金寶湯 (CPB) 2001 Q3 法說會逐字稿

Good morning, and welcome to the Campbell Soup conference call. All participants will be in a listen-only mode until the question and answer portion of the call. At this time, at the request of Campbell Soup, this conference is being recorded. If there are any objections, you may disconnect at this time. I would now like to introduce the moderator for today's conference call Mr. Leonard Griehs. Mr. Griehs you may begin when you're ready.

Thank you very much, and welcome everyone to our third quarter financial results conference call. I did want to mention your next opportunity to hear Campbell will be Friday, July 27th. We are going to have a meeting in New York City, and we will be publishing formal notice of that in June. Our participants on the call today are Bob Schiffner, our Chief Financial Officer, Gerry Lord, our Controller, and Sally [_______________], our Assistant Controller. This call will be accessible approximately 2 hours after we complete it through midnight Monday, May 21st, and I will give you that call-in number should you have to call-in later to listen. It's 1-888-562-6204. We're also broadcasting this call on the Internet. You may log onto our website to hear the rebroadcast, that's www.campbellsoup.com. Also want alert everyone that our calls, as a matter of policy, are open to all equity, fixed income investors, and the media. There is a fax sheet that we prepare as part of our press release, and if you did not receive that or if you'd like to get it and you didn't, or you have any other problems with the call or the release, please contact Cindy [_______________] of the Investor Relations Department of Campbell Soup at 856-342-6427. This presentation will contain certain forward-looking statements concerning Campbell operations, economic performance, financial condition, sales, earnings, volume growth, new product introductions, and cost reduction programs. These statements reflect the company's current plans and expectations, and are based on information currently available.

They rely on a number of assumptions and estimates that could be inaccurate and which are subject to risks and uncertainties that could cause the company's actual results to vary materially from the results anticipated. Campbell undertakes no obligations to update publicly or to revise any forward-looking statements. As we began the last call, remember Jerry Lord, our Controller, reviews the results, and we will follow that in this procedure. Bob Schiffner and I will be on the call to respond to questions after our formal remarks. We will try to keep this call to less than an hour because there are other things today that we have here that we need to do. So let's begin. I'll turn it over to Jerry Lord for discussion of the third quarter financial results. Gerry?

Thank you Len, and good morning everyone. First, let's review the key drivers of this quarter's results. Overall company sales were up 5%, excluding the impact of currency driven by very strong soup shipments. After the impact of currency, sales rose 3%. Consumer purchases of US Soup were up almost 12% for the quarter versus a weak period a year ago. Year-to-date consumer purchases are up 6%. Despite this strong takeaway, we lost some share as the category grew strongly, up 7%, as consumers responded to higher activity in the category, led by Campbell. International soup volumes were up 9% in the quarter, almost 4% year-to-date, as Canada and the UK rebounded after a weak first half. In Biscuits and Confectionary, sales rose double digits, before currency, with Pepperidge Farm, Godiva, and Arnotts, all contributing. Our overall performance was driven, we believe, by increased marketing behind our key brands this year. Total marketing was up for the quarter 12% before currency with advertising up about 50% pre-currency. Keep in mind also that there was no impact in the quarter from the European Culinary Brands acquisition, which closed after the end of the quarter. Let's turn now to some specific numbers. Sales of $1.4 billion were up 3% and 5% before the impact of currency. Net earnings of $122 million were down 12%. Diluted earnings per share of ¢30 compares to ¢32 last year, and this was right on the first call estimates and consistent with our own guidance given last quarter. Let's turn to the components of the sales increase.

Total volume was up 5%. Prices and divestitures had only minor impacts. Currency was a negative 2% leaving reported sales at +3%. Gross margins improved 1.2 points to 53.6% due mainly to better unit volume in US soup and the ongoing cost productivity programs. EBIT margin was 16.5%, down 1 point from the prior year. This margin decline was primarily due to the increased marketing which, as I already mentioned, rose 12% before currency. The significant increase in marketing in the US was largely behind soup, where our aggressive campaigns behind Chunky and Select continued from the first half. The second factor impacting EBIT margin was that corporate expenses were up about $11 million due to the comparison to a lower than usual compensation expense in last year's third quarter. EBIT was 237 million versus 244 million last year due to the increased marketing investment and the higher corporate expenses. Net interest expense was up around $8 million to $52 million due to higher rates and higher average debt balances versus a year ago, although at quarter end, debt levels were slightly below the prior year. Pretax earnings were a $185 million versus $200 million last year. Taxes for the quarter were as $63.2 million versus $61.2 million last year, and the effective tax rate was 34.2% for the 9 months, as we had projected. We expect it to remain there for the full fiscal year.

