金寶湯 (CPB) 2004 Q4 法說會逐字稿

Good morning and welcome to the Campbell Soup Company 2004 year end results conference call.

At this time all participants are in a listen-only mode.

After the presentation we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS).

Today's conference is being recorded.

If you have any objections you may disconnect at this time.

Now I will turn the meeting over to Mr. Leonard Griehs, Vice President of Investor Relations.

Sir, you may begin.

Thank you.

Good morning, everyone, and welcome to Campbell Soup Company fourth quarter fiscal 2004 conference call.

Our agenda for this morning's call will be as follows.

Anthony DiSilvestro, Vice President and Controller, will open with financial results for the fourth quarter and fiscal 2004.

Bob Schiffner, Senior Vice President and Chief Financial Officer, will offer some summary comments and provide guidance for fiscal 2005.

We will then take your questions.

Joining us for the question-and-answer session will be Doug Conant, President and Chief Executive Officer.

Our call this morning will be limited to approximately one hour.

It will be available for replay approximately two hours after the call is complete.

The replay number is 1-800-964-3292 or 1-402-998-1011.

It will run through midnight, September 17th.

You may also listen by logging onto our website, www.CampbellSoupCompany.com, and clicking on the website banner.

As a matter of policy our conference calls are open to all interested investors and members of the media.

This discussion contains forward-looking statements that reflect the Company's current expectations about its future performance.

These forward-looking statements rely on a number of assumptions and estimates that could be inaccurate and which are subject to risks and uncertainties.

These include statements concerning the impact of marketing investments and strategies, new product introductions, cost savings initiatives, quality improvements on sales, earnings and margins and other factors described in the Company's most recent 10-K, as updated from time to time by the Company in its subsequent filings with the Securities and Exchange Commission.

Actual results could vary materially from those anticipated or expressed in any forward-looking statements made by the Company.

Now let's begin our discussion of results with Anthony.

Good morning everyone.

The earnings statement distributed with our press release is in the same format as that included in our SEC filings and my commentary will address variances in that format.

Fiscal 2004 was a 52-week year versus 53 weeks for fiscal 2003.

I will quantify the estimated impact of one less weak on our reported sales, for both the fourth quarter and the fiscal year, using a methodology that equates the 53rd week of sales to the average of the last six weeks of the fiscal year 2003.

Fourth-quarter results by reporting segment appear on both the press release and the supplemental schedule.

I will discuss earnings of reporting segments for the full year only.

We have separately identified certain items because they represent income or expense associated with infrequently occurring events and the Company believes identifying them improves the comparability of year-to-year results of operations.

We provide a reconciliation of earnings and EPS as part of our earnings release and on our website.

Now let's turn to results for the fourth-quarter.

Net sales for the quarter were down 2 percent to 1.433 billion.

Here is the breakdown of the change in sales.

Volume and mix added 4 percent, higher selling prices added 1 percent, higher promotional spending subtracted 2 percent, currency added 2 percent, one less week subtracted 7 percent.

Excluding the impact of one less week, sales rose 5 percent.

Earnings before interest and taxes declined to 129 million from 155 million.

Two items impacted earnings.

A pre-tax gain of 10 million resulting from the sale of an idle manufacturing site in California, a 32 million pre-tax charge related to the restructuring announced in June, gross margin percentage for the quarter decreased from 41.0 to 39.1 percent, primarily due to costs associated with inflation, investments in quality and packaging improvements and the continuing mix shift in soup, partially offset by higher selling prices and productivity improvements.

Marketing and selling expenses decreased 13 percent to 242 million, primarily due to a decline in advertising in our U.S. sauces and beverage business.

Administrative expense rose 14 million or 11 percent, primarily due to increased costs associated with ongoing litigation.

Research and development expenses increased 3 million or 12 percent.

Other income of 12 million, compared to other expense of 11 million, in last year's fourth-quarter.

This change was primarily due to lower adjustments to the carrying value of long-term investments in affordable housing partnerships and the gain on the sale of the idle manufacturing plant in California.

Net interest expense was 43 million, down 2 million due to lower debt levels.

The tax rate for the quarter was 31.4 percent.

Net earnings for the quarter were 59 million or 14 cents per share compared to 74 million or 18 cents per share in the year ago quarter.

As already noted, there were two items impacting the comparability of earnings in the quarter.

First, a 6 million after-tax gain, or two cents per share, from the property sale.

