B&G Foods Inc (BGS) 2006 Q4 法說會逐字稿

Good afternoon ladies and gentlemen. Thank you for standing by. Welcome to the B&G Food, Inc. fourth quarter and audited fiscal 2006 financial results conference call.

[OPERATOR INSTURCTIONS]

I would now like to turn the call over to Mr. Dave Wenner, Chief Executive Officer of B&G Foods. Please go ahead, sir.

Thank you very much. Good afternoon, everyone and welcome to the B&G Foods fourth quarter and full year fiscal 2006 conference call. Everyone on the call today can access detailed financial information on the quarter and the full year and our earnings press release issued today and available on our website at www.bgfoods.com and in our annual report on Form 10-K that we filed today with the SEC.

Before we begin our formal remarks, I need to remind everyone that part of the discussion today includes forward-looking statements. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them. We refer all of you to our recent filings with the SEC for a more detailed discussion of the risks that could impact our future operating results and financial condition. The company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

We will also be making reference on today's call to certain non-GAAP terms like EBITDA and adjusted EBITDA. A reconciliation to GAAP terms is provided in today's press release and is included in our annual report on Form 10-K. We'll start the call by having our CFO, Bob Cantwell, discuss financial results for the quarter and for the year. After Bob's remarks, I'll discuss factors that influence both timeframes, some of our business highlights, and our current thoughts regarding the business going forward into fiscal 2007. Bob.

Thank you, Dave. First, I will review the full year briefly, then talk about the fourth quarter. Net sales increased $32 million or 8.4% to $411.3 million for the year ended December 30, 2006 compared to $379.3 million for the year ended December 31, 2005. Our 10-K will have additional disclosure on brand performance for the full year.

Operating income increased 10.9% to $61 million during 2006 from $55 million in fiscal 2005. Operating income expressed as a percentage of net sales increased to 14.8% in fiscal 2006 from 14.5% in fiscal 2005. Operating income for fiscal 2005 was negatively impacted by $3.8 million as a result of the restructuring charge described previously. Operating income for fiscal 2006 was positively impacted by $0.5 million as a result of the gain of sale of our New Iberia facility.

I'd like to take a moment to discuss EBITDA and adjusted EBITDA, non-GAAP measures that we have reconciled to net cash provided by operating activities in today's press release. Our EBITDA increased to $69 million in fiscal 2006 compared to $61.9 million in fiscal 2005. Adjusted EBITDA, which excludes the 2005 restructuring charge, was $65.8 million in fiscal 2005. There were no adjustments to EBITDA in fiscal 2006.

Capital expenditures in fiscal 2006 were $7.3 million. We continue to foresee modest capital expenditure requirements in the future, except for a possible one-time capital expenditure for Cream of Wheat, which I will discuss in a moment.

The fourth quarter of 2006, net sales for fiscal 2006 increased $8.5 million or 8.3% to $111.2 million for the fourth quarter of fiscal 2005 compared to $102.7 million for the quarter ended December 31, 2005. Net sales for the Ortega food service dispensing pouch and dipping cup acquisition and the Grandma's Molasses acquisition combined accounted for $6 million of the net sales increase. The remaining $2.5 million increase in net sales was related to increases in sales price and unit volume.

Gross profit increased $3.1 million for the fourth quarter of fiscal 2006 or 12.2% to $28.6 million from $25.5 million in the fourth quarter of fiscal 2005. Adjusted gross profit, which excludes our fiscal 2005 restructuring charge, increased to $2.8 million or 10.9% to $28.6 million for the fourth quarter compared to $25.8 million in the fourth quarter of 2005.

Adjusted gross profit expressed as a percentage of net sales increased 0.6% to 25.7% for the fourth quarter of fiscal 2006 from 25.1% for the fourth quarter of 2005. The majority of the improved gross profit percentage relates to the sales price increases and mix of products sold, offset by higher cost in packaging, maple syrup and corn sweeteners.

