Chris Klinefelter - Vice President of Investor Relations Gary M. Rodkin - Chief Executive Officer, President, Executive Director and Member of Executive Committee John F. Gehring - Chief Financial Officer and Executive Vice President Paul T. Maass - President of Commercial-Foods Business André J. Hawaux - President of Consumer Foods

Jeff Kanter - UBS O’Connor Robert Cummins - Shields & Company Todd Duvick - Bank of America Corporation

Good morning, and welcome to today's ConAgra Foods First Quarter Earnings Conference Call. This program is being recorded. My name is Jessica Morgan, and I'll be your conference facilitator. [Operator Instructions] At this time, I would like introduce your host for today's program, Gary Rodkin, Chief Executive Officer of ConAgra Foods. Please go ahead, Mr. Rodkin. Gary M. Rodkin: Thank you. Good morning, and welcome to the call and thanks for joining us. I'm Gary Rodkin, and I'm here with John Gehring, our CFO; and Chris Klinefelter, VP of Investor Relations. This morning, we'll talk about the strategic operating and financial aspects of the quarter and then take your questions. 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, which include cautionary language. Also, we'll be discussing some non-GAAP financial measures during the call today and the reconciliations of those measures to the most directly comparable measures for Regulation G compliance can be found in either the earnings press release, Q&A or on our website under the Financial Reports and Filings link and then choosing Non-GAAP Reconciliations. Now I'll turn it back over to Gary. Gary M. Rodkin: Thanks, Chris. As you can see from the release, EPS from continuing operations was $0.20 as reported and $0.29 on a comparable basis. Last year's comparable amount was $0.34. As we communicated before, we plan for a year-over-year decline this quarter, principally due to the timing of pricing and inflation. Our full year guidance remains intact. We expect low- to mid-single-digit growth in EPS for fiscal 2012 and operating cash flows to exceed $1.2 billion. While we planned for a year-over-year EPS decline, our first quarter was slightly lower than we originally expected due to weak market dynamics in the Commercial segment. I'll start with some segment highlights. Our Consumer Foods segment grew net sales by 4% with flat volume. That means 4% price mix contribution which grew as the quarter progressed. As we said we would we took pricing during the quarter, but the environment continues to be very challenging. That means our 4% price mix increase plus our robust cost savings were not enough to overcome 11% COGS inflation. As you'd expect, it's typical for a lag to occur between price increases and inflation in our industry. Of course, that hurts margins in the short term. During Q1, we announced net price increases for a number of our brands. We now have increased net prices either through trade or list price increases on most of our portfolio. We feel good about that progress, but we need to do more. Overall, our volumes have held in line with our range of expectations at this point in the process and we're taking further price actions as increases to our input costs warrant. Clearly, this is our focus. In fact, because pricing is so important to our long-term growth, we've built a new function around it. We call this revenue growth management. This team will bring more rigor and timeliness to our pricing models. I'm pleased to say this team is in place and already making a difference. How? By enabling the application of a consistent pricing methodology and providing more robust analytics. For example, a better understanding of how price change will impact our customers' business as well as our own. We're approaching this with heightened rigor and precision and will drive pricing actions that makes sense for all stakeholders. I want to make it clear that even after we implement responsible and necessary price increases, our portfolio still represents outstanding value. In the U.S., spending for food and home as a percent of household income is at an all-time low since tracking began at 6%. We understand the current difficult conditions facing everyday consumers, our consumers, and those conditions impose practical limits on what we can and should do through pricing. We get that. The main point is that even after responsible pricing our products, including hundreds of meal SKUs for less than $3, are still a really strong value for consumers. So that's pricing; one important lever for top line growth. Innovation is another very critical growth driver for us. We are growing through innovation and we continue to benefit from the innovation pipeline we've created over the last several years. Orville Redenbacher's Pop Up Bowl is a great example of an innovation that's resonating with consumers. During the quarter, the brand made good progress with sales, volume and share gains. Our new Pop Up Bowl is bringing energy to the category and we're pleased to see that. You might have seen our advertising featuring magician Criss Angel. This marketing is a terrific showcase of a true breakthrough in microwave popcorn. Next up for Orville Redenbacher's is a campaign that helps consumers better understand the true benefits of popcorn as a snack. We want consumers to know more about popcorn's inherent nutrition, so this marketing is fun and people might learn a thing or 2 about popcorn. I'm betting you'll notice and like these ads when you see them later this fall. I'm looking forward to marketing helping us continue our positive momentum on Orville Redenbacher's. We're using innovation to grow in categories that are relatively new for us, too. During Q1, we introduced a new line of frozen single-serve microwavable fruit pies on the Marie Callender's label. Expanding our core business into adjacent categories that are growing helps us efficiently leverage our core infrastructure and drive more growth for key brands. The initial response has been very good. This innovation contributed to the strong performance of the Marie Callender's overall. Marie Callender's continued its winning streak making gains in revenue, volume and share. There's a few reasons for those gains. The new Marie Callender's Bakes are doing well in the multi-serve category. We had strong base performance across Marie Callender's dinners, pot pies and fresh-flavored steamers. And in fact, Marie Callender's single-serve meals accounted for the fastest growing brand in the overall frozen single-serve meal category during our first quarter, up 12% in dollar sales according to syndicated data. It's a great brand equity. Beyond Orville Redenbacher's and Marie Callender's, we had other bands posting good growth this quarter. Healthy Choice is one of those brands. We saw excellent revenue, volume and share growth for Healthy Choice frozen meals. We launched new advertising this month with a TV campaign that features, among others, Jane Lynch of Glee fame. But most importantly, these ads make food the star because they showcase the brand's premium ingredients. When consumers are trying to make wise decisions about their dollars and their nutrition, the food has to be truly top notch. We believe Healthy Choice is, and we think our new ads make that clear. Overall, we're pleased with the top line improvement in our brands portfolio. We're expecting more growth in both top and bottom line as the year progresses. For Q1, while Consumer Food sales were up 4%, comparable operating profit declined 1%. We had expected big cost inflation in our first quarter, and it was even higher than forecast at 11%. So despite