Second, a 22 million after-tax charge or five cents per share related to the restructuring announced in June.

Excluding these items, earnings were 17 cents per share consistent with our guidance for the quarter.

Now let's turn to full year results.

Sales increased 6 percent to 7.109 billion.

Here is the breakdown of the change in sales.

Volume and mix added 2 percent, pricing added 2 percent, currency added 4 percent, one less week subtracted 2 percent.

Excluding the impact of one less week, sales rose 8 percent.

Earnings before interest and taxes rose 10 million or 1 percent to 1.115 billion.

Earnings were impacted by three items: 32 million in charges for restructuring, 10 million for the gain on sale of property in California, 16 million gain on the settlement of a class-action lawsuit involving ingredient suppliers.

Gross margin for the year declined to 41.1 percent from 43.0 percent.

The percentage decrease in 2004 was due to the impact of cost inflation, quality and package improvements, product and currency mix, partially offset by productivity improvements and higher selling prices.

Marketing and selling expenses rose 8 million or 1 percent to 1.153 billion.

The increase was due to currency partially offset by lower marketing expense as a result of less consumer promotion activity and lower media production costs.

Administrative expense rose 35 million or 7 percent primarily due to currency and costs associated with ongoing litigation.

Research and development expenses rose 5 million to 93 million primarily due to currency.

Other income of 13 million in 2004 compared to other expense of 28 million in 2003 primarily due to a 16 million gain from the Company's share of a class-action settlement involving ingredient suppliers and lower adjustment to the carrying value of long-term investments in affordable housing partnerships.

Net interest expense was 168 million versus 181 million in the year ago period.

The reduction was primarily due to lower debt level.

The tax rate was 31.7 percent compared to 32.2 percent last year.

The lower tax rate was due to a lower U.S. tax liability resulting from higher deductions for charitable contributions and increased R&D investment tax credits and the favorable resolution of certain state income tax audit.

Net earnings for the year increased to 647 million or $1.57 per share.

This compares to fiscal 2003 net earnings before the cumulative effect of accounting change of 626 million or $1.52 per share.

Again, keep in mind the three items impacting fiscal 2004 net earnings and earnings per share: a 10 million or 2 cents per share gain associated with the class-action suit; a 6 million or 2 cents per share gain from the sale of property; a 22 million or 5 cents per share charge for restructuring.

Excluding these gains and charges, EPS is $1.58 in fiscal 2004 consistent with Company guidance versus $1.52 in fiscal 2003 before the cumulative effect of accounting change.

Now let's turn to reporting segments.

Note that restructuring charges are broken out by segment on the supplemental schedule and on the footnotes to the earnings.

North America Soup and Away From Home.

Sales of 2.699 billion rose 4 percent versus year ago and operating earnings of 602 million declined 5 percent versus year ago.

Here is the breakdown from the change in sales.

Volume and mix added 1 percent; pricing added 3 percent; increased promotional spending subtracted 1 percent; currency added 2 percent; one less week subtracted 1 percent.

Excluding the impact of one less week, sales rose 5 percent.

The operating earnings decline of 5 percent includes restructuring charges of 7 million, which negatively impacted earnings growth by 1 percentage point.

Earnings were also negatively impacted by costs associated with quality improvement, higher cost inflation and trade promotion and product mix.

These were partially offset by higher selling prices and productivity improvements.

Ready-to-serve soup sales increased 8 percent on a shipment increase of 6 percent.

Our investments in higher quality products, convenience packaging and integrated marketing are deriving top line growth.

The primary driver of sales growth was M'm!

M'm!

Good!

To Go convenience platform.

This includes Chunky and Select in microwavable bowls and Soup At Hand, our line of convenient sippable soups designed for out-of-home consumption.

The U.S. condensed soups sales declined 2 percent on a shipment decline of 4 percent.

This improvement in trends for the year was led by condensed eating soups, a new integrated kid's marketing program, helped to drive this improvement.

This gain was offset by a decline in cooking soups.

In the U.S., there was significant progress with the installation of our new gravity feed shelving for condensed soups, and we are now ahead of where we expected to be going into the new soup season.

Over 8,700 units are now installed with authorization for an additional 2,300 units this fall.

Broth sales increased 6 percent on a shipment increase of 5 percent.

Sales were up for both cans and aseptically packaged, Swanson Broth.

Sales in Canada increased due to currency.

