Q4 2024 Conagra Brands Inc Earnings Call

Participants

Melissa Napier; SVP of Investor Relation; Conagra Brands Inc

Sean Connolly; President, Chief Executive Officer, Director; Conagra Brands Inc

David Marberger; Chief Financial Officer, Executive Vice President; Conagra Brands Inc

Andrew Lazar; Analyst; Barclays Bank PLC

Ken Goldman; Analyst; J.P. Morgan

David Palmer; Analyst; Evercore ISI

Peter Galbo; Analyst; Bank of America

Robert Moskow; Analyst; TD Cowen

Nik Modi; Analyst; RBC Capital Markets

Thomas Palmer; Analyst; Citi

Chris Harris; Analyst; Wells Fargo

Robert Dickerson; Analyst; Jefferies

Presentation

Operator

Good morning, everyone, and welcome to the Conagra Brands Q4 and fiscal year 2024 earnings conference call. (Operator Instructions). Please also note, today's event is being recorded. At this time, I'd like to turn the call over to Melissa Napier, Head of Investor Relations. Ma'am, please go.

Melissa Napier

Thanks, Jamie. Good morning, everyone. Thanks for joining us today for our live question and answer session and today's results. Once again, I'm joined this morning by Sean Connolly, our CEO., and Dave Marberger, our CFO. We may be making some forward looking statements and discussing non-GAAP financial measures during this session. Please see our earnings release prepared remarks, presentation materials and filings with the SEC, which can be found in the Investor Relations section of our website for more information, including descriptions of our risk factors, GAAP to non-GAAP reconciliation and information and our comparability items. Hope you all had a chance to listen this morning to our prepared remarks and I will now ask Jamie to introduce the first question.

Question and Answer Session

Operator

(Operator Instruction) Andrew Lazar, Barclays Bank PLC

Andrew Lazar

Great. Thanks so much. Good morning, everybody. Sean. You talked in the prepared remarks about you're expecting sort of gradual transition in fiscal '25 to a more normal operating environment as consumers adjust their reference prices. And I know you've talked a lot through the back part of this last fiscal year that consumers are increasingly ready to sort of engage in your categories just needed to be not just a bit. And it seems like that adjustments taking longer, not just for Conagra, obviously, but the industry at large, why do you think that is and isn't going to require? Or is it requiring more investment than maybe you initially anticipated? And obviously, I ask is one of the biggest debate in the space right now.

Sean Connolly

Sure, Andrew here. So I think about that the operative word is transition. It's a process. It's not an event. And as we showed in our charts today for Conagra, that process is working. You saw in the materials today, steady positive inflection on our volume, which is the key metric for us in the past three quarters. And that indicates that our investments to nudge volumes back toward positive territory. We are successfully engaging consumers and importantly, we were able to expand our margins despite that investment. So I was particularly pleased to see volume consumption growth in Q4 in our snacks business in our largest frozen business, which is frozen meals in our refrigerated business and in our international business, all of those posted positive volume growth in the core grocery has a couple of businesses that we'll get more support in fiscal '25, but those investments are baked into our plants.
So overall, we have been nudging, nudging is working, but it is a transition. It's a process and we've moved the needle meaningfully, and that will continue to move positive. But it's a transition. It's not one of these events where sprinkle little money on the consumer and they forget that the ever experienced runaway inflation. It's a period of adjustment. And for us, that is clearly happening.

Andrew Lazar

Thanks for that. And I know a good portion of the negative year over year pricing in Refrigerated & Frozen is, I think, more pass through on some refrigerated items. But I guess I'm more curious on what the pricing and competitive environment looks like in the frozen space specifically and sort of how you see that playing out as we start the new fiscal year. Thanks so much.

