Conagra Brands, Inc.
Q4 2013 Earnings Call Transcript

Published: 27 Jun 2013

[Operator:]

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 will be your conference facilitator. [Operator Instructions] At this time, I'd like to 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, and good morning. Welcome to our fourth quarter earnings call. Thanks for joining us today. I'm Gary Rodkin and I'm here with John Gehring, our CFO; and Chris Klinefelter, VP of Investor Relations. We're pleased with the results of our fiscal 2013 fourth quarter, capping off a transformational and successful year for ConAgra Foods. For the fourth quarter, we posted EPS of $0.60 on a comparable basis, which is 18% growth. This brought our comparable EPS to $2.16 for the year, which is 17% growth and above the full year goal we shared with you previously. Consumer Foods volume increased for the quarter as we expected. This is a significant improvement from volume trends seen earlier this year, which were impacted by past price increases. Operating profits for the Consumer Foods and Commercial Foods segments grew and the operating performance for the Ralcorp business came in as planned. All in all, a good performance. We continue to make good progress on integrating the Ralcorp business and have established the operating structure for our new company. As part of the integration process, we have identified additional synergies and increased our fiscal 2017 synergy goal by a significant amount. And we've already repaid a significant amount of debt, which is a very, very good progress toward our fiscal 2015 debt reduction target. John and I will provide more detail on those accomplishments this morning and share our goals for fiscal year '14 and beyond. After that, we'll open up the call for your questions. At that point, Tom McGough, recently appointed President of Consumer Foods; and Paul Maass, President of Commercial Foods, will join us. Before we get started, Chris has a few remarks.

[Chris Klinefelter:]

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 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, the Q&A or on our website. Now, I'll turn it back -- the call back over to Gary. Thank you.

[Gary M. Rodkin:]