Away From Home sales grew slightly on higher sales of refrigerated soups.

North America Sauces and Beverages.

Sales of 1.246 billion were even with a year ago and operating earnings of 268 million were down 7 percent.

Here is the breakdown of the change in sales.

Volume and mix added 1 percent.

Decreased promotional spending added 1 percent.

One less week subtracted 2 percent.

Excluding the impact of one less week, sales are up 2 percent.

The decline in operating earnings of 7 percent includes restructuring charges of 3 million, which accounts for 1 percentage point of the decline.

Other factors in the decline include higher costs associated with new product introductions early in the year and inflation, partially offset by productivity improvements.

Campbell's beverage businesses had excellent performance.

V8 vegetable juice achieved record sales levels on stronger advertising, more efficient trade spending and favorable consumer trends towards wellness.

During the year we launched our first certified organic product, Campbell's Organic Tomato Juice.

Prego pasta sauce sales declined primarily due to the impact of lower sales in the dry pasta category.

Performance improved in the second half of the year.

Pace Mexican sauce sales were about even with year ago.

Biscuits and Confectionery.

Sales for the year were 1.982 billion, up 12 percent versus year ago and operating earnings of 216 million were up 2 percent.

Here is the breakdown of the change in sales.

Volume and mix added 4 percent; pricing added 2 percent; increased promotional spending subtracted 1 percent; acquisitions added 2 percent; currency added 7 percent; one less week subtracted 2 percent.

Excluding the impact of one less week, sales increased 14 percent.

The earnings increase of 2 percent includes restructuring charges of 12 million, which negatively impacted earnings growth by 6 percentage points.

Currency contributed 8 percentage point of earnings growth.

Earnings growth at Arnott's, Godiva and Pepperidge Farm was offset by a decline in earnings in the Australian snack foods business.

Let's look at a few highlights of the three businesses.

The Pepperidge Farm Goldfish snack business had strong growth, driven by gains in mass merchandisers and the introduction of new varieties.

A launch of Mini Distinctive cookie varieties also contributed to the results.

Fresh bread sales increased as we introduced Pepperidge Farm Carb Style breads and rolls.

Sales of bagels and English muffins also increased.

Arnott's delivered strong financial results, driven by improved performance in biscuits.

The Australian snack foods business, behind strong incremental marketing investments, improved market share in a highly competitive environment.

Godiva worldwide sales improved driven by solid growth in North American retail same-store sales and increased sales in duty-free stores.

International soups.

Sales were 1.182 billion, an increase of 12 percent versus year ago and operating earnings of 135 million were up 5 percent.

Here is the breakdown of the change in sales.

Volume and mix added 2 percent; currency added 12 percent; one less week subtracted 2 percent.

Excluding the impact of one less week, sales increased 14 percent.

The operating earnings increase of 5 percent included restructuring charges of 9 million, which negatively impacted earnings growth by 7 percentage points.

Currency added 11 percentage points of growth.

Sales gains, excluding the impact of currency, were achieved in France, Australia, Belgium, and the Asia region.

In Australia, soup had strong sales and volume growth, driven by Campbell's Country label and Campbell's Chunky.

The broth business also showed strong growth.

Now let's turn to the balance sheet.

Total debt was 3.35 billion, down from 3.53 billion the prior year.

Cash flow from operations was 744 million versus 873 million.

This decline was primarily due to higher working capital requirements of approximately 150 million and a $50 million voluntary contribution to a U.S. pension fund, partially offset by an increase in earnings.

Capital expenditures were 288 million compared to 283 million in fiscal 2003.

That concludes my discussion of the year.

Now Bob Schiffner will offer some comments and discuss our outlook for fiscal 2005.

Thanks, Anthony, and good morning everyone.

Overall, I am pleased with our sales performance in the fourth quarter and in fiscal 2004.

Organic sales growth is within our target of 3 to 4 percent and compares favorably with the organic sales growth of our peers in the S&P food group.

However, our challenge is to translate this good top line growth into more robust earnings growth.

As I discussed at our June 25th meeting, this issue will receive a significant amount of our focus going forward.

Having said that, we expect to stabilize gross margins and improve operating margins in fiscal 2005.

The actions we announced in June helped move us toward that goal.

We have established three financial goals going forward.

Annual net sales growth of 3 to 4 percent, growth in earnings before interest and taxes of 5 to 6 percent per annum, and annual earnings per share growth of 5 to 7 percent.

