コナグラ・ブランズ（CAG）2027年度第1四半期決算説明会：インフレと第2四半期見通し

コナグラ・ブランズ（CAG）は、第1四半期決算発表後も2027年度の事業計画前提を維持する一方、輸送費の上昇、慎重な価格弾力性の前提、およびブランド投資の増加を強調しました。経営陣は引き続き負債削減を目標としており、ポートフォリオ簡素化による効果の大半は2028年度に顕在化すると見込んでいます。

要点

• 経営陣は、価格弾力性や感謝祭に関連する出荷と消費のタイミングの違いを反映し、第2四半期のオーガニック売上高が2%減少すると見込んでいます。
• 2027年度のインフレ率は引き続き5%〜6%と予測されていますが、輸送コストのインフレが当初計画の約2倍のペースで推移しているため、現在は上限寄りと見込まれています。
• 第2四半期の営業利益率は、インフレの進行、販売管理費（SG&A）計上のタイミング、および広告宣伝・販売促進費の増加により、第1四半期の11.5%に対し、一桁台後半の水準になると予想されています。
• コナグラの第1四半期末時点のレバレッジ倍率は3.99倍であり、約2億5000万ドルの負債を返済しつつ、2027年度末には約4倍で着地すると見込んでいます。
• 通期の売上総利益率は前年並みを維持すると引き続き予想されており、価格設定、弾力性、冷凍食品の売上数量減少はすでにガイダンスに反映されています。
• コナグラは400以上の単一用量食事（シングルサーブ・ミール）SKUの見直しを含め、SKUの簡素化を加速させています。経営陣は財務上の効果の大半が2028年度に現れると見込んでいます。

主要財務データ

事業および業績パフォーマンス

第4四半期の決算発表後に実施された価格改定が市場に浸透しつつあります。経営陣によると、小売業者の受け入れ状況は計画上の前提と一致していました。コナグラは、競合他社が自社の価格改定に追随することを前提とせず、食料品の価格弾力性を約2:1、スナック菓子を約1:1とモデル化しています。

第1四半期は製菓類（スイートトリーツ）が堅調に推移した一方、ヘルシースナック（パーミシブル・スナッキング）は経営陣の予想を下回りました。ミートスナックや種子類（シード）はコンビニエンスストアへの依存度が高く、ガソリン価格の上昇が来店客数を圧迫しています。コナグラは第2四半期から、ミートスナックとポップコーンのマーケティングおよびイノベーションを強化する計画です。

経営陣は、サイクロスポラ（寄生虫）問題に関連する需要により冷凍食品で一定のプラス効果が見られたものの、その影響は軽微であり、ポートフォリオの他の領域で一部相殺されたと説明しました。同社は、消費者のさらなる支持を獲得する領域として、「バーズ・アイ（Birds Eye）」のブランドに対する信頼性、利便性、安全性を強調しました。

コナグラはまた、販促活動に対してより厳格な投資対効果（ROI）基準を適用しています。経営陣は、「サンドイッチ・ブラザーズ（Sandwich Bros.）」における一部の施策を含め、収益性を低下させる販促活動は繰り返さないと述べました。これらの前提は、2027年度の業績予想にすでに織り込まれています。

ポートフォリオの簡素化は引き続き主要な経営優先課題です。コナグラは「チェレスト（Celeste）」ピザ事業から撤退しました。これは第1四半期の売上高に若干のマイナス影響を与えたものの、利益にはプラス寄与しました。この広範な取り組みは、生産性の低いSKU、フォーマット、処方を削減しつつ、調達規模、製造効率、棚回転率を向上させることに重点を置いています。

単一用量食事（シングルサーブ・ミール）は重要な注力分野であり、現在ポートフォリオには400を超えるSKUが存在します。経営陣は、簡素化はこのカテゴリーへの取り組みを縮小することを意味するのではなく、よりインパクトの大きい製品に投資と流通を集中させることを意図したものだと説明しました。