Sean Connolly

Sure. Yes, absolutely, yes. We invested in frozen as a result, volume consumption in frozen overall back to just about flat, again with our largest frozen business, single-serve meals already growing volume in our shares are there hit record highs. As you saw materials, merchandising, advertising and innovation have all contributed to that. So it's not been a situation where it's a price-based driver that is driving that, that positive news in the frozen business. It's all of those things. And with respect to the merchandising for us, it's really been about quality display and it's been about frequency, not about deep discountin g. I think what you're seeing in frozen overall and I called this out last year is when when we were at the peak of the inflationary period and people were having to make choices and trade-offs to make their household balance sheet work, they moved some of their purchases of convenience oriented items toward more scratch cooking, and they kept their leftovers and things like that
The challenge with that is that consumers don't really like planning for meals. They don't like preparing meals. They don't like cleaning up after meals. So the need for convenience, that's why I showed that 40 year chartered in our materials today is as strong as it's ever been. And after the consumer has to cut back for a while, they grow weary of those work around behaviors and they come flying back to convenience, which i s why the investments we've made in frozen to nudge consumers have materialized . And we saw growth in our frozen single-serve meals business in the quarter. So I would say this is a category of space that has a 40-year compound annual growth rate of 4%, which I think is the highest department in the grocery store. We went through a challenging period last year where we saw some trading down. We put some targeted investments against it. And now we've seen real positive response and knocking on the door positive in our total frozen business overall, with key businesses like single-serve meals growing and Birds Eye gaining share again, which is great to see as well

Andrew Lazar

Thanks so much.

Operator

Ken Goldman from JPMorgan.

Ken Goldman

Hi, good morning and thank you. I wanted to first better understand the comment about the outlook being prudent. On the one hand, your sales and EPS guidance is lower than the Street expected. I think that's helpful and certainly setting a lower bar. On the other hand, as Andrew mentioned, your outlook requires volume accelerate, especially on a two-year basis and you're relying on the consumer getting used to higher prices, as you mentioned, and we just haven't seen that yet. So I'm just trying to dig in a little bit on where you think you're being most

Sean Connolly

Ken I think it's important to you just say we haven't seen that yet and and look at the charts we demonstrated to date, we absolutely have seen we have seen three straight quarters of volume trend improvement in our businesses. And in this most recent quarter, we saw snacks volume consumption that was positive. Our frozen meals consumption grew our refrigerated business volume assumption grew our international business group. So we absolutely have seen traction, and we expect to see continued traction from here. We do. I do not have one of the portfolios out there that some have where there just hasn't been investments and there has not been movement an inflection in the volume line.
We have had steady inflection and no doubt a fair amount of the portfolio is already either close to flat or turning part. So that's an encouraging thing is that it indicates that our investments are doing a good job job of managing the consumer along and engaging with respect to the comment that the guidance is prudent . It's prudent in that it recognizes that consumer adaptation is a process and it's an event. And therefore, it embeds some conservativism around consumer buying behavior, but also some flexible ability for us to continue investing behind volume growth, which, by the way, as we've said from the beginning, is our top priority in terms of nurturing the long-term health of the business. So given that the slope of our volume trends for the last three quarters, we think the outlook is it as a prudent outlook, we had no desire to tried to be heroic with our guide for fiscal '25. I think if you really just digest the progress we've made on these discrete businesses where we've placed investment, I think you can only conclude that it's prudent play.

Ken Goldman

Thank you for that. And then for my follow-up, I wanted to clarify the first quarter outlook. It's the messaging first that the gross margin from on an absolute level will be down or will be the lowest of the year. Is that year on year ex? Wanted to clarify the gross margin comment? And then more broadly, you talked about on volume and gross margin, tough SG&A lap . It certainly seems like consensus of $0.65 or so many to come down a bit. So understanding you don't provide quarterly specifics, but just trying to get maybe a slightly tighter sense of where you think some of the puts and takes in 1Q will be just so maybe investor expectations are properly aligned