Resulting net margins were up 8.5% versus 10% last year. Diluted earnings per share declined 6% to ¢30 versus ¢32 last year. Now let's look at free cash flow. The year-to-date free cash flow remains strong at 831 million, up 8 million versus the comparable period a year ago. We've continued to drive down operating working capital, which is down $182 million versus the third quarter end a year ago. Combined with lower capital spending, this more than offset our reduced earnings. On capital spending, we now expect capital for the year to be in the $180 to $200 million range. While we've suspended our strategic share repurchase program, we bought back 930,000 shares in the quarter to offset the estimated impact of stock-based compensation this year. Now let's turn to the breakdown of numbers by division. First, soup and sauces; sales were up 5% before currency impact, to 955.2 million, and operating earnings were essentially flat, before currency, at 202 million, bringing year-to-date sales growth to 4% before currency and an earnings decline of 5% for the 9 months, before currency, reflecting the first half marketing investments. Worldwide wet soup shipments were up 8% for the quarter and are up 5% year-to-date. International soup shipments were up 9% for the quarter and are up 4% year-to-date. In Canada, soup consumer purchases turned positive after a soft start at the beginning of the year, primarily impacted by the timing of consumer marketing programs.

Across Europe, shipment growth was driven by the launch of Homepride soup in an aseptic bottle in the UK, the first full season of Erasco soup in a pouch in Germany, and the rollout of Liebig aseptic soup in a carton in Belgium. Partly offsetting this was a decline in consumer purchases of beef-based items in Germany due to the BSE concerns there. In Australia, we had double-digit volume growth driven by new products in the Ready To Serve format. Now let's focus on US soup and sauces. We had strong soup shipments in the third quarter, up 7%, giving us year-to-date growth of 5%. Remember that last year's third quarter was a weak quarter, so our results this year partially reflect a recovery from that level. I'd like to pause here for a moment and make a brief comment on share performance in US soup. Many of you track soup share performance through Nielson or IRI. These services report one number for soup share based on the total wet soup market in fluid ounces. This will be fine if all segments, Condensed, Ready To Serve, and Broth, were equal in size and growth. However, they are not. Campbell competes in all three segments, in Condensed, in Ready To Serve, and in Broth. Internally, we track our performance on each of these segments separately. Our share is highest in the Condensed segment, which has declined over the years. In Ready To Serve, we are the segment leader but with a lower share than in Condensed. This segment has been growing. The impact of this has been a reduction in our overall share of wet soup. This could continue even if our share of each segment is maintained.

Let's be absolutely clear. Our long-term objective is to maintain or grow share in a growing overall wet soup category. In the short term, however, we could continue to see some share losses because of the way the map in the category works. It is important to keep this as background when we look at recent market trend data. Looking at our fiscal year-to-date through 9 months, consumer purchases in the wet soup category grew 7% in food, stores, drug, and mass merchandises. In that period, Campbell grew 5% in food, drug, mass, or 6% including club stores, and Campbell had a share in food, drug, mass of 69%, down 1.5 points from a year ago. Progresso grew share 1.5 points from a year ago, and Private Label lost 0.4 points. Overall, we are pleased with the strength of the US soup business, which showed the highest consumer purchases in 3 years. Turning to sauces. In sauces, our business responded to our revitalized programs with improved consumer purchases for the quarter. Consumer purchases on pace were up 4% supported by renewed advertising in core markets. Franco-American can pasta consumer purchases grew 5% driven by new advertising and the success of SpaghettiOs Plus Calcium. Prego consumer purchases were flat for the quarter but still up almost 4% year-to-date. In sauce markets outside the US, Homepride is exhibiting strength in the UK driven by pasta sauce Stir & Serve. Beverage performance improved in the market place. V8 Splash had consumer purchases increasing at retail, which was offset by volume weakness in the convenience store channel.