経営陣による業績予想

経営陣は、第2四半期のオーガニック売上高が2%減少するという見通しを維持しました。この見通しには、慎重な弾力性の前提や、出荷が消費を下回る要因となり得る感謝祭前後の季節的なタイミングが織り込まれています。

第2および第3四半期のインフレ率は第1四半期よりも高くなると予想されており、第2・第3四半期は同水準のペースとなる見込みです。高騰していた輸送費、食用油、段ボール包装、アルミニウムのコストが前年同期を一巡するため、経営陣は第4四半期のインフレ率が第3四半期と比較して和らぐと見込んでいます。2028年度には、より広範なコスト比較が有利になる可能性があります。

第1四半期の営業利益率11.5%から第2四半期の一桁台後半への低下予測には、インフレの上昇、販売管理費（SG&A）のタイミングによるプラス効果の反転、およびA&P費用の増加という3つの主な要因があります。第1四半期の販売管理費のプラス効果のうち約半分は一時的なものであり、残りの半分は第2四半期へシフトすると見込まれています。第1四半期の販売管理費によるプラス効果の合計は、1株当たり約0.03ドルに相当しました。

コナグラは、通期の売上総利益率が前年比で概ね横ばいにとどまると引き続き見込んでいます。ガイダンスには、予想される価格弾力性、冷凍食品の数量減少、およびそれに伴う製造固定費吸収効果がすでに含まれています。

経営陣は長期的なレバレッジ倍率の目標を3倍と改めて主張しました。2027年度末のレバレッジ倍率は4倍近辺にとどまると予想されていますが、収益性の改善と配当調整を通じて2028年度にさらなる進展を果たすと見込んでいます。

リスクと注視事項

• 運転手不足や原油価格の影響により輸送コストのインフレが加速しており、コナグラの当初計画の約2倍のペースで推移しています。
• 冷凍食品の価格改定は現在も市場に浸透中であり、実際の消費者弾力性には不透明感が残っています。
• 冷凍・冷蔵食品の数量減少は製造固定費の吸収を圧迫する可能性がありますが、経営陣はこの影響はガイダンスに含まれていると述べています。
• コンビニエンスストアの需要はガソリン価格上昇による圧力を受けており、ミートスナックや種子類に影響を与えています。
• 小麦価格の変動により、アーデント・ミルズ（Ardent Mills）のコモディティ取引による貢献を正確に予測することが困難になっています。
• SKUの削減は小売業者の棚替えスケジュールや在庫管理と調整する必要があるため、予想される効果の大半は2028年度まで持ち越される見込みです。

アナリスト質疑応答のハイライト

消費動向が比較的安定しているにもかかわらず、コナグラが第2四半期のオーガニック売上高の2%減少を見込んでいるのはなぜですか？経営陣は、価格改定の実施、慎重な弾力性の前提、および感謝祭のタイミングを理由に挙げました。当四半期は季節的な消費が出荷を上回る可能性があります。

インフレ予測の引き上げを牽引している要因は何ですか？タンパク質原材料コストは計画より良好に推移していますが、その恩恵は輸送インフレにより大きく打ち消されています。経営陣は、第2および第3四半期のインフレが第1四半期の水準を上回り、第4四半期に和らぐと見込んでいます。

第2四半期の営業利益率が低下すると予想される理由は何ですか？主な要因は、インフレの上昇、第1四半期から第2四半期への販売管理費の期連れ、およびA&P費用の増加です。投資は単一用量食事、ミートスナック、ポップコーンに集中する予定です。

レバレッジ倍率はどの程度の速さで3倍に向けて低下しますか？コナグラは2027年度に約2億5000万ドルの負債返済と、期末レバレッジ倍率4倍近辺を見込んでいます。経営陣は2028年度にさらなる進展を見込んでいますが、同年度の具体的なレバレッジ予測は提示していません。