David Marberger

Yes, Ken and its Dave, let me let me give you some color on that. So if you look at Q1 a year ago, that was the last quarter where we had significant price mix, right? So around the mid single digit periods. So we're wrapping on that quarter. So if you if you break it down, if you look at our domestic retail business, we expect improvement in volumes, but they're still going to be down year on year, but we expect improvement versus where we came in at Q4 . In terms of volumes, our international business, we actually expect to be lower. We called out some supply chain issues in Canada, and that will impact some of the business than Q1. So we expect Q1 sales a year on year growth in Canada to be lower than it was in Q4.
A couple of things in terms of the margin side, SG&A, we're going to have much higher SG&A in Q1 this year versus last year. Last year, we had an accrual to take down our incentive compensation. So year on year, that's a bounce back and you're going to see that in expense and at that obviously is going to depress operating margin. And then on the gross margin side,
Q1 is a lower sales quarter for us than other quarters. So you do normally get a little bit of drag from fixed cost relative to the other quarters. And we have the higher trade investments kind of rolling in from the end of last year. But as we said in Sean made said in his comments, we expect gross margins to be stable for the full year. So we're pleased with the productivity. We expect that to continue inflation we call or 3% net for the year. So that a benefit there helps us fund the additional investment that we're going to make. So all those things together that hopefully gives you some color on our Q1. Thank you very much.

Operator

David Palmer from Evercore ISI.

David Palmer

Thanks. I wanted to just ask you about the challenging environment comments you made that comment a few times during the prepared remarks, but sometimes we can assume what you mean by that. But I would assume also that there's going to be some differences in the types of challenges you see for category. And I said that you might have more category issues, for example, in Andrent Mills for the you speak to price cap issues, perhaps in vegetables, for example. So could you speak specifically to what those challenges you're talking about, the types of investments that you're making, whether that's just price adjustments through promotion, display or other activity?

Sean Connolly

Yes, David, sure. Today in our material as an example, to your point, I shared the consumption trends for our frozen business. And I showed a line chart that showed our consumption in Q1 was at minus [7.5] and in Q4 was also flat and it's pretty much straight line between from one from Q1 through Q4. So so the volume decline in that business is virtually gone over the course of three periods, and that did not happen by accident. You'll recall that after Q1 we made some, I'll call it test investments in frozen traded, nudge the consumer along to see if they would, it would work. And we got a great response to that in Q2, expanded those investments in Q3 , it was a combination of everything from advertising to merchandising to more support for our innovation and it all had the desired effect.
I think, the types of merchandising that you'd look at. Really, as I mentioned earlier, we're high quality displays. I'd say almost every quarter, the overall merchandising level in the last couple of years was down substantially versus pre-COVID. Now it's moving back up in line with kind of where we've been historically. But the type of promotion is and I'd say in the industry in general has been pretty high quality. It's been I would describe it is reasonable. There are we always have a keen sense for what are the more than price gaps in frozen, David, it's price thresholds where what thresholds can we hit that drive maximum lifts. So we can and we know where those are, we've hit those. That's why we've basically wiped out the volume declines in the fall frozen business because we know what thresholds are particularly important. And and the reason the consumer is ready to be nudged in the frozen business, as an example is because that 40-year chart shows that people rely on high quality, good tasting prepared foods that don't require any prep time and don't require any cleanup when they're forced to . They might have to trim those purchases a little as we experienced a couple of years ago in the last year, but they typically come roaring back. And that's kind of what's happened on the business.
And that's no, that's the strategy that will have across the portfolio is we'll look to your point category by category around what are the key thresholds that we need to hit to maximize our engagement. S ome categories are more price gap oriented, and those tend to be categories where there really was just a couple of competitors. So canned tomatoes is it good example where that's more of a price gap type of category than than others. But most of our categories are more about high quality display and hitting the right thresholds. And just one follow-up on on.

David Palmer

Thanks for that. By the way, on AP margin, do you mentioned that fear and maybe is this the type of year that may be advertising is in this much of the priority, but maybe that starts to step up from future years? How are you thinking about advertising in the past going forward?

Sean Connolly

It's about the same yes.

David Palmer

Thanks very much.

Operator

Peter Galbo from Bank of America.

Peter Galbo

Hey, guys, good morning. Thanks for taking the question. Davis, kind of going through your comments. If we take kind of the productivity savings net of the inflation rate, it's roughly, I think $85 million that will kind of get reinvested back into back into brand investment or price came at a verify that that that kind of checked out on on your end. And maybe just give us a sense maybe of this being kind of incremental investment where and where in the second half, it was it, is it more weighted to refrigerated or way at the grocery? Any kind of color there would be helpful.