On V8 Red, we had strong volume growth driven by print and TV advertising. Now let's turn to Biscuits and Confectionary. Sales in the quarter were up 10% before currency, 4% as reported, to 362.7 million, and earnings were up 14% before currency, 9% as reported, to 45.9 million for an operating margin of 12.7%, an increase of half a point. Pepperidge Farm showed strong results in all of its categories driven by new products such Giant Goldfish and Farmhouse Breads. Godiva completed the important holiday season with a double-digit sales increase. And in Arnotts, in Australia, sales were up across most core brands. Now moving to Campbell Away From Home. Sales rose 3% before currency to a 135.2 million, and operating earnings rose 8% before currency to 13.5 million. Away From Home soup continues to demonstrate good growth while portfolio refinement in other categories has dampened overall sales growth. Now before I conclude, I'd like to take a brief look at the fourth quarter. We've previously told you that due to the marketing initiatives this year, we expected fiscal 2001 to be essentially flat with fiscal 2000, which finished at $1.65 diluted EPS. Clearly those initiatives have paid off in a much better soup season this year in both consumer purchases and shipments. As we transition out of soup season, shipments have softened more than we expected as retailers are reducing their inventories coming out of the season.

If this trend continues, we expect this to have a negative impact on the fourth quarter shipments for soup. Additionally, in order to ensure that we can start with good business momentum next year, we are proceeding with business building initiatives in the fourth quarter that we had not originally planned, including new business development, quality enhancements, and research and development initiatives. As a result of the lower expected shipments, lower than expected shipments for US soup and sauces and these business-building initiatives, we expect this fiscal year will finish in the $1.60 to $1.64 range before unusual items. Now we have two such items this fourth quarter. Two weeks ago we announced our reconfiguration plans for the Arnotts biscuit supply chain in Australia. Although detailed plans are not yet finalized, we expect to incur up to $20 million pretax or approximately ¢3 per share of costs in the fourth quarter. In addition, as you know, we have now closed the European acquisition, and based on detailed transition plans and our latest estimate of one-time costs, we expect a ¢2-¢3 diluted impact in the quarter versus the ¢1 we had estimated in January. This does not reflect revised economics for the acquisition. And let me explain this dilution calculation in a little more detail. The earnings impact of the acquisition includes the following. Operating earnings of the acquired businesses, goodwill amortization, incremental interest expense related to the purchase price of around $900 million, transition services provided to us by Unilever as we build our own infrastructure for some of these businesses, and finally, the costs of setting up infrastructure where we don't have it, to support these businesses going forward.

These last two items, transition services and infrastructure costs, will quickly reduce over the first months of ownership. Our estimate of the impact of all of these in the fourth quarter is negative ¢2 to negative ¢3. Without the impact of transition service costs and one-time costs, the acquisition would not be diluted in the fourth quarter. On the same basis, looking forward to 2002, the acquisition would not be dilutive. However, there will be continued transition services and infrastructure building costs in the early part of 2002. So if you take these elements of our projected earnings for the year, base business, the Arnotts reconfiguration, and the impact of the European acquisition, we see the range of earnings potential as follows, base business $1.60 to $1.64, Arnotts reconfiguration negative ¢3, European acquisition negative ¢2 to negative ¢3. Reported earnings, therefore, would be in the $1.54 to $1.59 range, but remember the base business, $1.60 to $1.64. That concludes my formal remarks, and I'll now turn the session back over to Len.

Thank you Gerry. Before we open up for questions, I'd like to read Doug Conant's comments from the earnings release because I know some of you may not have seen it. Doug is not on the call with us today, but I did want to read his comments on the quarter. We are encouraged by our year-to-date business performance, especially with the increase of consumer purchases of soup in the US. The significant marketing investments we made in soup clearly had an effect on our third quarter performance. The balance of our portfolio also responded to marketing investments including our soup business outside the US. And with the acquisition of the Unilever soup and sauces brand in Europe, we have taken an important step in building our global soup presence. However, we have much more work to do to revitalize our company. Our current market share performance in our US soup business is unacceptable, and over time, we must improve it. We know that winning in the marketplace and regaining investor confidence will require continued sustained investment across our portfolio to drive consistent top and bottom line results in the future. We are currently working on strategic initiatives and will be ready to discuss them in July. So with that perspective, lets move to the Q&A. I'm going to ask you to please be considerate since we are limited for time. Be as brief as you can with your questions, and if you have more than one question, if you can sort of combine them together that would be helpful for us. It is also important under Regulation Fair Disclosure that you ask any questions involving material information on this call, so that our answers can be heard by all interested investors, analysts, and the media. Jimmy, I'll turn this back to you, please, to queue for questions.