コナグラは借換リスクをどのように管理していますか？同社は、運転資本用のコマーシャル・ペーパーを除き、負債のほぼすべてが固定金利であると説明しました。満期を迎える5億ドルと2億6000万ドルの2本の社債に先立ち、7月に5.4%の利回りで5億ドルの社債を発行しました。

小麦価格の変動はアーデント・ミルズにどのような影響を与えますか？主力の製粉事業は比較的安定している一方、小麦価格の変動はコモディティ取引の機会を生み出す可能性があります。アーデント・ミルズの第1四半期の貢献はコナグラの社内予想を約0.03ドル上回りましたが、経営陣はこの貢献額を正確に予測することは困難であると述べました。

決算説明会全文トランスクリプト

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good morning, and welcome to the Conagra Brands Q1 Fiscal Year '27 Earnings Q&A Conference Call. [Operator Instructions] Please also note, today's event is being recorded.

At this time, I'd like to turn the floor over to Matt Neisius, Head of Investor Relations. Please go ahead.

Matthew Neisius

Good morning, everyone, and thank you for joining us. Once again, I'm joined this morning by John Brase, our CEO; and Dave Marberger, our CFO. We may be making some forward-looking statements and discussing non-GAAP financial measures during this Q&A session. Please see our earnings release, prepared remarks, presentation materials and filings with the SEC in the Investor Relations section of our website for descriptions of our risk factors, GAAP to non-GAAP reconciliations and information on our comparability items.

I'll now ask the operator to introduce the first question.

Operator

[Operator Instructions] Our first question today comes from Andrew Lazar from Barclays.

質疑応答

Andrew Lazar

Maybe I want to start out -- can I pointing to organic sales in fiscal 2Q to decline 2%, a bit heavier than current consensus. It looks like quarter-to-date, maybe scanner looks to be running maybe closer to flattish. So, I guess, I'm just curious if anything has changed in your 2Q top line outlook and whether it's elasticity or something else that might cause a sequential deceleration or perhaps it's just more prudent planning?

John Brase

Andrew, let me start and turn it over to Dave. But I think in general, the pricing we discussed in the Q4 earnings call is really just hitting the market kind of as we speak. And so I would say in terms of our pricing assumptions, at this point, results are in line with how we planned the year. And I like the word you use, Andrew.

I think we've taken a very prudent approach to our elasticity assumptions and these assumptions remain unchanged, which is really frozen at more of a 2:1 elasticity that we've modeled for the year in grocery and snacks at more of a 1:1 elasticity. Now in terms of competitors and followership, I would say we have not assumed any followership our pricing moves. Obviously, if that happened, there could be some upside to those elasticity assumptions, but we have not modeled that in.

David Marberger

Just one additional piece of color. So we guided to 2%, down 2% organic for Q2. This contemplates Thanksgiving timing because you have the second quarter of this year versus third quarter. So we may ship a bit below consumption in the second quarter because of the seasonal items may have some more consumption versus shipments. So the 2% is consistent, like John said, with our original planning posture.

Operator

Our next question comes from Peter Galbo from Bank of America.

Unknown Analyst

Just wanted to touch on the updated inflation guidance for the year, having moved kind of at the higher end of the $5 to $6 million I know you had kind of Q1 inflation in the 5-ish percent range, more towards the low end. But just kind of how you see it pacing over the balance of the year? And maybe just help us think about exit rate. Are we above that 5% to 6% as we get and kind of how we might think about it again from a phasing perspective.

David Marberger

Yes, Peter, thanks for the question. Let me try to give you a little bit of color here. So as we talked about for Q1, we did have some favorability in proteins relative to our planning -- so we were a bit favorable, which drove some of the favorability we saw in Q1. But as we went through Q1, obviously, we've seen an acceleration in inflation around logistics or transportation cost, really driven by the driver shortage and oil prices as well. So as we forecast inflation, we're still in that 5% to 6% range for the year, we said towards the higher end of the range.