David Marberger

Why don't why don't I hit that? And then I'll let Sean fill in any blanks. So you have from a high level, we're really pleased with our productivity. We talked about expecting 4% productivity and inflation, we have around 3%. So clearly, there's some benefit there. And we expect stable gross margins for the full year that allows us to make investments. Those investments will be continued investment in certain trade merchandise that obviously impacts margin. And Sean just described how we go about that. Obviously, frozen and snacking, our priorities, but we also have select operation Unity's in grocery that we're evaluating that we think are important. But we also have other investments that we make that hit cost of goods sold in terms of continue innovation and product quality that we build and other investments that we're making in the supply chain of those do hit cost of goods sold. And in our part of that whole margin basket . So a high level, we feel really good about the efficiency, the operation right now where we can invest to get the volumes continuing to go in the right direction and maintain the gross margin that we finished fiscal 24.

Peter Galbo

Got it. Okay. That's all it. And then, Sean, just kind of thinking about the productivity number and it's a question your peers as well. I guess just what's the risk that we start to push the productivity lever to hard and you know that did that create, I don't know, lower lower ingredient quality or potential issue is just in your as your kind of getting maybe to productive. I think it's a question that we face a lot of well. So thanks very. much

Sean Connolly

Yes, I think our investors should know that that's like the third rail for us. We would not cut quality of our products and we've been and worse in the consumer experience to drive productivity. In fact, if you look at Pete, over what we've done over the last 10 years, it's exactly the opposite of that. We have infused tons of money into our food quality and our packaging to modernize this portfolio to make it the kind of stuff that people are willing to pay more for and conclude that it's a better value than and when it was lower quality and lower price. And so that is that is precious for us that is central to our innovation success that we've had. And that is not the kind of productivity we're talking about.
We're talking about really a lot of what we've been doing is not only just getting our service levels back in our labor pool stable, but investing technology and harnessing technology. So we can run our plants more efficiently and really, really kind of do the opposite, which is the time zero loss and no waste and be a high-quality as we can be. So rest assured that's not part of the playbook.

Peter Galbo

Thanks Sean.

Operator

[Mats Gulfport] from BNP.

Thanks for the question. I might be reading a bit too much into it. It feels like while you are still encouraged by the direction of the volume recovery, you're maybe a bit less optimistic on the pace of that recovery than you were just last quarter. And it felt like you were moving towards that Mendoza line of flat to positive volumes. If that threat to just give us an update on sort of what's changed over the last three months in terms of what you're seeing in the consumer environment, thanks.

Sean Connolly

That sound right, max on that's now I feel at all, in fact, if you look at the trends of the consumption that we've shown, there has not been a business that has stalled. I you know, in our we've had steady upward trajectory from Q1 through Q4, just virtually everywhere in the business. Now as Dave points out, there's plenty of noise in this year's Q1. So I get that we've got to be helpful for you guys and understand Q1, for example, part of that is not just on on the stuff that impacts margin. But we've got some significant merchandising events in Q1 of last year that we've shifted to Q2 this year to take more advantage of holiday and the lift we get there.
So I I feel like what we're seeing here is , as I mentioned to you, Andrew, and Ken process that's unfolding in a fairly linear way, ex the noise in terms of just the underlying trend line. And I think that's going to continue. And I think we've these are discrete investments that we put business by business and where we've done that, we've seen a response.
So we'll do that against more businesses as we go into into fiscal '25, here, and I think we'll see a continued response. And meanwhile, while we're doing it, if you think about our two most critical strategic businesses in the portfolio, frozen and snacks, we held or grew market share in 80% of those two that combined business, that is about the best you're going to find in the industry. So so these are not only being the volume line in a very predictable way, but we are gaining share. And that just shows you the how well our brands are resonating vis a vis either competitors and how well our innovation is resonated with consumers as well.

