Good morning, and welcome to today's ConAgra Foods Fourth 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'd like to introduce your host from ConAgra Foods for today's program: Sean Connolly, Chief Executive Officer; John Gehring, Chief Financial Officer; and Chris Klinefelter, Vice President of Investor Relations. Mr. Klinefelter, please go ahead.

Good morning, and welcome to our fourth quarter call. During today's remarks, we'll 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 impact our expected results, perhaps materially, 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, our Q&A or on our website. Now I'll turn it over to John.

Thank you, Chris, and good morning, everyone. In my comments this morning, I will recap our fiscal fourth quarter performance, including comparability matters and address cash flow, capital and balance sheet items. I will also provide some brief comments regarding fiscal 2016. Let's start with our performance. Overall, the fiscal fourth quarter and full year results were in line with our revised expectations. For the full fiscal year, we reported a fully diluted loss per share from continuing operations of $1.46 versus earnings of $0.37 last year. Adjusting for items impacting comparability, fully diluted earnings per share were $2.18 versus our prior year comparable earnings base of $2.17. Turning to our fourth quarter results, we reported net sales of $4.1 billion, about 4% above the year-ago quarter, reflecting the benefit from the extra week. The extra week overall contributed approximately 7% to the fiscal fourth quarter net sales and volume for each operating segment. We reported diluted earnings per share from continuing operations of $0.47 versus a loss of $0.95 in the year-ago period. The sharp increase in reported EPS from the year-ago period was driven by significant noncash impairment charges recorded in the year-ago quarter. Adjusting for items impacting comparability, fully diluted earnings per share were $0.59, about 7% above comparable year-ago amounts. The EPS growth was largely driven by the approximate $0.04 per share contribution from the extra week, which benefited each of the segments. Now I'll share a few comments on our segment performance, starting with our Consumer Foods segment, where net sales were approximately $1.9 billion for the quarter, up about 4% from the year-ago period, reflecting a 5% volume increase, a 1% improvement in price/mix, a 1% negative impact from foreign exchange and some rounding. The extra week favorably impacted sales and volume by approximately 7% for the quarter. Our Consumer Foods segment operating profit, adjusted for items impacting comparability, was $319 million or up about 20% from the year-ago period, reflecting overall good execution on key initiatives to strengthen the business and position it for fiscal 2016. The increase in operating profit reflects the higher sales and gross margin expansion, partially offset by higher marketing and SG&A costs. Gross margin expanded over 200 basis points versus the year-ago quarter, and the increase was driven by pricing, mix improvement and cost savings. Foreign exchange had a negative impact of $24 million on net sales and about $14 million on operating profit for the segment this fiscal quarter. Our Consumer Foods supply chain cost-reduction programs continue to yield good results. This quarter, cost savings were approximately $75 million and largely offset inflation of about 3%. Inflation was driven by cost increases on certain inputs, particularly proteins. On marketing, Consumer Foods advertising and promotion expense for the quarter was $59 million, up about 13% from the prior year quarter. In our Commercial Foods segment, net sales were approximately $1.2 billion or up about 7% from the prior year quarter. Results were driven by an 8% volume increase, primarily reflecting the benefit of the 53rd week and good execution across all of the businesses in the segment. The Commercial Foods segment's operating profit was $154 million or 3% above the comparable operating profit in the year-ago period. The operating profit increase principally reflects the benefits from higher net sales, partially offset by lower gross margins at Lamb Weston due to higher manufacturing and distribution costs related to the West Coast port issue. Our Private Brands segment delivered net sales for the quarter of $1 billion, down about 1% from the prior year quarter, reflecting a 4% volume decline and slightly favorable price/mix. The extra week favorably impacted sales and volume by approximately 7% for the quarter. Operating profit excluding items impacting comparability was approximately $31 million, down 30% from the prior year quarter. This decline reflects the soft volume performance and margin compression driven by product mix, commodity inflation and lower overhead absorption. Sean will have more to say about our plans to divest this business in his comments. Moving on to corporate expenses. For the quarter, corporate expenses were approximately $62 million. Adjusting for items impacting comparability, corporate expenses were $65 million versus $59 million in the year-ago quarter. The increase versus last year's fourth quarter reflects higher incentive costs and the impact of the extra week. Equity method investment earnings were higher this quarter due to the addition of earnings from the Ardent Mills joint venture. On comparability matters, this quarter's reported EPS include approximately $0.12 per diluted share of net expense. As detailed in the release, these items include the following approximate amounts: $0.09 per diluted share of net expense related to the impairment of goodwill and other assets, principally in the Private Brands segment; $0.05 per diluted share of net expense resulting from restructuring and integration costs; $0.03 per diluted share of net benefit related to the mark-to-market impact of derivatives used to hedge input costs temporarily classified in unallocated corporate expense and $0.01 per diluted share of net expense related to mark-to-market adjustment of pension amounts. To be clear, we do not treat the contribution from the 53rd week of approximately $0.04 per share as a comparability item as it has been in our guidance all year. On cash flow, capital and balance sheet items, we ended the quarter with $183 million of cash on hand and no outstanding commercial paper borrowings. Operating cash flows for fiscal 2015 were approximately $1.47 billion, down modestly from our previous estimate due primarily to higher working capital balances. On capital expenditures for the quarter, we had capital expenditures of $154 million versus $117 million in the prior year quarter. And for the full fiscal year, CapEx was approximately $472 million, somewhat lower than our previous estimate. Net interest expense was $89 million in the fiscal fourth quarter versus $93 million in the year-ago quarter, and dividends for this fiscal quarter were $107 million versus $105 million in the year-ago quarter. On capital allocation, we are pleased that we were able to repay approximately $1.1 billion of debt this fiscal year and $2.1 billion since the Ralcorp acquisition, modestly exceeding our $2 billion goal. This quarter, we repurchased about $12 million of shares, and as we enter fiscal 2016, we remain committed to an investment-grade credit rating and a capital allocation strategy appropriately balanced between a top-tier dividend, share repurchases and additional growth investments. Now I'd like to provide a few comments on fiscal 2016. Given the uncertainty around the planned divestiture of the Private Brands business, particularly related to timing, structure, price, use of proceeds and stranded cost impacts as well as the need to finalize our investment plans for the rest of the business and evaluate the impact of our SG&A and other cost savings initiatives, we are not in a position today to provide comparable EPS guidance for fiscal 2016. At such time as we have more details regarding the planned divestiture, investment plans and cost savings programs, we will provide more details on our outlook. We currently expect that fiscal 2016 fiscal first quarter will not be significantly impacted by the aforementioned factors and the company expects EPS adjusted for items impacting comparability over the fiscal first quarter of 2016 to be roughly in line with comparable year-ago amounts. That concludes my remarks. I will now turn it over to Sean for an update on his analysis of the company, the work he's been leading and the exciting path forward for ConAgra Foods. Sean?