And really, what's happening is the favorability that we've seen in proteins, which we would continue to see is a little bit more than offset by the -- basically the doubling of inflation in transportation versus where we planned it for the year. So it's kind of a trade-off there. In terms of the flow of the year, we would expect -- and we usually don't give this much detail, but I think it's important because I think there's some confusion on this inflation. We would expect our inflation rate in Q2 and Q3 to be higher than Q1 and and that to be about the same.

And then we expect our Q4 inflation rate to actually be lower than Q3. So that's kind of the flow. And as we sit here today, we have no reason to believe that we wouldn't be wrapping on not just the transportation costs that we're seeing but things like edible oils and kind of our corrugated aluminum, we have a lot of areas where we're still seeing high inflation which we will have all during fiscal '27. I don't see a reason why we couldn't expect that we would wrap on that. So obviously, we'll have to get closer for that. But I feel like Q4 will be lower than Q3, and we should be wrapping on a lot of these higher inflation categories in our materials when we get into fiscal '28.

Operator

Our next question comes from David Palmer from Evercore.

David Palmer

I wanted to ask you about the pricing, the acceptance at retail, how much is that factor into what you're thinking there? Or your price elasticity modeling just basically a price impact to the consumer in a vacuum of competitors, not also pricing? And I have a quick follow-up.

John Brase

Yes. Thanks for the question. I think in terms of pricing, I kind of go back to my opening comments, I'd really say really in line with our expectations. And so we're really past kind of the customer acceptance of that now pricing is effective in market. And I would tell you that customer acceptance there was no surprises versus our planning posture. And so that's how I think about pricing as we move forward.

David Palmer

And then I noticed you had some comments about not not repeating a promotion from last year on the Sandwich Bros brand. Is that the kind of thing that you will be seeing throughout the year that there'll be promotions that you see that you already see that were not effective from a profitability standpoint? And is that baked into your guidance? And I'll pass it on.

John Brase

Yes, great question. And again, I think we continue to look at our promotional dollars through a real ROI mindset. And I think we've been really prudent of saying, hey, we're not going to repeat promos that have been dilutive to the company. And I think that's what you're seeing in some of this simplification, really focusing on those high leverage elements that can bring value to not only the consumer but also to the shareholders. And so we're going to continue to make that a part of how we operate. But I would tell you, again, everything -- all those assumptions have been embedded into the fiscal year forecast.

Operator

Our next question comes from Tom Palmer from JPMorgan.

Thomas Palmer

I wanted to maybe just clarify on your second quarter expectations. You've got this high single-digit operating margin outlook incremental pricing is flowing through. There was the SG&A call out. I just want to make sure I kind of have my arms around the gross margin cadence here. Like is there a step down expected in gross margin as we move into 2Q? Or is this really about the timing of SG&A that swings the margin lower?

David Marberger

Yes, Tom, let me take that. There's really 3 drivers. If you would look at where we landed on operating margin, let me just kind of go there at 11.5% for Q1. We said higher single digits for Q2. There's really 3 drivers. One, as I just mentioned, we expect higher inflation in Q2 versus Q1. The second piece is the SG&A favorability that we had in Q1. It was roughly $0.03 of our EPS beat.

Half of that was a onetime benefit. Half of it was timing where it didn't hit in Q1. It's going to hit in Q2. And then the third piece is accelerating our investment in A&P. So we expect to increase A&P as a percentage of net sales to versus 2.3% as it was in Q1. So they're really the 3 drivers. So you will see a little bit of a on gross margin from the higher inflation versus Q1.

Operator

Our next question comes from Alexia Howard from Bernstein.