Great. And then on food service with volumes down 10% in the quarter, you called out the QSR weakness as well as some actions to eliminate a low profit business. I was just curious if you could disaggregate for us the magnitude of each of those two impacts and also what you're seeing on the QSR side in terms of how that weakness could progress over the coming year?

David Marberger

Yes, I'll just make a quick comment here, David, add whatever you want. But our foodservice, I think everybody knows as a channel we can do, you know, in the last several months and traffic's been down and no company, I think has been exempt from that. But so we've had a bit of that. But that's really kind of out with a big part of what you're seeing in our foodservice business. We have had a very serious margin experiment expansion philosophy on our foodservice business, where in the last year we exercised a fair amount of value over volume strategy. And so that negatively pressured our volumes. But I think our operating margin foodservices up a massive amount. Dave, I don't know if we were going to want to find that, but up 400 basis points.
So we've gotten the impact we were looking for from our value over volume. The top line part is a little bit soft attributable to the traffic piece that we've seen elsewhere. But but that the overall takeaway around top-line foodservice, the primary driver is our value over volume strategy, and that has had a very material expansion on our operating margins there. Anything else you'd add to it yet? Not just going to and especially in light of popcorn and some tomato businesses, we're just we're not just weren't making the money that we wanted to make. So we got out of those businesses.

Great. Thanks very much.

Operator

Robert Moskow from CD. Cowen.

Robert Moskow

Hi, thank you, Sean. Getting you have a lot of brands that skew more heavily towards towards lower income consumers and you have a lot of brands that skew the other way. Are you seeing any differences in terms of how those brands are performing, like low income versus high income? Because there's a lot of of when food companies are asking why things are slowing, they tend to point to that that cohort and you have a pretty broad portfolio. So do you see more in one versus the other?

Sean Connolly

Yes. I think any large diversified food companies is going to sell products to pretty much every income level. And I think the headline in the last year and level people in support and higher income consumers just on principle didn't like the new price points they were seeing in the basket and they would say would trim their normal purchases. So to get to your point, it's things like when we looked at Snap and and some of the sunsetting of the excess payments, did we see any material impact in the business? Not really a little bit, but not much.
So I would just I would say that the value seeking behavior we saw in the last year really was across income cohorts. You're always going to have more sensitivity for the lowest income bracket. And and that's where you tend to see those thresholds that I talked about a little earlier with Dave matter the most, Rob, because if you if you are going to invest in a high quality merchandising event and you can get to material a meaningful threshold for that lower income consumer, i t tends to manifest itself in high lifts. And we have we've done that. We have seen higher lifts than we've seen on average kind of in the last 10 years. I think what that tells you is people who have trimmed their buying rate are ready to get back to buying rate. They just need a little bit of that nudging. And I think those those thresholds probably mean that most of the people who need them the most.

Robert Moskow

Great. Thank you.

Operator

Nik Modi from RBC.

Nik Modi

Thanks. Good morning, everyone. I just thought maybe I can just follow up on Rob's question out from a different angle. And Sean, I'd love your perspective on this . I mean, I'm wondering if there's a mismatch between, you know, where the consumers are versus how you're spending on in Canagra has been very on a on the forefront of digital on marketing for many years. But it seems like a lot of older consumers tend to over-index categories. And I'm curious if you think there's a mismatch between where you're spending the money, which is more digital versus kind of more traditional media, which is where some of these older consumers tend to Tropic . Any thoughts on that?

