康尼格拉 (CAG) 2027财年第一季度业绩电话会议：通胀与第二季度展望

康尼格拉品牌（CAG）在第一季度后维持了其2027财年的规划假设，同时强调了运输成本上升、谨慎的价格弹性假设以及品牌投资增加。管理层继续以削减债务为目标，并预计产品组合精简带来的大部分收益将在2028财年显现。

核心要点

• 管理层预计第二季度有机销售额将下降2%，这反映了价格弹性以及感恩节相关的发货与消费之间的时间差。
• 2027财年通胀率预计仍为5%-6%，但目前趋向于该区间的上限，因为运输通胀率大约是最初计划的两倍。
• 由于通胀上升、销售及管理费用（SG&A）时间差以及广告和促销支出增加，预计第二季度营业利润率将在高单数字区间，而第一季度为11.5%。
• 康尼格拉在第一季度末的杠杆率为3.99倍，预计在偿还约2.5亿美元债务的同时，2027财年结束时的杠杆率约为4倍。
• 预计全年毛利率仍将与上年基本持平，定价、弹性以及冻品销量下滑已在业绩指引中予以体现。
• 康尼格拉正在加速SKU精简，包括对400多个单人份便当SKU进行审查。管理层预计大部分财务收益将在2028财年展现。

关键财务数据

业务与经营业绩

第四季度业绩电话会议后推出的定价举措正在向市场铺开。管理层表示，零售商的接受度符合其规划假设。康尼格拉在建模时将杂货价格弹性设定为约2:1，零食为约1:1，且未假设竞争对手会跟进其提价举措。

甜食在第一季度表现强劲，而健康零食表现仍低于管理层预期。肉类零食和瓜子坚果对便利店渠道有较大依赖，而油价上涨对便利店客流量造成了压力。康尼格拉计划从第二季度开始增加对肉类零食和爆米花的营销与创新投入。

管理层表示，公司在冷冻食品方面因环孢子虫病相关需求获得了一定提振，但影响并不重大，且被业务组合中其他领域的下滑部分抵消。公司强调了翠鸟牌（Birds Eye）的品牌信任度、便利性和可靠性，认为这些是支撑消费者进一步认同的领域。

康尼格拉还在对促销活动实施更严格的投资回报率标准。管理层表示，不会重复开展会稀释盈利能力的促销活动，包括Sandwich Bros.的某些促销活动。这些假设已包含在2027财年预测中。

产品组合精简仍是一项主要的运营重点。康尼格拉退出了Celeste披萨业务，这对第一季度净销售额产生了微小的负面影响，但对利润有提振作用。更广泛的举措侧重于减少低产出的SKU、规格和配方，同时提升采购规模、制造效率和货架周转率。

单人份便当是一个重点关注领域，目前组合中有400多个SKU。管理层指出，精简并不意味着降低对该品类的重视；相反，其旨在将投资和分销集中在具有更大影响力的产品上。

管理层业绩指引

管理层维持了第二季度有机销售额下降2%的预期。该展望包含了谨慎的弹性假设以及感恩节前后的季节性时间节点，这可能会导致发货量低于实际消费量。

预计第二和第三季度的通胀率将高于第一季度，且第二季度与第三季度的通胀率相近。管理层预计第四季度的通胀将比第三季度有所放缓，因为康尼格拉开始摆脱高企的运输、食用油、瓦楞纸包装和铝成本基数。更广泛的成本基数比较可能会在2028财年变得更加有利。

营业利润率预计从第一季度的11.5%降至第二季度的高单数字区间，主要有三个推动因素：通胀上升、SG&A时间差收益的反转，以及广告和促销支出的增加。第一季度SG&A收益约有一半是一次性的，另一半预计将转移至第二季度。第一季度SG&A收益总计约为每股0.03美元。

康尼格拉继续预计全年毛利率将与上年基本持平。业绩指引已包含预期的价格弹性、冻品销量下滑以及相关的生产制造固定成本吸收效应。

管理层重申了3倍的长期杠杆率目标。预计2027财年末杠杆率将保持在4倍左右，随后在2028财年通过提升盈利能力和公司股息调整取得进一步进展。

风险与关注事项

• 由于司机短缺和油价上涨，运输通胀有所加速，目前运行速度约为康尼格拉最初计划的两倍。
• 冻品提价举措仍在向市场传导，实际消费者弹性仍存在不确定性。
• 冻品和冷藏食品销量下降可能会给制造端固定成本分摊带来压力，但管理层表示这一影响已包含在指引中。
• 受汽油价格上涨影响，便利店需求面临压力，进而影响了肉类零食和瓜子坚果的销售。
• 小麦价格波动使得Ardent Mills的大宗商品交易收益难以精确预测。
• SKU的削减必须与零售商的货架调整日程表和库存管理保持协调，这导致大部分预期效益推迟至2028财年。

分析师问答精选

为何尽管消费趋势相对稳定，康尼格拉仍预计第二季度有机销售额下降2%？管理层提到了价格传导的推进、谨慎的弹性假设以及感恩节的时间错位因素。本季度季节性消费可能会高于发货量。

推动通胀预期上升的原因是什么？蛋白质原料成本比计划更为有利，但这一益处被运输通胀所抵消有余。管理层预计第二和第三季度的通胀将高于第一季度水平，随后在第四季度有所缓解。

为何预计第二季度营业利润率会出现下降？主要因素包括通胀上升、SG&A费用从第一季度转移至第二季度以及广告和促销支出增加。投资将重点投向单人份便当、肉类零食和爆米花。

杠杆率向3倍回落的速度有多快？康尼格拉预计在2027财年偿还约2.5亿美元的债务，财年末杠杆率降至接近4倍。管理层预计在2028财年将取得更大进展，但未对该年度给出具体的杠杆率预测。

康尼格拉如何管理再融资风险？公司表示，除用于营运资金的商业票据外，其债务几乎全部为固定利率。公司在7月份发行了5亿美元、利率为5.4%的债券，早于由5亿美元债券和2.6亿美元债券组成的到期债务。

小麦价格波动如何影响Ardent Mills？其核心面粉加工业务相对稳定，而小麦价格波动可带来大宗商品交易机会。Ardent Mills在第一季度对康尼格拉内部预期的贡献高出约0.03美元，但管理层表示这一贡献难以精确预测。

业绩电话会议完整文字记录

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完整财报电话会议逐字稿

管理层陈述

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.

分析师问答

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.