Sales, marketing and distribution expenses increased $1.5 million or 14.6% to $11.8 million for the fourth quarter of fiscal 2006 compared to $10.3 million for the fourth quarter of 2005. These expenses expressed as a percentage of net sales increased to 10.6% in fourth quarter from 10% in the fourth quarter of 2005. The increase was due to increased consumer marketing and incentive compensation.

General and administrative expenses increased $0.7 million or 36.8% to $2.6 million for the fourth quarter of fiscal 2006 compared to $1.9 million in the fourth quarter of 2005 due to increased management incentive compensation.

Operating income increased 5.3% to $14 million for the fourth quarter from $13.3 million in the fourth quarter of 2005. Operating income for the fourth quarter of 2005 was negatively impacted by $0.3 million restructuring charge, relating to our New Iberia shutdown.

Interest expense increased $0.3 million to $10.7 million in the fourth quarter from $10.4 million in the fourth quarter of 2005. Our average debt outstanding was $25 million higher in the fourth quarter of fiscal 2006, as compared to the fourth quarter of 2005.

Our EBITDA increased to $16.1 million for the fourth quarter, compared to $15 million in the fourth quarter of 2005. Adjusted EBITDA for the fourth quarter of 2005, which excludes fiscal 2005 restructuring costs, was $15.3 million.

Capital expenditures for the fourth quarter of fiscal 2006 was $1.5 million.

Moving onto the balance sheet, we finished fiscal 2006 with $29.6 million of cash compared to $20.9 million at the end of the third quarter of fiscal 2006 and $25.4 million at the end of fiscal 2005. This is in line with our plans for the year. We also finished fiscal 2006 with $430.8 million in long-term debt and $75.5 million in stockholders' equity.

Our inventory at the end of fiscal 2006 decreased $7.2 million to $78.3 million compared to $85.5 million at the end of fiscal 2005.

The business remains healthy from a cash point of view. We expect to make capital expenditures of approximately $7.5 million in fiscal 2007 in respect of our existing manufacturing operations. In addition, in connection with the Cream of Wheat acquisition, we anticipate making an additional one-time $4.5 million capital expenditure for relocating certain manufacturing equipment over the course of the 12-month period following the acquisition.

Annual cash interest expense for fiscal 2006 was $40.6 million. Cash interest expense for fiscal 2007 is expected to be approximately $53 million.

Since our IPO in October 2004, we have declared $41.9 million of dividends on our Class A common stock. Based on US Federal Income Tax laws, B&G Foods determined that a portion of the 2006 EIS distributions attributable to Class A common stock -- 100% of that or $0.848 for each EIS will be treated as a return of capital on Class A common stock.

In addition, as previously announced, on April 30, 2007, we will be making our next cash payment to EIS holders of $0.4265 per EIS to holders of record as of March 31, 2007. This reflects a cash dividend of $0.212 per share of Class A common stock and an interest payment of $0.2145 per $7.15 principal amount of senior subordinate in notes.

I will now turn the call back over to Dave for his remarks.

Thank you, Bob. Given the cost challenges that our industry and our company face throughout 2006, we are very pleased with the results of the fourth quarter and the full year. An 8.4% increase in net sales to a record $411 million is an accomplishment that we are very proud of. The sales increase came from a mix of acquisition growth and growth from existing brands, which is the strategy we've put in place for growing our business at a pace above the industry average.

The 4.9% increase in adjusted EBITDA to $69 million was equally gratifying, reflecting both the challenges of the business -- which did lower our margins -- and the opportunities, which allowed us to increase EBITDA in spite of those challenges.

The fourth quarter of fiscal 2006 results were typical of the year in some ways, but also reflected our progress in offsetting cost increases and recovering margins within the business.

Net sales improved by 8.3% to $111.2 million, a record sales quarter for B&G Foods. Approximately 70% of that increase came from acquisitions, the remainder from pricing and organic growth. For the year, our net sales increased $32 million, an 8.4% increase. Almost two-thirds of the increase from acquisitions, nearly 10% from a one-time co-pack agreement and the remainder price and organic growth.