Thanks, John. Good morning, everybody. I am delighted to be here with you on my first call since joining ConAgra Foods. As you know, I've been in deep study on our business, our capabilities and our culture since I walked in the door on March 3. My detailed review of the company has largely confirmed the perspective that I had coming in, the crux of which was, if the company is prepared to move quickly and to take bold actions on a number of fronts, there is meaningful value to be created. Importantly, before I started, the board made it clear to me they fully understood the missteps that had occurred at ConAgra, and they assured me that I would have the latitude to make the moves that I felt were necessary to best drive value creation. They made it clear that they wanted me to bring change. They've given me their full support to pursue any path following appropriate due diligence that will create long-term sustainable value for our shareholders. I have approached this process objectively, and while the team and I have not completed our work, I am in a position today to share our overarching philosophy about value creation and some very substantive elements of our emerging base plan. I think you will see we are quite clear-eyed about the need for change. It all starts with our strongly held and overarching philosophy about value creation. That philosophy is simple, but it is also unwavering. We will always remain open to any actionable pathway that maximizes value for our shareholders. At the same time, we also know that improving the fundamentals of a business is management's job, so we must be aggressively mobilized against a base plan we have full confidence in. These notions are not at odds with one another, but rather, they reflect a pragmatic and flexible dedication to value creation. So you should expect us to continuously explore and evaluate alternative pathways thoroughly, analyzing how much value can they really create, how certain is the execution and how long will they take to come to fruition. If an alternative path emerges that is clearly superior to our base plan, we will alter course. Certainly, we acknowledge there is healthy debate in the market around the question of whether an alternative path should be pursued sooner or later or ever. The answer to that question obviously depends on how actionable and how valuable that alternative path turns out to be. That is precisely why this work needs to be ongoing and why it always requires careful analysis to ensure our shareholders get the best possible return on their investment. At the same time, as stewards of the business, our threshold point is a base plan that can materially improve our performance. This base plan is what we are sharing with you today: change is needed, and we have a responsibility to perform better in the marketplace. We know that the inconsistency of our past performance is totally unacceptable, and we need to raise our game such that when we make a long-term commitment, we deliver it. We are highly confident that we can implement the changes, operationally and culturally, that will enable just that. This will, of course, take time. It will also require a different approach, but that approach has delivered before. So with that as a foundational backdrop, let's move on to my observations on the business and the highlights of what our plan entails. While we've seen some bright spots over the past year like the strong profit and margin improvement within consumer brands and the continued strong performance of Lamb Weston, those bright spots have been overshadowed by inconsistency, volatility and disappointments in our operating performance, particularly from Private Brands. The management team knows where we've been. It's time to act to create a different future. Frankly, aspects of the situation are not all that different from when I joined Sara Lee and led the transformation into Hillshire Brands. There, we turned an aging and underperforming food company into a more energized, agile performer capable of creating significant value as a stand-alone company. Many of you know the story. At Hillshire, we reinvigorated iconic brands that had become stale and returned them to growth. We redefined what lean looks like, took out a lot of inefficiency and cost and instilled a culture of ownership behavior. We created flexibility by taking steps to ensure we had a strong balance sheet, then we modernized the portfolio through innovation and M&A. We acquired on-trend brands that complemented our capabilities, and we divested nonstrategic assets. And while we drove a double-digit EPS CAGR through our daily focus on improving the fundamentals, we never lost our openness to alternative pathways to maximizing value. I remind you of this story because here at ConAgra Foods, we have a similar philosophy and an equally clear vision of what our base plan looks like. In short, that plan has 4 pillars: one, divest our Private Brands business for greater focus; two, aggressively pursue SG&A reductions and productivity improvements to drive margin expansion; three, grow our Consumer Foods and Lamb Weston businesses through portfolio and capability improvements; and four, maintain a balanced capital allocation philosophy. The substance of our plan comes not only from the thorough analysis we've done and the feedback we've solicited from investors, but importantly, from the hands-on experience of having done it before. As you can imagine, I have been eager to discuss the details of the decisive action plans we are on the path to implementing, and I will touch on each of these base plan imperatives during my remarks today. As John pointed out, we're not yet in a position to provide forward-looking guidance on the financial outcomes of these plans. We will share that detail with you at an Investor Day later this year, after we have completed our work. The most important aspect of that will be having a more concrete view of the economics of a private brand divestiture. Before I jump in the specifics of our action plans for reinvigorating ConAgra Foods, I want to share a few thoughts on my assessment of the situation. I'll start by saying that I've been pleasantly surprised by the organic prospects of ConAgra Foods and believe we have reason to be optimistic. In fact, some good work was already underway when I arrived. For example, we've begun the SG&A reduction process, and we've started on portfolio segmentation in the branded consumer business. In addition, we've had terrific things going on in Lamb Weston. But overall, the status quo is simply not acceptable, and I am resolute in my belief that unlocking our potential requires major change. Change will encompass everything from portfolio mix and segmentation to more aggressive SG&A reduction, to acquiring new talent and capabilities, to compensation metrics and culture. And I am confident it can be done. This view comes after objectively evaluating our current portfolio to determine where we are best positioned to win going forward and where we are not. It reflects a careful assessment of our organization and systems and feedback from customers and investors. You can accurately conclude that the plans we will begin to share today have been arrived at after months of careful study and deliberation. Before I go any further, let me assure you I am clear-eyed around the challenges in our industry and within some of our categories. These are not new. But when I look at ConAgra Foods, I do see opportunities. Getting at these opportunities requires a clear plan and an aligned team. The board and management team are 100% aligned to drive this change agenda. I want to be very clear that the base plan is not an overnight fix. There are some things we will fully complete in fiscal '16, but others will be a multiyear effort, and we'll say more about that in due time. That said, let me preview some of the most critical elements of our plan for remaking ConAgra Foods into a focused, higher-margin, more contemporary and higher-performing company. As I mentioned earlier, the first step in our plan will be the divestiture of our Private Brands business. While we're taking the right steps to improve our execution and begin restoring this business to previous levels, we believe the better investment of our resources is on other priorities where our capabilities are more mature. This business has real potential and the Private Brands segment of the retail class of trade continues to grow, but we have come to the conclusion that this asset will be more valuable outside of ConAgra Foods. We did not come to this conclusion lightly. We have carefully evaluated our options for this business. This work culminated in a meeting on June 10 at which the board authorized us to develop and pursue a plan to divest this business. We believe there will be significant interest from potential buyers to support a transaction that is acceptable in terms of value and structure. We will continue our work to improve execution but believe the best outcome for value creation will be a successful divestiture. Our goal here is straightforward. We are driving toward a more focused corporate strategy, the realization of proceeds associated with a fair value sale for the benefit of shareholders and potentially, tax assets, the likes of which could enable additional tax-efficient portfolio shaping down the road. We believe that the divestiture of Private Brands will meaningfully accelerate our progress against our pursuit of change and value creation. While we won't be giving regular updates on the divestiture process, we will report out when we have something material to say. The second step in our plan is a margin expansion commitment stemming from a more aggressive approach to SG&A and continued progress in supply chain and trade productivity. On SG&A, we are well into mobilizing an intensive SG&A reduction effort that is aimed not only at offsetting stranded costs associated with the Private Brands divestiture but moving ConAgra into the top quartile of SG&A efficiency in our space over time. In fact, shortly after I arrived at the company, I enlisted some outstanding outside help to contribute to our aggressive push on SG&A. That push will be on 4 key levers across all our SG&A functions. Those 4 levers are: first, zero-basing, meaning