Sean Connolly

Well, if you think about our what I'll call our brand building spend in total, by far the biggest investment we make is in new product innovation, product and package. So it's actually right into the COGS line. And if you look across the food space, you feel you won't probably find the breadth of innovation that we do around here. Why does that matter? Because that the consumer spend the bulk of their time shopping, whether it's shopping online, shopping in store, and we want our products to be a resting at the point of purchase. We want our products to be provocative to look modern and contemporary because we believe that appeals to us all age groups, young, middle older, it doesn't matter. So that's our biggest spend. And then we also invest with our customers.
We invest in high-quality display. We invest in the proper shelving, right eye level. And again, that's the kind of investment that is agnostic to age group. And the smallest piece of it is the AP. piece of it, which is heavily focused on the social media around. And the reason for that is because we're trying to find we're trying to drive by reality, we're trying to get word of mouth about our products and just because virality may start online in TikTok or on Instagram. It doesn't now the point of those types of investments as they get consumers talking. And when you get consumers talking, they talk to their friends, they talk to their families, t hey talk to their moms and dads. And that's how you drive brand saliency top of mind this an intriguing, the new innovation. So. So we have investments all across the board from product to in store to online. And we're highly confident we're reaching every demographic. And frankly, if we weren't, you would not have seen the types of volume inflection domains.

Nik Modi

That's helpful. And then just maybe if you can give us an update on plunging and some of the channel work with suggest there's some pressure there, some kind of encroachment competitors McFadden. I'm just curious if you have any perspective on kind of how that brand is faring right now?

Sean Connolly

Yes. I think to kind of wrap your mind or a Slim Jim slit, you got to think Slim Jim enjoyed it absolutely explosive growth through the pandemic. Which saw the business increase in size dramatically. That led to some capacity constraints for us. And so between this past year, between the capacity constraints and the tough comps, those are things we had to deal with in fiscal '24, but now with good investment, good innovation and capacity available to us. Again, the business is already growing again, volumetrically and I would expect that to continue Slim Jim is a $1 billion juggernaut And and that's not going to change.

Nik Modi

Great. I'll pass it on. Thank you.

Operator

Tom Palmer from Citi.

Thomas Palmer

Thanks for fitting in. I just wanted to clarify on promotional activity, other types of brand building that you referenced, both in response to consumers compare to historical norms and relative to what we might have seen, say in late 2023? And then are you seeing much response from your competitors are based on your actions?

Sean Connolly

I would say on the categories that have been described as normal rate when you go to a store for frozen meal is 10 and you cut that back to 8. That means that after you run out after eight people in the household or job of opening the freezer, expecting their fee to more instead, they've got to make a sandwich from scratch or they had something and that grows frustrating. And so what happens then is if we can get to the right price thresholds and get a high-quality display people like, I think good this phenomenon, I'm going to replenish it in my normal cadence . And that's kind of what we've seen two shows up in in better lifts on it. In terms of competition across the category, look at anybody, I think in the industry is trying to get volumes on north again.
And so I think everybody has had room to do more promotion and that's fine. That's fine because the consumer need some help. And I think there are getting it on, but not everybody has equal brands. So you're not going to get equal lifts in frozen it as an example, we've got look at our market shares there. Wherever all-time record market shares are the biggest frozen player there is and that's in large part. And all the category growth in the last 10 years is because of the quality of the innovation, which frankly is just difficult for anybody to match.

Thomas Palmer

Thanks for that. And then just a quick one on Ardent Mills. The language in the release or the prepared remarks will refer to it is moving towards a more normalized level of operation. I just want to make sure I understand this because we think about that $150 million outlook, which is kind of consistently started off last year as well as a more normalized rate, or is that like normalizing and we should look for maybe a glide path slightly lower for over a series of years?

David Marberger

Thom, let me trying to give you some color on that. I did spend a little time in the remarks on on Ardent Mills. That's really split into two basic businesses , just the flower business that they sell at a margin. And then this business that I called commodity revenue type business. And this is things like, you know, them hedging flow, lower transactions, you know, storing we know based on futures curves speculating on on feed prices and wheat and corn future. So all that kind of trading activity that is very difficult to forecast with precision, right and Ardent Mills as they have significant capability in the area. And so the way that we're going to do this with Ardent Mills, as we're going to give you guidance on what the number is based on our latest estimate from management and in each quarter or we're going to update on it because it can it can ebb and flow. But over over the course of the year right now, the guidance we gave is our best ever estimate.

Thomas Palmer

Okay, thank you for that.

Operator

Chris Harris from Wells Fargo.