Thanks, Chris. As I indicated before, I'm pleased with our results for the fiscal fourth quarter and the full year and I'm very confident on our strong EPS outlook going forward. I'll speak to that after offering some remarks about our segment performance and John will discuss our outlook as well. I'll start my segment remarks with Consumer Foods. Sales for the Consumer Foods segment were up 7%, driven by acquisitions and good organic volume performance. Many of our brands grew sales, shares and volumes. Along those lines, organic volumes increased 3%. This is an important turning point and a strong improvement from what we saw earlier this fiscal year. We've lapped last year's price increases and are benefiting from increased investment in our brands. Let me offer a little context in terms of our recent brand investment. We're using point-of-difference communication, along with strong innovation, to increase consumer pull for our brands. Last quarter, we talked about our canned tomato portfolio, Hunt's and Ro*Tel, and that point-of-difference advertising that is really resonating with consumers and driving sales, volume and share gains and category growth. Similar messaging has been very effective for PAM and Reddi-wip as well. Emphasizing their usage occasions and promoting from new locations in the store are also driving more demand for a number of our brands. Effective marketing will be a key driver in the success of the innovations we're launching this summer. We're very excited about the new desserts, frozen breakfasts and other items you heard us talk about at CAGNY. Take frozen breakfast, for example. This category has grown significantly over the past 5 years and frozen breakfast sandwiches have driven quite a bit of that growth, but frozen breakfast sandwiches are still an underdeveloped breakfast option. That's where Marie Callender's and Banquet come in. Building on capabilities we acquired when we bought Odom's Tennessee Pride and adding some strong culinary and cooking innovation, we've developed lines of breakfast sandwiches that break new grounds in terms of convenience and quality. We have significant innovation outside the frozen aisle as well. We're building on the terrific equity of Marie Callender's and introducing Marie Callender's Easy Sides, a shelf-stable pasta dish that cooks in about 4 minutes with no cleanup and delivers terrific flavors like Alfredo, Parmesan and Stroganoff. National TV support begins soon. When we take into account our innovation, the brand investment we've made and the fact that we're turning the corner in terms of volume performance, we believe we're on a solid footing for a healthy top line performance from Consumer Foods in fiscal 2014. Now on to operating profits. Consumer Foods comparable operating profit increased 3%. A combination of sales growth and margin management initiatives offset minimal inflation and put us in a good position to increase marketing and post profit growth. Overall, we're pleased with the underlying quality of this segment's profit performance this quarter. In the Commercial Foods segment, sales were up 3% and operating profits were up 13%. Our flour milling operations posted strong profit growth with the combination of good volumes, improved mix and strong results from grain and byproduct merchandising. In our Lamb Weston potato operations, growth in domestic markets was offset by short-term challenges in Asia, so our potato operations posted a modest profit decline for the quarter. As we look to fiscal 2014, we plan to contribute our milling operations, which are part of the Commercial Foods segment, into a joint venture with Cargill and CHS called Ardent Mills, where we will have 44% ownership. This is a long-term strategic win in terms of innovation, customer service and efficiencies and, of course, profits. We expect this joint venture to be accretive to our EPS in a couple of years. John will say more about this. I should point out that one of our major foodservice customers did not renew a sizable amount of potato business with us. Occasionally, contract negotiations turn out that way. We will be reallocating our capacity toward other customers and opportunities. In the meantime, there will be some margin impact at Lamb Weston during this transition, but we're confident that over the long term, we'll make up for this loss and continue the strong growth we've seen from the frozen potato business. So the combination of these issues related to the Commercial Foods segment, meaning the Ardent Mills dilution and the Lamb Weston customer issue, is the reason for the $0.10 or so of headwinds that we mentioned in our fiscal 2014 guidance. We continue to have a lot of confidence in our Commercial Food operations going forward. We're coming off 16% profit growth in fiscal 2013 for the segment with plenty of good years leading up to that, demonstrating the benefit of our strong innovation, international expansion that includes dynamic emerging market potential and product mix improvement. Our expansion into new products and new market segments with sweet potatoes, proprietary grain blends and growth in high-potential markets outside the U.S. demonstrate our strong operating capabilities and good customer relationships. We have high expectations for the contribution from Commercial Foods over the long term. Moving on to the Ralcorp operations, for the quarter, profit was in line with our expectations. We are in the early innings of integration and we now have more clarity on cost synergies. And this has allowed us to raise our annual synergy projections to $300 million by fiscal 2017, up from our original estimates of $225 million. Those cost savings will come mainly from the areas we expected such as procurement, where we are already gaining some synergies from ingredient buying, as well as logistics, plant efficiencies and SG&A savings. Ralcorp sales trends have been softer during this transition than we expect to see in the future. Ralcorp's own restructuring efforts, which began several months prior to our ownership, cut the organization too deeply, particularly on the sales front. We began to take corrective action as we integrate the Ralcorp business into ConAgra Foods. Additionally, some upside-down commodity positions drove pricing actions that put certain categories beyond the appropriate price gap architecture and we're in the process of addressing this as well. These issues are short term and definitely fixable. We're confident that we can move forward quickly with new operating capabilities and our broader integration work while generating the EPS contribution we expected from Ralcorp in fiscal 2014. When we look to the longer term, we're very excited about the growth potential of bringing real scale and our CPG capabilities to the private brand space. The potential in the private brands business is substantial, rooted in our customers' demand for differentiated and progressive retail brands. Our vision is to transition the private brands business model from transactional to strategic partnerships. And in our recent top-to-top meetings with almost all our major customers, I can personally attest they have a very strong appreciation for the functional expertise, scale and growth opportunities that we bring to the table with our portfolio. We're excited and continue to be highly confident that this multiyear journey will be well worth the effort. And the early work that we've done, as well as our very positive conversations with customers, have confirmed the big opportunity ahead of us. As part of integrating Ralcorp and building the right organizational structure during the first half of fiscal 2014, we will be moving to 3 financial reporting segments. We'll continue to have our Consumer Foods segment and we'll have 2 new segments

[John F. Gehring:]