increased price mix and very good cost savings, we did not grow profits. The 11% inflation offset those gains. John will say more about the specific inputs that created the biggest challenges. We're pleased with our ongoing productivity savings. Those came in at about $70 million for the quarter. We've consistently reduced costs within our supply chain, and we're continually looking for efficiencies end to end throughout the business. That helps us fight inflation, deliver our earnings commitments and invest to drive growth. I'm pleased to say that we're on track to achieve our goal of $275 million in savings this year. That's on top of the $1.4 billion in savings generated over the previous 5 years, savings that we use to fuel growth. Beyond cost savings, innovation and pricing, we know that there's significant upside in becoming an even better strategic partner for our customers. One way to do that is by engaging in more productive joint business planning. We're putting significant resources toward advance planning, wrapping it with our pricing and revenue management work into a holistic approach called Customer Connect. I'm looking forward to sharing more with you on Customer Connect as it develops more traction. Moving on to the Commercial Foods segment. Sales were up, but profits declined. That profit decline was driven by short-term weak market dynamics, which resulted in a decline in wheat inventory values during the quarter. The inventory valuation changes are the sole reason for the year-over-year operating profit decline. We have very strong milling operations, so none of this valuation adjustment reflects anything about the fundamentals over the full year time frame. Within Lamb Weston, which began its recovery last quarter, we continue to make progress. We saw good growth in unit volumes and dollar sales. We were also pleased to see growth in operating profit. We're excited about the prospects for Lamb Weston's performance this year, a big and important business for ConAgra Foods. In both Lamb Weston and ConAgra Mills, we're also seeing a more favorable product mix with increased emphasis on higher growth, higher margin products. These products include our whole grain portfolio and our sweet potatoes, both of which are performing well. Gaining traction in areas that are on trend and where we are a leader gives us confidence in this segment's ongoing success this year and beyond. Looking forward to the rest of the fiscal year, we expect our planned pricing increases, which are underway in both the Commercial and Consumer segments, to make a meaningful difference to results. In fact, we expect both segments to show stronger year-over-year operating profit growth in the second half of fiscal 2012. I want to mention that we learned a few weeks ago that ConAgra Foods has been named to the Dow Jones Sustainability Index North America for the first time. Our organization is very proud of this achievement. DJSI is one of the world's most recognizable sustainable indices. It's based on a rigorous analysis of corporate, economic, environmental and social performance. It tracks the performance of the top 20% of the 600 biggest North American companies in the Dow Jones Global Total Stock Market Index that lead the field in terms of sustainability. We achieved the food industry's leading scores in 4 areas: Corporate governance, environmental policy and management systems, human capital development and labor practice indicators. We're very pleased with the recognition of our work to be a leading corporate citizen. In conclusion, I trust all of you have seen the news on Ralcorp Holdings. Despite our strong offer, we were unable to make any progress in engaging them, so we withdrew our proposal. While that did not turn out the way we had hoped, I want to be very clear that we will pursue other avenues for growth. That's our strategy. We have a pipeline of alternatives that we've been assessing. Of course, any type of growth initiative along these lines takes some time, given the complicated nature of exploring and initiating significant strategic moves. But I assure you, we're very committed to the pursuit. As you saw with the Ralcorp experience, we are ready and willing to leverage our capabilities and balance sheet for the right growth opportunities. This is a core strategic element of creating long-term value for ConAgra Foods. We remain committed to growth organically and through smart acquisitions, and we're working diligently on both. Thanks for taking part in today's call. And now, I'll turn it over to John. John F. Gehring: Thank you, Gary, and good morning, everyone. I'm going to cover 4 topics this morning. I'll begin with our first quarter performance. Next, I'll address comparability matters, then on to cash flow, capital and balance sheet items. And finally, I'll share some comments on our outlook for the balance of fiscal 2012. Starting with our first quarter performance. For the quarter, we reported net sales of $3.1 billion, up 10%, driven by pricing in our Consumer Foods segment and in our Lamb Weston business as well as the impact of higher wheat prices in our flour milling operations. We reported fully diluted earnings per share from continuing operations of $0.20 versus $0.32 in the year-ago period. Adjusting for items impacting comparability, fully diluted earnings per share from continuing operations were $0.29 versus $0.34 in the prior-year quarter. While Gary has addressed our segment results in some detail, I would like to touch on a few highlights. First, in Consumer Foods, net sales were $1.9 billion, up 4% driven by pricing improvements. While our pricing is still lagging some very high inflation rates, we are seeing acceleration of our price realization over the past few quarters, which is encouraging. Inflation, unfortunately, has continued to accelerate even faster than our expectations. For the quarter, we experienced inflation for our Consumer Foods business of approximately 11%. And while cost increases were pervasive across the portfolio, proteins, packaging and fats and oils were the biggest contributors. Our consumer food supply chain cost reduction programs continue to yield good results and delivered cost savings of approximately $70 million in the quarter. We expect these programs to deliver approximately $275 million of cost savings for the full fiscal year, consistent with our previous estimate. On marketing, consumer foods advertising and promotion expense for the quarter was $76 million, down $11 million from the prior year. The decrease principally reflects timing differences versus the prior year. For the full year, we expect the A&P to be slightly above the prior year. For this quarter, foreign exchange had an immaterial impact on consumer foods net sales and operating profit. Overall operating profit on a comparable basis for the Consumer Foods segment decreased approximately 1% from the year-ago period. In our Commercial Foods segment, net sales were up -- net sales were $1.2 billion or up 19%. While the increase was driven largely by the impact of higher wheat prices in our flour milling operations, Lamb Weston's net sales were up 8% due to pricing and mix improvements, as well as stronger volumes. We're excited about the turnaround underway at Lamb Weston. Overall, segment operating income on a comparable basis was down 10%. The decline was due to lower gross profits in our Flour Milling business, driven by weak market dynamics. Let me explain. Every year during the first quarter, we convert from the old wheat crop to the new crop. When we do so, there is typically some difference in market value which