Chris Harris

Hey, thank you very much. So I just wanted to maybe clarify or clarify, but get a bit more context on the pricing comments in the presentation around competitive price tomato pricing will be lapping and then you'll be taking new pricing on some cocoa? I guess when you when you think about those two things, does that net out neutral for the year? And then how would you see overall pricing trending perhaps ex those items for the broader business, especially after the context of the stable gross margin, despite some investments. Then I have a quick follow-up.

David Marberger

While this let me start, Sean , you can fill. And so, you know, all of our pricing is inflation justified. So we've obviously taken significant pricing over the last two to three years. But you look in fiscal '24, there was significant inflation in tomatoes. So we took pricing during fiscal '24. So that will all -- wrap on that in fiscal '25. And then as you know, there's been significant inflation in cocoa. So with our Swiss Miss business, we are going to have pricing that will be effective Q2, so that it's all based on on inflation. So they're really the two big areas right now .
In terms of the impact on price mix there, obviously, tailwinds to price mix, right? So when you take prices, you're going to get benefit from that. But then when we increase investment and trade merchandising, that's above, that's within the net sales line. So that shows up as more of a headwind in terms of the overall impact. So so those will net. So as we go into fiscal '25, you'll start to see kind of price mix play out for our Grocery & Snacks business. Sean mentioned we see some select opportunities in grocery and where we want to, but we want to do some investment. And so that will play out as fiscal '25 moves on. And that will be reflected in the price mix line. So we're not going to give specific guidance on price mix by segment, but they're there and the general dynamics that should help you.

Chris Harris

Okay, great. I said it would be a quick follow-up, maybe maybe a bit more than that, but we'll still see some 80% holding or gaining share. And the strategic frozen and snacks, clearly very good share momentum in those areas w here your focus you did, however, mention that the Staples work in progress.
Can you just comment on the areas where you are seeing competitive encroachment and perhaps specifically how you see private label developing and some of these areas that given the that's a retailer focus? Just any context on this that comes to mind is helpful. Thank you.

Sean Connolly

Yes, we've had we've as I mentioned, we've seen value-seeking behavior now for a couple of years. And it really is in every category that people buy in food and beyond food, we've tackled and much of that in the portfolio. There's still some places that we haven't pursued to that. So we've got a couple of canned food businesses as an example, with tomatoes and canned pasta, where we haven't put a lot of attention. Those are categories where they are not like other categories, they're not exempt from a trade down if your price thresholds are not right if you're gaps or not, right . So we've got the vast portfolio. We've got a couple we've got a handful of space is not many that we haven't really put energy against that will put some investment against.
That's baked into the outlook that we gave you today. And we know on those businesses, they are the kinds of businesses we talked about earlier where when you get your fundamentals in the right spot be at a gap, albeit a threshold. And you get the right kind of display support, you tend to see outsized lift. So there are few spaces there.
But overall, I mean, if you think about the peer set, our strategic spaces are back to pretty much flat. We're already growing volumetrically. I don't think you're seeing that a lot of other portfolios. And I also don't think that you're seeing in other folks, key strategic domains, 80% of that portfolio holding or gaining share. So I want to make sure we emphasize that because we have been we were one of the first companies to say that we were going to guide. We said overtly, we're going to target our key strategic domains for investment. If we since we believe the consumer was ready to be nudge and we have seen tremendous response, we're back to pretty close to that and then does align and in some cases already positive territory, there are.
So so that's in between that and our share performance in those strategic domains. I'd like to set up as we go into the fiscal year. We'll deal with the noise in Q1, but the fundamentals look pretty solid to me to my eyes.

Chris Harris

Okay. Thank you. Both .

Operator

Rob Dickerson from Jefferies.

Robert Dickerson

Great. Thanks so much. I guess, Sean, just to come back to the grocery will be more Staples business. There does seem like it's lagging a little bit there for the various reasons you mentioned and feel a bit more investment going in there as we get through the year . But I am just curious kind of we're much more broadly speaking as we if we go back to pre-COVID, right cut as you enter the company and we look through all the different brands and segments, there did seem to be kind of a feel a bit of a the potential of divestment.
You know, on some of those grocery brands just to kind of focus the overall portfolio, right? And then we can come back particularly will 80% holding didn't share and strategic domains. This is our focus. So I'm just curious, as you think forward in the next few years, like, I guess, why not just kind of step away, you know, from some of those brands sort of in line with what you've been speaking about Oilfield Service side?

