金寶湯 (CPB) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Campbell's Soup Company 2007 fourth quarter and year end conference call.

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

Later we will conduct a question and answer session, and instructions on how to participate will be given at that time.

(OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Mr.

Leonard Griehs.

Good morning, and welcome to Campbell Soup Company's fourth quarter fiscal 2007 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 year.

That will be about 20 minutes.

Then Bob Schiffner, our Senior Vice President and Chief Financial Officer, will comment on our outlook for fiscal 2008, and put some perspective on fiscal 2007, and joining us for the question and answer session to follow, will be Doug Conant, our President and Chief Executive Officer.

Our financial results press release and supplemental schedule were issued earlier this morning and are also posted on our website.

Our call will last approximately one hour, and it will be available for replay approximately two hours after we are completed through Midnight September 14.

The replay number is 1-888-266-2081, or for international, 1-703-925-2533, and the access code for the replay is 602828.

You may also listen to a replay by logging onto our website, www.Campbellsoupcompany.com, and clicking on the webcast banner.

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

Our discussion contains certain forward-looking statements that reflect the Company's expected future business and financial 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 uncertainties may cause our actual results to vary materially from those expressed or implied in our forward-looking statements.

These include statements concerning the impact of marketing investments and strategies, share repurchases, pricing, new product introductions and innovations, cost savings initiatives, quality improvements and portfolio strategies, including divestitures on sales, earnings and margins, and other factors described in our most recent 10-K, as updated from time to time by the Company, and in 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.

This discussion also includes certain non-GAAP measures, as defined by SEC rules.

We have provided a reconciliation of those measures to the most directly comparable measures, and that is available on our Investor website as well.

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

Good morning.

I will be primarily discussing results for the fourth quarter and the full fiscal year from continuing operations only.

The consolidated results, including discontinued operations, are detailed in the press release and in the supplemental schedules.

I will begin with our results for the fourth quarter and the full fiscal year from continuing operations only.

The consolidated results including discontinued operations are detailed in the press release and in the supplemental schedules.

I will begin with our results for the fourth quarter.

Net sales for the quarter increased 10% to $1.594 billion.

The change in sales breaks down as follows.

Volume and mix added 6%.

Price and sales allowances added 1%.

Currency added 3%.

Gross margin percentage for the quarter decreased to 40.1% from 41.9% a year ago, while pricing and savings from our ongoing productivity program offset cost inflation.

Gross margin in the quarter was negatively impacted by one-time costs associated with streamlining the Company's supply chain organization in Australia and Indonesia, and from higher costs of meeting the increased volume requirements in our U.S.

beverage business.

Marketing and selling expenses increased 15% to 309 million, primarily due to increased advertising and consumer promotion activity in our U.S.

soup, beverage, and Pepperidge Farm businesses.

Administrative expense increased 7% to 179 million, primarily due to expenses to establish businesses in Russia and China, higher incentive compensation costs, currency, and higher costs associated with the continued implementation of SAP in North America.

Research and development expenses increased 17% to $35 million, primarily related to higher levels of new product activity.

Other income of $13 million compares to 4 million expense in the prior year.

In the fourth quarter, we recognized a $10 million gain from a settlement in lieu of condemnation on our StockPot refrigerated soup facility in Washington state.

The impact of which was mostly offset by costs incurred during the year related to the relocation and startup of a new facility, recorded in cost of products sold.

In addition, we recorded a $3 million gain from the sale of our business in Papua New Guinea.

Earnings before interest and taxes were 129 million compared to 139 million in last year's fourth quarter, a decrease of 7%.

This decrease is primarily due to higher marketing expenses and the one-time expenses negatively impacting gross margins, partially offset by higher sales volumes and the gain recognized in the quarter associated with the relocation of the StockPot facility.

Net interest expense was $37 million, down 4 million, primarily due to lower net debt levels.

The tax rate in the fourth quarter was 42.4% compared to 14.3% in the prior year's quarter.

Two items were recorded in the fourth quarter of 2006, which impacted the comparability of results.

The first is a favorable impact of 14 million from the anticipated use of higher levels of foreign tax credits, which could be utilized as a result of the sale of our U.K.

and Ireland businesses.

The second is incremental tax expense of $4 million associated with the repatriation of earnings under the AJCA.

Excluding these two items, the tax rate for the fourth quarter of 2006 would have been 24.5%.

The remaining increase in the tax rate is due to higher deferred taxes recognized in 2007 on our international businesses.

In comparison, 2006 benefited from both a rate reduction in Canada and various tax planning strategies.

Earnings from continuing operations for the quarter were 53 million, or $0.14 per share, compared to 84 million, or $0.20 per share in the year-ago quarter.

Items impacting comparability for the fourth quarter of fiscal 2006 include $4 million in tax expense, or $0.01 per share, related to the repatriation of earnings under the AJCA.

A $14 million tax benefit, or $0.03 per share from the recognition of higher foreign tax credits, which could be utilized following the divestiture of our U.K.

and Ireland businesses.

For comparability, the prior year EPS requires an adjustment to reflect the proforma impact of using $620 million of divestiture proceeds from the sale of our U.K.

and Ireland businesses to repurchase 17 million shares.

The impact on last year's fourth quarter is an increase of $0.01 per share.

After factoring these items into the reported results, earnings from continuing operations are $53 million, compared to an adjusted prior year of 74 million, a decrease of 28%, and EPS from continuing operations of $0.14 compares to an adjusted 2006 fourth quarter EPS of $0.19, a decrease of 26%.

We reported earnings from discontinued operations in the fourth quarter of $8 million, or $0.02 per share, primarily due to the favorable settlement of prior year tax audits in the U.K.

Now, let's turn to full year results from continuing operations.

Net sales increased 7% to $7.867 billion.

The change in sales breaks down as follows.

Volume and mix added 3%.

Price and sales allowances added 2%.

Currency added 2%.

Gross margin for the year increased to 41.9% from 41.8%.

The prior year's percentage includes a $13 million benefit, or 0.2 percentage points from a change in the method of accounting for inventory from LIFO to average cost.

The increase in gross margin is primarily due to productivity gains and higher selling prices, which is partially offset by cost inflation and one-time expenses associated with the relocation and startup of our StockPot facility.

Marketing and selling expenses were $1.322 billion, an increase of 8%, primarily due to higher levels of advertising in our U.S.

soup, Pepperidge Farms, and beverage businesses, currency, and higher selling expenses in Godiva.