results in some inventory mark-to-market adjustment, which is typically small. This year, however, the change in value and therefore the inventory adjustment was negative and much larger than usual. This is a short-term issue and it's behind us now. For the total company, selling, general and administrative expense was up slightly on a comparable basis. Corporate expenses for the quarter were $81 million on a comparable basis versus $74 million in the year-ago quarter. The increase relates principally to higher pension costs, which we had planned for. The tax rate for the quarter was 34%. This is in line with our estimated full fiscal year rate of 34%, but above the rate for the year-ago quarter of approximately 32%. Now I'll move onto my second topic, items impacting comparability. Overall, we have $0.09 per diluted share of expense in this year's -- and I'm sorry, in this quarter's EPS and is related to 2 items. First, hedging. For the first quarter, the net hedging loss included in corporate expense was $34 million or $0.05 per share. We also recorded $24 million or $0.04 per share of restructuring and other one-time charges related to our cost reduction and organizational efficiency initiatives. These charges relate to both our previously announced network optimization programs and organizational realignments, principally in our Consumer Foods segment, designed to improve organizational effectiveness and reduce costs. Next I'll cover cash flow, capital and balance sheet items for the quarter. First, we closed the quarter in a very strong cash position with over $1 billion of cash on hand and no outstanding commercial paper borrowings. We continue to emphasize cash flow within our business and for fiscal year 2012, we expect to deliver strong operating cash flows in excess of $1.2 billion. On working capital, we continue to make progress against our working capital initiatives and for the full year, we expect that working capital improvements in our base business will contribute to cash flow from continuing operations. On capital expenditures. For the quarter, we had capital expenditures of $96 million versus $129 million in the prior-year period. And for the full year, we expect CapEx to be approximately $475 million. Net interest expense was $53 million in the first quarter versus $37 million in the prior year. I would note that the prior-year quarter included approximately $18 million of interest income from the notes receivable related to the sale of our trading and merchandising operations. These notes were repaid in December of last year. Dividends for the quarter increased to $94 million from $88 million in the prior year. I'd also like to update you on 2 debt matters. First, we repaid approximately $340 million of debt maturities subsequent to the end of the first quarter. Also subsequent to the end of the first quarter, we refinanced our $1.5 billion revolving credit facility, which was set to mature in December. The new $1.5 billion facility has a term of 5 years and provides us with a great source of liquidity to support our business plans. On capital allocation, I have a few comments today. First, we remain committed to a top-tier dividend payout. Second, we remain focused on organic growth and profit enhancement investments, including new product introductions and capacity expansions, as well as investments necessary to support our strong cost-savings initiatives. And as you have heard us say consistently over the past several quarters, we continue to pursue growth through acquisitions. While the timing of acquisitions depends on a number of factors, not all of which we control, we will continue to pursue opportunities where there's a strategic fit and a good financial return. As we have demonstrated, we are ready and willing to leverage our capabilities and our balance sheet to create value by investing for growth, and we will do so with discipline. On share repurchases, while we did not repurchase any shares during the first quarter, we currently have about $125 million of remaining share repurchase authorization. We do recognize that at times, share repurchase programs are an attractive option for our shareholders. However, as I have previously noted, given our focus on growth, it is not our practice to add leverage or change our capital structure to fund buybacks. Before I close, I'd like to comment on our fiscal 2012 outlook. As Gary mentioned, we continue to expect fiscal 2012 diluted earnings per share, adjusted for items impacting comparability, to grow at a rate in the low- to mid-single-digits from our 2011 base of $1.75 per share. Our 2012 full year earnings estimate reflects net sales growth at a rate in the mid-single-digits, cost savings in our Consumer business of approximately $275 million and inflation in our Consumer Foods business in the range of 9% to 10%. This inflation estimate has been revised upward from 7% to 8%, reflecting the acceleration we experienced over the past several months. While we are confident about our full year guidance, given the higher inflation and some planned marketing investments, we do expect our second quarter earnings per share, excluding comparability items, to be lower than the prior year. Also, as I have previously noted, we expect comparable earnings per share growth to be skewed towards the back half of the fiscal year. This timing is driven by several factors. First, our flour milling profits declined in the first quarter due to the impact of the weak market dynamics I discussed previously. While this had a short-term negative impact on the first quarter results, it is not indicative of any change in the fundamental strength of this business. We have a great team that understands these markets very well and has a solid track record of managing commodity risk inherent in our milling operations. We are confident in our team's ability to deliver stronger results through the balance of the fiscal year. Second, in our Consumer Foods segment, we expect very high inflation during the first half, but we also expect that this inflation will moderate somewhat in the back half as we begin to lap very high inflation rates we experienced in the back half of last year. And while it will take some time to overcome the inflation and pricing lag in this business, the cumulative impact of our pricing actions will be more significant in the second half. And third, while Lamb Weston's performance in the first quarter improved, we expect that their earnings growth will accelerate over the balance of the fiscal year as both pricing actions and improvements in manufacturing costs will disproportionately benefit margins in the second half. As we look at the full year by segment, we expect the earnings for the full year in our Consumer Foods segment to be modestly higher, with back half earnings growth offsetting first half weakness. And in our Commercial Foods segment, we expect strong full year earnings growth, principally driven by significant year-over-year improvement in our Lamb Weston business and continued good execution in our Mills business. At the corporate level, we are planning for higher costs driven by higher incentive and pension costs. Overall, the environment remains challenging, but we will continue to focus on our pricing and our cost-savings initiatives as well as our other capabilities to position the business for long-term success. That concludes our formal remarks. Thank you for your interest in ConAgra Foods. Gary and I, along with André Hawaux and Paul Maass, will be happy to take your questions. I will now turn it back over to the operator for our Q&A session. Operator?