aggressively challenging whether what we do today adds value to our business and customers; second, spans and layers, uncovering opportunities to flatten our organization to bring us closer to customers, speed up decision-making and eliminate hierarchy; third, outsourcing, meaning shifting some back-office work to third-party providers who can perform this work at a lower cost and in a more scalable manner and fourth, building a performance culture where we create stronger accountability and a meritocracy mindset. Our approach to this work will be relentless. Absolutely everything is on the table. And when I say we can achieve these things over time, that is because some of this work will require system and capability improvements that are not turnkey. Nevertheless, if we find inefficiency, we will get it out as fast as possible. We will keep you updated on this effort, but I can assure you we have been hard at work on this since the day I arrived because although ConAgra Foods was farther along on cost than I expected and SG&A is already below many large-cap peers, there is more we must do. We just closed fiscal '15 with SG&A in the range of 10% of net sales. That is better than some, but it is simply not good enough. Expect SG&A efficiency to be a never-ending quest at ConAgra. It will be cultural, where we just don't tolerate waste. Again, this work will take time to be fully realized, but we will get the job done. On supply chain productivity, we have an excellent history of delivering meaningful gross productivity improvements year after year. As you know, productivity improvements get harder to realize over time. That's why we looked to best practices from the outside -- from outside the company to drive maximum impact. For example, we have access to world-class intellectual property designed to assist us in improving the operating efficiency of our manufacturing facilities. We've recently expanded our access to that IP and see real potential for additional margin expansion through these capabilities. On trade, you know this is an area where all CPGs spend a lot of money, and you know it tends to be fairly inefficient. We have a lot of work to do here, but the opportunity is real, and we are on our way to eliminate waste and implementing the types of process improvements that will drive better returns. Now the third step of our plan is to grow our Consumer Foods and Lamb Weston businesses through portfolio and capability improvements. On our branded consumer business, I like our prospects, and I'll elaborate with more detail in a minute. But big picture, we have several #1 or #2 brands, and they are diversified across a number of large categories, many of which have distinct growth opportunities. We believe this is a better profile than when a company has too much of its sales and profit base concentrated in 1 or 2 categories that suffer from secular decline. The key, of course, is being highly effective at brand-building and innovation and then surgically applying those skills to the brands with the most top and bottom line potential. Given that, you should expect us to undertake an intensive segmentation approach to managing our brands in defining their role and performance expectations in the portfolio. This reflects the financial discipline and market-based realism we bring to managing a branded portfolio well. We will be declarative about the areas where we will invest more and the areas where we intend to manage for cash. As I noted earlier, this sharpened prioritization is already underway. In addition, when we invest, we have to get more leverage from our capabilities in consumer insights, brand-building and innovation. Expect heightened focus in these critical areas. And as I just mentioned, we will become more efficient in areas like trade on the back of improved analytics and better work processes. We also intend to actively work toward filling in portfolio gaps in critical areas like organic natural and premium gourmet. In fact, we believe ConAgra Foods would benefit from further acquisitions in the consumer branded space given our scale and emerging capabilities. But this point speaks to the need for us to maintain a strong balance sheet with ample firepower as we seek to balance returning capital to shareholders with investing back into the business and on strategic acquisitions. Paying down debt will continue to be a priority. Those of you who know me well understand I know this playbook well. I believe in it, and I'm confident we can execute against it over time. And frankly, we have a lot to work with. We are the #1 player in single-serve frozen meals and continue to gain share in this attractive segment of frozen foods. We have good momentum in iconic category-leading brands like Reddi-wip, PAM and Slim Jim. We have several strong scale brands like Marie Callender's and Hunt's that are ready for and responsive to advertising and promotion. And we have reliable contributors that generate strong cash flow and margins, consider Peter Pan, Manwich and Hebrew National. More broadly, we will attack our portfolio in new ways for ConAgra Foods. For example, there may be brands that, over time, could find better homes elsewhere. We will actively consider monetizing those assets to fuel other investments when appropriate. We have dynamic smaller brands like Alexia and Ro*Tel that need nurturing to scale their rapid growth profile. And finally, when it comes to innovation, our focus needs to be squarely on 3 on-trend areas: premium natural, ultra-convenience and alternate channels. While early days, our game plan around on-trend areas is already underway. We just added Blake's All-Natural to our portfolio. Although small, it rounds out our leading presence in pot pies with a brand equity that resonates with the natural and organic consumer. On our core business in fiscal year '16, we plan to increase our support on select brands that have clearly demonstrated the ability to profitably grow like Reddi-wip, Slim Jim, Marie Callender's and Hunt's. And finally, we are supporting major innovations to contemporize 2 of our larger brands, Banquet and Healthy Choice. On Banquet, we are taking action to meaningfully contemporize the brand. We've redesigned the product to improve quality, and we've added a higher-protein premium tier. We've improved packaging, and we're investing in A&P. On Healthy Choice, we previously built a winner with Café Steamers, and now we're taking it to the next level with a clean label, nothing artificial, 100% natural high-protein line called Simply. In total, I am confident that these kinds of efforts will be the keys that unlock our branded Consumer Foods segment's ability to further improve its margin profile over time. As you heard from John, the segment made good progress here already in Q4. Shifting to Lamb Weston, which is the largest part of our Commercial Foods segment, the story is quite simple. This is a great business with built-in international growth potential. In fact, we already have a substantial base internationally, and we're investing for more growth as we seek to capture a share of emerging markets comparable to our North America share, where we're already the leader in frozen potato products. The QSR industry is exploding internationally, with potatoes a critical part of the menu. Increasingly, these customers are carrying multiple cuts of fries in the same store. Further, with the breakfast daypart so strong here domestically, we continue to project solid results here on the home front. Lamb Weston also plays an important role in our retail business domestically, contributing to our scale in frozen retail overall. We have a great branded frozen potato business with well-known licensed brand names like Arby's and Red Robin, along with Alexia, the terrific natural brand I mentioned earlier. Alexia has been growing steadily and offers significant potential in branded frozen potatoes, frozen vegetables and beyond. As far as Lamb Weston's priorities this year, our plan is focused on sustainable growth levers. Here in North America, we will be restoring our foodservice operator marketing campaign after several years of 0 investment. While this is not a lot of money, it is a key part of staying relevant and top-of-mind with operators. On the international front, we will be investing in feet on the street in key international markets where we have a powerful opportunity to gain share with key customers. Overall, these kinds of investments are consistent with our commitment to surgically back those elements of our portfolio that offer outsized top and bottom line opportunities. And that brings me to the fourth aspect of our plan for remaking ConAgra Foods. Underpinning all of this will be our long-term commitment to having an investment-grade balance sheet and a balanced capital allocation strategy. On this latter point, we are fully committed to a top-tier dividend and, at the appropriate time, more significant share repurchases. Now before I open it up to questions, let me step back and summarize what I just told you. Our overarching philosophy on value creation is to always remain open to any pathway that maximizes value. We assess these regularly and are prepared to act as opportunities emerge. We also know that we need a base plan that we have absolute conviction can make ConAgra Foods a far better company than it's been. That plan seeks to simplify our portfolio, strengthen our focus through a divesture of Private Brands, and on the cost front, we will be relentless in enhancing productivity across SG&A, supply chain and trade spending. We will also place an intense focus on driving profitable growth in Consumer Foods and Lamb Weston. This will require further portfolio segmentation and investing behind the highest-potential categories in a disciplined manner. To support our plan, we expect to make investments in marketing, innovation and acquisitions. We also expect additional divestitures may occur down the road as we continue to refine our asset mix. And finally, we are committed to the balanced capital allocation strategy I just mentioned. Expect to hear from us later this year at an Investor Day, where we will provide financial and operating details about what I discussed today. With that, John and I will be happy to take your questions.