Alexia Howard

Great. Could I ask about the leverage. So, you've talked about the 3x being the long-term target. And I think it increased a little bit this quarter. I think you're saying that you'll still probably be at 4x by the end of the year or you said through fiscal '27 it will remain at this 4x. So how quickly do you expect to start on that deleveraging trajectory? And how quickly do you expect to achieve that goal?

David Marberger

Yes. Alexia, if you start with this year, yes, we -- we guided to expecting to finish the year approximately 4x on our leverage. We finished Q1 at 3.99x, that's actually favorable to where we thought. Usually, what will happen in Q1 and Q2 as our leverage will click up because we're very seasonal with our inventory, right, with our seasonal businesses and things like our tomato operations, we built all the inventory in Q1 and Q2. So obviously, we use cash in the first half and then we have cash inflow in the second half. So that's very normal.

So we're still on track with the approximately 4 times that -- we don't get specific with this, but it's implied. We do expect to pay down debt in the year for the full year. Approximately $250 million of debt pay down is what we would expect for this year. Our target is 3x. We are maniacally focused on getting there as soon as possible.

As we get into fiscal '28, John talked about it, we're focused on improving margins and profitability of this business. So with improved profitability and the dividend adjustment that we made, we feel like we're going to be able to make great progress in fiscal '28 on getting that leverage down. We're not going to give you that number today, but we want to get to 3x as soon as possible.

Operator

Our next question comes from Chris Crey from Wells Fargo Securities.

Christopher Carey

This is Chris Carey. I wanted to ask about the -- next portfolio. Can you just give us a sense of maybe where you are on some of the interventions to improve performance. You talked about, I think, popcorn, Blim Jim, yes, what are the expectations more from a volume standpoint as you look forward and perhaps lap some of the elasticities over the medium term?

And then just maybe not a location, but just curious whether you're seeing or you thought you saw any benefit in your frozen business from Cyclosp-related demand and if that's a factor in how you're viewing the next few quarters in frozen.

John Brase

Great. I'll take both of those. As you think about snacking, let's start with the positives. Really, our Sweet Treats portfolio continues to perform really, really well and had a very strong quarter Q1, and that's really behind both StackPac and Swiss must continue to really be performing very well in the market. I think permissible snacking, as you said, is really where we're not where we want to be there. And I think a couple of points of drivers there. The first is, obviously, we're very overdeveloped in our meat snacks and our seeds business in the convenience channel, which has been really challenged lately with the higher gas prices.

But I think aside that, there's work to do from my standpoint in terms of from an execution and a channel lens, we need to do a better job of participating where the growth is really coming from, specifically in the meat snacks category. As you take a step back and you think about meat snacks and popcorn and seeds, these are fantastic categories, and we are the market leader. And so it's our responsibility to kind of drive these categories forward.

And so I think what you're going to see, and you're already seeing as we go into Q2, a significant step-up in our brand building and marketing specifically pinpointed at meat snacks and popcorn specifically there, but then also innovation, a major step-up in innovation. We think those are the -- those are the 2 critical levers that kind of get us back to a growth trajectory in those important businesses.

On Cyclospora, just a quick one there. We did see some benefit, but I would tell you, nothing material as we think about Q1 and we also actually saw some offsets from Plecospora as you think about like our Wish-Bone salad dressing as an example. So again, nothing material there. But I think more than the onetime benefit, I think what's really important is this is a reflection of consumers coming to a brand they know and trust with Birds Eye, and we did a great job of delivering for them. And so I think as you think about that brand, we've got such an opportunity to drive better -- more trial and more engaged with consumers. We deliver great taste great convenience and honestly, reliability that they're looking for in their vegetables. So we think a great opportunity to continue to drive.

Operator

Our next question comes from Max Gumport from BNP.

Max Andrew Gumport

Question, just coming back to the 1Q and your reaffirmed outlook for the year. Obviously, it was a sizable EPS to be versus consensus, and I think first year expectations too. They get some help from inflation. There were some SG&A timing benefit as well and your inflation outlook for the remainder of the year has picked up. But I'm curious to what degree the firmed outlook maybe has embedded additional conservatism in that, especially with regard to mills as well given the weak price volatility.