[Operator Instructions] And it looks like our first question today comes from Andrew Lazar with Barclays Capital.

Gary, you made some comments around the use of cash in your prepared remarks. I'm just wanting to push a little bit more, if I could. When you made the bid for Ralcorp, I think it's fair to say -- many investors view that as somewhat of a game changer for ConAgra in terms of how the company thought about how aggressive it would be going forward in using its balance sheet and cash flow for shareholders. And this has become even more evident in looking at the share price upon realization that the Ralcorp offer was going to be withdrawn. So I guess my question is, how aggressive can we expect ConAgra to be in using its balance sheet going forward? Is there a sense of urgency around a plan B? And why not use the cash in multiple ways in terms of buybacks which would still give you ample firepower to make acquisitions? It wouldn't seem that using some cash on hand for buybacks would really necessitate a need for, I guess, a change in the capital structure. And then how far down the road of this pipeline of potential targets is ConAgra at this stage? Gary M. Rodkin: Yes, Andrew, I think that's a fair question. Let me start, and then I'll turn it to John. You've certainly heard us consistently say that we're going to pursue growth both organically and through acquisitions. I want to tell you that our management and our Board of Directors are totally aligned on this. We are very confident that we can leverage our capabilities and our strong balance sheet to create value. We are totally committed to long-term sustainable growth, and that's both organically and through acquisitions. So that is a very, very clear strategy. John? John F. Gehring: Yes, I guess what I'd emphasize is that we do seek to have a balanced capital allocation program. Clearly, I think as we've made very clear, our priority is growth. And I think while we're disappointed the Ralcorp situation didn't work out the way we wanted to, I think it is indicative of our willingness to leverage our balance sheet to create value. Insofar as growth is the priority, that will be the first place we want to look to from a capital allocation standpoint. Clearly, we understand that share repurchases are a part of that mix and we will continue to look at the level of share repurchases over time. Our Board does look at that from time to time but again, I want to emphasize that our practice has been to push some of that cash from our operations back to shareholders in the form of share repurchases. But at this point, again as I said, we are really not going to add significant leverage or do significant change to our capital structure because we really want to keep that capital structure primarily focused on growth. Gary M. Rodkin: And Andrew, I just might add that we have a very robust and disciplined process to look at acquisitions. That is something very high on our radar screen that we have been working on, so we certainly do have a number of different initiatives that we are looking at. These things obviously take time, but I want to assure you that, that process is very much in place.

We'll move now to UBS' David Palmer.

This is actually Mineo filling in for Dave. I might have missed this in your prepared remarks, but it looks like corporate expense is at $81 million or a bit higher than last year and I was hoping that you could just walk me through that difference. John F. Gehring: Yes, this is John. Most of that difference is just driven by the increased pension costs in the year due to the higher discount rate that we experienced at the beginning of the year.

And we'll move now to David Driscoll with Citi Investment Research.