Thank you, Gary, and good morning, everyone. I'm going to touch on 4 topics this morning. First, I'll discuss some fiscal fourth quarter and full year performance highlights; next, I'll address comparability matters; then on to cash flow, capital and balance sheet items, including some details related to our recent acquisition activity; and finally, I will provide some comments on our outlook for fiscal 2014 and our updated long-term algorithm. Let's start with some performance highlights. Overall, the fourth quarter and full year results were in line with our expectations and reflect a strong performance in fiscal 2013. On the full year, let me provide a few highlights. First, for fiscal 2013, we reported fully diluted earnings per share from continuing operations of $1.85 versus $1.12 last year. Adjusting for items impacting comparability, fully diluted earnings per share from continuing operations were $2.16 versus $1.84 in the prior fiscal year, a 17% increase. Our Consumer Foods and Commercial Foods segments both posted strong year-over-year performance. And our Consumer Foods segment significantly increased marketing investments to support our brands and innovation. And over our 4 months of ownership, Ralcorp operating segments delivered approximately $132 million of operating profit on a comparable basis. When we take into account the additional corporate expense of approximately $13 million relating to Ralcorp, the results were in line with our expectations. Turning to our fourth quarter results. For the fiscal fourth quarter, we reported net sales of $4.6 billion, up 34%, driven by the addition of Ralcorp, improved volumes and acquisitions in our Consumer Foods segment and pricing and mix improvements in our Commercial Foods segment. The impact of higher year-over-year wheat prices in our flour milling operations also contributed to sales growth this quarter. For the quarter, we reported fully diluted earnings per share from continuing operations of $0.45 versus a loss of $0.21 per share in the year-ago period. Adjusting for items impacting comparability, fully diluted earnings per share from continuing operations were $0.60 versus $0.51 in the prior-year quarter, an 18% increase. While Gary has addressed our segment results, I would also like to touch on a few key highlights, starting with our Consumer Foods segment, where net sales were approximately $2.3 billion, up about 7% from the year-ago period. This reflects about 5 points of growth from acquisitions. Organic net sales were up 2%. In this quarter, base volumes increased about 3%, which represents a significant sequential improvement over the third quarter. Price mix was negative, about 1%. Our Consumer Foods segment operating profit adjusted for items impacting comparability was $295 million or up about 3% from the year-ago period. The operating profit improvement reflects the benefit from acquisitions and our margin management initiatives, partially offset by an increase in marketing costs and incentive compensation. The impact from foreign exchange this quarter on both net sales and operating profit for the segment was immaterial. Our Consumer Foods supply chain cost reduction programs continue to yield good results and delivered cost savings of approximately $65 million in the quarter. For the fiscal fourth quarter, we experienced inflation of about 1%, a bit better than our expectations. On marketing, Consumer Foods advertising and promotion expense for the quarter was $85 million, up about 15% from the prior year quarter, including a 5% increase in marketing investments in our base business. In our Commercial Foods segment, net sales were approximately $1.3 billion or up about 4%, reflecting price mix improvements across the segment. The passthrough of higher wheat costs in our milling operations had a positive $29 million impact on net sales for this fiscal quarter. The Commercial Foods segment's operating profit increased 13% from the year-ago period to $156 million. The strong year-over-year performance reflects improvement in our milling operations, offsetting a modest decline at Lamb Weston. Moving on to corporate expenses for the quarter. Corporate expenses were $124 million. Adjusting for items impacting comparability, corporate expenses were $87 million versus $64 million in the year-ago quarter. The year-over-year increase reflects higher incentive compensation costs and the addition of Ralcorp corporate expense. Our effective tax rate for the full year was approximately 34%, consistent with our planned rate. Our recently acquired Ralcorp business delivered net sales for the quarter of $962 million. And operating profit, excluding the impact of comparability items, was approximately $110 million, about what we've projected. As noted previously, during the initial integration phase and until we fully implement organization changes related to the Ralcorp acquisition, we will continue to report the results of Ralcorp's operations in 2 segments

[Operator:]

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

[Andrew Lazar:]

Just 2 questions for me. First one would be on the Ralcorp synergies. You've raised those to $300 million through 2017. If some of that is expected to fall in '14, I guess why is the net accretion for the year still $0.25? I guess either the Ralcorp base EBIT is expected to be a bit lower than you thought or maybe you're just being so much conservative. So I guess, in other words, do you still expect the $400 million in Ralcorp EBIT that you discussed at CAGNY?