Administrative expense increased to $604 million from 583 million in the year-ago period.

The current year includes a noncash benefit of $20 million from the reversal of legal reserves, due to favorable results in litigation.

The remaining increase was primarily due to higher incentive compensation costs, expenses related to the implementation of SAP in North America, expenses related to our emerging market investments in Russia and China, and the impact of currency.

Research and development expenses increased 8% to $112 million, from 104 million.

Other income of $35 million compares to other expense of 5 million in the prior year.

Fiscal 2007 includes a $23 million gain on the sale of an idle Pepperidge Farm facility, which we have highlighted as an item impacting comparability, and a $10 million gain from a settlement in lieu of condemnation of our refrigerated soup facility, the impact of which has been mostly offset by one-time expensed recorded in cost of goods sold to relocate and start up the new facility.

Earnings before interest and taxes were $1.293 billion, compared to 1.151 billion for the prior year.

Items impacting comparability are the following.

In fiscal 2007, a $23 million gain from the sale of a Pepperidge Farm facility, and a $20 million benefit from the reversal of legal reserves.

The prior year includes a $13 million gain related to the change in method of accounting for inventory from LIFO to average costs.

After adjusting for these items, EBIT increased from $1.138 billion to 1.250 billion, an increase of 10%.

Net interest expense was $144 million versus 150 million in the prior year.

The current year includes a 4 million reduction of net interest expense in connection with the favorable settlement of bilateral advanced pricing agreements, or APA, among the Company, the United States, and Canada related to royalties.

The prior year includes a noncash reduction in interest expense of 21 million from the favorable settlement of a U.S.

tax contingency related to transactions in government securities in a prior period.

Excluding the impact of these tax settlements, net interest expense declined 23 million, primarily due to lower net debt levels and lower interest expenses associated with income tax matters.

The tax rate was 28.4%, compared to 24.6% in the prior year.

The current year includes the tax benefit of 22 million from the APA settlement.

Adjusting for the APA settlement, as well as the tax rate impacts from the related interest adjustment, the Pepperidge Farm facility sale, and the reversal of legal reserves, the tax rate in the current year would have been 30%.

Last year's tax rate was impacted by three items.

A $14 million benefit related to the recognition of higher foreign tax credits, a 39 million benefit from the favorable resolution of a U.S.

tax contingency related to transactions in government securities, and a $13 million incremental expense related to the repatriation of non-U.S.

earnings under the AJCA.

Adjusting for these items and the impact of the change in accounting for inventory, the fiscal 2006 tax rate was 29.1%.

Earnings from continuing operations for the year were $823 million, or $2.08 per share.

Earnings from continuing operations for 2006 were $755 million, or $1.82 per share.

Items impacting comp built recorded in fiscal 2007 are a $13 million, or $0.03 per share gain, from the reversal of legal reserves, the aggregate favorable impact of 25 million, or $0.06 per share from the APA settlement, and a $14 million, or $0.04 per share gain from the sale of the Pepperidge Farm facility.

Items impacting comparability recorded in fiscal 2006 are an $8 million gain, or $0.02 per share from the LIFO accounting conversion, a $60 million gain, or $0.14 per share from the IRS settlement related to transactions and government securities, a $13 million expense, or $0.03 per share from the AJCA dividends, and a $14 million tax benefit, or $0.03 per share from higher foreign tax credits, which could be utilized following the divestiture of our U.K.

and Ireland businesses.

One further adjustment to the prior year earnings per share from continuing operations is required for comparability, as previously mentioned, the proforma impact of the repurchase of 17 million shares, associated with the proceeds from the sale of the U.K.

and Ireland businesses increases earnings per share by $0.07.

After adjusting for these items, adjusted earnings from continuing operations for the year would have been 771 million, compared to 686 million for the prior year period, an increase of 12%.

Adjusted earnings per share from continuing operations would have been $1.95, as compared to a proforma $1.73 in the prior year, an increase of 13%.

Now, let's turn to reporting segments for both the fourth quarter and full year.

U.S.

Soup, Sauces and Beverages, sales for the fourth quarter rose 8% to $599 million, from $556 million in the year-ago quarter.

Here is the breakdown of the change in sales.

Volume and mix added 8%.

Price and sales allowances added 1%.

Increased promotional spending subtracted 1%.

Operating earnings decreased 26% to $84 million, from 114 million in the year-ago quarter, primarily due to increased marketing spending and higher supply chain costs, partially offset by higher sales.

Let's touch on a few highlights for the quarter.

U.S.

retail soup sales for the quarter were flat.

Condensed soup sales increased 1%.

Ready-to-serve soup sales declined 4%, and broth sales increased 8%.

Sales of condensed soups increased with eating varieties delivering driving gains driven by lower sodium varieties.

Sales of condensed cooking soups declined in the quarter.

Ready-to-serve soup sales declined due to lower sales of Campbell's Chunky soups.

The convenience platform, which includes soups in microwavable bowls and cups achieved solid gains, driven by growth of Campbell's classic varieties in microwavable bowls.

Swanson broth sales increased driven by the continued consumer demand for aseptically-packaged broth.

Beverage sales posted significant volume-driven double-digit sales growth, driven by consumer demand for healthy beverages and higher levels of more effective advertising.

"V8" vegetable juice, "V8 V-Fusion" and "V8 Splash" each experienced growth.

Prego pasta sauces had double digit volume driven sales growth, driven by the introduction of its new advertising campaign.

Now let's turn to the full year results for this segment.

Sales of $3.486 billion rose 7% from 3.257 billion a year ago.

The change in sales breaks down as follows.

Volume and mix added 5%.

Price and sales allowances added 2%.

Operating earnings were $862 million versus 815 million reported a year ago.

Prior year earnings include a one-time gain of $8 million related to the change in method of accounting for inventory.

The operating earnings increase was primarily due to higher sales and productivity improvements, which were partially offset by cost inflation and increased advertising expense.

For the year, total U.S.

soup sales increased 5%, with condensed soup sales up 3%, ready-to-serve sales up 5%, and broth sales up 12%.

Condensed soup sales increased, as both eating and cooking varieties grew.

In addition, condensed soups continue to benefit from the gravity feed shelving systems now installed in more than 17,400 stores.

Ready-to-serve sales rose as gains in both Campbell's Chunky and Campbell's Select soups were driven by higher levels of advertising.

Additionally, sales of convenience products grew double digits.

Ready-to-serve soup sales benefited from gravity feed shelving systems, for ready-to-serve cans and microwavable soups, which are now installed in over 2,600 and 3,400 stores respectively.