So just 2 questions. One, just about the guidance and then the second question on a little bit more about the M&A strategy going forward. On the guidance, Gary, are you -- would it be fair to say given that the first quarter, I think in your own words, came in a little bit below your expectations? Second quarter, it looks like you're guiding down slightly relative to where Street consensus is. Is it fair to say that we all should be leaning more towards the low end of the guidance range rather than the high end just given performance so far? Gary M. Rodkin: Clearly, David, we're not in a position to give exact guidance. We stick with what we've said before in terms of low- to mid-single digits EPS growth. And we have planned all along for it to be in the back half for several reasons, the biggest being the pricing which will be in effect for the full year versus the inflation which we will be overlapping more in the second half. So that delta is a big, big piece of that. And then in terms of expectation for Q1, it's all about the wheat issue. And as we've said that's a very isolated issue, it's not a structural issue, just first quarter doesn't impact the full year, so we expect to see both the Consumer side and the Commercial side lean toward the back half, strong business from mills, good turnaround happening at Lamb Weston and the pricing taking effect and catching up more to the cost of goods in the back half for Consumer.

On the M&A side, the Sara Lee private label dough operation was of course sold to Ralcorp during the period where you're trying to acquire them. You made a lot of comments about private label. I suppose -- I'm curious, did you look at that operation? Were you able to bid on that operation or because of your pursuit of Ralcorp, did that otherwise preclude you guys from going after that business? And then just a step back, maybe the bigger picture question is, are you really solely focused or heavily, heavily focused on private label as the source of M&A or does center store or frozen -- I'm just confused on how these other pieces kind of fit into your thinking. Gary M. Rodkin: Certainly, David. We can't comment on any hypotheticals in terms of M&A activity. What I would tell you is that we are still focused on private label as one of 3 planks. Our strategy for growth is focused against private label, it's focused on core adjacencies and it's focused on significantly increasing our international presence. So we're looking at all 3 of those pillars. That's really what we've got as a very explicit strategy for growth.

We'll take a question now from Bryan Spillane with Bank of America Merrill Lynch. Bryan D. Spillane: Just 2 questions. One, a follow up on the question you got earlier about corporate expense. Is that run rate pretty good for the year? Are we looking at sort of a low 300s to mid-300s type of corporate expense for the full year? John F. Gehring: Yes, Bryan, this is John. I think it's a pretty good proxy for the run rate for the year. I mean it moves up and down, but it's typically mid-to high 300s [indiscernible]. Bryan D. Spillane: And then Gary, I guess getting back to the strategic direction from here, I think it's -- you've provided yourself a lot of flexibility, right? By having the balance sheet in the shape that it's in and having, I think, a pretty realistic set of expectations in terms of what the market growth in your portfolio can achieve. I guess one of the things that was good about the -- or one of the positive aspects of your bid for Ralcorp was that it made so much sense. As you go through looking at your other 3 planks of potential acquisition candidates and you start thinking about risk reward and I guess how much you're willing to use your balance sheet, just how are you going to sort of gauge how much risk you're willing to take relative to the potential upside and I guess looking at that relative to using more cash to repurchase shares? I think that's probably one thing that investors are looking at this morning is the Ralcorp deal made a lot of sense on paper and strategically. With that off the table, is there anything else that seems that big, that transformative and that relative to the stock given where the share price is today? Gary M. Rodkin: Yes, Bryan, clearly we can't comment on anything hypothetical from an M&A standpoint. But what I can tell you is that we have a very disciplined process. It's a robust process. We use the lenses of strategic fit, how accretive it is and we are very committed to being disciplined. That's what we've aligned with our Board on, that's the process that we are going through. So we're committed to saying there this is clearly a strategic plank and we are very, very satisfied with the state of our balance sheet and we are very willing to use that balance sheet for those type of opportunities.

And Robert Cummins with Wellington Shields has our next question. Robert Cummins - Shields & Company: First of all, if I were a Ralcorp shareholder, I would be pretty teed off with the management of that company, but that's a sideline. I wanted to ask in general, and you're obviously interested in doing further acquisitions, would you consider doing a hostile takeover bid for some company that declined to negotiate with you but where you really thought that it was a perfect fit for your operations? Gary M. Rodkin: Bob, we never, again, would speculate. It all depends on the particular situation. So we never take any option off the table. It just has to make sense for us.

And we'll hear now from Jason English with Goldman Sachs.

I'd like to switch gears quickly and talk a little bit about fundamentals. Two questions, one on Consumer Foods and one on Commercial Foods. Volume was surprisingly resilient this quarter in the face of accelerating price growth. And surprising in that, it did fairly dramatically outpace what we see in Nielsen, which I know was never a perfect read, your business has actually been tracking a little bit under Nielsen over the last 3 quarters. Has there been any shift in terms of inventory levels at retail ahead of these price increases that may have accounted for that? Or is it just robust growth in some of the unmeasured channels? André J. Hawaux: Jason, this is André. I think we see good growth in both measured and non-measured channels and we did not see any sort of inventory builds within the quarter or the last several quarters. If anything, as we've talked about for probably the last 4 to 5 quarters, we see people working across the supply chains on reducing working capital across the businesses, so we've not seen any inventory buildup. I think our brands held up quite well in spite of a good pricing that we got in the marketplace.