David Marberger

Yes, Max. Let me take that. Starting with Q1, you kind of hit it. We had a beat to our expectations really driven by, I think, 4 things: our SG&A which was the timing and then the 1 time we had the Ardent Mills benefit. We had the inflation lower than our internal forecast. And then we did get a bit of benefit on the tariff refund that we got in the quarter, which was close to us then.

When you look for the full year, SG&A, we talked about it, the onetime, the onetime and then you have the timing and -- but that's pretty much on track. The big -- the big impact is the acceleration of transport and inflation. It's double the rate that -- and we had assumed inflation for transportation at double the rate. The good news is that we have some other areas in materials where we're favorable to that. So there's a lot of puts and takes there.

The other dynamic is we're just starting with our frozen pricing. And so we really need to see how this plays out. We've been very clear on how we've modeled elasticities there could be a scenario where maybe that winds up being conservative, maybe not. So we just need to see how that plays out. And then Ardent Mills, we were favorable about $0.03 in the quarter to our expectations for Ardent Mills. Wheat prices have been extremely volatile, right?

If you just kind of look from May to now, they're up significantly, but they've been up and down. And so that creates trading opportunities for the ethos the Ardent business. And so the thing with that is it's a little bit more difficult to forecast that with Precision for the full year. So we thought it was prudent to hold the year, it's 1 quarter, and then we'll update at the half and if things continue as they do in Q1, then maybe we have some upside there, but we want to wait a little longer to see.

Operator

Our next question comes from Robert Moskow from TD Cowen.

Robert Moskow

I don't know if I saw kind of a firm guide on gross margin for the year, 3 months ago, I think the guide was kind of flattish. But now you have the higher cost and the other element that I wanted to ask about, Dave, is in the frozen and refrigerated division, the volumes are going to be down like 10%. And at the same time, you were also increasing capacity, particularly in frozen chicken. So I'm just wondering if there's -- how are you managing through the leverage consequences of that. Is that a drag -- have you already put into your numbers a drag from that dynamic?

David Marberger

Yes, Rob, good questions. The first one, we've held our guidance for operating margin for the year. So obviously, gross margin is a big part of that. We've had puts and takes in the cost. And so we're still where we were before, which is relatively flat to the prior year in terms of gross margin. To your second question, yes, obviously, we have modeled the pricing and the elasticity impacts and there's volume impacts where we have decreases in volume in our frozen business. We've modeled that. We've taken into account the absorption impact. So all of that is included in guidance that we provided, and we'll just see how that plays out.

Operator

Our next one comes from Rob Dickerson from U.S. Bancorp.

Robert Dickerson

John, I just want to ask you about the simplification process, kind of how you're thinking about SKU rationalization and then maybe even brand rationalization, right? I realize you said last quarter prepared remarks this quarter again, kind of looking at everything, but there was -- it was noted in those prepared remarks that, I guess you exited Pizza -- and I'm just curious, I mean, clearly, when you exit that, that rationalize SKUs. So like are there parts of the portfolio such that you could simplify by just kind of stepping away from certain brands that are online that you have? And then I guess, secondly, just kind of broadly, like how are you thinking at this point about the manufacturing footprint.

David Palmer

Rob, thanks for the question. And if you guys will indulge me, I'm going to go a little bit long on this 1 because I think it really is important for you to kind of understand how we're thinking about this. I am incredibly excited about the opportunity we have to really reduce complexity across the enterprise. And I will tell you, SKU optimization is definitely one of those areas. As we've discussed before, we have an extremely long tail of SKUs that we are getting after. Right now, we did -- we stood up an internal work stream that's really looking to significantly reduce SKU count.