Sales of lower sodium products continued to contribute to growth of both condensed and ready-to-serve soups.

Swanson broth sales posted significant gains, driven by increased advertising and continued strong consumer demand for aseptically-packaged broth.

Beverage sales grew double digits, driven by consumer demand for healthy beverages, and higher levels of more effective advertising, with all beverage brands posting sales growth versus year ago.

In sauces, Prego pasta sauce delivered strong sales growth, and Pace Mexican sauce sales also increased.

Baking and snacking, sales for the fourth quarter increased 8% to $471 million from 438 million in the year ago quarter.

The change in sales for the quarter breaks down as follows.

Volume and mix added 2%.

Price and sales allowances added 2%.

Increased promotional spending subtracted 1%.

Currency added 6%.

A divestiture subtracted 1%.

During the fourth quarter, the Company sold the Papua New Guinea biscuit business.

Pepperidge Farm sales increased, driven by growth in bakery products and the frozen business, partially offset by a decline in cookies and crackers.

Bakery achieved strong sales growth, driven primarily by continued consumer demand for whole grain breads, and continued growth of sandwich rolls.

In cookies and crackers, sales growth of Goldfish snack crackers was more than offset by declines in cookies.

Operating earnings declined 21% to $49 million, from 62 million, primarily due to lower earnings of Pepperidge Farm, resulting from higher marketing and manufacturing expenses, partially offset by higher sales, and due to lower operating earnings from our businesses in the Asia-Pacific region.

Operating earnings in that region declined due to one-time costs associated with streamlining the Company's supply chain organization in Australia and Indonesia, as well as from declines in the Australian snack foods business, partially offset by currency.

Sales for the year increased 6% to $1.850 billion from $1.747 billion a year ago.

The change in sales for the year breaks down as follows.

Volume and mix added 2%.

Price and sales allowances added 2%.

Increased promotional spending subtracted 1%.

Currency added 3%.

Operating earnings were $240 million versus 187 million a year ago.

Fiscal 2007 earnings include a $23 million gain from the sale of a Pepperidge Farm facility.

The prior year earnings include a one-time gain of $5 million related to the change in method of accounting for inventories.

The remaining increase is primarily due to higher earnings at Pepperidge Farm and the favorable impact of currency.

Within Arnott's excluding currency, increases in biscuits were offset by declines in the snack foods business.

Let's look at a few highlights for the year.

Pepperidge Farm achieved strong sales gains, driven by growth in all businesses, bakery, cookies and crackers, and frozen.

Bakery posted solid gains, driven primarily by whole grain breads and sandwich rolls.

In cookies and crackers, sales gains were driven by double-digit growth of Goldfish, partially offset by declines on cookies.

Arnott sales increased primarily due to currency.

Within Arnott, solid gains in biscuits, driven by the strong performance of tin pan chocolate biscuits, was offset by a decline in snack foods.

International Soup and Sauces, sales for the quarter rose 19% to $309 million from 260 million.

The change in sales for the quarter breaks down as follows.

Volume and mix added 9%.

Price and sales allowances added 2%.

Reduced promotional spending added 1%.

Currency added 7%.

International Soup and Sauce sales increased due to currency, growth in Canada driven by Soup and Beverages, and in Europe, driven by gains in Erasco in Germany, and Liebig soups in France.

Operating earnings increased to 19 million from 5 million a year ago.

The increase was due to growth in Europe and Canada, partially offset by expenses to establish our businesses in Russia and China.

Sales for the year increased 11% to $1.399 billion, from $1.255 billion a year ago.

The change in sales for the year breaks down as follows.

Volume and mix added 5%.

Price and sales allowances added 1%.

Currency added 5%.

Operating earnings increased 17% to $169 million from 144 million a year ago.

Operating earnings were driven by gains in Europe and Canada, and the favorable impact of currency, partially offset by expenses to establish businesses in Russia and China.

In Europe, sales increased due to currency and strong wet soup growth in France, Germany, and Belgium.

In Canada, sales increased primarily due to strong growth in soup.

Other, sales for the quarter increased 8% to $215 million from 200 million in the year-ago period.

The change in sales breaks down as follows.

Volume and mix added 3%.

Price and sales allowances added 3%.

Reduced promotional spending added 1%.

Currency added 1%.

Godiva sales grew double digits, driven by significant growth in Asia, and growth in North America, due to strong retail same-store sales growth.

Away From Home sales increased, driven by growth of frozen soups and beverages.

Operating earnings increased by $17 million to 5 million, from an operating loss in the prior period due to higher earnings in Away From Home, reflecting the 10 million gain recognized from the settlement in lieu of condemnation of the refrigerated soup facility, and improved operating performance.

For the year, sales grew 4% to $1.132 billion, from $1.084 billion.

The change in sales for the year breaks down as follows.

Volume and mix added 2%.

Price and sales allowances added 3%.

Increased promotional spending subtracted 1%.

Operating earnings increased 13% to $124 million, from 110 million in the prior year.

Operating earnings were driven by improved operating performance in Away From Home, and the gain on settlement in lieu of condemnation of the StockPot facility, partially offset by costs associated with its relocation and startup.

Let's look at a few highlights of the year.

The Away From Home businesses in the U.S.

and Canada delivered solid sales growth, driven by gains in frozen soups and beverages.

Godiva worldwide sales increased primarily due to growth in both Asia and North America.

That completes my discussion of operating segments.

Unallocated corporate expenses for the quarter decreased from 30 million to 28 million.

The decrease was primarily due to the gain on the sale of our Papua New Guinea business, partially offset by higher expenses from the SAP implementation in North America.

For the full year, unallocated corporate expenses declined from $105 million in 2006, to 102 million in 2007.

The decrease reflects the benefit from the reversal of 20 million of legal reserves, due to favorable results in litigation, mostly offset by higher incentive compensation costs, and expenses associated with the ongoing implementation of SAP in North America.

Now, let's turn to cash flow and the balance sheet.

Cash flow from operations for the year was $674 million, compared to $1.226 billion a year ago.

The reduction is primarily the result of an increase in working capital as compared to a decline in 2006, and the payments of $186 million primarily to settle foreign currency hedging transactions.

Capital expenditures were $334 million, as compared to 309 million in fiscal 2006.

We expect capital expenditures in fiscal 2008 to be approximately $400 million.

During the 2007 fiscal year, we repurchased shares at a total cost of $1.140 billion.