Switching gears to Commercial Foods, the price growth was robust in the quarter, but it did fall short of what I was expecting. Just looking at the wheat cost curve, your price growth in that segment historically has tracked very well with the lag wheat price cost curve, and it did fall short this quarter and it obviously coincided with the profit shortfall in the division as well. Are there challenges pushing through some of the wheat inflation right now? Paul T. Maass: Yes, this is Paul. I would probably describe that more than likely -- I would say probably timing. So kind of just the contracting nature of the business. So if you're looking at -- I don't know exactly what you're looking at as far as how it's tracking, but the timing on when things are done could be a component on why that doesn't match up exactly. If you look at the overall driver, our volumes were relatively steady for the first quarter. So the big change in revenue is primarily driven by the change in wheat values.

But you do think that's going to catch up in the out quarters? Paul T. Maass: Yes, I think it will be less of an impact, a little bit like Gary was talking about inflation. So as you get to the back half of the year, the comps will be quite a bit different than what we had here in the first quarter.

This is Chris, I'm going to build on something Paul had mentioned, Jason, realize that revenue is always not just from one source. It reflects the relative mix of what it's coming through both from our Lamb Weston business, our other seasonings business and then of course the flour milling. And that's something to take into consideration when you're making a prediction.

We'll hear now from Eric Serotta with Wells Fargo Securities.

I'm wondering whether you could go into the -- or describe a little bit the financial metrics that you look at in terms of potential acquisitions in a little bit more detail. You mentioned EPS accretion, what are some of the other metrics and would something have to be immediately accretive? Are you looking at returns on capital? If you could describe that in some detail, that would be helpful. John F. Gehring: Yes, this is John. I think, I'd say 3 areas we'd probably look at, one would be -- we look at what we believe the growth would be in the underlying categories because that's ultimately one of our goals is to increase the growth in our portfolio, so we tend to look at the categories quite a bit. Accretion is important and return on investment are important. We do tend to take a little bit longer view of that. We are not necessarily going to make decisions based on what's accretive in the first year of the deal. We're looking for long-term strength, both in terms of accretion and return on investments. The other thing -- I guess, the other thing as it relates to the kind of the growth in the categories, the other thing we look at is the capabilities we have that we can leverage against that portfolio, whether that be cost savings or innovation. And those -- how we can operate those businesses in the categories also have a big impact on how we evaluate deals. Sometimes how those benefits come to fruition can vary over time based upon the nature of what we're buying.

And it's no secret that there is a good number of food companies out there that are breaking up or spinning off, breaking up into either higher and lower growth pieces. Wondering whether that's a consideration at all in terms of you guys improving your overall portfolio mix, spinning off some pieces of the business or divesting. John F. Gehring: Yes, Eric, at this point, I think as we've said, we're not going to speculate on kind of anything hypothetical that we might or might not do with our portfolio. I would say by and large, we're looking to add to our portfolio and to grow. And obviously there's a lot going on in the landscape out there. And as Gary mentioned, we continue to assess a number of opportunities and we will continue to do so as we really focus on growth.

We'll move now to Deutsche Bank's Eric Katzman. Eric R. Katzman: Just I guess one quick one, was there any deal costs that we could view as one time within the corporate expense line? John F. Gehring: This is John. There were some costs, but they were not significant enough where we go to the work of breaking those out as comparability items. But from time to time, we will have some of those costs come through. Eric R. Katzman: And then I guess when you -- just a broader question on M&A, Gary, when you think of strategy, is international a -- it's not historically been something associated with the company, but it's -- obviously, there's growth there. Is that something that you think the organization is capable of? And then I have one follow-up. Gary M. Rodkin: Yes, Eric, clearly that's on our radar screen. What we've talked about is leveraging the places where we already have pretty good infrastructure, places like in Mexico and India and Canada and building both within those countries and from an adjacency standpoint. And then on the commercial side, Lamb Weston clearly has a global footprint and we'll continue to look to grow that. So yes, it is on the radar screen and yes, we do believe we have capabilities not to go out and plant a lot of flags everywhere but to build out adjacently from where we are. Eric R. Katzman: And then just on -- I think this was Dave Driscoll's question, but just -- I guess I feel like I'm missing something in that inflation is worse than you thought, which is again pretty typical of what's going on in the industry. By your own numbers, you were trailing in the first quarter by, I guess it was the wheat profit, it doesn't sound like that's going to come back. The cost savings goals are the same. So what is giving you confidence that the earnings for the full year are still intact when inflation is materially higher than you thought? Gary M. Rodkin: Yes, Eric. Clearly, we're committed to course correcting and improving our lag time between the cost of goods and pricing. So there's clearly more pricing in our future than what we had in the plan when the year started.

And we have a question now from Chris Growe with Stifel, Nicolaus.

I just had 2 questions for you, and I hope this is the last question on acquisitions. My question would be, if you look at your long-term growth algorithm, are acquisitions sort of accretive to that growth or is there some embedded benefit in your long-term EPS growth other than from acquisitions?

Hey, Chris, this is Chris Klinefelter. Sure. When we put our long-term plans together, we obviously think of a benefit from capital allocation overall. In some situations, that might be a business we buy; in other situations, a share repurchase. So do we have some benefit from things like that? Absolutely, but not one dedicated just to by buying businesses by themselves.

