Robert Moskow: Got it. Second part is, it sounds like you’re very happy with the lifts you’ve seen in the promotional activity behind Frozen. Sean, can you speak more broadly about whether the food industry and retailers overall are happy with the lifts that they’re seeing on a more broad-based basis? I think I hear kind of some dissatisfaction from certain big retailers about the lifts, and that the rollbacks haven’t gotten the response that they fully expected. Is it possible to speak more broadly about what you’re seeing?
Sean Connolly: Yes. I’ll give you a sense of it, Rob, because we’ve got a pretty – we’ve got a pretty large scope here at Conagra. And so, if you look at where we invest and where we want to get good lifts, we’re super selective, right. We pick our spots. We’re not out there spending money trying to drive lifts on Manwich or business like that. We’re driving lifts, we’re focusing our dollars on those categories where we know the consumer really wants to buy the category. But for other reasons, particularly, the objective of trying to stretch their budget, they’ve made a short-term sacrifice, and that’s the way they describe it to us when we talk to them. They’re depriving themselves, they’re sacrificing particularly on convenience items.
So, if you look at a product, like Frozen single-serve meals, where we saw such tremendous lift in Q2, what you’ve got going on here is some consumers who were really financially stretched were basically forced to give up on some of that buying rate. They didn’t stop buying the category. They reduced their buying rate and they started doing things like scratch cooking rice and beans and ground beef. They do not want to do that. I can assure you. I have been in food for 30 years. That’s the last thing they want to do, and they don’t like to cook, they don’t like to clean, they don’t like any of that. They’d rather be buying our stuff. But when they’ve got to make some short-term trade-offs, especially, over the course of the summer when they were spending their money on things like travel, they’ll do it short-term.
But when you give consumers with that kind of a headset, a bit of a stimulus to reengage, they’re super responsive to it. But, again, not every category is created equal. So, if it’s a – if it’s more of a staple category, where there’s another alternative, where they were trading down to a store brand, maybe you’re not going to get a lift. But that’s not the kind of investments we’re talking about. Those are not the kind of events or categories where we’re focusing our energy.
Robert Moskow: Makes sense. Thank you.
Operator: The next question comes from Pamela Kaufman of Morgan Stanley. Please go ahead.
Pamela Kaufman: Hi, good morning. Happy New Year.
Dave Marberger: Morning.
Sean Connolly: Hi, Pam.
Bayle Ellis: Happy New Year, Pam.
Pamela Kaufman: Can you give some more color on the drivers behind your reduced top-line guidance for the year? How much of it is a change in your expectation for volumes versus greater price investment? And then, just – you mentioned that in the second-half, you’ll see price declines. Can you frame the magnitude of the declines relative to the second-quarter?
Sean Connolly: Yes. Pam, it’s Sean. Let me make just a quick comment upfront. I’ll flip it over to Dave. The macro-environment that we talked about in Q1, I mentioned again today, it persisted into Q2. So, we’ve just seen fewer purchases in our first-half than we would have assumed at the beginning of the year. So, that’s part of the call down the top-line. The second part of it is, I don’t want to sign us up at this point for any kind of heroic volume recovery in the back-half of the year, because I think the mood of our investors is, let’s be prudent, let’s be up the middle of fairway, let’s put some targets out there that are not making any grand assumptions that we can meet or beat. And that’s kind of what’s behind it, because we like the momentum we saw in the second-quarter.
We have every intention of further driving that momentum in the second-half. And we have a high degree of confidence that we’re going to get what we expect. And that – at this point, that’s really what we’re focused on, is fiscal ’25 – setting up a really nice fiscal ’25 and exiting this year with momentum. And the sales outlook that we’ve given for the balance of the last year, kind of, is right in that vein. Dave, over to you.
Dave Marberger: Yes. So, Pam, if you just take the midpoint of our guide for the year on organic net sales, that implies a second-half organic net sales of minus 1%. And that’s going to be a combination, based on the way we forecasted it and incorporating the comments – the important comment Sean just made, is a combination of price mix – slightly negative price-mix and slightly negative volume. The combination of those two to get to the minus 1% organic, that’s H2. And that’s improvement on total sales and volumes as we’ve seen Q1 to Q2, and then H2, we expect that improvement to continue, so that as – we continue to track towards growth by the time we get to the end of fiscal ’24.
Pamela Kaufman: Okay. Thanks. That’s helpful. And then, just to clarify on the reduction in your operating margin guidance for the year. How much of that is a reflection of your expectations for lower gross margins versus increased operating expenses and more brand investment?
Dave Marberger: Yes. So, if you look at the second-half, gross margins – if you look at where we landed the first-half in gross margins, we were at 27.2%, I think, is our first-half gross margin. Our second-half should be generally in-line with that, maybe a little bit below that. So, the second-half, where you’re going to see the reduction in operating margin is coming from the higher investment in A&P as a percentage of sales and the timing of SG&A being higher in H2 than it was in H1. So, that’s really the second-half reduction in operating margin. So, when the dust settles and you look at the full-year, we’ve guided to 15.6% operating margin, that will be in-line with fiscal ’23. And if you look at kind of where we land with margin A&P and SG&A, we’ll be pretty close to where we were prior year.