We increased net sales in 13 of our 17 brands in fiscal 2006. And the only meaningful decline was in the Emeril's brand, which saw a decline in net sales of 10% for the year. In the fourth quarter, however, the Emeril's brand grew by over 12% in net sales, evidence we believe that the brand has turned the corner and is again on a growth trend.

The strong fourth quarter Emeril's growth was due to solid supermarket sales on existing lines and a very successful quarter with Emeril cooking stocks. In relatively limited distribution, the cooking stocks did very nearly $2 million in net sales in 2006 -- the majority of that in the fourth quarter. We recently launched Emeril's cooking sprays, as well, and hope for the same success we've seen with the cooking stocks.

The focus in 2007 will be attaining new distribution of the new cooking spray line, expanding distribution of the successful cooking stocks line and an improved distribution of our success for Emeril's pasta sauces, mustards, seasonings, and the new relaunched salad dressing line.

Solid organic net sales growth was seen in a number of brands in 2006 including Ortega, which was up nearly 8% for the year, Maple Grove, up over 7%, and B&M, up nearly 6%. In the case of Ortega and Maple Grove, new products accounted for much of the growth. The Ortega Grande Dinner kit continued to be very successful, with over $4 million in sales in 2006. We've recently launched an Ortega Two Cheese Pizza kit following the meal scene that has worked well with Ortega Grande Dinner kit.

Sugar-free syrups, including new butter flavored sugar-free syrup under the Maple Grove name, added over $2 million in sales to the Maple Grove Farm business. In all, new products added over $10 million in net sales in fiscal 2006, a rate we hope to match in 2007 as we continue to launch new products in a variety of brands.

We believe that B&M net sales growth was a result of competitive price points and increased marketing support. Radio advertising and key markets had a measurable positive effect on the brand and was a benefit of our efforts to increase marketing as we reduced trade spending. B&M is one of the brands that we hope will benefit from our new product efforts in 2007. We have introduced 3 no-sugar-added items, sweetened with Splenda, in early 2007 and we're beginning to distribute these items in the key B&M markets as we speak.

The introduction of new products, increased marketing behind our products, and an emphasis on expanding distribution of successful high-margin items are all part of our initiative to exceed the organic growth rates seen in fiscal 2006. Approximately 2.5% of our 8.4% growth in 2006 came from pricing and volume. Our goal in fiscal 2007 is to bring that number closer to the 5%, while also enjoying growth from the Cream of Wheat acquisition.

Our efforts to reduce trade spending via our paper performance initiative continued in the fourth quarter. Trade spending was down 0.7 of a percentage point of gross sales, a continuation of the progress we've made all year. For the year, trade promotion spending was down 1.1% of gross sales, a cost reduction of over $5 million. Trade spending was down in 12 of our 17 brands, in most cases with little or no effect on net sales.

We will continue to pursue this initiative in fiscal 2007 and have improved our systems used to identify inefficient or ineffective trade spending. We are also focusing on profit and loss statements by customer to identify trade spending specific to less profitable customers, and in an attempt to improve the profitability of those customers.

We have also revised our sales managers incentives, with incentives now tied to overall profitability of sales in addition to just gross sales. We believe that a further reduction in our trade spending still offers meaningful cost savings opportunities in 2007.

Our efforts to increase price and reduce trade spending were critical factors in offsetting the cost increases we saw in fiscal 2006. Our adjusted gross profit for the fourth quarter increased in both dollars and as a percent of net sales, from 25.1% of net sales in fiscal 2005 to 25.7% of net sales in fiscal 2006.

Even though cost pressures did ease somewhat in the fourth quarter, the gain as a percent of net sales was more due to sales mix, trade spending reductions, and lower delivery costs than improved manufacturing costs. In fact, cost of goods sold increased by over 1% of net sales versus prior year.