My other question is just in relation to Consumer Foods, and I guess the question, Gary or André, do you expect volume growth in that division for the year? I guess I'm looking at a pretty weak consumer environment, but it sounds like you've got a good monitor productivity, some marketing coming up here that's going to tick up a little bit. Do you expect volumes to grow in that division for the year? André J. Hawaux: What we said -- Chris, this is André. What we said at the end of the year last year in the fourth quarter as we looked at inflation and what our pricing algorithm needed to be, that the lion's share of our net sales growth was actually going to come from a combination of pricing and mix. We're obviously very pleased with our first quarter performance on volume, it being flat. But as Gary mentioned, as we take more pricing, I think that the elasticity is something we're watching very closely. We do believe we'll get back some minimal amount of volume. We don't believe that will be very large. That's currently one of the things that we're working through right now. But the way we built most of the balance of the year is expecting net sales outperformance largely driven by pricing and mix. Gary M. Rodkin: Chris, I just might want to add that it's important. We're not shipping our spending mix to more price promotion to chase volume. As André said, there may be some modest volume trade off, and that's something we are willing to do.

And when you say marketing increases, you're referring more to advertising consumer LED marketing when you say marketing should be up through the remainder of the year. Correct? André J. Hawaux: That's absolutely correct, Chris. We see ourselves -- as Gary mentioned, some of the new campaigns that we've got out there launched and so we're investing behind our brands in A&P.

We have a question now from Ann Gurkin with Davenport. Ann H. Gurkin: In your comments, you all talked about pursuing additional pricing. And I was just wondering if you could comment on how it's going. Is there any pushback? Is it harder this round versus the last round kind of the environment for raising prices again? André J. Hawaux: Ann, this is André. I can speak to the consumer side. The environment is difficult as we've talked about in the past. We continue, based on some of the new capabilities we're building that Gary articulated earlier, through our revenue growth management team working with our customer teams and then with our customers to go ahead and continue to pursue that. It's as the commodities warranted and we've had -- as Q1 indicated, we got 4% pricing, which is very robust in this environment, our volumes held. We feel pretty good about that. Ann H. Gurkin: And then do you care to comment at all on inflation expectations for fiscal '13? John F. Gehring: No, this is John. At this point, I'm not willing to bet that much on my crystal ball. So we're going to have to -- let's see how things play out over some crop cycles here. Ann H. Gurkin: And then finally, as you look to the second half -- we've talked about this a little bit but what is the risk to that step-up in earnings? What will be the biggest challenge for you to not meet that improved performance in the second half versus first half? Gary M. Rodkin: Yes, I would say, Ann, that we've got to make the right call on our cost of goods inflation. We think we've got the best call, but that would be the biggest risk.

We'll move now to Credit Suisse's Robert Moskow.

Just a couple of questions for André. I remember you guys said that you had priced on 80% of the portfolio at the end of fourth quarter. I assume you're at 100% now, but now there's another round going through. So what percent of the portfolio are you going to take pricing on in the current quarter? And then lastly, just kind of a Nielsen kind of question, I was looking at Nielsen results for Orville and Chef. Nielsen indicated that Chef was up in the quarter and Orville was down. Your shipments show kind of a reverse pattern. Have you seen the same thing in your tracking data? Or is your tracking data showing you something different? André J. Hawaux: So let me start, Rob, with the answer to your question, that last part of your question, which is what we saw from a shipment data standpoint, so let's separate the 2, shipment data being what draws our P&L. We saw positive increases as we continue to see the turnaround of Orville start to happen. So we had positive shipments in the quarter for Orville and the reverse was true for Chef. As we look at consumption data, we also saw consumption data. We use IRI for the 13 weeks ended -- the end of the quarter. We saw both share gains with respect to Orville and our base velocities increase with respect to Orville as a result of the Pop Up Bowl and some of the marketing that Gary articulated. With respect to Chef, the category was up slightly. We were down a little bit relative to consumption in IRI and we lost a little bit of share with respect to Chef. Again, the Chef phenomenon continues to be what we said before was our heavy users are still buying the product, but they have significantly pantry deloaded from the typical amount of cans that they buy during our events. So that's what's happening there. With respect to your first part of your question, we have touched about our entire portfolio once, if you will, relative to pricing or taking a look at each of the categories in which we compete in. Some we have opted not to take pricing but we're still -- we're north of that 85%. I don't have an exact percentage to quote to you today relative to what is going on in our second round. We have a lot of categories that are already up for their second round of pricing in the area of oil, in the area of spreads and also things like peanut butter to give you just some examples. So we'll make sure we get back to you on what those exact percentages are, but we're in for already a second round.

We have a question now from Alexia Howard with Sanford Bernstein.