These repurchases included three programs.

First, we repurchased shares at a cost of $620 million using a portion of the proceeds from the divestiture of our U.K.

and Irish businesses.

Second, we purchased $200 million under the strategic share repurchase plan announced in November 2005, and the remaining shares were purchased to offset the dilution from our equity-based compensation programs.

Total debt was $2.669 billion, compared to $3.213 billion in the prior year.

Cash and cash equivalents were $71 million, as compared to 657 million in 2006.

Net debt, which deducts cash and cash equivalents from total debt was $2.598 billion, versus $2.556 billion, an increase of 42 million.

This concludes my discussion of the year.

Bob Schiffner will now offer some closing comments.

Thanks Anthony, and good morning everyone.

My comments today will cover my perspective on our fourth quarter results, and assessment of our fiscal 2007 performance, and our current expectations regarding performance in our new fiscal year.

Starting with the fourth quarter, based on the annual guidance that we gave at the end of the third quarter, our bottom line results were consistent with this forecast.

Despite flat sales for U.S.

Soups, our sales performance was very solid, plus 10% versus prior year, with strong volume growth.

This performance provides very solid top line momentum, leading into the new fiscal year.

There are two other items in the quarter worth commenting on.

The first is our gross margin, which was down for the first time in 10 quarters, when measured versus prior year performance.

This quarter we incurred a number of one-time expense items, all of which were planned in advance.

Most of these initiatives related to our international businesses, and were aimed at improving our future performance.

Making these investments now should help us to continue to drive gross margin improvement in fiscal 2008.

The second item worth mentioning is the performance of our U.S.

Soup business.

Despite the heavy increase in counter-seasonal advertising and consumer promotion, sales of soup were flat in the quarter.

We are still evaluating all the factors that contributed to this soup performance.

As always, we will take the learning from our analysis, and apply it to improve the efficiency and effectiveness of our future marketing plan.

Turning to our full year performance, I am very pleased with our results.

Adjusting for items impacting comparability, net sales, EBIT, and EPS increased 7%, 10%, and 13% respectively.

This performance was generated while making significant incremental investments in marketing support, as well as in our North America SAP project, and our emerging market initiative.

In addition, I am very pleased with our overall operational balance, as all of our reportable business segments generated excellent top and bottom line performance.

Diving even deeper, we are very pleased with our 5% net sales growth in U.S.

Soup, with condensed soup growing sales for the third consecutive year, and our double-digit top and bottom line growth in our U.S.

beverage business, led by "V8 Red" and "V8 V-Fusion."

Also noteworthy are our third consecutive year of double-digit earnings growth by Pepperidge Farm, and our second year of double-digit earnings growth for Arnott's biscuits, excluding the impact of currency.

Clearly we are very proud of our financial performance over the last three years.

However, we can't spend a lot of time looking through the rear view mirror.

With solid momentum in most of our businesses, fiscal 2008 will still offer a number of challenges, namely higher cost inflation than our earlier expectations, especially in our baking and snacking businesses.

Second, continued investment in emerging markets to build our soup business there, and lastly, a significant increase in our effective tax rate to a range of 32 to 33%, which we communicated to you earlier.

Offsetting some of this impact will be the benefit of an extra week in fiscal 2008, compared to fiscal 2007.

Today we feel reasonably confident that we can manage cost inflation, which at roughly 5% is the highest level that we have experienced in many years, and absorb incremental investment associated with emerging markets.

However, given the impact of the higher effective tax rate, we expect EPS growth from continuing operations for fiscal 2008 to be in the 5 to 7% range, above our adjusted basis of $1.95, and consistent with our long-term target.

Given the higher tax rate, this range of EPS growth implies a robust growth in EBIT of between 7 and 9%, which is consistent with our recent historical performance, and we believe near the top of our competitive set.

With that, I will now turn it back to Len.

Okay, Matthew, would you start the Q&A session, please.

Absolutely.

(OPERATOR INSTRUCTIONS) Our first question comes to us from Alexia Howard from Sanford Bernstein.

Hi, Alexia.

Hi.

Couple of really quick ones.

On the gross margin front, if you took pricing and productivity improvements, were they enough to offset the cost inflation this quarter, when you sort of strip out the effects of the one-time items?

Almost, but not quite.

Okay.

We, our gross margin would have been slightly down, obviously not down by 1.8 percentage points, but it would have been slightly down.

And then with the V8 distribution ramping up this month, is that likely to continue to pressure margins going forward, with the packaging incremental costs that you have struggled with this last quarter?

The answer to that is, is we have a couple of very important capital projects that are now being executed, which ultimately will eliminate those incremental costs.

My expectation is that it will happen more toward the end of the year than the start of the year, but again, all of those expenses have been factored into our forecast for next year.

Okay.

Thank you very much.

Good.

Next question, Matthew.

Thank you.

Our next question comes from Terry Bivens from Bear Stearns.

Good morning, everyone.

Hi, Terry.

Hi, Terry.

I think we all recognize Q4 is a small quarter, so I don't want to get too carried away about it, but you know, clearly the soup performance was a little bit light relative to expectations, apparently even your expectations, particularly with Chunky.

So I guess the question would be, do you think you now have a pretty good handle on what maybe could have gone better, and is there ample time to apply that learning, you know, as we get into the really crucial quarters, Q1 and Q2?

Terry, this is Doug.

Hi, Doug.

You know, this is my I believe seventh fourth quarter call, and when we have done very well in the fourth quarter, we have said it is not a big quarter.

We choose to look at it on a full year basis, and this year we are flat.

I would say you just can't read anything into it.

It is 10% of our sales volumes in soup.

We are dealing with small numbers, which impact, creates optics around percentages that are misleading.

What I would say is we feel very good about the profile for Chunky and ready-to-serve soups going forward.

We grew the whole ready-to-serve business meaningfully over the last year, and we grew Chunky, and we grew Select, and we have stronger plans in place for this coming soup season than we had for the last soup season.

So we have every expectation that we will do as well or better on ready-to-serve soups, and Chunky in particular, especially with our fully loaded initiative on Chunky this coming fiscal year than we did last year.

Well, I mean you are preaching to the choir on that.

I know it is a small quarter, but I guess if you could perhaps give us just a little bit more color on how Chunky, you know, what you think the problem may have been there, whether I know Mills was pretty promotional, but just a bit of color on that.

Well, I can't help you more than that, because I am not going to get into the consumer information, which we have covered before.