These goals assume that we absorb a number of one time costs other than restructuring costs for the projects we announced in June.

In fiscal 2005 we expect to achieve our sales targets, as well as our earnings growth targets from our adjusted 2004 earnings per share base of $1.58 with earnings growth skewed toward the second half of the year due to the timing of marketing programs.

Finally, I want to revisit my comments in June regarding new segment reporting.

At that time I said we would provide you with new segments when we released year end However, we have not yet arrived at a final decision on this, so we will communicate this to you at the end of the first quarter when we publish results.

I will now turn the meeting back to Len.

We can now open the lines for questions.

(OPERATOR INSTRUCTIONS).

Terry Bivens from Bear Stearns.

Good morning everyone.

Two questions.

In terms of the mix issue, I heard what you said, Bob, on the feeling that you can stabilize your margins this year.

I guess one of the problems with Campbell is most of the new products you introduce, unfortunately at this point, have lower margins than the condensed.

Do you see that turning around this year when we start looking at microwavable bowls and that kind of thing?

Will the mix shift also stabilize this year and improve next year?

We believe that in fact there will be some stabilization in mix.

Obviously we are still capacity constrained this year.

However, I think the biggest impact on margins is obviously the steps we made in June to take out expenses in our cost structure.

And it is that, in fact, that is going to be primarily supporting the stabilization of gross margins and slight improvement in operating margins.

And just as we head into the soup season here, I've seen kind of a mixed picture.

In some retail outlets you still see Progresso selling at a bit of a premium to Chunky.

In other places I've seen some pretty aggressive discounting by Progresso.

What is your read as we go into the soup season?

You know we are now kind of at that critical point, where in the past Progresso is kind of pantry loaded.

How do you see things at this point in time?

Good morning, Terry.

This is Doug.

Progresso did announce a price increase and we are seeing that start to flow into retail.

It is uneven.

It is not obvious in all customers.

We intend to just be very competitive and we like our positioning on this.

We did have modestly stronger sales at year end, partially as a result of -- due to a very favorable customer response to our back-to-school programming.

So it is going to be another competitive back-to-school year, and we like our chances.

But the pricing is going to take a while to work its way into the marketplace fully.

Okay.

Thank you.

John McMillin from Prudential Equity Group.

Good morning everybody.

Doug, the margins here are worse than I thought they would be and I know this is not the seasonally significant quarter, but what impact, first of all, does one extra week or one less week this year have on margins?

Maybe Bob can answer that.

Because you look at these 13 percent operating margins and my God, ConAgra is shooting for 15.

Hopefully -- I guess, one, I'm just wondering how much of it is just tied to less overhead absorption and some issues of that extent?

John, it has had a very small impact on our margins because we do book expense through the 53rd week.

So again, just a very, very small impact.

I wouldn't even consider it an impact.

And then, Doug, just a broader issue of trying to get 3 percent sales growth.

Is it just coming at too great of an expense?

Well, John, it has taken us a while to build our momentum in the marketplace, as you know, and we have improved our organic, our sales growth rate, organic sales growth rate over each of the last three years.

We are now up at a run rate we think we can maintain in a competitive way.

We are within our target range.

And I think we can continue to deliver that kind of growth with a reasonable level of investment.

So we are sort of feeling as if we have hit a threshold here that we can maintain.

We like -- the organic growth as we track it, relative to the S&P food group, Campbell and Kellogg are the only diversified food companies that are delivering those kind of numbers right now and we think we can sustain it.

And just in terms -- I know you are not giving quarterly guidance, Bob, but you're kind of giving some broader guidance.

I just wonder, to what extent you think you will have much, if any, first-half earnings growth?

I think I will let my statement stand about the skewing of marketing programs to the first-half, John.

As I said, we are trying to get away from giving quarterly guidance, and I will let it stand there.

Won't there be some charges in this fiscal year tied to the ongoing DSD conversion to direct and the SAP implementation?

We expect to have a small level of restructuring charges in this fiscal year.

But that is excluded from your guidance?

Yes it is.

It is excluded from our guidance, John.

Thanks a lot.

Eric Katzman from Deutsche Bank.

Good morning everybody.

Just to kind of follow-up on John's line of questioning, in terms of the outlook, you haven't taken a price increase following the move by Progresso, so I assume that you haven't assumed any benefit of a price increase in the outlook, Bob.

Is that fair to say?