Can I ask about the competitive environment in some of your larger categories? It looked as though things might be improving a little bit on the frozen entrées side, but maybe if you could give a little bit more granularity on the competitive environment and how that's changing in places like oil as you take pricing off popcorn. Canned vegetables looked pretty difficult in the take away data. André J. Hawaux: All right, Alexia, this is André. I'll start and I'll touch on as you know we operate in a lot of categories, so I'm going to try to touch on some of the ones that you mentioned. Frozen meals, we actually feel very good about our performance there on a bunch of metrics as Gary mentioned, both the new innovation we're bringing to market plus what we've actually done in frozen single-serve meals this quarter. We've taken pricing as has most of the competitive set, so I think the industry overall has behaved pretty well there. We have in fact gained share and we've done a lot of the things we said we'd do. So we're winning in single-serve. We've started to get into multi-serve frozen in a meaningful way with Marie Callender and we've also started to work really hard at getting to adjacencies, specifically desserts with our Dessert Pie business, both on large pies and small pies. So on single-serve meals we've actually done, I'd say we hit a trifecta in terms of the things we're doing. Cooking oil is another category you mentioned and what we've done there, our sales in our branded competitive set, is we've taken pretty significant amount of pricing as a result of our commodity increases. What we're seeing there is we're losing a little bit of share, and that's largely because private label has gotten much more aggressive and has gotten stronger. So they picked up a fair amount of the share there. And on popcorn, based on the innovation and some of the work we've done on Orville Redenbacher's, we're seeing our share grow there, our base velocities increase based on the Pop Up Bowl innovation, and we're doing fairly well. And we have 2 brands there. We have Orville, which is -- really seems to have started to turn the corner and then we also have Act II, which is probably struggling a little bit more relative to its positioning. So those will be 3 categories that I would mention in terms of how we're performing.

We'll move now to Robert Dickerson with Consumer Edge Research.

Kind of a couple of quick questions is, I know -- let me clarify a few things. So there's obviously been a lot of talk today on M&A, it's been a lot of talk, really, since the end of the year on M&A for you, guys. And if I just look at companies like Hormel Foods or TreeHouse Foods or Flowers Foods, these are all companies that have fairly high equity multiple valuations. These are management teams that have really been aggressive in pursuing acquisition strategy and pursuing acquisition targets and actually really talking to investors about aggressively allocating capital. And I just -- I guess my first question, which I didn't really hear if anyone asked is one, why aren't you being more aggressive because the stock's down now 2% today. This is really the market saying to you that it's frustrated. There is no buyback activity. I guess that's one, is why aren't you being more aggressive? And then two is, I mean, do you think you received the right advise from your advisers because, I mean, it's -- normally, I would have expected a little bit more aggressive strategy with respect to just being in the market, a little bit buying back some stock always seems that out of other food companies this year, that's worked. And that also goes back to why -- if you could just clarify what you paid back the short-term debt subsequent to quarter end. Gary M. Rodkin: Rob, this is Gary, I'll start. First of all, I would probably take a little bit of issue with your question in terms of how aggressive we are on the M&A front. Obviously we're not going to talk and speculate, but we do have a robust and disciplined process, as I've talked about. I think we demonstrated that with Ralcorp. And the proof will be on the pudding as we go down the road. As it pertains to share buyback, I'll let John speak specifically to that. John F. Gehring: Yes. I guess I would just would start with some context and that is I think as we've tried to make clear here, we're trying to do the right things for the long term. And clearly, the recent events last couple of weeks create perhaps some impatience in various places, but we're going to do the right thing for the long term. On the share buyback, as I've said, we understand that's a component. I think you can probably also understand that given the events that were underway in the last quarter, it really just was not practical for us to be in the marketplace buying back shares when we had a significant deal that would've had a significant impact on our leverage in our balance sheet. It was just a case where we thought it was prudent to keep our hands in our pockets there around share buyback until we had some resolution there. In terms of paying back the debt that we just paid back, quite frankly, we've got a balanced view towards capital allocation. We had cash on hand and at this point, we just felt it was appropriate to repay that in cash. I think our actions over the past several months hopefully have indicated to people that we are not shying away from adding leverage where we have the opportunity to do it. But in the short term, we felt like the best thing to do was just go ahead and use some of that cash. I guess the other thing, just to confirm, we're very satisfied with the advice and counsel we've gotten on a number of fronts over the last couple of years.

And we have a question now from Bank of America's Todd Duvick. Todd Duvick - Bank of America Corporation: Both Gary and John, you have mentioned that your willingness to leverage the balance sheet and certainly, you're starting from a position of strength currently with the cash you have on hand and paying down the debt. Can you talk a little bit about how much you would be willing to leverage it? I know throughout the Ralcorp situation, you'd indicated a number of times that you wanted to maintain an investment grade rating. Can you just talk about how much you would be willing to leverage of the balance sheet within that context? Gary M. Rodkin: Todd, it may sound like I'm going to answer your question with your question, but I think you kind of hit on it which is I think it's the position of our Board and I think our management team that we do want to preserve an investment grade credit rating. But again to your point about starting from a position of strength, we think we have an awful lot of fuel in the tank that we can use to apply towards growth, so I don't see our commitment to an investment grade rating to be any kind of limitation of the kind -- versus the kinds of things we're looking at and are likely to be actionable in the near to midterm.

And we'll move now to Jeff Kanter with UBS O'Connor. Jeff Kanter - UBS O’Connor: I'm sorry, my questions have been answered.

We'll move on now to Jason English with Goldman Sachs. Gary M. Rodkin: We're having difficulty hearing you. And operator, I believe that's our last question. We're up on the hour here. So I'm going to mention that 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 discussion. And thank you very much for your interest in ConAgra Foods.

This concludes today's ConAgra Foods First Quarter Earnings Conference Call. Thank you again for attending, and have a good day.