Our sales profile was fully acceptable to us, as the fourth quarter is all about honoring our commitments, but also setting ourselves up to have a great next fiscal year.

And we are very comfortable with what we did there on ready-to-serve soup.

Okay.

I will pass it on.

Thank you.

Thanks.

Next question, Matthew.

Thank you.

Our next question comes from Chris Growe from A.G.

Edwards.

Hi.

Good morning.

Hi, Chris.

Hi.

Maybe you can give a little color, there was some incremental expenses around V8 production, and obviously soup profits in that division were down about $30 million.

Was that a half or a meaningful component of that number, or was it more about the marketing in Q4?

They in fact both had an impact.

You are specifically talking about the U.S.

Soup Sauces and Beverage segment.

Clearly both had an impact, but I think the impact of marketing was stronger.

Correct.

Okay, and should we read from your comments that you are sort of rethinking the counter seasonal advertising, is that what we should infer from that, or is that just up for analysis now?

We are sorting through it right now.

We spend at a record high level for a modern day record high level on counter-seasonal advertising, and it is only one component of how we promote.

We also have a lot of activity at retail, both with our shelving systems, as well as our promotional activity and our couponing activity, and we are going to revisit that whole marketing platform for counter-seasonal advertising for next year.

But the way I choose to view it is, as a company, and for the year, we delivered strong top line growth, 7%, but we increased marketing a meaningful 8% on top of that, and so we have overall, we have got a growth engine going here, where we are driving top line organic growth with good quality marketing, and we will keep refining it and making it better year in, year out, and that has been the model for the last five years, and it will be the model going forward.

Sure.

And do you have any comment perhaps on the soup inventories as we kind of enter the season here?

How do they end the quarter, or how are they looking for early '08 here?

Well, as I said, we are very cognizant as we wrap up the fourth quarter about honoring our commitments, and making sure that we have got a good, we are well positioned for the coming soup season.

And I can tell you at this point in time we feel very good about our inventory positions going forward, so we are right where we want to be in terms of, in terms of having the right inventory levels for us to get off to a very good start.

Okay, great.

Thank you.

Thank you.

Next question, Matthew.

Our next question comes from Lloyd [Connor] from Connor Capital Management.

Hey, Lloyd.

Hey, Len, hi, everybody.

Congratulations on great sales results for the quarter and for the year.

Just regarding the Beverage business' double-digit growth in the quarter, clearly getting the V8 message out, effectively giving your customers what they want, and this is happening before the distribution, with Coca-Cola Enterprises starts, and I am wondering, is your production capacity, now that that is about to get going, considering the strength of your sales already, do you have enough?

Well, this, we believe so.

This wasn't just serendipitous act joining forces with CCE.

It has been contemplated for a while.

We have ourselves well positioned for the start ship in September, but you know, it would be a nice problem to have, if we couldn't meet demand.

But we are well positioned to meet the forecasted sales growth coming forward, and as Bob mentioned earlier, we are putting in place infrastructure to meet even higher demand as we go through the year.

Great, and could you, is it possible you are going to add even more products that we don't know about at this point?

That is always possible.

Okay.

Thank you very much.

Okay, Matthew, next question.

Our next question comes from Edgar Roesch from Banc of America.

Yes, hi, Ed Roesch.

You have got a last name like me, it is always difficult.

Indeed.

One thing I was curious about, the marketing spending, and Doug, thanks for your comments about some tweaking going into next year.

In general, are you thinking about marketing spending being flat as a percentage of sales in fiscal '08 versus '07?

In general, well, in general, as we have talked about before, at a very high level, we look for having 20 to 22% of sales as a company invested in total marketing.

Now, over time we have been able to manage the trade portion down as a percentage modestly, and increase the consumer.

But that 20 to 22% of spending is reasonable in terms of total company, and as we grow sales, we will continue to grow our marketing budgets.

So I think you can expect to see us maintain a reasonable percent of sales, but that implies some pretty bullish increases in spending.

Okay.

Ed, this is Bob Schiffner.

Just to make sure that that 20 to 22% is based on a list sales basis, not a net sales basis.

Thanks, Bob.

So that, you know, you won't be shocked, you know in the future.

Right.

Okay, thank you.

Then one other, just to put the comments about spending in the Beverage segment into perspective, I mean there were costs absorbed getting ready for the beginning of shipments, really offset by no revenue at this point.

Is that true for the fourth quarter?

No.

In fact, most of those costs that were incurred in the fourth quarter were in fact generated because of the growth in our, our grocery business, okay, as opposed to the single serve business.

Okay.

So that is how I would summarize that impact.

Our V8 business is very healthy and very strong independent of the CCE activity.

Okay.

Well, those are just a couple quick ones.

I will pass it on.

Thanks.

Good.

Thanks.

Next question, Matthew?

Our next question comes from Eric Serotta from Merrill Lynch.

Good morning.

Hi, Eric.

Doug and Bob, last quarter and at the Investor Day, you guys highlighted how investments in China and Russia would be a drag on results, not just for the next few years, but in the fourth quarter as well.

Reading the press release and listening to the conference call, I noticed you didn't really discuss it in the gross margin section or the SG&A section, yet you touched on it briefly in the International Soups and Sauces segment.

I am wondering how material was that spending this quarter?

Was it greater or less than your expectations from three months ago?

And in the future, should we see that spending hit more of the SG&A line as your advertising there and promoting there, or hit more of the COGS line, from some things like the co-packing arrangements for China and shipping from Russia, from Germany into Russia?

Eric, the answer to that is it frankly hits all the lines, both gross profit as well as marketing and sales, and as well as G&A.

I can tell you that it is not material at all in the fourth quarter.

In all cases, the impact is slightly over $1 million in value in each of those areas, and, you know, in the future -- yes, for the quarter.

And obviously looking down the road, we expect those numbers to increase next year, just because of the impact of the introduction of the new products, and in fact, you should assume that, all three of those expense areas, gross profit obviously not being an expense, but that area will be impacted going forward.

Eric, just as a point, we did mention in the admin expense increase of 7% for the quarter, that the number one factor in that was Russia and China expenses.

Okay.

We did talk about that.

Bob, was the 1 million in each of those three buckets, or less than 1 million in each of those three buckets, less than what you had been planning three months ago?

No, no, not at all.

It was on expectation.

It is as expected, and, and all of the costs are contemplated in our guidance going forward.

Okay.

Thanks for the clarification.

Okay.

Next question, Matthew.

