward that you're going to see us take on in-store execution. We now have an in-store center of excellence, fully staffed, up and running as of second half of last year, and the fruits of that labor are going to start to appear in store, so I'd say that's an area where we feel there are a point or two of growth to be had.

Your next question comes from Chris Growe - Stifel Nicolaus.

The Corporate expense is down significantly in the fourth quarter, and there was a bit of a comparison factor there. But, you know, when you talk about the cost savings in the quarter, the $60 million, were there some lower costs in Corporate expense on top of that as well? I'm just trying to get a feel for '09, how to model forward here.

The $60 million is a statistic related to the cost of goods sold within Consumer Foods, so that was outside of any commentary on Corporate. In terms of how we look at a normalized Corporate, you know, each quarter can have its variation. We still target something in the mid to high 300s range a year, so somewhere between $90 and $100 million a quarter, once again acknowledging that you can have some variability across them.

But I think I would echo your point, Chris. We had - the $60 million was inside Consumer. That's related to the work the supply chain team did. On the Corporate side, as Gary alluded to earlier, we are working hard on streamlining and looking at effectiveness and efficiency everywhere we turn, so we did have some very good cost savings in the quarter, in that space this quarter, and we expect to continue to work hard at getting those into fiscal year 2009 as well.

Your next question comes from Tom Trucillo - Banc of America Securities.

Just a follow up on the credit metrics and leverage, by my calculation it appears that even if you pay off all $600 million of your notes payable, I still have your leverage increasing by a half a turn. And in response to my first question you said that you were intent on maintaining an investment grade credit rating. Given my comments on the increase in leverage, does that mean that you don't necessarily see maintaining your mid triple B credit rating - or did your comment mean mid triple B or just investment grade, I guess?

Oh, I'm sorry. The ratings that we currently have. I apologize, Tom.

Okay. So given that and my statements on the leverage, does that mean - would you guys consider like a partial tender that you did a year ago?

We are in fact evaluating that as part of the whole cap structure discussion we had in terms of how do we allocate these proceeds. I do want to let people know, though, that we - while in our financial statements for the quarter we had about $600 million in commercial paper, as we roll into the new year, prior to closing the transaction, we had slightly more commercial paper that we did in fact pay off. So we actually used more of those proceeds as well to pay off more commercial paper that we incurred in the first quarter to support the trading and merchandising team. But, Tom, to your point, we will take a look at a tender. We're evaluating those things right now. There are some premium options that we have to pay for these things that really I question the present value and whether these are good economic things for us to do at this point in time.

This concludes our question-and-answer session. Mr. Klinefelter, I'll hand the conference back to you for final remarks and closing comments.

Thank you. Just as a reminder, this conference is being recorded and will be archived on the web as detailed in our news release. And as always, we are available for discussions. Thank you very much for your interest in ConAgra Foods.

This concludes today's ConAgra Foods fourth quarter earnings conference call. Thank you again for attending.