[Operator Instructions] And our first question today will come from Andrew Lazar with Barclays Capital.

Sean, 2 questions from me. First, just one on Private Brands. I guess up until maybe a quarter or 2 ago, the board seemed pretty resolute that the issues in Private Brands really were not structural, meaning not an issue of putting Private Brands and branded together and much more just executional in nature. So I'm trying to get a sense of, with you coming in with a fresh perspective on it, what led you to determine that that's no longer the case and that it really is something more structural with respect to this business. And then I've got a follow-up.

Yes. I don't know that I said I believe it's structural at all, Andrew. I think there is certainly upside from recent levels, and this business can be much stronger over time. The issue we face is a different one. We think it will take a lot more time and effort to get this business where it needs to be. And our view is that it should be done by somebody else instead of us so that we can focus on opportunities that pay off earlier by comparison.

Okay. And then when you think about some of the work that you're going to want to do and undertake in the core sort of Consumer Foods business going forward and the type of investments that you may want to sort of put into that, is it fair to say that, obviously, you'll be more aggressive on cost to try and cover some of this, but that you'll probably need more, whether it's on the marketing front, on the high-quality marketing side and just as we think even broadly forward, we should think about additional investment maybe first off to kind of see what you want to do? I'm talking more like the typical sort of re-base that comes with a new CEO with a new plan. Just trying to get a sense of how you feel about that.