Our next question comes from Mitchell Pinheiro from Janney Montgomery.

Good morning.

Couple things, one, with regard to the 400 million in capital spending, could you talk about the major projects within that number, and how much maybe specifically you are targeting for your China and Russia ventures?

We are not going to comment on the specifics of the capital budget.

I will say though, that the big impacts come from a couple of places.

One is the V8 capacity additions, which both Doug and I previously spoke about, and the other one is we are also expecting to build an employee services center here in Camden, and in fact, that is part of the increasing capital spending as well.

So the 60 or $70 million, you know, maybe if you typically spent in the low 300 million area, the increment would be on those two projects perhaps?

Primarily, yes.

Okay.

Thanks.

Another thing is with regard to your cost inflation, you had said you have built into your expectations 5% cost inflation.

That is our current forecast for the year, yes, for the new year.

Okay.

Will you, should we expect either pricing, higher prices, will you need higher prices at all, to overcome that, or is it maybe lower promoted prices, or how do you deal with that?

Well, the philosophy is still the same, Mitchell.

It is pricing and productivity, we expect we will find a way to get pricing and productivity to offset inflation.

We have some, we are bullish on our productivity efforts, so hopefully that means we won't have to rely very heavily on pricing, but we have a long way to go here, and we have to see how this market plays out, in terms of the actual inflation we experience.

Okay.

So if we are looking, so you are expecting some margin improvement, EBIT margin improvement in '08, and that would be driven by a combination of factors?

Mitch, we haven't given any detailed information on our sales growth, so again, we are not making any specific forecasts on our operating profit margin.

We are expecting and committed to driving gross margin improvement, but that is where we draw the line right now.

Okay, just last question concerning Q1, anything unusual that we should be aware of, timing wise, expense, you know, is there anything that we should factor into our estimates?

There is nothing that, there's nothing beyond what you have been made aware of already.

Okay.

All right.

Thank you very much.

Okay, thanks.

Of course as soon as I say that, Mitch, something will happen.

No, no, you have got everything you need, Mitch.

Okay.

Next question, Matthew?

Our next question comes to us from Robert Moskow of Credit Suisse.

Good morning, Rob.

Hi, how is it going?

Good.

Good.

I had a question about the timing of your soup season this year.

Some years you kind of come out really strong right off the bat, and other years you kind of wait until it gets cold.

Is there any thinking going on in terms of timing this year as to when you invest heavily in promotions?

And then secondly, you know, what kind of visibility do you have, as far as what retailers have already bought in, or committed to for merchandising activity around soup?

Rob, before we start, I just want to caution, we are not going to give away our marketing plans on soup.

Oh, okay, you are not doing that, okay.

Rob, and plus, there is a competitive game that goes on here, and we tend to have a plan and then we modify the plan as we deal with competitive activity.

So it wouldn't be very helpful for you to forecast something that in all likelihood will change.

What I can share with you is we expect to be fully competitive.

We do have visibility.

Over 60% of our inventory, we have visibility into our customers through our continuous replenishment program.

So we have a good feeling on inventories, and we feel very good about those inventory levels going forward, and so we are, we think we are well positioned to have, to get off to a good start and beyond that, I, I think you are just going to have to wait and see.

Okay, and can you give us a sense of low sodium as a percent of your mix right now, you know, where do you think it is roughly, and where do you think it could go next year?

Well, we continue to be bullish about it.

I can't really give you a lot better information on it beyond what I gave you at Cagney.

Everything we see shows us that about 50% of our new sodium SKUs are, 50% of the volume is incremental, and as we have, interestingly, as we have surveyed our consumers extensively, we are finding about 60% of the people that are buying the new products are claiming that it is bringing them back into the Campbell's soup franchise, after they had left because they were concerned about sodium.

So we see it as a category-growing strategy, and one that should continue to contribute this year, as we expand our low sodium offering.

So we are very bullish about it still.

Okay.

Then lastly, wheat prices have skyrocketed, mostly because of poor crops.

You know, is that a major reason why you are now pushing more towards 5% cost inflation and then specifically, on Pepperidge Farm, you know, are there actions you need to take?

I know you have talked a little bit about pricing, but, you know, specifically on Pepperidge, is wheat flour something that you need to react to?

It is a big issue.

It's a big, yes, it's a major component of cost inflation for us.

It is a major reason as to why our expectations of cost inflation are higher, and obviously it is an issue that Pepperidge Farm, is in fact doing a lot of thinking about as we speak.

I would tell you in terms of a bakery company, and there is not a company on the planet that has a better understanding of pricing and spending principles than Pepperidge Farm, and that has a better trademark that allows us to withstand the vagaries of pricing, and so we have every confidence that we will find our way through this, but it will be challenging.

Great.

Thank you very much.

You are welcome.

Okay.

Next question, Matthew.

Our next question comes to us from Jonathan Feeney from Wachovia.

Hi, Jonathan.

Hi, good morning.

Doug, I just wanted to follow up a little bit on the international initiative.

I think, you know, I know you are committed to International no matter what happens, and you have certain plans that you have laid out in the context of recurring guidance.

I just wondered, does your rate of investment, you know, from here accelerate meaningfully if you see better results in the U.S.

than expected?

Do you know what I mean?

Would you accelerate your push into, you know, China and Russia, were results to come in significantly better than planned over the next three or four quarters?

Well, it is premature to forecast what we will do, quite frankly.

Product, this is the first week product is on the shelf in China, and it won't be on the shelf in Russia for another three weeks.

And it is only in lead markets.

So it is premature for me to start hypothesizing what may or may not happen.

I am very proud of this management team, we look at all of our strategic options very thoughtfully and in a very disciplined way, we move forward.

If it looks like there is an opportunity to get greater traction faster, we will look at pursuing that.

What I will tell you is we have the resources necessary to be able to meet our commitments, and lean into whatever growth initiative that is offering the best growth opportunity for return on investment.

Okay, and just a couple of detail points for Bob.

On the cost inflation, 5%, you know, I guess is there anything substantially, you know, any major cost category that is driving that to the exclusion of others?

Yes, basically wheat flour, dairy, chocolate, to some extent, and the oil.

I was saying, is it safe then, to assume that your packaging cost assumption is well below 5%?

Yes it, is safe to assume that.

Okay, and just to follow up on Alexia's line of questioning earlier, specifically when you tell us about these one-time items, and you say that cost inflation just about kept up with pricing, does that mean the one-times in the quarter were about 180 basis points at the gross margin line?