Eric, our policy is not to comment on price increases.

So we will leave it at that.

But you haven't followed that move to date?

That is correct.

We have not followed that move to date.

Then I guess second question to Doug.

In the past you've kind of mentioned that you are going to, I guess one way or the other, contain or manage the condensed slide over time so that cash flow really isn't I guess affected one way or the other.

But I guess with some other companies, Dean Foods and their specialty division, Sara Lee, with some of their operations, have kind of shown when companies kind of say that we will just manage this business for cash flow and focus on other areas for growth, it seems like what often happens is the market changes so quickly that all of a sudden the cash flow comes out at a different level.

So I just wonder if you could comment on that given the experience of some of the other companies.

We are still very committed to our condensed soup business, so I wouldn't begin to say we are managing exclusively for cash flow.

We see good market response to the programming we've put in the market.

We see a real lessening of the rate of decline of condensed soups, while we're actually accelerating the growth of ready-to-serve soups.

So from a total portfolio perspective we are very comfortable with our soup plan going forward.

In fact, our condensed eating soup which is about half of the portfolio, responded very positively this past year to that approach and actually grew sales in a -- despite a pricing action that we took to cover some of the cost of the upgrades we hit.

So overall, we feel pretty good about the overall soup portfolio and that we are managing it smartly.

The challenge for us is to get our margins right over time and we intend to do that, both at the EBIT line at the gross margin line.

Thank you.

David Edelman from Morgan Stanley.

Bob, could you quantify Q4 soups shipments, condensed and ready-to-serve?

Normally you give us an indication on a quarterly basis for that.

We had adjusted for the 53rd week.

We had very strong soup shipments in the fourth quarter.

They are up approximately 6 percent adjusted for the 53rd week.

Do you think you benefited from the trade speculating that you may follow Progresso's price increase?

No.

Okay.

And do you think you benefited from the weather?

Obviously it is not a high soup consumption, but it was a cool and wet summer and other beverage and ice cream and other categories like that, were hurt.

Do you think you might have been flattened a bit?

There is no indication of that.

David, this is Doug, just building on it.

I think what really is helping our soup business in the fourth quarter is some very good back-to-school programming, which kicked in a little earlier this year and as anticipated we knew we were going to have some good momentum going into the fall.

And I think that helped us more than anything else.

lastly, on the working capital issue, the 150 million used, is that largely just unwinding of some of the success you had towards year end last year, or is there a more secular issue?

There were a couple of big issues playing there.

Overall, our working capital management is sound.

At year end we, in fact, experienced some July, higher July sales based on what Doug just said regarding the back-to-school programming.

And then the other major impact is that we are building inventories, especially around our convenience products.

As you know, we are capacity constrained.

We expect new capacity to come on for the start of the FY '06 soup season.

But in terms of entering this soup season, we in fact wanted to make sure that in fact we had the necessary product in our convenience line, which you know has been quite popular with consumers.

So that is the other major reason for the higher working capital at year end.

Okay, thank you.

Evan Morris from Bank of America.

Good morning, guys.

Just following on Terry's question earlier, heading into soup season, we are hearing that there's going to be a lot more private-label offerings of ready-to-serve soups.

I guess, how is that going to change the category dynamic and is that going to sort of force the branded players hands in terms of having to take pricing down if these are good alternatives in terms of quality and packaging?

Evan, this is Doug.

We believe that the way to win in soup versus private-label is through branding and with superior products, with superior marketing.

And we believe our portfolio, especially on the ready-to-serve side, is very well-positioned there.

Superior product quality in Chunky Select and also in our microwavable offerings and more innovations coming along the way.

So the challenge is to just have a superior alternative, and we think we do.

And everything we have seen in accounts that have already have ready-to-serve offerings is that we can be more than competitive.

So we are comfortable with that position, particularly in ready-to-serve where Progresso is also very competitive.

There's not a lot of room for private-label in the ready-to-serve arena with quality products.

And they haven't had much success year-to-date and I guess I'll be from Missouri on this until they do.

So you don't think we would see a similar impact in ready-to-serve as we saw in private-label going at a pretty big share in condensed?

You don't have the competitive, it is basically Campbell.

In condensed you have significant all other competitors as well as Progresso as well as a full portfolio of Campbell product.

It is a very different market structure than what you see in condensed.

Does your 5 to 7 percent EPS this year, does that assume minimal price competition in soup as we move through soup season, or what is -- what are your assumptions there?