Well, we're not going to provide guidance today in terms of what the full year looks like, but I don't think it's going to be new news to anybody that the company has historically under-invested in the brand side -- or the branded side of the portfolio. So we plan to invest more in marketing as the brands can handle it. And I think that's the key phrase, is they can handle it as they're, as we call it, A&P ready and as the margins allow. But the key is, and I think you know this from my previous philosophy on marketing spend, you have to bring an incredibly strong discipline here. You just don't go start spending money because you think it's going to work. You can only invest where you have full confidence that you can drive margin expansion and you can drive a good return on that investment. So when I think about increasing marketing spend, I think of it in terms of words like being surgical and extremely disciplined about where you can get a return. So the notion of dramatically jacking up spending levels for the sake of getting back on the horse does not make sense, and that's not the kind of play you will see us run. You will see us be more surgical and be more disciplined as we move forward to try to strengthen our branded portfolio.

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

I wanted to ask -- when the Ralcorp business was purchased, there was an expectation of something like $300 million in synergies. And when you contemplate the divestiture of this, the synergies have not actually been realized at this point, and so they kind of would be out there in the consensus forecast of ConAgra's earnings. So how do you guys think about this? When Private Brands is sold, what happens to that $300 million of expected savings? And let me just stop right there and maybe ask a follow-up after you respond.

Yes, David, this is John. Let me take a shot at that. The first thing I'd say is we have, in fact, been able to drive a lot of cost out. The problem is the other issues in the business and particularly, some of the pricing and margin, other margin pressures have created a situation where we clearly have not seen that come through. Some of the -- there have been some synergies that have actually manifest themselves in other parts of the business in terms of some of the leverage we got from some of buys. There's a little bit of that, that shows up in Consumer. But I think as we look forward, this is a matter of whatever we were expecting or anybody else is expecting out of Private Brands, I think, becomes somewhat irrelevant as we focus back on the Consumer and Commercial businesses. It's really about continuing to drive cost savings and margin expansion that we've seen, particularly in the Consumer business over the last quarter, to continue that trend. So in terms of a total company model, I'm not sure the synergy number from several years ago really lives on going forward.

Yes. I'm always worried that the synergies filter into different lines, not just the private label line, hence the importance of the question. Two quick follow-ups. What was Private Brands EBITDA in 2015? And is it fair to say that your target leverage going forward, post anything, would be something like around 2x? Would that satisfy your statement of wanting to be solidly investment grade if I were just to try to put a flag in the sand for a ballpark figure?

Well, first of all, on the EBITDA for Private Brands, I'd say on a normalized basis, it's probably in the mid-300s. I don't want to get to a point estimate in terms of debt-to-EBITDA. The broad range I'd use right now is we seek to be probably somewhere between 2 and 3x. Obviously, if we're at 3x, our capital allocation priority is probably a little bit shifted. And if we got to 2x, we'd probably say we have plenty of firepower to do more investment. So it's all going to be, I think, dependent upon where we are at the point in time and what opportunities are in front of us.

And Jonathan Feeney with Athlos Research has our next question.

John, you mentioned you did some intense study. I mean, could you give us a couple of examples of what you think -- what convinces you to take such a long time to fix the Private Brands business and a couple of examples of why you think that maybe you somewhat externally might be able to do that a little bit more quickly?

Well, Jonathan, it's a fair question, but I don't think my contemplation and my analysis was really just about Private Brands. I've been under the hood on every single piece of this company to try to understand where the opportunity is and how resource-intensive the work would be in order to accomplish what we see as the opportunity in those different parts. And our conclusion is that there is significant opportunity with this company to create value, but we need to be focused, and we need to have our resources squarely lined up against areas where our capabilities are more mature, where we can get the most impact on the fastest possible timetable. And ultimately, that led me and the board to make a decision that we need to focus. We need to prioritize, and we need to get squarely focused on driving the kind of aggressive change agenda that I just laid out for you in my comments a few minutes ago. So this is about making the tough calls and prioritizing around those actions that we believe can drive maximum return for our shareholders, and that includes an immediate divestiture of our Private Brands business, and that's why we're working that process.

Okay. Maybe I can ask a little different way. I guess why -- there are certainly different philosophies on this, but one might think that maybe a tactically better approach might have been to execute some sort of sale, divestiture before deciding on this plan. Could you maybe tell us a little bit about why the decision to sort of go public with this, a change in direction without having anything necessarily lined up at the moment?

Well, if we haven't gone public with it, you probably would have found out about it anyway one way or another, so we thought it would just be best for our shareholders to understand the big picture of our plan. I mean, what we're laying out for you today is clearly a different direction. I don't think there's any need to keep that a secret while we're working it behind the scenes. We've got a base plan that we have tremendous confidence in. We have an overarching philosophy around how to create value for our shareholders that we always keep running side by side our base plan. And we have full confidence there's upside in this Private Brands business, but we also believe that, that should be done by somebody else instead of us so that we can focus on these other opportunities that we need to get after with some urgency.

And we'll hear a question now from Ken Goldman with JPMorgan.

One question I wanted to follow up on, you were pretty open about saying, look, this is the plan, but if a better plan comes up that is more accretive to shareholder value, that you will certainly consider it. Would one of those possibilities be divesting Consumer Foods? And the reason I'm asking that specifically is if you divest Private Brands and then you divest Consumer Foods, there's not much left in Omaha, and there's political issues probably with the board and with a lot of other stakeholders in effectively leaving Omaha. So is it -- I guess my question, is it on the table that Consumer Foods could be divested as well?

Well, Ken, there are a lot of assumptions there in your question. I think I've been pretty clear and consistent in my comments today that our Board of Directors and our management team fully understand the importance of creating shareholder value. And I'm sure you understand from my remarks earlier that our philosophy is to always be proactive and open-minded in evaluating the different paths to creating value. But we've put forth the beginnings of a plan that we are convinced can drive a lot of value on its own. However, it becomes obvious that if some other tangible and actionable path is a better way to create value, our board and our management will adapt accordingly.