[John F. Gehring:]

Yes. Andrew, this is John. Let me try to take those pieces. First of all, I think on the synergies, I do think the large portion of the additional synergies are going to take time, so I'd say we're probably going to get a little bit more benefit in FY '14. I would say related to our expectations about the base EBIT for Ralcorp, I'd say those are still in line with what we've talked about earlier, approximately $400 million. And then is there some conservatism in there? I think the straightforward answer is, yes, there probably is a little bit of a contingency in our plans. I think everybody can appreciate that we're just starting out the first full year of ownership. We're in the process of changing the organization. So I think it's only prudent that we plan for some disruption as we move the organization around.

[Andrew Lazar:]

And then, Gary, you mentioned a lot of the top-to-top conversations that you've been having with key retail customers. I guess there's been some chatter out there that maybe certain customers are more concerned with having a company like yourself with scale now across branded and private label and looking to thwart that in some way or separating the way you come to customers. And I guess it sounded like you've had some, frankly, much more encouraging conversations than a lot of key customers. So maybe could you just put some of that in perspective to see if what I'm talking about is even something that you've been hearing?

[Gary M. Rodkin:]

Yes, happy to, Andrew. What you mentioned about fear of -- or concern about scale, we've heard it a couple of times, but it's very scattered. I wouldn't say that it's prevalent. And the way that we've addressed that is really talking about you're able to, as a customer, really leverage a lot of the smaller suppliers to do a lot of kind of special projects that bigger guys might not see as being very efficient in their supply chain. And what we've talked about is let's think very holistically, that we're willing to do some of those one-offs because the pot in terms of the total business opportunities are so much greater. That is -- that works extremely well virtually every time that we have that discussion. I'd say what we feel best about coming out of those discussions is the understanding that it's going to take a little time but that we are going to get the sales structure in a much better place. Our vision is to have one ConAgra point person at the head of each customer and then the organization splits underneath that. So knowing that there's going to be one ConAgra with dedicated resources to the branded side and dedicated resources to the private brand side and more resources than we have today on the private branded side is very welcome. And the second is they are extremely excited about our innovation capabilities that we've demonstrated on the consumer side of the business that they have seen. And they are very excited about the opportunity to leverage that on the private brand side. And in fact, we have some of those big customers coming to Omaha, already scheduled, just to work through that.

[Operator:]

And we'll move now to David Driscoll with Citigroup.

[David Driscoll:]

First thing I'd just like to say is after, I think, 10 quarters of negative volumes in Consumer Foods, it feels great to see a plus 3% on that figure. So congratulations on that. Nice job in establishing some momentum there. My questions are going to go to Ralcorp. The first one, and I think maybe most important, is the $300 million of synergies, if I do my math right, guys, that would suggest something like $0.46 a share benefit over the course of the period, which I think goes through 2017. Said differently, it looks to me like it's about a contribution of 5 percentage points to EPS each and every year if I just kind of allocated it equally. And maybe the question that I'd like you to respond to is if your guidance in '15, '16 and '17 is for about 10% growth, it sounds to me like you get half of it simply from the realization of the synergies. And that would mean that the other half, just 5 points of it, comes from all of the rest of your operations. So the first question is, do I have the math right? And the second question is, it seems like that the component of the organic growth is really achievable, maybe I would use the word conservative.

[Chris Klinefelter:]

David, this is Chris. So the thing that I would offer on that is I think your general logic is right. We're assuming mid-single-digit performance in the base business and the aggregate contribution of the synergies is largely what you're saying. The other thing to mention about the reason that we're signing up for a mid-single-digit performance in base business is, as you've heard us talk about our capital allocation priority during -- particularly during the early years of owning Ralcorp, it's toward debt reduction. So in our prior EPS long-term goal of kind of 6% to 8%, we did have a point or 2 from allocating capital that we don't have. So with that, yes, the rest of your math works.