In contrast, our full year fiscal 2006 adjusted gross profit was up $7 million but down 0.5 of a percentage point in net sales. Again, cost increases in cost of goods sold of 1.6% of net sales were offset to some extent, but not fully by lower trade spending, price increases, and slightly lower distribution costs.

As we look forward into fiscal 2007, we see the trend of the fourth quarter continuing barring unusual cost events, of course. Costs will increase again in fiscal 2007. We have already seen cost increases on commodities and packaging versus 2006 costs. However, this is expected to be less than half of the commodity and packaging increases we experienced in 2006, net of cost savings.

Distribution costs as a percentage of net sales is not expected to increase in 2007 unless oil prices continue to climb. In fact, distribution efficiencies that we saw, as a result of acquisition volume, were masked by higher fuel surcharges for much of fiscal 2006 until the fourth quarter, when the surcharges leveled off. Once that happened, our fourth quarter distribution costs declined as a percent of net sales. We expect further distribution efficiencies in fiscal 2007, some of that coming from the Cream of Wheat acquisition.

As Bob mentioned, our operating expenses increased for both the fourth quarter and the full year of fiscal 2006. Operating expenses for the quarter increased $2.2 million in total -- about one-third of that due to added sales volume and the associated sales costs. Advertising costs accounted for another third of the increase, as we spent more in support of our brand. The final third fell into G&A and was for higher incentive compensations.

These results mirrored the annual results for operating expenses, which were up $4.5 million. Again, over a third of the increase was due to higher sales volume. Approximately $1 million of the increase was spent on increased brand marketing, and the remainder went to increased incentive compensation.

As we look ahead, we see the cost situation in fiscal 2007 as challenging, but perhaps not as challenging as it was in 2006. There are several negative factors at work in 2006 that we expect to be neutral or even slightly positive in 2007, such as fuel prices and the Canadian-US dollar exchange rate.

Commodity cost increases are certain, as I said earlier. The cost pressure on crops, caused by ethanol is extraordinary and the exact outlook for the 2007 crop season is still very uncertain. But we also know that we have further cost savings potential in trade promotions, that our January 1st price increases are largely in effect and that we have good momentum in generating cost reductions in our manufacturing facilities. All of that means that the cost situation in fiscal 2007 should be much more manageable than the one we faced in 2006.

As Bob indicated, our balance sheet was in great shape at the end of the fourth quarter. Our cash position increased by $4.2 million, from where it stood at the end of fiscal 2005, to $29.6 million. That's despite the fact that we used $5 million in cash for acquisitions in 2006.

Our efforts to reduce inventories were a major factor here. Inventories were down over $7 million year-to-year, a much-improved position from earlier this year. We intend to continue reducing inventories in 2007, setting aside the effective buying Cream of Wheat, of course, and doing it without negatively affecting the P&L, much as we did in fiscal 2006. An example would be bringing Underwood manufacturing in-house, which we intend to do by mid-year. That allows us to reduce both Underwood and B&M inventories, while actually improving overhead costs.

Flat receivables and lower payables, down nearly $5 million, also testify to the fact that our business had a great year generating cash and that our cash position continues to be healthy and comfortable, in terms of our dividend payments.

Much of B&G Foods' growth in the past 10 years has been through acquisition. As I mentioned earlier, approximately two-thirds of our growth in 2006 came from the two acquisitions done in December 2005 and January 2006. Executing successfully on acquisitions has been critical to our success as a company over the years. And I'm very pleased to report that these two acquisitions both performed above expectations in 2006.

The Ortega cheese pouch business's annual net sales increased, while we lowered costs and improved profitability.

Grandma's Molasses' pro forma net sales also increased, even though we exited a number of customers and lowered promotional spending. We also brought Grandma's manufacturing in-house to our Roseland, New Jersey facility, improving the utilization of that facility and lowering the overall per unit manufacturing cost.