Okay. No, I appreciate that, and I realize I'm making many assumptions, but that's what I do on the sell side. Question 2 is you have a meeting or a set of meetings set up this week, I believe, with Jana. Can you talk a little bit about any relationship that you have with them so far, your expectations going in? Just any forward-looking thoughts as to what you're, I guess, anticipating from those meetings.

Sure, no problem. We have not yet spoken with the folks at Jana, but clearly, we welcome their feedback. As we would with any of our shareholders who are focused on long-term value creation, I think that is common ground that we have with Jana and with other investors. I can't offer anything specifically related to Jana other than to say we want a constructive engagement and we'll listen to their points of view. They're big shareholders. But we've not yet met with them, so we don't really have a lot more to share or disclose at this point.

And we'll move now to Jason English with Goldman Sachs.

I want to come back to Mr. Feeney's question on big studies that you've undertaken but attack it more from the cost side. Sean, as you pointed out, you looked at your SG&A. You benchmarked against peers, and it's already relatively low. The rhetoric on getting lean, getting mean isn't that far off from sort of the message that Gary's had over the years, that John, you've also carried forward. So my question is really, where is the opportunity as you shook out these studies? I heard some of the big buckets you laid out, but I was hoping you can get a little bit more specific on where you really see the opportunity to get leaner and meaner here at the SG&A line.

Well, the details of kind of what it looked like, first of all, I would frame it in terms of margin expansion, Jason, not just SG&A because I do think there is significant opportunity to improve the margins in this company across the board as we get after these things. Certainly, SG&A is a big bucket for us. Clearly, the company has made progress and felt good about kind of that progress when I got here, but my message the day I got in is it doesn't matter how much progress we've made. It's not good enough. We've got more to do. Part of that is exploring the 4 levers and pushing hard on them that I mentioned today. Part of it's cultural. It's just getting everybody who's part of our team to understand that any inefficiency and waste is just a tax on our brand and a tax on the profits that we return to shareholders. That is a mindset that we will drive. I've already been socializing that idea for months now, and people are getting it. They understand how critical it is to get this out. They want to attack all of the orthodoxes that have been held previously and really get after margin expansion. So SG&A will be a big part of it with things that I talked about, spans and layers, all the things you can imagine. Productivity should not be dismissed as well nor trade efficiency. These are all things that, over time, as we execute them, will contribute to what I think could be a meaningful improvement in our margin structure.

And we'll take a question now from RBC, David Palmer.

Sean, you mentioned that portfolio mix and segmentation is needed and it seems to me the trade promotion rationalization but also, perhaps, higher spending on certain brands and categories. In the past, it felt like ConAgra's brands have suffered when the company planned for trade promotion rationalization. The big setbacks often were highlighted as a key competitor punished the effort by grabbing in-store activities themselves. And even on the spending side, it's been equally frustrating at times would -- will ConAgra at a time, good ROI spending. So as we think about this and the segmentation, are there examples or reasons that can help us get our head around why using a more targeted approach can work for ConAgra?

Well, there is a lot to work with here, David. With the right portfolio refinement and the right investment, this is a good portfolio, post a modest growth and expand margins and redeploy capital. And we're going to be realistic around our industry and around our categories. The key is portfolio segmentation and having the right expectations by brand and by category so that we're matching investment with potential, establishing the right goals and delivering results. I mean, that is really the key. But I think the phrase that I used in my prepared remarks earlier was a different approach. Every company goes after brand-building. Every company goes after innovation, and every company goes after trade efficiency with mixed results, I might point out. I fully expect we're going to have better results, and that's going to come from a number of different areas, which includes different approaches. It's going to be potentially some new talent that we bring onto the team. This is a piece I understand very well, and our effectiveness has to improve meaningfully on the back of better work processes and much more rigorous analytics. But overall, anything to drive the branded portfolio has got to be done on a surgical basis with clear eyes. It's not going to be blanket, per Andrew's question earlier. That's just not going to happen. And on trade efficiency, I've been doing trade efficiency for a long time. We've got a team of people that are working it with kind of professional oversight, and we know exactly what we've got to do there. The key is you've got to have a strong set of brands. If all you have to fall back on is price, it's hard to get more efficient on trade. So you've got to have stronger brands, so you've got more to bring to the table for our customers as we change some things.

And we'll take a question now from Matt Grainger with Morgan Stanley.

So just first on Private Brands. I was hoping to get a sense of how you plan to manage the business from a sales capability standpoint while the strategic review is underway. You've been focused for a while on trying to improve execution and also win back the business you may have lost. Are those both still going to be near-term priorities? And do you think the profitability margins can improve sequentially during the strategic review process?

Well, these are definitely separate streams. The work we've done and the organization changes we've put in place to run this business better to execute more effectively, nothing is going to change there. We've got the right structure now calling on it. We have a clear understanding of how you run this business and what it takes. We are rebuilding relationships we've got with customers. So all of that is going to be intact as we run the sale process. However, the pace of profit recovery is clearly farther out and longer than we expected last year. So that is -- I would not expect any kind of rapid recovery from where we've been. We do expect the segment to be better in '16 versus '15, but that progress will happen sequentially as we move through the year given the changes we've put in place.

Our next question will come from Eric Katzman with Deutsche Bank.

So I have 2 questions, one on private label and then next on frozen. I guess is there -- with regard to the private label sale, is there a kind of minimum amount that the board is willing to accept? Because obviously, the business is impaired and it struggled, but it does have kind of $4 billion, roughly, of sales. So I guess is there a limit as to how much of a loss the company is willing to take? And then second, on I think, Sean, trying to kind of think through your career, and I don't recall if it ever involved like frozen food or specifically, frozen entrées, because it seems like that's been the one category since the Great Recession that's been in serious decline, and that's a very big part of the Consumer portfolio. And is there something that you see within those brands and within frozen entrées that -- where maybe that -- the category has bottomed or there's something technology that you see within the business today that makes you more comfortable that there can be a turn in what's a very important part of the Consumer segment?