Certainly. At this time, if there are any questions, feel free to press '*1' on your touchtone phone. Once again, if there are any questions feel free to press '*1' on your touchtone phone. Our first question is from Terry Bivens.

Good morning Terry.

Good morning everyone. On the soup inventories Basil used to give us a nice running state of the trade inventories. Can we do that, number one? And Len, do you have any accounts receivable inventory numbers for us?

You're talking about accounts receivable on the balance sheet?

Yes.

Okay. We'll get that for you, and Bob will take your first question.

Hi Terry, how are you?

Hello Bob.

As far as the inventory situation is concerned, as you know, we do get inventory information through the accounts that we have continuous replenishment with.

Yes.

And our information, so far, indicates a fairly static picture there, inventories between 3.5 and 4 weeks. However, there is about roughly 50% of our customers that are not covered by those calculations, and most of those customers are wholesalers. And our feeling is that there is a lot of contraction going on in that class of trade, especially due to warehouse closings, and that is probably the area where we are being impacted. And as I said, we've taken a pretty conservative view on this for the fourth quarter, and as a result, we have forecasted volumes accordingly.

And just one last one, do we have any worries about the all-familiar diverter wire out there? Could that cause any inventory ripples as we go forward?

That is certainly an area that we are taking a look at, and as of the present time, I just don't have any information on that.

Thanks very much then.

Alright, we'll get the receivables. Gerry's going to answer the receivables question.

Our accounts receivable at the quarter end in total were about $397 million, that's about $73 million lower than the same quarter a year ago.

And inventories?

Inventories closed at 459 million, that's about a 101 million lower than a year ago, mainly in the US.

Terrific. Thank you very much.

Okay Jimmy, next question?

Yes. The next question is from John McMillin.

Hi Bob, Len, and Gerry.

Hi John.

Just in terms of this blaming the retailer for lower inventory reductions, I mean, the reality is the weather's had to have some impact on your takeaway trends and shipment trends this winter with a kind of a bizarre pattern of the coldest winter on record and then everyone feels like it's the Sahara desert here in April and May. To what extent has the warmer weather this spring had an impact on your soup business, and may that be a reason for the slower shipments in the fourth quarter?

Well, so far we don't really see it in the consumption numbers, but clearly, we do have a fourth quarter which is less aggressive from a marketing standpoint, even though the fourth quarter is not historically, as you all know, a strong marketing investment quarter. So our feeling on that is, yes, we expect that it may affect consumption, which has been factored into our forecast as well.

And is there, Bob is there a fourth quarter domestic soup shipment guidance that you can give us?

Yes, yes, we have assumed it to be flat versus prior year.

Okay, and I'm thrilled that you're complaining about a 69 share. I guess if everyone I'd followed had a 69 share, life would be a little bit easier, but I certainly see your point in terms of the lost Ready To Serve share. I know that Doug is going to get into this in July, but to what extent is price reduction, or potential price reduction, a possibility?

John, that's something we are just not going to comment on in this call, and my answer is stay tuned and you'll hear all about our strategic comparatives at the end of July.

And just my last question. Have there been any filings about any of the Dorrance family seeking to sell stock in any way?

Not that I'm aware of.

Okay, thank you.

You're welcome.

Thanks, and Jimmy next question.

Our next question is from Bill Leach.

Hi Bill.

Good morning. I'm not quite clear whether you expect us to treat these transition costs of the Unilever acquisition as one-time items or not. Is that what you're suggesting? Are these one time? Are we supposed to focus on like the $1.62?

Well I think in building a model for the future those costs will not be there, that's the point. They are one-time in that they will be around for a few months and then they will not be around, and we'll see that impact go away.

What we're saying Bill is no dilution going forward once we're past these.

Didn't you say there're going to be costs like also next year?

There will be some early next year. They will be diminishing quickly through the year.

So what do you think the impact of the acquisition will be on fiscal '02 earnings? And what is the goodwill component of that?

Well the goodwill component is going to be about ¢3 a share in a full fiscal year, and we had said in January, we expected the dilution in 'O2 to be about a penny. It may be a little higher but it's not going to be a whole lot higher than that.

So on a cash basis, it would actually be slightly accretive?

Absolutely.

Absolutely.

And Gerry can you give us any financial guidance for fiscal 'O2 in terms of capital spending, tax rate, interest expense? I know you don't want to talk about the business, but can you give us the broad outline of financial parameters?

I don't think we should, we're not really going to be ready to talk about anything around 2002 until the end of July.