Given the improvements we've made in these two businesses, we in effect paid well under 6 times the EBITDA they contributed in fiscal 2006, making them very successful acquisitions.

Our past success at sourcing acquisitions at good value and effectively integrating them into our company makes us confident as we proceed with the integration of the very important Cream of Wheat acquisition. As you all know, we acquired the Cream of Wheat and Cream of Rice brands from Kraft Foods effective January 25th. This business generated just over $60 million in net sales for Kraft in 2006 and approximately $35 million in EBITDA -- both of those unaudited figures, at this point. This brand truly fit the definition of an orphan brand within Kraft -- perhaps rightly so, given the mega-brands Kraft has to market and sell. But therein lies the opportunity for us to focus on the brand and revive it as we have done in the past with many of the brands in our portfolio.

We do expect our cost to increase as we transition to a broker sales force versus Kraft's direct sales model and as we spend additional money in support of the brand. Even after that, though, we will have a highly profitable brand with a solid number 2-position in the growing hot cereal category.

Our goal is to transition the brand to B&G Foods sales and distribution systems by April 1st, in line with our typical 30-day transition. We are well on the way to accomplishing that. Sales calls are already being made. System changes are underway and we expect to have product ready to ship from B&G distribution centers by April 1st. As part of the acquisition, we assumed a third-party co-pack agreement that covers approximately one-half of the Cream of Wheat products. Kraft will continue to manufacture the remaining products for us up to 1 year in the current Kraft facility.

We are actively investigating the best solution for this volume, whether to co-pack it or manufacture it in-house. And we expect to make a decision in the second quarter. We have laid out a promotional schedule for the brand, which Kraft did only rarely, are introducing FCI drops and in-store advertising, and are coordinating these events with retailers as we speak.

Finally, we are already working on new products and new distribution points for existing products, two essential elements needed if we are going to stabilize sales and then hopefully to grow the brand.

In any event, this acquisition promises meaningful growth on both the top and bottom lines in fiscal 2007. Assuming we can stop the sales decline seen in recent years, achieving Kraft's 2006 net sales performance would increase our overall net sales by almost 15% on a full-year pro forma basis.

Our EBITDA protections for the Cream of Wheat business in fiscal 2007 would add over 40% EBITDA growth, again on a full-year pro forma basis to B&G overall EBITDA, assuming the business performs as hoped. Success with this acquisition is a very high priority and a significant opportunity for our company.

We believe that the financial performance of the business in fiscal 2006 and our ability to keep continue providing reliable results and steady cash flow, in spite of a challenging cost environment is further evident that our strategies and business model are working well.

We have further improved our ability to pay interest and dividends to our EIS holders and, with the Cream of Wheat acquisition, we'll expect to begin paying dividends to holders of our Class B common stock in 2008. Two days ago, our board of directors declared our tenth consecutive dividend since our IPO, paying on April 30th to stockholders of record on March 31st.

We still face challenges in 2007. Costs will continue to rise, so perhaps not as quickly as they did in 2006. But we believe that our momentum in cost savings and price increases will insulate us from the cost increases we now face and allow us to operate consistently, in spite of them. Between acquisitions and organic growth, we expect 2007 to be an exceptional year for the business.

With that, I would like to open up the call for questions. Operator.

[OPERATOR INSTRUCTIONS]

We'll take our first question from Reza Vahabzadeh with Lehman Brothers.

Good afternoon.

Good afternoon.

Good afternoon, Reza.

On the cost outlooks, which costs are you most concerned about, Dave, Bob?

Basically any commodity associated with a crop, Reza.

Okay.

We're seeing farmers just be very aggressive about growing anything beside corn and as you negotiate prices, their fallback is, "Well, you know, if I don't get the price I want, I'll grow corn."

BUT I mean, away from packaging, I thought your input ingredient costs were relatively diversified away from maple syrup. Is that not the case?

Well, they are. But it's getting wide-spread, in that, as I said, no matter what the crop is, the farmer has a fall-back to corn.