That just assumes we're going to be very competitive.

Okay, and last question.

Can you just repeat what you said?

Did you say marketing was down 13 percent in the quarter?

Is that what you said?

I'll have Anthony get that for you.

Yes.

I think that's right.

Let me just check.

Yes, we said down 13 percent, 242 million.

I guess what is the outlook for marketing and consumer spending as you move into '05 because if marketing was down in the fourth quarter and it looks like trade promotion dollars have been up a bit, are we seeing sort of a shift now moving from consumer advertising to trade, or how is that going to play out as we move forward?

You're seeing us -- what you're going to see is that we're going to have a very, as we've said, we're going to fully compete here.

We are going to have a very competitive profile both in terms of trade spend and consumer advertising spend.

And we are going to maintain the kind of profile that we've had for the last two years.

So we are going to be doing some fine-tuning of it as we go into each category with more knowledge today than we had yesterday.

But basically our commitment is going to be as strong this coming year as it has been this past year.

Just to clarify, the comment I made was that marketing and selling expenses were down 13 percent.

Okay.

And we tied those specifically to the U.S. sauce and beverage business primarily.

There were some factors last year versus this year, so you shouldn't read that as a general decline.

No, I was just trying to get a sense, are we seeing a shift from consumer toward trade as we move forward.

Thank you very much.

Eric Larson from Piper Jaffray.

Good morning everyone.

A quick question follow-up on the pricing.

Given all the various discounts that we see everywhere, through your internal analysis is your price spread about the same, or has it widened between yourself and Progresso and ready-to-serve soups?

Eric, this is Doug.

We continue to see uneven execution of their pricing action, and so it is really very account dependent.

And as a result, you can't really draw any conclusion from averages.

We are sort of in a period where they have announced a pricing action as they are going into the major suit promotion season, and you're going to see pretty uneven, in my opinion, uneven distribution of that pricing action.

And it is going to be very blurry as we go through the soup season.

We're just going to have to see where it all shakes out when we're talking about this a year from now.

Okay.

I can see that on the shelf, that's why I asked the question.

The second point, a second question is, do you consider the price increase by Progresso as possibly catch-up to your previous price increases?

Or if you don't, then do you run the risk that the retail trade takes the price up anyway and they get the benefit without you taking up your shipload prices?

We are all over this and one has to be careful on that front, and we will be, and we think it is manageable from our perspective.

And I can't begin to say why Progresso is taking their prices up.

So I will leave that -- you can Steve Sanger that at his conference call.

Okay.

And then one final question, Doug, and I would really just like a general kind of recap on how your soup selling season went for the fall season.

I know that you didn't -- two years ago you missed, I think, on some execution.

And then a year ago your execution was quite a bit better.

How does it look in general?

We know that back-to-school was pretty successful.

How does your total fall soup sell-in program look?

We feel we are very competitive, and every year our executional excellence has improved.

We think we're going to execute better this year than we did last year.

Now of course I say that every year, and in fact, we have progressively gotten better, particularly in our U.S., Campbell U.S. selling organization.

We are in fighting form now.

They've got the tools they need.

We have the customer commitments that we need to deliver a solid year.

And I think we are going to see good execution this year.

Okay, think you.

Christine McCracken from Midwest Research.

Good morning.

Clearly commodity and fuel cost pressures, packaging cost pressures, have been an issue this year.

Have you assumed any, I guess, decline or moderation in these costs in your '05 guidance at this point?

We have built-in an inflation of around 3 percent in our cost of goods, roughly 2 to 3 percent on the raw material side and 3 to 4 percent on the packaging side.

And I think we are reasonably comfortable with that assumption at this point.

Separately I guess, recently we've seen kind of a slowdown or a moderation in low carb trends.

It seems like your sales in the quarter of pasta sauce were a little bit better.

Are you starting to see that, and how might that affect your bread lines going?

Christine, this is Doug Conant.

We see a moderation in the carb craze trend.

We are well-positioned anyway.

The bulk of our portfolio in thermal with soups and beverages is somewhat insulated from that trend anyway.

But you're correct, our pasta sauce trends have improved, and actually we delivered very solid bread and biscuit results from Pepperidge Farm and from Arnott's.

So we think we are relatively insulated there, and certainly competitive.

I think the worst is over on that front.