Sean Connolly

Yes. There's a bunch in there, Rob. Let me just mention real quick on the first bar in terms of our what we call our Staples domain, which are basically staple products for assets that's refrigerated combination, refrigerated businesses and some grocery businesses. And we invested in some of the refrigerated businesses in Q4. I actually saw our refrigerated brands grow volume metric.
In our grocery business. We had some businesses that were wrapping an easy comp because some supply chain challenges. Last year, they grew meaningfully in Q4. And then we had some other businesses that infact mentioned a couple that we've got to get through. So there's a lot that goes in there. We also under shipped consumption in that Grocery & Snacks business in Q4. So that was that was really a part of what you saw in terms of where we stood versus consensus in the quarter. But to your broader point, if you go back to the deck we shared at the last cagney, I don't know that there's been a more active portfolio in the last nine or so so years in terms of reshaping the portfolio for better growth and better margins, including divestitures, we've done as many spins or divestitures as they think about anybody.
So we're always open to that. I think what I would want investors to assume there's anything that's not strategic for us where So somebody else would offer something that is above the intrinsic value of the asset. Why wouldn't we be open to that? Of course, we have been in the past, we would be again in the future, but we also have to be we have that sharp pencils in terms of how much overhead to those assets absorb, what would the margin, what does the economic value we would lose if we were to exit them and are we going to be paid for that?
So so you won't find any on entrenchment here against the concept, but we have to be very buttoned up in terms of does it create value or does destroyed value for our shareholders? Because over time, I think what you'll see as we invest in the businesses we own will add bolt-ons that are additive to our growth into our margin. And we'll we'll divest stuff that is a drag either on growth or margin and not a strategic fit. I think that's always been our playbook, and I don't think that will change over time.

Robert Dickerson

Got it. Yes, fair enough. And then just maybe quickly for Dave. I normally don't ask about impairments of the quarter, the colored being called out previously, well, I understand it changes in rates. What have you like? Are there certain areas that we should just be aware of or certain brands that maybe have been driving a bit more those impairments? And that's all I guess.

David Marberger

Yes, no, from So yes, obviously, the fourth quarter we go through our impairment testing. We do it every year. I mean, we really look at impairment both at the brand level and for goodwill, which is based on our reporting level, which means there's several different brands that come together that then go against goodwill that's been allocated to those. So it's two different types of impairment. This quarter, we actually had impairments both in brands and goodwill. And as I mentioned in my comments, there were three key drivers that the higher interest rates, which obviously impact discount rates because you're basically doing discounted cash flows when you do impairment on goodwill and you're using a room royalty methods, which essentially is a discounted cash flow type concept.
So obviously, discount rates have an impact in there, but they're up based on interest rates. You also when you do goodwill, you look at the industry market multiples and that that is something that impacted this year as part of the impairment. When you look at the food industry and you look at it as an average that we have much lower industry market multiple. So that actually impacted us and was part of our impairment that we took.
And then the third, these assumptions we have on net sales. And obviously in this environment where we're your volumes are down, we're investing that does impact your short-term forecasts on net sales. And when you do that, that can impact any particular reporting unit our brand, depending on kind of where it sits. So we feel great about our business. We talk about our business very openly and you guys have a very good feel for what our strategic priorities are. This is the standard analysis that we go through. But but more than 50% of the impact is really from the interest rate and a lower market multiple,

Robert Dickerson

Makes sense. Thank you so much.

David Marberger

Thanks.

Operator

And ladies and gentlemen, at this time, I'm showing no additional questions. I'd like to turn the floor back over to Melissa Napier for closing remarks.

Melissa Napier

Thanks, everyone, for joining us for our live Q&A session today. Investor relations is around and available to take any follow-up questions that you may have. H ave a good day, everyone. Thank you