Right.

So, that's spreading it out to more minor crops that otherwise would not grow.

I see.

Excuse me, would not, yes, grow in cost, I mean.

Okay. And so, for meat, chicken and pork, which, I think, is still used, for instance, in Underwood.

Yes.

Is that an area of concern?

Yes, we expect meat prices to increase and, of course, they had increased awhile back and then declined again. So, it is an area of concern, but we've had relatively good success in increasing prices to accommodate that in that category. And we would expect that if it were to happen in any meaningful way that our competitors would increase price and we would be able to also.

Right. So, in order of magnitude, if your cost of goods sold rose at 6 to 7% rate in '06, and is it going to be a slightly lower -- slower rate of growth in '07?

Yes, it's definitely -- we're looking at about half the rate of growth that we saw in '06.

Okay. And what was it in '06 again?

I would guess it was about 5%.

Okay. So, 2 or 3% this year. And are you lost and loaded on any of these costs? Any contracts?

We've contracted things like corn syrup, which is a decent-sized cost for us. And we've negotiated a number of other costs like cucumbers and peppers and things like that for the upcoming season. So, we do have a pretty good handle on commodity costs going forward.

Got it. Now, you mentioned, Dave, that 13 of the 17 product lines had higher sales.

Yes.

Still, any product lines that where their sales were higher or lower that you were unhappy with or disappointed? And then what are the opportunities for '07?

Well, I think we actually had a number of lines not do as well as they could have because of paper performance and changing promotional price points and things. I've talked about that in prior calls. Polaner being a classic example, where we have probably walked away from the better part of $2 million in sales as we've changed price points. I think in the case of those kind of changes, we will see improved sales as retailers and consumers get used to those new price points. And, in fact, we're seeing that in Polaner, where we're getting much better retailer support on promotions at those price points this year than we did last year. So, you'll have some of that, I think, as you go forward.

Other areas -- B&M's a great example of a brand where we were actually behind in price increases and are playing catch-up versus where our competition went with pricing, which is a good thing. Our net pricing on B&M should increase substantially as we try and catch up with where competition took prices. So, I see a lot of positives on the price front as we move into this year.

Okay. And then, Emeril had a soft first nine month -- better trends, as you mentioned, in the fourth quarter. What does it take to maintain that momentum in Emeril?

Well, we really got past the comparisons to the sales we made to mass merchants after the first nine months of the year -- the Wal-mart distribution and some of the warehouse club distribution. Once we got past that, we were back to supermarket sales to a large degree. And supermarkets sales continued to be very good. And they are -- we are actually gaining ground there. So, I guess we have easier comparisons. We don't have the big negatives we had in the first nine months of last year from Wal-mart and the other mass merchants, and we continue to see Emeril doing well going forward.

I see. Now the $4.5 million CapEx, that you mentioned, is for the relocation, Bob? Is that equipment purchase, I mean, how should we think about that?

Well, it's not equipment purchase. Most of it is moving equipment, either to another co-packer or one of our existing facilities. And that would be done over the 2007-2008 years.

Okay, so it's -- the CapEx is over 2 years, rather than -- ?

Right, it's -- we have a 1-year co-packing arrangement with Kraft, so we would start the process in 2007 and finish it in 2008.

Right. Thank you much.

[OPERATOR INSTRUCTIONS] And at this time, it appears there are no further questions -- actually, we do have a question from [Ed Aaron] with RBC Capital Markets. Mr. Aaron, your line is open.

Can you guys hear me?

Yes.

Can now.

Hello, this is [Ed Ahmoud] in for Ed Aaron. Sorry about that. I was actually wondering -- can you guys tell me if the cost challenges and the increased cost environment out there and continues in '07, do you guys feel that the acquisition opportunities may become a little bit more difficult than usual or will they -- do you think that other people will begin to sort of, I guess, view that as an opportunity to become and become more profitable and get rid of some businesses?