Yes, we saw -- in fact somebody pointed out to me this morning the announcement from the Atkins Group that they were laying off a number of people at one of their facilities in New Jersey or somewhere.

What do you know.

Good news.

In Europe, that division has been kind of inconsistent over time, and I think you talked about, in your June meeting, you were evaluating that business.

Can you, given what looked to be somewhat better results out of that region, are you still kind of evaluating that, or do you think you're kind of back on track there?

I would assert that we are back on track.

Europe met expectations this year and they delivered both at the top line and the bottom line what we expected this year.

We expect continued improvement going forward.

But they met expectations.

The Unilever culinary brands that we acquired two and a half years ago showed very good growth.

So they are clearly back on track.

And we also have a management team that has now been in place there to start to drive growth over the next couple of years.

I would say we are back on track there.

Good to hear it.

Thanks.

David Nelson of CSFB.

Good morning.

You talked about cost savings of $100 million by 2008.

I guess I'm working on 40 million cost saves for FY '05.

Would that be in the ballpark?

I would say that it is the ballpark, yes.

Okay.

Just back to some of the questions on marketing and top line with net pricing, promotion hurting your sales by 2 percent, with pricing up 1 percent in the last quarter, maybe I will try one more time.

Would you expect net pricing to be negative in '05 as it was in '04?

We can't really comment on pricing or net pricing.

We intend to compete, and we still are hanging -- and we stand by the guidance we gave for the year.

Okay.

Let me ask one more question.

Would you characterize your array of new products, would you say you have more new news this year or less than last year?

I would say we have a comparable level of innovation and higher confidence in our ability to execute against it.

One thing to remember Dave, is the one thing we've got this year, remember we talked about the fact that we didn't have the capacity on all the microwave stuff last year, so we've got a much bigger focus on that this year because we did increase our capacity on that.

That would be the single biggest change.

Thank you very much.

Andrew Lazar from Lehman Brothers.

Good morning.

Just two quick things.

One, you seem like you're getting broader acceptance as you go forward around sort of the gravity feed shelving and whatnot.

I know that certain retailers, or Wal-Mart among them, had been doing a lot of testing and broadening out the testing to see what all the implications are doing this.

The first thing is, has that kind of netted out in some of those key large retailers?

Do you sort of know yet where that might be?

We have terrific dialogue with all of our customers around our shelving initiatives.

The gravity feed certainly gained traction with them and we went beyond our level of expectations basically because of customer demand.

With each customer, though, we are looking at what is the optimal shelving situation for them.

So we are not limiting ourselves just to the gravity feed shelving device that you've seen at retail.

And we have dialect going on with every major customer regarding what is the optimal shelving situation for them.

We are not going to get into discussing specific customers.

With respect to the systems upgrades and the SAP implementation you discussed at your meeting, I know there will be clearly many benefits across a lot of areas as we have seen some of the companies benefit from as they have done this, but is there maybe one or two specific areas where you think, as a result of doing that, Campbell has sort of the most upside?

I'm trying to get a sense of how we can benchmark some of that going forward.

So is it better understanding, SKU profitability or your return on promotions, as an example?

I'm trying to get a sense if there are one or two that really stand out that you know you're just going to be able to do a lot better and will have a real impact on the P&L as a result of it?

Andrew, I believe the benefits that I expect fall into two areas.

One is clearly better information, faster information.

I think it's going to really improve our decision-making ability here, and a lot of that is I think around the fact that we are going to have much better product P&L information going forward once we institute SAP, and there is a lot of reasons for that.

I can maybe get into that with you at another time because I think you have to have a very good understanding of our current situation we, in fact, find ourselves in.

We also expect savings coming from the transactional side of the coin.

We have an extremely complicated IT structure here, a lot of interfaces.

You know, I think Doreen Wright described it that our June meeting as the spaghetti chart, and that is exactly what it looks like.

So in terms of ongoing transactional savings due to a much simpler system's infrastructure, we expect significant ongoing savings.

Thanks very much.

Leonard Teitelbaum from Merrill Lynch.

Good morning.

Just a couple of quick questions, I hope.

Bob, do you anticipate any down quarters this year?

Len, I'm just not going to comment on that.

Okay.

Picking up on the remarks you just made, my question is going to be related to IT.

Are you expensing those, or accruing -- or capitalizing those expenses?

Of the $125 million estimate we have placed on SAP, our expectations right now is that about 70 million of that will be capitalized and about 55 million will be expensed over the next three years to four years.

