Sean Connolly
President and Chief Executive Officer at Conagra Brands
Thanks, Melissa. Good morning, everyone, and thank you for joining our fourth quarter fiscal '23 earnings call. I'll start with a business update on the quarter and fiscal year and then share how we're thinking about 2024 and beyond.
Slide 6 outlines what we'd like you to take away from today's call. In Q4, we delivered solid profit and margin growth despite the disruption from one of our frozen logistics partners Americold, which impacted both our sales and costs during the quarter. For the full fiscal year, I'm proud of the way our team navigated a dynamic operating environment to deliver strong results. These efforts to execute against our fiscal '23 strategic priorities and the continued implementation of our playbook have our brands well positioned following the volatility over the past few years. As you'll see, our outlook for fiscal year 2024 reflects the transition toward a more normalized operating environment as well as the continued commitment to our long-term financial algorithm.
With that overview, let's dive into the results, starting on Slide 7. Organic net sales for the quarter grew over 2% compared to the fourth quarter of fiscal '22 and adjusted gross margin of 27% represents a 216 basis point increase over the fourth quarter last year. The full year results underscore the strength of our performance across all four metrics, including 6.6% organic net sales growth and 17.4% adjusted EPS growth compared to the prior year period as well as robust gross and operating margin improvement.
Looking back at our priorities going into fiscal '23, we're pleased to say that we delivered on each of them. We continued our disciplined pricing execution in the face of ongoing inflation, which helped to drive margin recovery, a top priority coming into fiscal '23. Our supply chain continued to improve as we made meaningful progress on our cost savings initiatives, which in turn led to a vast improvement in service levels. We remain committed to lowering our net leverage ratio which was reduced from 4.0 to 3.6 times by the end of the fiscal year. And we did all of this while investing to maintain the brand strength that we've built up for many years running.
Let's take a closer look at these priorities, starting with the impact of our inflation-justified pricing actions on Slide 9. As you can see, pricing peaked in Q3, but remains almost 17% above the prior year due to our actions to offset ongoing COGS inflation. During the fourth quarter, elasticities did soften a bit, but remain fairly consistent, well below historical norms and in line or better than competitors.
Our strong execution was instrumental in driving margin recovery, which is detailed on Slide 10. As we've previously discussed, there is an inherent lag between the time when inflation hits and when we're able to recover that cost through inflation-justified pricing. This lag effect results in temporarily compressed margins as we saw most notably throughout fiscal '22. We took great strides to recover our gross margin in fiscal '23. And Q4 was our third consecutive quarter of strong margin improvement, up 216 basis points in the fourth quarter compared to the prior year.
Turning to Slide 11. We continue to advance our supply chain initiatives investing to rebuild our own inventory, which helped us to deliver service levels of 95% as we exited the fiscal year. While we're making strong progress in supply chain, it's not yet back to normal as we experienced transitory disruptions in the quarter such as the cybersecurity event in Americold. That said, we're pleased with our progress so far and see more room for improvement in fiscal '24, including investing in technology and modernization as the operating environment continues to normalize.
Slide 12 highlights one of the key ways in which we are investing to maintain brand strength, our persistent focus on modernizing brands through innovation. The innovations we've launched since fiscal 2018 generated nearly $1.8 billion in retail sales during the last fiscal year. And unlike many in our space, we continued to innovate during the pandemic with new product launches since fiscal '21 now representing more than half of that total. Importantly, our innovation has built some really strong and sustainable platforms, including Bowls, Slim Jim Savage and Duncan Hines Epic.
Our strategic frozen and snacks domains have been the focus of our innovation engine. As Slide 13 highlights, they're growing domains and we've helped architect that growth. Over the past four years, the frozen and snacks categories in which we compete have grown 9% and 8% respectively, outpacing total food growth. Within our portfolio, frozen and snacks together now represent almost 70% of our domestic retail dollar sales. And we've consistently increased our share within these strong and growing domains.
Looking more closely at frozen, Slide 14 shows the growth of this category over the past nine years, which represents the timeframe in which we reinvented our approach to frozen food. Since fiscal 2014, the frozen categories in which Conagra competes have grown from $29 billion to $54 billion, representing a 7% CAGR. And Conagra has increased our share by nearly 500 basis points to become the leader in frozen. This growth is a testament to our continual effort to modernize and support our strong brands as part of the Conagra Way playbook.
One example of that brand strength is how our unit sales stack-up to our peers. As you can see on Slide 15, even during a year of significant pricing, seven of our top 10 frozen product segments held or grew unit share in fiscal '23. The same is true in our snacks portfolio. As you can see on Slide 16, our two largest snacking platforms, meat snacks and microwave popcorn, also gained unit share during fiscal '23.
Now let's turn to the year ahead. As we continue to emerge from unprecedented operating conditions, including both COVID and the inflation super-cycle, we anticipate fiscal '24 to be a transition toward a more normalized operating environment. That transition will include a few tailwinds and headwinds that are outlined on Slide 19.
Starting with the tailwinds, in fiscal '24, we will be ramping the various discrete supply chain disruptions that persisted throughout the year. As the operating environment continues to normalize, we will also benefit from the ongoing advancement of our productivity initiatives. And we expect our investments in innovation to continue to deliver strong results, building upon our track record of success.
Now let's talk headwinds. First, shifting consumer behavior. As you can see in the weekly scanner data, food companies are starting to wrap pricing in the year ago period and dollar sales are coming down as expected, but the rate of improvement in volume recovery is lagging. That suggests new consumer behavior shifts beyond the initial elasticity effects that occurred when pricing actions were initially taken. We've seen this dynamic since just after Easter and it has been broad-based across many categories and competitors. And importantly, where we see it, it is usually not a trade-down to lower-priced alternatives within the category, rather it's an overall category slowdown.
The question is why now given the steadiness we've seen from the consumer for two years? There are several possibilities at the root of this. One behavior shift we've heard about from consumers is just buying fewer items overall, more of a hunkering down than a trading down. There are several potential reasons as to why, including this summer being more travel-intensive than last year. Overall, we view this dynamic as likely temporary behavior shift for consumers to stretch their budgets, but we have captured it as a near-term headwind in our outlook.
Moving to the second headwind. While very limited, we have seen a few single ingredient brands become deflationary and we will make appropriate price adjustments to reflect that. Finally, the reduction of pension income and decline in contribution from Ardent Mills compared to its strong fiscal '23 performance will impact our earnings performance compared to the prior year.
To maximize our competitiveness this year, we will continue to execute our playbook and invest in our business. And Slide 20 highlights one of our most important investments, our biggest innovation slate to-date. Our fiscal '24 innovation line-up features a compelling mix of convenient value-added meals, restaurant experiences and exciting licenses. We expect our most significant new innovation to be in distribution by the end of Q1 and build throughout the rest of the year. These innovations, coupled with our consumer and customer support, will help us effectively navigate the dynamic marketplace conditions.
Slide 21 outlines our financial guidance for fiscal '24. We expect organic net sales growth of approximately 1% over fiscal '23, adjusted operating margin of 16% to 16.5% and adjusted EPS between $2.70 to $2.75. As Dave will unpack further, our EPS guidance reflects our expectation for growth from the underlying business operations, which is being muted by the previously mentioned impacts from lower contribution from Ardent Mills and pension income. Overall, Conagra continues to benefit from strong brands, strong processes and strong people, which are all working together to drive sustainable growth and margin expansion.
With that, I'll pass the call over to Dave to cover the financials in more detail.
