ConAgra Foods, Inc. (NYSE:CAG) Q4 2018 Earnings Conference Call Transcript
Jun 27, 2018 • 09:30 am ET
Thank you, sir. (Operator Instructions) And the first question will be from Ken Goldman of JPMorgan. Please go ahead.
Good morning. Thank you. Hoping to get some color on why the synergies aren't a little bit higher than the typical 7%-ish rate in food. Just wondering are the supply chain synergies in frozen not as high as maybe we expected? Is it that Pinnacle's SG&A is already very low and efficient or maybe is there -- I am hoping maybe some -- there is just some conservatism in there, so any help you guys can provide there would be greatly appreciated?
Ken, let me start and then Dave add whatever color you want to add versus some of the things I have read, Ken, I think probably the biggest modeling difference is within COGS in manufacturing. So we have got 7% synergies here, which we are highly confident in. We have scrubbed every opportunity and we are -- we feel very good we can deliver this number. But I think sometimes there is a belief that when you put two companies together, you can take half of the manufacturing assets, half of the plants and consolidate them, that's not how it actually works in practice.
The example I would give you is a vegetable processing plant is not the same as a frozen food manufacturing plant. You have to process vegetables in very close proximity to the field, because of the delicacy of the vegetables, which is different than how we make say frozen meals. So I think some of -- perhaps the assumptions around manufacturing assets were more aggressive than what exist in reality. The numbers we have got in here we feel very good about and obviously, it's kind of like how we approach margins in general. We always look to over deliver, but this is the number that we believe is correct and it's about on par with what we have seen elsewhere in the industry.
Dave, what I missed?
No, I think you covered it. I think it's also important to understand that the $215 million, that's a real synergy number. So there is no -- that's going to hit the P&L and that's going to be favorability that you will model. We feel -- as Sean said, we feel very good about that, the ability to deliver that. As I mentioned in my comments, we believe 60% of that will come by the end of fiscal year '20 and then the rest will phase in. And I did quote cost to achieve which are really one-time costs and then some CapEx. So we feel really good about the synergy numbers and our ability to deliver them.
The next question will be from Brian Stein of Bank of America. Please go ahead.
Hey, good morning everyone. I guess, there is -- we fielded a few questions today just about the guidance for standalone ConAgra for 2019. And so I was hoping you can help I think just