Well, yes, I mean the, I believe the most important thing to consider relative to the one-times, is that even though in the quarter we had roughly 13 million of one-time credits, we had more than 13 million of one-time expenses.

Sure.

So when you look at the quality of earnings for the quarter, you know, I think it is important to keep that in mind, that this was frankly a pretty high quality earnings quarter, as opposed to one that was driven by one-time positive P&L impacts.

Yes, and I was specifically, Bob, referring to your commentary under the fourth quarter gross margin highlights, which had pricing and savings, offset cost inflation.

Yes.

So that is about 180 bips in the supply chain organization, Australia and Indonesia?

It's not quite.

It's not quite, because overall gross margins were down by 1.8 percentage points.

So it is a large portion of that.

Okay.

But not 100%.

It is fair to say more than half, though?

Oh, absolutely.

Great.

Thanks so much.

Yes, just building on the inflation point again, we feel very good about while wheat and oils are putting a little pressure on us, we feel very good about our diversified product portfolio, it allows to us manage our way through these things, because we don't have all of our eggs in one basket.

Sure.

So the pressure we are feeling on baking is obviously not going to translate directly into soup.

Sure.

So we can manage our way around this.

Okay.

Thanks so much.

Matthew, how many more questions in queue?

I am showing we currently have six questions left in queue.

Okay.

We will take those, and then we will cut it off.

Okay.

Our next question comes from Christina McGlone from Deutsche Bank.

Christina, hi.

Hi.

Bob, I guess I just wanted to talk about cash flow for next year, so we have higher CapEx.

You had this payment this year because of foreign currency hedges.

Would we expect that to repeat, and then do you think working capital will be a use of cash again?

No.

I think working capital will be much more normalized.

Obviously we are ending the quarter with what I believe is a reasonable amount of operating working capital, as opposed to ending F '06 with an abnormally low level of working capital, so I see our working capital performance next year hopefully improving.

And you are right about the CapEx, so overall clearly, you know, I see a much better year for operating cash flow, as well as free cash flow relative to our performance this year.

Okay, and this foreign currency hedging issue was just a one-time payment?

Yes, absolutely.

Okay, and then in Pepperidge Farm, you had mentioned higher manufacturing expenses.

Is that just the inflation part of it, or was there some sort of inefficiency there, or something else driving that?

There was, most of it was inflation.

There were some other nonrecurring costs, more of an operational nature that will clearly not be repeated as we head into the new year.

Okay.

But most of it was inflation?

Correct.

And then just the last question, the Arnott snack foods has been having difficulty for some time now.

Are we starting to lap that difficult period?

What is your outlook there?

It is a challenging situation, and we think we are managing it as well as it can be managed.

And so, you know, we think the best days are ahead on snack foods.

We have integrated it into our Arnott space business, so that we are leveraging our Arnott's infrastructure to help manage it and it's much more efficient than it was.

But it is still a challenging situation we have got to work through.

The good news is that the balance of our Australian business is quite strong.

Arnott's had a great year.

Our soup business in Australia also had a very good year.

So we can manage around it, but it continues to be a challenging situation.

Okay, thank you.

Okay.

Matthew, next?

Our next question comes from Vincent Andrews of Morgan Stanley.

Good morning.

Just quickly, can you I just want to make sure that 53rd week in fiscal 2008 will be in your fiscal fourth quarter, is that correct?

That is correct.

Quickly on the international segment, which you have mentioned, last year is kind of a work in progress.

Without regurgitating the results this year, what are kind of your expectations for '08 in that segment?

Continued solid growth.

I mean we think we have got it to a point where it's performing better than it had been, and we think we are going to continue to see progress.

Okay, and what about SAP costs for 2008?

It was, you said it was going to be 10 to 20 million for 2007.

Was it closer to 10 or to 20 in 2007?

What do you think for '08?

Well in, 2007, SAP costs were closer to 30 million, and we expect them to come down, but still be north of 20 million in F '08.

Okay, and was there a reason why it was higher than your expectations this year?

No, it was, you know, we are clearly on plan relative to that project, and so clearly we are satisfied with that project and, you know, and how it's been executed so far.

Okay.

Thank you very much.

I appreciate it.

Yes.

Next, Matthew?

Your next question comes to us from Pablo Zuanic, JPMorgan.

Good morning.

When I look at 5% sales growth in fiscal year '07, I wonder whether you can maintain that in '08?

I could make the argument that you had the launch of reduced sodium that helped in '07.

In '08, what's really new, and on top of that, I could make the argument that General Mills has been quite aggressive with their light, low calorie soups, which is an area you haven't really tapped into.

Why should we expect soup sales to grow 5% in '08, not that you have given guidance, but just help us out with that?

Well, I think we have a rich, competitive profile, much of which I profiled at Cagney, and as we have indicated with our guidance, although we haven't given specific sales guidance this year, we are bullish on our overall company sales growth objective this year, and obviously if we are bullish oh it from a company perspective, we are bullish he it from a soup perspective.

We see continued opportunities to grow condensed soup.

We see amazing buoyancy in broth, and we like our prospects in ready-to-serve soup this year, given the plans we have in place.

And I am not going to get into the details of the marketing plan, but I will reaffirm that we like our prospects, and we think we ought to be able to continue to grow the business at the rates we have been growing them for the last three years.

And just to follow up on low and reduced sodium, basically the data we have was working out of the new products, whereas the reformulated products have not resulted in growth.

Actually they are down.

Is that what your research is telling you, maybe those canned foods are being somewhat rejected by consumers?

Well, I don't have visibility into your numbers.

I am very comfortable that our total reduced sodium effort and our total wellness effort in soup, has got very good buoyancy, and I have no concerns about it, and I think all of our wellness soup offerings this year are certainly bigger than they were last year, and we will profile some of that in our Annual Report, and, and I expect they will be even a larger percentage of our sales next year.

Great, and one last one for Bob, if I may.

Bob, you said it was $1 million in each bucket, energy markets in the fourth quarter.

If I double that for '08, on a full year basis, that would be about $8 million.

You're talking just about a $0.02 headwind from emerging markets in '08.

Is my math right?

Pablo, I am glad you asked that question, because I in fact gave Eric some bad numbers, okay, on emerging markets.

I was looking at really F '06, and in fact not F '07.

Let me kind of put this back into the correct context.