Okay, right guys, thanks.

You're welcome.

Next question?

The next question is from Jane Merring.

Hi Jane.

Hi, good morning. First a comment before I just ask my question. I know Doug's not ready to talk to us yet until July, but it would be nice anyway if he could be on these calls just so we could get a little more familiarity.

Jane. This is a quarterly earnings call though. That's the reason why you have us financial people just blurting back at you, so...

I know. You know I love you Len.

I know.

On some other conference calls the new CEO has decided to, we do...

I promise you, you won't be disappointed in July when you get a chance to hear him.

Sure, okay anyway. On the volume, just to focus out a little more, your shipments did lag takeaway by a pretty significant amount. And then as we, sort of, already talked about, you're also saying that de-stocking could be a factor in the fourth quarter as well. I know Terry asked about state of inventories, but I just wondered if you could explore that a little further, and I also just want to go back to the way you sort of reframed the category for us and what your long-term share objective was. I just want make sure I understand what you're saying.

Jane, this is Bob Schiffner. Let me just start on the inventory question. It's true that, when you look at the third quarter, shipments did lag consumption in US soup. However, we really started seeing a dynamic switch in that toward the end of the third quarter. It wasn't consistent throughout the third quarter. And that's primarily why we've taken the shipment forecast down for the fourth quarter. So it wasn't prevalent throughout the quarter. It started occurring primarily toward the end of March and April, and so that's the situation.

Let me just interrupt you for a second. I mean, this just something to really grapple, with, but you spent a lot of money on advertising, and then it's like there is no follow-through from that. The minute you, I don't know how your advertising trailed off, your marketing trailed off over the quarter, but it's like the demand just sort of, for the retailer, just dries up. I know it's funny coming in a soup season, but you'd think you'd get, sort of, ongoing benefit from all that money.

Your point is well taken. My sense is that we've been pretty conservative in the fourth quarter. It would be nice if in fact we had some carryover impact, and we're just taking a conservative view on that, however.

Okay, and then just the question I asked you on how your thinking about share.

Let me just mention Jane, the reason we did that, there's been a lot of things that have been written by analysts on share loss and things like that. All we're trying to point out is that we're competing in all three of these segments, and we, as always gets reported IRI to you by just total soup, and we're saying that it's important, and as we go forward, we may look at this differently and help you understand the category differently by saying you have to look at Condensed, you have to look at Ready To Serve, and you have to look at Broth.

So when you say that your long-term objective is to maintain a gross share in overall growing wet soup category, you're saying that you only care about growing your share in the growing part of the category which is Ready To Serve and Broth?

No. Jane that's not what we intend to do. We've got to be strong in all three segments, and clearly that will be our long-term goal, which basically means that we intend, at some point in the future, to get back into an overall growth mode in our total wet soup category. All we're basically doing is just telling you that in fact that probably is not going to happen overnight given the various segments and our respective positions. But make no mistake, we're here to regain share growth in the overall wet soup category, as measured in totality.

Okay. We're looking forward to July. Thanks.

You're welcome. Next question Jimmy.

Yes. Our next question is from Andrew Lazar.

Hi Andrew.

Good morning. Just two quick things, one, can you comment on some of the more recent trends that you're seeing in the recently acquired businesses from Unilever, since the conference call when you announced that? And secondly, just have you seen any sort of unusual turnover of note in any part of your DST organization, even though I know a lot of it is independent, just given that some folks out there are hiring pretty aggressively to try and build up their sales rep organization in the DST world? Thanks.

Yeah, let me just take those. The only thing we have to report on the Unilever acquisition is that we started shipping a few weeks ago. The anecdotal information we receive is that everything is going relatively smoothly, and it's just a little bit too early to, I think at this point, evaluate our sales versus our acquisition model or anything like that, but again, we're off to a good start, and we're very, very pleased with how the acquisition has transitioned to date. As far as your second question is concerned if we've heard about any key people leaving our DST organization, the answer is we are not aware of anything as it pertains to that.

Great, thanks very much.

Okay.

Next question Jimmy.

Our next question is from John O'Neil.

Good morning everyone.

Hey John.

Hey John.

You've given some consumption numbers for some categories and volume shipment numbers for others. Can you give us the shipment numbers for some of the other US businesses and the consumption numbers, maybe overall, for European soup?

John, we're not going to give shipment numbers by specific categories. The consumption numbers, we have some consumption numbers for European businesses, which Gerry will give you for the soup.