And I put this work into 2 buckets. There was smaller bucket, which you just alluded to, is there are certain brands and categories where we simply just don't see a future. And it just makes sense to exit those, those small really unprofitable brands or low-profit brands as soon as possible. And so we made the decision, as you saw with Celeste pizza, which had a minor impact on net sales for Q1, about impact, but it was actually profit accretive to the enterprise. And I think we'll continue to look for more of those small opportunities that we do see in front of us.

I think the larger opportunity though is what I'm really calling the simplification of our core platforms. And I want to use an example here that I think will bring this to life, single-serve meals. We've got over 400 single-serve meal SKUs and I believe there's a future where we can have a much simpler, more productive assortment. That doesn't mean for a second that we don't believe in the category that we have any plans to see distribution we're going to stop innovating. I would say just the opposite. We want to double down in this business.

And we think an optimized assortment can help drive velocity on our most impactful SKUs. So that -- in terms of SKU complexity, that's one component. But I would also tell you, we're looking to optimize our formats and formulations. We just have to do a better job of eliminating nonvalue-added complexity that the consumer quite frankly, isn't willing to pay for. So as looking at this, we're not just looking to do we're looking at formats and formulations as well. And I think as you fast forward, this is going to do several things for us.

It's going to drive stronger operational efficiency. It's going to drive procurement savings as we're procuring fewer items, but with greater scale. It's going to help us drive improved focus, which I think is so important. When we get focused on something, we execute with excellence. We need to focus our organization a bit more, and this will do that. And then and finally, improved velocity on shelf, which is good for us, good for our customers.

And so the last thing I'd say here is we're going to take a real measured approach in how we roll out the SKU simplification. We really need to coordinate this with our customer reset timing and look at inventory impacts. So I would see the majority of this benefit from this work to happen more in fiscal '28, but the decisions are happening right now.

Operator

All right. Our next question comes from Scott Marks from Jefferies.

Scott Marks

Wanted to just ask a little bit about the consumer. You made some comments in the prepared remarks talking about the consumer just being thoughtful about where they're spending their dollars, obviously, manage them through a volatile environment. Any updates you can share with us in terms of what you're seeing? Have things improved, gotten worse? Just any changes that you've seen recently?

David Palmer

Yes. Thanks for the question. And I think I would describe the macro environment is dynamic. That's probably an understatement. But in terms of the consumer, I would kind of say the word -- I would use is muted and continues to be kind of bifurcated by income, no doubt about it. But having said that, we really haven't seen any material step change in consumer behavior. There's pockets. C-store as an example, that's been a bit more pressured in recent months because of the gas prices, but overall, I would say the consumer has been relatively stable and resilient.

And our job is to continue to stay incredibly close to the consumer. And we've got to evolve alongside how they're evolving and delivering the food they want, where they want it, but also importantly, at the right value. And this is what I love about our portfolio we've got brands that compete all across the value spectrum, value brands like Banquet all the way up to more premium offerings like Healthy Choice. And so we've got a portfolio that can meet this dynamic consumer wherever they are.

Operator

Our next question comes from Lee Jordan from Goldman Sachs.

Leah Jordan

Just if you could provide more detail on the changes in your approach for the step-up in the A&P spend. It sounds like you've had some early traction. Just curious what's been working, how are you measuring that return? And where you allocating the step-up in spend you're planning to do in 2Q?

John Brase

Yes. As you think about A&P, this is a big one for me. We have so many great brands. But if I'm being truthful, we haven't consistently invested behind them. at the levels that are required to drive that brand affinity and awareness. And so we have a tremendous opportunity communicate more with consumers to ensure they understand we've got great value propositions out there. And our job is to make sure they fully understand it. And so as you think about the investments, I'm really pleased in 2 fronts. One, we're investing more; and two, we're getting that money to work a lot harder for us.

And this is kind of this new modern marketing machine that we're building internally that I think can become a real competitive advantage. And so as you think about where we're focusing these investments, it's really in 3 places: single-serve meals, meat snacks and popcorn. We're going to be very, very targeted in those important growth ambitions.