[Gary M. Rodkin:]

Yes. And David, what I would say is having been in this industry forever, being able to -- starting with the year that we just finished, being able to commit to 5 straight years of double-digit EPS growth while still staying committed to strong dividend is pretty compelling. So we plan with the appropriate level of risk management and I think we're quite pleased where we are.

[David Driscoll:]

All right, makes sense. If I could just ask one more question on RH. So the sales in the quarter would annualize out at something like $3.85 billion. You gave guidance just a moment ago in the script of, I think, $4.2 billion in sales for F '14. Can you talk a little bit about how quickly this changes, like what we should be expecting within this number to see such a -- I mean, I think that's a quality improvement right there over the current run rate, but how fast does it take before we start to see those actions show up in results?

[John F. Gehring:]

Yes. So David, this is John. A couple of things to keep in mind. There is a fair amount of seasonality in this business. So I think to take any 3-month period and multiply it by 4 probably doesn't land you necessarily in the right place. A lot of seasonality, in particular in the fall and -- particularly in the fall, where you have strength. So the other thing I'd say is there have been some areas -- there are some softness in some of the categories. There's also some business that we've walked away from -- or collectively, we've walked away from around some co-packing things that were in the base, which accounts for some of the softness right now. I would expect, in terms of the impact that our changes are going to have on reversing some of the trends, I think that's going to be more in the back half of our fiscal year. It's going to take us time to -- not that we're not working on things right now, but I think to really fully deploy our capabilities, to fully align our sales teams against this business and really start to have an impact with customers is probably going to be late in the fiscal year, second half.

[Operator:]

And Bryan Spillane with Bank of America has our next question.

[Bryan D. Spillane:]

I just wanted to get a little more color on Commercial Foods and the potato business, the frozen potato business. Can you talk a little bit about maybe some of the factors that led to this customer switching vendors? Is there more capacity in the industry? Is it getting more competitive bidding for contracts? And also, if I'm understanding it right, some of the customers of this customer who switched vendors may not be entirely happy with the switch. So if you could just talk a little bit about how that occurred and if there's been any other change in the industry?

[Paul T. Maass:]

Bryan, this is Paul, and I appreciate the question. The perspective I'd share first is if you think about RFPs or request for proposals contracting, it's kind of the nature of the business in Commercial Foods, so it's something that we normally navigate through. We do have a track record of working our way through that in a successful way. What makes this one unique is this is a customer we partnered with for a long time and have built business towards pretty large business. So it's a big change and that makes it a little bit unique. And as we work through it, because of the long-term relationship that we have had, there's a lot of complexity and transition in it. And frankly, there's some costs involved with that. We are underway as far as transitioning to other customers. And I would describe it as the silver lining in a change like this is it enables our Lamb Weston business to truly strategically partner with some new and other customers. And we feel really good about the outlook after we get through the short-term transition.

[Operator:]

And JPMorgan's Ken Goldman has our next question.

[Kenneth Goldman:]

Your Consumer Foods volume came in much better than what Nielsen data would have suggested. And I realize lower pricing was the impetus for your actual performance improvement. I suppose I'm just interested in the difference between that actual performance and what was measured. Was there maybe a bit of a sell-in of new products that happened over the summer? Did non-measured channels just perform that much better? Maybe some color on that would be helpful.

[Thomas M. McGough:]

Sure, Ken. This is Tom McGough. As we look at our Q4 results, there's a couple of things that highlight. One, we did demonstrate very strong sequential improvement in the fourth quarter as a result of lapping comparable pricing but also as a result of increasing our marketing investments. We've improved our margins throughout the year and we're seeing very positive share impact from our marketing investments, particularly in frozen, our shelf-stable and refrigerated portfolio. As you highlighted, we continue to see non-measured channels grow at a much faster rate than the measured channels. And as we enter the summer season, we have secured some very strong seasonal merchandising programs that have put us in a position for good volume performance. So overall, we're very pleased with the quality of our organic volume growth.