Right.

Our marketplace information outside of the US tends to be somewhat lagged, and we don't get it this frequently or in as much detail, but I can tell you on a fiscal year-to-date basis, for example, that consumer purchases in Canada grew 3%, but this is not right through the end, this is through like the middle of April. In the UK, up nearly 2%; in the French soup business, up nearly 3%; Germany, up about 1%, remember we talked about a BSE impact on beef-based items in Germany, which were largely offset by the newer products in the German line; and in Australia, we continue to see great consumption growth, we were up 25%. So those would be the highlights of our international soup business. That's fiscal year-to-date through various dates in March and April depending on the country.

So the quarter shipment level internationally was skewed by launching new products?

It was skewed by recovery of momentum in Canada or in the UK because our marketing spending in those businesses was later than it had been last year.

Okay, and of the estimate reduction that you're talking about for the next quarter, how much of that comes from increasing marketing? And can you give us an idea of how much you're looking to increase marketing and is some of that for slotting?

Yeah, of the range, which is about ¢4, about 50% would be due to marketing and the other half due to soup shipments.

And is some of that for slotting new products or is it all consumer based?

Well, there's a lot of things in there, some is slotting of new products, but the majority is really new product development quality. Initiatives are also a major portion of that.

And then lastly you gave us A&M growth in constant currencies, I guess, excluding foreign exchange. Can you give it to us in dollars?

Yes, you can take off about 2 points in the quarter for currency, so the 12%, I think, was 10% as reported in terms of marketing.

Great, thank you.

Okay, next question Jimmy.

Our next question is from Eric Katzman.

Good morning.

Hey Eric.

Hi Eric.

Len, can I go on record as saying that I love you too.

No, I'd rather have it be the other sex.

Okay. Actually getting, more seriously, getting back to these transition costs. I mean is this a charge, and if it's a charge then I can understand excluding it like you're doing in Arnotts down in Australia, but it doesn't seem to be a charge. It seems to be a cost of doing business. So why should we exclude it?

I don't think we're suggesting you should exclude it. We're trying to disclose it so you understand it, and you can build your forward-going models with that understanding. It's not a charge. They are operating expenses, but they are unusually high operating expenses because they include transition services from Unilever, which were negotiated as part of the purchase agreements, and they will phase out over time. It's, for your information, it's not to be treated as a charge.

Okay, and then can you also comment a little bit more about the competitive situation with Pepperidge Farm? It seems like you're holding your own there and actually doing pretty well. Is the new chocolate-covered Oreo having any impact on your business? Have you seen any, I guess, lack of focus at Keebler with them trying to merge with Kellogg for a period of time? Maybe just kind of give an update there.

I will have Gerry just give you some share numbers. But, I think, overall we are very happy with Pepperidge's performance. We feel we're building momentum in that business. We have some neat things planned for next year, which we'll talk about at some point, and so, overall, the bottom line is we have not been impacted by, at least directly, by other competitors. But I'll have Gerry give you some share numbers.

Yeah, we had a pretty good performance in terms of consumer takeaway in Pepperidge Farm in the quarter. In the cracker category, the cracker category grew a little over 7%, Pepperidge grew 11%, so we gained a couple of tenths of a share point there. And in the other category that we tracked, cookies were up 3%; and the total cookie category was up 3%. The Pepperidge Farm adult cookie business grew 8%, and we gained nearly 8%, and we gained share there too. In the quarter, Goldfish and the frozen business, both grew double digits, and in regard to your specific competitive questions like the Oreo Chocolates, the new Oreo, I think it's too soon to tell. I think I don't think those numbers are reflected here at this point.

Okay. And then, and just, this may sound a crazy question, but why do such an important announcement, as Doug's presentation is obviously going to be, on a Friday in the summer? I mean, why not do it in the middle of the week, when people are honestly going to be probably more attentive?

I understand your dilemma Eric, and let me just mention to you...

I'm going to be around. I mean it's not really a personal...

Yeah, the reason we want to do that is because this is significant. We realize a lot of people are waiting for it. Over the next couple of months, we're going to be going through our operating plans and strategic plans with the Board, and that really is the earliest opportunity we will have after the Board approves our plans for next year to come to you. We're doing it immediately afterwards, and so that's really the time that we're stuck with. We're doing it in July because we realize a lot of people will still be around that week, but the next week you get a little further in, but that's literally the reason we're doing it because we need that amount of time, and it's that Friday following our Board meeting that we're actually doing that meeting for you.