And lastly, not that we haven't beaten this price thing to death, Doug why don't you just raise prices see if we can shorten the conference call by half an hour.

Do you see, have you done a simulation that if you were to raise prices 5 percent, just to pick a round number, what the volume falloff or impact would be?

Len, we have done probably as much pricing simulation as any other company could conceive of doing.

I'm not going to speculate on any future pricing issue.

I will say we did take condensed prices up last year to cover costs, and we actually improved our volume performance.

So we think it is a manageable proposition as long as you get the right price value in and you have the improved products and improved packages to justify the pricing.

Thank you very much.

Bill Leach of Neuberger Berman.

Good morning.

Bob, could you give us some guidance for the year in terms of financial things like the tax rate interest expense and capital spending?

We expect our tax rate to be similar to what it is, or in fact, what it was in fiscal 2004.

Obviously interest expense, we are forecasting an overall increase because we expect short-term rates to continue to increase.

And then as far as capital, we expect we are going to spend roughly about $340 million in '05.

Do you have a number for interest expense?

We don't have a number, but obviously you can pretty much correlate it to the overall rise in short term.

Wasn't it down slightly in the fourth quarter?

It was down in the fourth quarter.

Yes, it was, and that was because basically of cash flow timing.

But again, I don't think it is going to be substantially increased over '04 with the way things are going right now.

Should we use the same number of shares roughly, 412?

Yes, I think that is a good assumption.

And lastly, the $10 million gain you had in the fourth quarter, was that in corporate expense?

Yes, it was.

Rate.

Thank you.

Mitch Pinheiro of Janney Montgomery Scott.

Good morning.

Just a couple of short questions.

First, how much of your marketing expense in '05 is sort of fixed at this point, and how much would you term as flexible?

I don't quite know how the definition would go.

Mitch, this is Doug.

We are pretty locked into our -- all of our spending certainly through the soup season.

So we, I would say we are pretty -- we've got a reasonably solid commitment across the board.

I don't how to answer it.

Mitch, I think there are certain elements that are always -- we look at promotional programs for example and you make adjustments as the year goes on.

I don't know if that is what you are referring to.

In a way, yes.

I think those are tactical things that are always impacted every year that you have, and if they are necessary you do them.

We certainly have sufficient flexibility to manage our year, I guess, would be the point.

Okay.

What about in the cost savings, the $40 million.

How is that split between the cost of goods and SG&A?

Most of it is going to be in SG&A.

That is it.

Thank you very much.

John McMillin of Prudential Equity Group.

Bob, if you take out all the nonrecurring, non-operating items, it looks like your unallocated line with down from $19 million.

Can you just refresh me why it was so high last year and what is the ongoing rate?

Yes.

The issue there, John, is around the low income housing impairment charges.

That is the number you are missing.

And as I said, that decrease was pretty much offset this year by a much higher pension expense, as well as much higher litigation expense.

So that when you look at the two years, I think is safe to say that the P&L has really not been favorably impacted by some unusual nonrecurring charges, other than the ones that in fact we have pointed out to you.

And the depreciation number for the year was?

I think it was around 250 million, wasn't it?

258?

Okay, then Doug --.

(multiple speakers) 260.

260.

Then how long, Doug, do you keep spending 340 off of a 260 base?

Well, the 340 is not forever.

We are chasing some major programs here, and it is really focused on executing SAP.

As we start to pull back from the SAP implementation, we see a big benefit from that as we get out in years three, four and five.

Okay, but 340 is a good number for a couple years I guess?

Yes it is.

Thank you.

John, there's just one thing that in fact I wanted to embellish upon.

We are forecasting more than $40 million of productivity savings in FY '05.

That $40 million is really the savings that we are associating with the restructuring charge that in fact we took in the fourth quarter of this year.

Obviously there, in fact, will be other productivity savings that in fact we strive to generate every single year, which are clearly a pretty big issue in terms of ultimately improving margins.

So I just wanted to make sure that was understood.

I understand that this is just one seasonally low quarter that you obviously pushed, then you get a plus six number.

In soup you pushed product.

You wanted to get a good start to the year.

So I understand the 13 percent isn't the ongoing rate.

It is just a little sobering to look at it.

I think that was really my point.

How many questions do we have in queue yet?

Sir, at this time we show no further questions.

Okay, I think we will end here then.

Thank you very much.

Thanks everybody for your time and attention this morning.