And your last point is a good one, too. We're already seeing some really positive results in terms of improved reach and engagement from some of the changes that we're doing. We've gotten a lot more targeted in who we're going after, how we're going after them and our messaging is just sharper and more compelling. And so I think this is a tremendous opportunity to use this increased focus on brand building to help kind of return us to growth and then drive brand relevance.

Leah Jordan

That's very helpful. And then my follow-up was just on interest expense. I thought it was reiterated for the year. We've had to move higher in rates here recently. I think you're mostly fixed exposure, but I did think you had a little bit of floating. So just kind of catch up, remind us where your exposure is there. And then I also thought you may have some refinancing needs in the relative near term. So just how are you thinking about that in this interest rate environment as well?

David Marberger

Yes, let me take that. The first one, we're pretty much 100% fixed right now. The only variable debt that we have is our commercial paper and so we use that as sort of our working capital needs. So we're very high percentage fixed that we're really not exposed to the interest rate environment. Now yes, we do have 2 bonds coming due this month.

We have a $500 million note and a $260 million note. We actually went into the market in July and financed ahead. And so we issued a $500 million note, the rate came in at 5.4%. The timing was actually pretty good there, given what rates have done since then. So between the -- from the proceeds of that and just our normal kind of borrowing capacity, we're very comfortable refinancing these notes this month.

Operator

And our next question comes from Carlo Casella from JPMorgan.

Carla Casella

One on that last question as well as Lexia's earlier question on leverage. Have you had your conversations with the agencies because we've seen, in some cases, other peers that have cut their dividend and focused on deleveraging, but still gotten downgraded. Do you think they're kind of changing their view at all on your business?

David Marberger

Yes, Carla, we talk to the agencies all the time. And so they're very clear on our financial policy our priority of using our discretionary cash flow to pay down our debt as quickly as possible. So we're always working and talking to the agencies. They obviously looked at our cut of the dividend as a positive in terms of our credit rating and our position. So they know where we're going. They know what our priorities are. So now it's a matter of just continuing to get that leverage down.

We know the markers for levels where if you -- leverage exceed certain levels, you may be putting investment grade at risk. We're not near those levels. And we're moving in the right direction, which is down with our leverage and they know that. So that's our strategy. That's our focus, and they're very aligned with that.

Carla Casella

Okay. That's great. And then just one follow-up on Ardent Mills. How do we think about the volatility in wheat and how that flows through the numbers? I know it was a benefit for this quarter. But how should we think about that going forward?

David Marberger

Yes. So think of Ardent Mills as really two different businesses. They have a business where they mill flower and they sell flower at a margin and they're selling flower to the Domino's pizzas of the world and everything. So they're dealing with the same volume dynamics that the entire food industry is, but they do an amazing job of providing great customer service, that's a competitive advantage for them. But that business is more stable and more flattish. If you look at the other part of their business, it's what we call commodity revenue, and that's the trading opportunities they create when you have volatility in the wheat markets.

And so that's what we saw in Q1 and the hard part there is when that comes, it's a little bit difficult to forecast with precision. But generally, with more volatility Ardent Mills will benefit from that volatility with their commodity trading business. And so -- and the good news for us is we're very aligned from a capital allocation perspective. So in terms of profit, we have a minimum of 80% cash flow conversion on that profit, and we're very aligned with Ardent and our partners on that philosophy.

Operator

And ladies and gentlemen, at this time, we'll be ending today's question-and-answer session. I'd like to turn the floor back over to Matthew Neisus for closing remarks.

Matthew Neisius

Thank you, Jamie, and thank you all for joining us today. Feel free to reach out to Investor Relations with any additional questions. Have a good day.

Operator

And with that, we'll conclude today's Q&A session and conference call. We do thank you for joining. You may now disconnect your lines.