Let me take those in order, Eric. On the first part of it, on Private Brands, as I mentioned earlier, we think there's going to be significant interest in these assets, and we think we will be able to divest these assets at a fair value that will be acceptable to shareholders and with the appropriate structure. And we also believe that we do need to get this behind us so that we can strengthen our focus on the base plan that you heard me lay out. So when you do a comparison of -- to make this move now or to make this move later, we are absolutely convinced that from a value creation standpoint, it is better to make this move now. With respect to the frozen question, yes, I have extensive experience in frozen. You may recall at Hillshire Brands, we had a great frozen business anchored by the great Jimmy Dean brand. And what I told my investors then is I reject the notion that frozen is a place where you can't grow and grow profitably. It's just not grounded in fact. When you look at consumer need states, absolutely, there are consumer need states where consumers want fresh and perishable items that they can enjoy with the whole family. But you probably know from your own lives that there are lots of consumer need states where you're eating alone. You don't have a lot of time. And it's in those consumer need states where frozen is the absolute perfect solution. The key is the food's got to be good. You got to have good quality food. You've got to have a proposition that consumers value. And I always use the Jimmy Dean example in my previous life. It's just when you got great food, the consumer has the need state already there, you're going to be successful. So that's why we have taken the actions we've taken on our business like on Healthy Choice, with Café Steamers, which is a clearly superior product than what we sold under the Healthy Choice name previously. And it's working. And now we're taking it to the next step with a clean label, 100% natural line. Similarly, in Banquet, that is a value tier brand where we recognized when you just look at it in the plain light of day, we needed to do a better job on food quality. And that's what we've done. We've improved that. And these are the kind of fundamental actions that you need to take to improve performance. So it's not a question of is the world going to frozen or is the world going to fresh. There clearly is room for both. Our idea is that we need to make frozen, fresh, and we need to bring fresh perspective into frozen, and that's how you drive profitable growth.

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

So Sean, I guess the first question I have maybe sounds a bit simplified, but I'd just like to hear your take from the onset is -- I know you're talking about reaching kind of the top-tier SG&A level, being very aggressive with cost-cutting, efficiency, et cetera. But what's your take, just by being there for a few months as you do your studies, just kind of why ConAgra kind of basically just has a lower gross margin profile relative to the industry? And I just ask because, I mean, quite frankly, as you even pointed out, I mean, SG&A as a percentage of sales really isn't that bad as we benchmark. But it's really -- could there be a much larger gross margin opportunity at ConAgra? And if so, is that something you'd be willing to invest behind?

Well, Robert, first of all, I think I've said a couple of times today, there is absolutely a gross margin opportunity at this company. One of -- there are a couple of reasons why our gross margin is where it is today, some of it is we have segments that are clearly at much lower gross margins that drag down the whole. Private Brands, obviously, is a different gross margin than Consumer. But if your comments are largely focused on Consumer, there's absolutely an opportunity to get gross margin going there. But what's interesting about your question is in my experience, the way you build strong brands with strong gross margins is you have to invest in them. You've got to keep them fresh. You've got to keep them relevant. You've got to keep them contemporary. And that's exactly why when investors see a company like ours that's committed to margin expansion, part of that recipe, I need them to understand, is making sure that we have strong and relevant brands because then we've got the ability to take price when we see inflation, then we've got the ability to invest in margin-accretive innovation. This is all part of a flywheel here that moves things in the right direction from a value creation standpoint. And part of it is capabilities. When I think about the over-reliance on trade and under-reliance on advertising in Consumer, that tends to manifest itself in branded portfolios and lower gross margins. That is stuff that we can make progress on, and we will do just that.

We'll take a question now from Akshay Jagdale with KeyBanc.

My question, Sean, is about -- you mentioned the portfolio being an advantage for Consumer Foods. The conclusion that I reached is somewhat the opposite because the playbook that you put forth today is -- it's not dissimilar to what Gary had put together in '07, being more efficient with trade price, spending more on brands, et cetera. But quite frankly, basically, 70% of your sales in Consumer are in grocery and frozen, which have had major challenges from an overall category perspective. So can you just talk about why you think grocery/center of the store, perhaps, is not a structurally declining category longer term? And then maybe talk about the tax implications because you did mention the sale of this private brand asset creating tax shelter that you can use down the road. I mean, is the reason why you don't take a more aggressive stance on portfolio pruning maybe on Consumer that -- is the reason for that being the tax issues or tax implications? Just help me understand the portfolio strategy on Consumer Foods.

All right. Akshay, let me just correct a couple of things that you said there because I don't think they're consistent with what I said before. First of all, we are going to be absolutely realistic about our industry and our categories. So there's no delusion in terms of where different parts of the store can go. Secondly, we are absolutely open to divesting elements of our portfolio down the road, and that's part of a rigorous portfolio segmentation analysis. I don't have any color, additional color to add on that right now, but those are key points. With respect to the branded portfolio and the way I see it, while we're very realistic about what these categories are doing, we also see pockets of real interesting growth within many of these categories. So I will pick a category that I didn't talk about today, nut butters. We have a Peter Pan peanut butter business, but there's very interesting and new stuff that is happening in a category like nut butters right now. I find that to be interesting because it tends to be margin-accretive stuff, and it tends to be very high-growth. Even if you pick a category where we are the market leader like pot pies, where you say, "How exciting is the pot pie category," I'd argue it's a very exciting category. We've got the market-leading brand with Marie Callender's. It's posting robust growth, and it's got good margins. However, we also recognize we were not reaching all the consumers who are participating in that category because some had kind of what I'll describe as a different value system around what kind of brands they appreciate. So we went out, and we made the acquisition of Blake's All-Natural, which is also a pot pie, where we've got tremendous leverage in terms of our ability to manufacture. But it appeals to a different kind of consumer with the natural and organic kind of mindset, and that is incremental to the business we are already own today. So what's different around the way we'll approach these growth opportunities is effectively everything. We're going to pursue different work processes. We're going to have new capabilities, and we've got a completely different approach to getting after these, all grounded in a clear-eyed realism around what's possible and strong analytics around kind of what we go after very surgically and where we invest.