That's an interesting question. I don't -- my first reaction is I don't think the cost environment has anything to do with the kind of businesses that we're interested in coming on the market. I think it's more of a strategic decision, such as Kraft made with Cream of Wheat, where we're going to shed smaller businesses and focus on larger businesses. There was certainly nothing wrong with Cream of Wheat's profitability and commodity costs, had virtually no effect on Cream of Wheat's profitability, so that was not a determining factor. And frankly, I can't think of anything we have acquired where that was a consideration.

Okay. And lastly, I know it was on the last call that you guys had mentioned that there'd be a possibility of more radio advertising in the Emeril brand? Do you guys feel that you guys still may need to do that or do you think the additional product will sustain that improvement you saw in Q4?

Well, we've done market research. It says part of our problem is that we haven't done enough consumer marketing to tell people the products are on the shelf. So, we feel that this is a possible solution and plans are going forward to do some advertising like that.

Okay. Thank you very much.

You're welcome.

We'll take our next question from [David Santreau] with Morning Street Capital.

Hello, can you hear me?

Yes, we can.

Yes, hello.

Okay. Great. Well, congrats on the quarter and the Cream of Wheat acquisition.

The question really is -- you've got the co-pack arrangement, you've got 30 days, so you go through your process, because you guys have done this before. When do you pick your heads up and start looking for other acquisition opportunities of these working brands?

Well, we're actually always looking for them. And part of that is because the pipeline -- I don't have anything in the docket right now and if I did put something in the docket today, I wouldn't execute on it for at least 6 months. So, I know I'm going to have about 6 months to concentrate on Cream of Wheat before I do the next thing, anyway. Now, you just don't -- in an auction process, it doesn't get done overnight.

That was really my question. So, the answer I was looking for is nothing in the next 6 months and focusing on Cream of Wheat and the other brands.

As far as I can tell, yes.

Okay. [That's great]. Thank you.

And we do have a follow-up from Reza Vahabzadeh with Lehman Brothers.

Yes, Dave, on the Cream of Wheat, I know you guys have done these acquisitions in the past and have a game plan for it, but the Cream of Wheat performance -- [I see space in IR data], probably not as stable as Ortega. So, with that, I mean, with your trade promotion plans going into effect now, when do you think those plans will begin to make an effect on Cream of Wheat and begin to stabilize that?

Well, I guess we have certainly modeled that they will not stop the decline this year, that we expect to see further decline this year. Part of that is simply -- decisions have been made recently or are being made today to discontinue items and we may or may not be able to stop those decisions. But, it's just part of the downward trend that Cream of Wheat has had and it takes time to turn that around. So, if we turn it around this year, we will consider ourselves extremely successful. We give ourselves more like 12 months.

Another factor in that is that some of the major customers only review categories once a year. So, you don't even have a chance at the plate until the next category review, which typically would come -- for this category -- around April, or so. And then you have products going on the shelf in anticipation of the fall selling season for hot cereals. So, we would expect that kind of timing, in terms of getting new distribution of existing products and making strides towards turning the business around.

Got it. So, maybe by the early part of next year we'll see more tangible signs?

Oh, I would certainly hope so, yes.

Thank you.

Thank you. And at this time, it appears there are no further questions. I'd like to turn the program back over to Mr. Wenner for any additional or closing remarks.

Okay. Thank you, operator.

As I said earlier, these are very exciting times for the company. We feel that we have great opportunities with our existing business in 2007, that even though costs are absolutely going to go up, we have a lot of things in play to offset those costs and to make progress with our base business. And beyond that, we have done what we consider an extremely exciting acquisition with Cream of Wheat. If we execute on it successfully -- and we certainly have been able to execute on an acquisition successfully in the past -- it promises to make our company a much better and bigger company and certainly a more profitable company.

With that, thank you very much for joining us on the call and we hope to report great success on the next call. Thank you.

That does conclude today's program. You may disconnect your line at any time.