[Gary M. Rodkin:]

Yes. And I would just add that we are staying disciplined on our pricing architecture. We're certainly going to be competitive, but we're staying disciplined there.

[Operator:]

And we'll move now to Akshay Jagdale with KeyBanc Capital Markets.

[Akshay S. Jagdale:]

My question's mainly on Ralcorp. So if I -- if David's math was correct, as I think you agreed to, implies something like 20% growth over the next 3 years starting in '14 in the Ralcorp EBIT. And that's not something that any private label company that's publicly traded has ever been able to achieve. So I just want to play devil's advocate here and understand why a private label business in a volatile commodity environment would be able to grow its earnings at those -- at that rate. And I think your guidance also implies stronger sales growth than the company's -- than Ralcorp is currently producing and has produced historically. So you're cost-cutting and you're going to see an acceleration in sales growth and, at the end of the day, you're going to produce 20% or so growth in EBITDA. I understand that some of that is related to an easy comp because they're coming from some depressed earnings. Could you just conceptually help me understand what the step change here is going to be? And so what's the risk that you're not able to achieve these targets on the Ralcorp side?

[John F. Gehring:]

Yes. Akshay, this is John. Let me start with that, then I might turn it over to others for some comments. But I think as others have highlighted the math, the earnings growth is driven an awful lot by the synergies. That's what's driving the math. We feel very confident about the source of those synergies. And just to reiterate things we've talked about earlier, most of those synergies are going to come from our supply chain. We have good line of sight in terms of the opportunities, in terms of procurement and as well as opportunities we think we have around rationalizing manufacturing and logistics networks. Those latter 2 tend to take more time. The other thing I would just point out mechanically is those synergies apply to the whole enterprise, not just to the Ralcorp business. So as those synergies are realized, what you'll actually see is some additional tailwinds apply to some of the other businesses. The other thing that I think we feel very good about is the fact that we see an opportunity in the marketplace. We see good tailwinds that we believe in, in terms of the long-term tailwinds from -- and trends in private label. We think we are uniquely positioned to capitalize on that. And when we look at the kinds of customer relationships we have, combined with the customer relationships that the Ralcorp team brings, we do think there is a 1 plus 1 equals 3. And maybe I'll have Gary comment a little bit more on the customer side.

[Gary M. Rodkin:]

Yes. You heard me talk earlier about those customer meetings. I'll tell you 2 reasons why we believe that we can impact the top line on Ralcorp. And we're not shooting for the moon here, but we do expect that we can drive better top line growth starting later this year. And those 2 reasons are

[Operator:]

And we'll take a question now from Thilo Wrede with Jefferies.

[Unknown Analyst:]

This is Scott Barber [ph] filling in for Thilo. Unfortunately, all my questions have been asked and answered, so I have no further questions at this time.

[Operator:]

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

[Jason English:]

Maybe I missed this, but can you give us some color on what you're expecting for inflation in both Ralcorp and Consumer Foods for next year?

[John F. Gehring:]

Yes. I think across our whole portfolio, Jason, we're looking at low single digits. I'd call that probably in the 2% to 3% range right now as we enter the year.

[Jason English:]

You mentioned being upside-down in some contracts for Ralcorp this past year. Should we expect any of that to reverse? It sounds like low single digits would be, no, not really, it's not like you've got a windfall coming there.

[John F. Gehring:]

Yes. I don't know that -- I wouldn't view it as a windfall. I think we've got the problem out of the way. And this is on some of the limit areas where they had some issues. And as we look at a very, very large buy across the whole enterprise, I'm not sure any benefits there would be significant.

[Gary M. Rodkin:]

Yes. I think the benefit there is we will be able to reverse some of the price gap issues that we've had. And again, that takes time to work through the system, Jason, as you know, but I think that's where the real benefit comes from. That top line, it'll take a bit of time, but we'll see a better performance there because of that.

[Operator:]

And we'll move now to Deutsche Bank's Eric Katzman.