We'll move now to Robert Moskow with Credit Suisse. We'll move now to Chris Growe with Stifel.

Just 2 questions, if I could, quickly. I guess a bit of a follow-on to Akshay's question and your response, Sean. What's the basis for divestures going forward? There's a place in the portfolio for growth businesses as well as cash flow brands. I'm just curious if there'll be something you're targeting, sort of categories that are off-trend, that kind of thing? And then secondarily, if I could ask about Lamb Weston. What's your expected growth profile for that brand -- for that business going forward, particularly with its international focus?

In reverse order, Chris, I will hold on the Lamb Weston question because we'll give more perspective on it and much more detail on that business and the growth prospects when we do our Investor Day. On the question regarding potential divestiture candidates, I really think it just comes down to basic principles. We don't have anything to announce. We don't have anything imminent, I think you were asking within the branded portfolio. But ultimately, you ask yourself things like is it a strategic fit, is it running on -- is it an autopilot business that is doing no harm but contributing cash flow, or is it a chronic leaky bucket and one that you just can't justify putting resources on. If we have those kinds of businesses, clearly, it makes more sense to put them under somebody else's ownership because they'll value it more than we will. Our whole theme today and what you heard around this new direction is focused and disciplined segmentation. And that means saying yes to some things and saying no to other things as opposed to trying to make everything happen across the entire portfolio. So it'll be very logical and common sense should we pursue a divestiture down the road, but it will also be very principle-based in why we're doing it.

And we'll go again to Robert Moskow with Credit Suisse.

Sean, you've spoken very positively about frozen and, I guess, the scale and the opportunities for innovation. Can I conclude that this is an area where, in a portfolio segmentation, you will want to [indiscernible]? And also, I guess I'd like to ask, there are bidders out there that would pay high multiples for those frozen assets. I mean, does it -- would it have to be some kind of really high, crazy amount to persuade ConAgra to part with it?

Well, with respect to the first part of your question, Robert, it was breaking up a little, but I think you're asking around is that an area we would be interested in investing in. And I think the same principle of disciplined segmentation applies. Within our frozen portfolio, there are clearly businesses that we will get behind and support, and there are other businesses that we will manage for cash and stable -- we call them reliable contributors. So it depends. I think we will be very disciplined and very focused and judicious in terms of what we get behind there. With respect to your second -- the second part of your question, that's purely speculation, so I'm not going to comment on it or fuel the speculation other than to say I think you've heard me say multiple times today, I'm very open, my board is very open to alternative ways of creating value should one come along that is clearly superior to our base plan and actionable and tangible and all of that. So there's nothing specific I can offer beyond that other than that is our overarching philosophy, and yes, it's simple, but it is unwavering, and we believe in it.

And we'll take a question now from Evan Morris with Bank of America Merrill Lynch.

Just Sean, if you can remind us, just with regard to some of the cost savings and some of the levers that you talked about pulling on the SG&A side, the supply chain side, can you just remind us how many of these initiatives are similar initiatives that you employed at Hillshire? How much margin improvement did it derive? And do you see sort of, I guess, on a relative sense, more opportunity or less opportunity as you're assessing ConAgra? And then I just have a follow-up.

I think the Hillshire team from Sara Lee, and I'm not going to get into great detail there other than to say big legacy food companies have SG&A opportunities. It's undeniable. And we got after it at Hillshire. We are getting after it here. Some of that work has happened, as somebody pointed out a few minutes ago, in the past, but by no means does that mean our work is done. SG&A reduction is a never-ending quest at ConAgra Foods. It will be cultural. It will be something that we all -- we have a disdain for inefficiency because those are resources that could otherwise go into brand-building, go into innovation or go back to shareholders. And that is what we're going to drive against, and there is additional opportunity beyond what we've already captured.

Okay. And then just 2 quick follow-ups. The book value of the Private Brands business right now, what is it?

I don't have that handy offhand given the various pieces to it. Chris may follow up, if need be, but...

Okay. All right. We can follow up offline. And then just regard to the guidance for the first quarter being flat with last year, clearly, below where Street expectations were. Is this just sort of a need for higher marketing? Is it a result of lower-than-expected sales trends? What's driving sort of the flat year-over-year guidance in the first quarter?

Well, I think I'll answer that by just taking us back to the big picture, which is we've announced we're divesting Private Brands. We've shared that the recovery on that business has been slower than we previously thought. We also shared that while we do expect that business to improve as we go through the course of the year, it will improve sequentially. So I think that kind of shapes, really, the answer to your question.

Our final question will come from Todd Duvick with Wells Fargo.

I guess the question I have is regarding your financial policy. ConAgra's financial policy has been consistent for many years and targeting an investment-grade credit rating, and you've definitely reiterated that this morning, which we appreciate. I guess one question is, Sean, at Hillshire, you had an agreement to acquire a peer company that was heavily debt-financed and would have resulted in Hillshire's credit rating being downgraded to below investment grade. So my question is really twofold. First, is ConAgra's commitment to an investment-grade rating derived from the board or management or both? And secondly, is it fair to assume that you see greater opportunities for operational improvement in your existing portfolio that reduce the appeal of a near-term transformational acquisition that could really jeopardize the company's IG rating?

Well, let me take the second part first. The base plan we laid out today, we have full conviction in its ability to make ConAgra a far better company into the future than it's been in the past. So we believe in that base plan. We have conviction and, of course, will always remain open-minded, but that's our position on that. On investment grade, management and the Board of Directors are aligned. There's really nothing more to talk about on that. We are aligned, and we are committed to it.

And this concludes our question-and-answer session. Mr. Klinefelter, I'll hand the conference back to you for 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, and have a good day.