Okay. Thank you.

You're welcome. Next question Jimmy.

Our next question is from Mitch Pinheiro.

Hi Mitch.

Yeah. Hello. Good Morning. Could you quantify the amount you're spending on the new business development, the quality enhancements in R&D in the fourth quarter?

I think, Mitch, no we're not prepared at this time to really put a number on that.

Okay. Are any of those issues, does it relate to decisions made by Doug in terms of direction? I mean, is there anything in there that's sort of part of a bigger plan or are we talking merely some sort of fine tuning here?

I think these programs, all the programs we have, for example, new product development, those are things that are in a funnel. We have products planned for several years out. We've been accelerating a lot of that kind of activity. So, it's kind of a yes and no sort of thing, because we do have products that are important for next year, but we also have products in that funnel being developed that will be for fiscal '03, fiscal '04. So those are programs that have been accelerating, and these are things, as we said, that weren't necessarily planned, but we are doing them because it's important for the future.

And new business development means what? I mean is it new product development?

Yeah, that would include things as concept testing, basic testing, and in fact, let me just kind of add a thought onto what Len said. Clearly Doug, in his statement, has mentioned an ongoing sustainable level of investment, and I think part of what you're seeing there is in fact a commitment to that overall vision. So I think it's important to put that into that perspective.

But in terms of not quantifying, the fact that you mentioned it, it must be a significant number or...

It's actually, as far as the full fiscal year is concerned, not an enormous number, okay. But it's obviously large enough to impact EPS, and that's why we chose to make note of it.

How about some of the new products I saw at FMI? Are they any expenses? Are they taken, are they going to be a next fiscal year expense, like the supper that they used to kit and the...

Supper Bakes and our Pasta Bakes, I think you're specifically referring to.

Yes.

The answer is yes. There, in fact, will be expenses associated with them in the next fiscal year. However, there are also expenses associated with them in the current fiscal year. But, in fact, they have been planned much earlier in the year and are not responsible for the incremental impact of what we just talked about.

Just, another thing on just Pepperidge Farm, my last question is are you getting in some of the volume or the share gains are actually assuming the growth you said, up 11% in crackers and up 8 in cookies for the adult cookies, could you break down volume and price in that? And also can you talk about your bread business a little bit?

That data was consumer takeaway.

A consumer takeaway?

Neilson, this is not internal data.

Okay.

The second part, oh, the bread business. Yeah, we've been experiencing good bread takeaway too. I think the re-staging of the Farmhouse line that we did that was the whole white bread line that we re-staged with the Farmhouse, and did some quality enhancements on that. It has really done well. So the fresh bread business, actually if you look at consumer takeaway, is up by 13%.

And are you getting pricing in all your businesses, crackers, cookies, and bread?

No. Pricing hasn't been a major factor.

Okay, not even in the bread business?

I think, no, I would say overall, we haven't had any major pricing.

Alright. Thank you.

You're welcome. Our next question Jimmy.

Our next question is from Leonard Teitelbaum.

Hello Len.

Good Morning Len, and I only like you a little bit.

I like my wife better then.

I think we don't get into that.

Len the question I have is this, look we're starting a new year on July 1st. What are the chances of having some unusual cleanup activity in the fourth quarter to kind of set the table properly here? Should we look for anything like that, and without getting into the nomenclature between what is operating and what is non-operating cost, should we expect anything along those lines?

Len, we are still evaluating a lot of strategic issues, and at this point, since we're still 21/2 months until we're going to speak with you again, I think it's just too early to comment on that.

Alright. For what it's worth, I think let's clean everything up and start this thing anew. Thank you very much.

Your point is well taken.

Jimmy we're going to have time for just one more question please.

Very well. Our next and final question is from Bob Cummins.

Good morning everybody.

Hi Bob.

How do I ask this question? I understand that you don't want to go into a lot of detail about next fiscal year in view of your big meeting coming up, but preliminarily should we assume another down year in earnings next year?

I think at this point Bob we're just not going to comment on any. We're not providing any guidance for next year at this point, and that's as far as we can go with that. I do apologize for that, but that's really all we're prepared to do at this point.

Okay. Thanks.

Okay. We're going to have to stop here. Any of you that didn't get your questions answered, please give me a call at 856-342-6428, and I'll try to answer the questions for you. Thank you for joining us here this morning, and that concludes our call.

Thank you for participating in today's call.