[Eric R. Katzman:]

I guess I have 2 questions. First, on the Lamb Weston business, how quickly can you change that? What accounts are available to you? I assume you have to take it from somebody else who supply in the frozen french fries, so why are you going to get that? And then on the Ralcorp business, I understand your comfort level, I guess, at some point in raising sales guidance beyond fiscal '18 to 3% to 4%, which implies an acceleration in that business. But with the weakness this year, I mean, what should we look forward from that, I guess, new kind of Private Labels segment or the Ralcorp business between now and fiscal '17, top line?

[Paul T. Maass:]

I'll go and hit on the -- this is Paul -- on the Lamb Weston question. And the transition, it will be relatively short. The capacity kind of in the industry is one that I'd describe as relatively capacity-constrained, so it's relatively tight. So it's fair to describe it as more of a 0 sum game. It doesn't exactly work out one month to the next, but when you think about it over the course of the year, I believe the transition will work its way through in that type of a time frame.

[John F. Gehring:]

Yes. And Eric, on the Ralcorp question, this is John, I'll take that. Kind of consistent with my comments earlier, I think '14, we're going to work to stabilize the business and I think we'll start to see some improvement in the back half of FY '14. As I commented earlier, I think 2015 will be a year where we start to see some organic growth in that Ralcorp business. And then from there out to 2018, I would just expect us to see a gradual improvement as we'll then start to approach that higher growth rate over time. So kind of stabilized improvement in '15 and gradual or sequential improvement after that.

[Operator:]

And we'll hear a question now from Alexia Howard with Sanford Bernstein.

[Alexia Howard:]

Can I come back to Ralcorp and cereals? Other companies are saying that adult cereals are quite weak right now and private label trends look weak in the measured channels. I think you mentioned price gaps being a factor there, but what gives you the confidence that those trends can be reversed and reinvigorated?

[John F. Gehring:]

Sure. Alexia, you're right about the price gaps. That's one of the places where it's the most egregious and we will get those price gaps back to the appropriate levels. We also have a pretty significant amount of innovation coming in that space and we think we can do even more there with our innovation capabilities. And then probably, most importantly, while cereal is certainly an important category for us, we have a very, very broad portfolio. So there may be some more challenges in some categories than others, more opportunities in some than others, so I wouldn't really speak to the macro in cereal from our perspective. I'd probably leave that best to the bigger branded players.

[Operator:]

And we have a question now from Robert Moskow with Credit Suisse.

[Clay Crumbliss:]

This is Clay Crumbliss on for Rob. I know you guys said that you're not in a position to provide financial details on the Ralcorp integration, but I wanted to see if you could maybe provide us with a time line that you'd be able to give us that clarity. And then two, maybe even if you could just give us a directional number, that would be helpful. Even though we'll strip those out, it would be good to get a sense for how onerous the integration will be to know if we're talking in the $50 million range or $500 million.

[John F. Gehring:]

Yes. And I think -- this is John -- I'm going to address it from a restructuring standpoint. Is that the restructuring, what you're referring to?

[Clay Crumbliss:]

Yes, that's right.

[John F. Gehring:]

Yes. I'm not going to provide a lot of details here. I think from a timeline standpoint, I think some of the early activities you're expecting in integration and some of the early costs, I think, are already underway. And we talked about those in some of our comparability items the last couple of quarters, things related to severance, et cetera. And I think some of those will go on for a few more quarters. I think the things that are a little harder to quantify right now will be things related really to changing our manufacturing network, optimizing our logistics networks. I think as you can appreciate, those questions tend to be fairly complex. We do a lot of modeling and a lot of complex planning on that. So I don't have specific numbers, but as I said in my comments, we're confident that the cash requirements for those are not going to cause any significant change in our capital allocation plans or debt repayment plans. We think that will all be very manageable within the cash resources we have and the commitments we've made.

[Operator:]

And there are no further questions. Mr. Klinefelter, I'll hand the conference back to you for final remarks or closing comments.

[Chris Klinefelter:]

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.

[Operator:]

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