Basically in the fourth quarter, the whole emerging markets effort cost us a little bit in excess of $0.01 per share, so again, what I said about the expenses being spread across all the lines of the P&L in comps, as well as marketing and selling, as well as in G&A is true, except obviously it was a much bigger effort this year relative to last year, and so as we look forward, we can expect that to grow significantly, not only in the fourth quarter, but also in the full year F '07 versus F '08.

I hope that is helpful.

Okay, but if I doubled it would be $0.02 times 4, headwind for '08 would be about $0.08?

For the full year, F '08, our EPS impact is going to be much larger than $0.02.

It is going to be more probably, in the $0.03 to $0.05 range.

Per quarter or for the year?

For the year.

For the year.

Okay, and one last one, regarding Godiva, when you sold it, you gained soup business.

From the beginning you talked about that you would use the proceeds for share buybacks to offset the dilution, here you have not said that.

Does that mean that you are not expecting dilution?

Help us out a little bit with Godiva?

We haven't said it because we are still in the process of evaluating our strategic options, relative to Godiva.

So again, it would be obviously very premature on my part to comment on the use of proceeds, when we are still evaluating strategic options.

Right, thank you.

Okay, thanks.

Next question, Matthew.

Thank you.

Our next question comes from Steven Kron from Goldman Sachs.

Thanks.

A couple follow-ups on the gross margin line and then I have another question.

First, I guess Bob going back to the cost inflation side, can you just give us a sense on the visibility there?

Seems like certainly we know wheat prices and some others have shot up more recently, but big jump versus the prior guidance, so just how hedged, how locked in are you?

Can you give us a sense for that?

You know, I wouldn't say there is anything abnormal, okay?

I think our hedged cost is similar to what it has been in other years, which is a large amount being hedged, and I think we have got, you know, a similar situation this year relative to previous years, other than the rate of inflation being somewhat higher.

Okay, and then Doug, on the gross margins, you said that you were pretty bullish on the productivity savings.

You know, if you think about the new programs that you have planned for this year, do they exceed that of the new programs that we saw last year?

Well, we have a total delivered cost program that we have been bedding down now for, this is the third year, and we are identifying every year we get a little better at identifying bigger savings opportunities, and so we feel good that we ought to be able to meet or exceed our productivity efforts of this year, and hopefully we will find some upside there.

Okay, and then the last question I had was on the ready-to-serve gravity feed shelves.

Can you give us a sense for the pacing perhaps for 2008, where this time next year, where would that 2,600 and the 3,400 that you shared in the press release, where can those numbers be, and any sense for any retailer feedback, as far as the incrementality of these shelves, compared to condensed when you rolled that out?

Yes.

First of all, I believe the way to look at it is, we believe we have upside with our condensed shelving still, and we are working against that, but we have roughly 17,000 installed at this point.

We think there is that kind of upside with both the microwave and ready-to-serve, and it is just a question of pacing from retailers and when, in terms of when it gets implemented.

It is a slower build because it involves more different brands than just ours.

As you recall in condensed, basically it is all Campbell's and private label, so you can make one decision with the buyer and it is all done.

In ready-to-serve, you have got to deal with all the ancillary brands and the companies that are represented by them, and get, and create a successful model going forward.

It just takes longer.

So I would say over the next two to three years, you should expect to see us in as many stores with ready-to-serve maximizers, as we have in our condensed portfolio.

The other good news on this, so there is great upside.

And why we are so excited about that is we actually, all of the testing in the markets to date suggest that there is greater upside in terms of incrementality to the convenience maximizer and the can maximizer in ready-to-serve.

There is greater incrementally than we experienced in condensed, so there is great upside there, not just for our brand, but for the whole category.

That is great.

That is helpful.

Thank you.

Okay.

Next question, Matthew?

Our next question comes from David Driscoll from City Investment Research.

Great.

Thanks a lot.

Good morning, everyone.

Hi, David.

Hi, David.

Pricing across the entire business was up, I think in the first half of the year, about 3%, but has decelerated as of late with the fourth quarter coming in at 1%.

Despite the fact that costs appear to be rising, Doug, Bob, can you comment here on the competitive factors that are preventing you from taking further price increases, and really what is, it seems very logical that we should see a lot more price increases going through, but yet when I look at the trailing four quarters and the trend line, that goes right against the very logic that I am thinking would be appropriate for '08, how do you match these two things up, pricing and costs?

Well, we are not going to get, as I know you appreciate, we're not going to get into our pricing strategy, and we won't get into our pricing strategy, but our core philosophy remains in place.

Pricing and productivity will offset inflation, and we tend to do this very surgically.

We have good models in place.

It is difficult for you to read it.

It is also difficult for our competition to read it, but it enables us to grow our sales at a very competitive rate, and not hurt our business.

So we are comfortable with our overall profile.

I am not saying it is easy, but we have a plan and we will work the plan.

Doug, is it fair to say that you made a comment just a minute ago, that you did commit to gross profit margin improvement in F '08.

Doesn't that basically say, and I am almost just trying to get you just to make sure that I am not not missing anything.

That implies you have to get pricing in '08, given this kind of cost environment.

Across our entire company and portfolio, pricing will play a role, as it has every year, but what you see is the way we manage it, and you can see it in our numbers this year, we manage it in a way where we get good sales, volume growth, and pricing that covers, helps cover the costs.

And we are very comfortable with that model, but as a company, obviously some pricing will have to happen this year.

Very good.

Final question is just the commodity cost side.

Bob, I want to try this one a different way.

The prior forecast you gave last quarter was 3.5 to 4%.

It has now jumped up considerably up to 5.

Was the delta primarily attributable to the rise in wheat prices?

I wouldn't quite say that.

It was a significant part of the delta, but it also, as we said before, includes the price of chocolate, as well as oils, as well as dairy.

Great.

Thanks a lot.

You are welcome.

Okay.

Matthew, our last question?

Our final question is a follow-up from Eric Serotta from Merrill Lynch.

I will keep this quick.

First, thanks, Bob, for the clarification on the markets.

Yes, sorry, Eric, for the bad information.

No problem.

And just real briefly, was there any impact in the quarter, or do you expect any impact in the next quarter, from shipments of new products into the pipeline on a sort of a year-over-year basis?

You have had a pretty robust new product pipeline for this year.

You had a pretty robust one last year.

Was that, was the delta immaterial in the quarter, and should we expect a material delta of sort of pipeline fill in the first quarter?

Well, the only thing that in fact may be slightly different is obviously we are starting up our beverage contract with Coke.

That may have some impact, but in terms of the rest of the business, there is nothing materially different.

We would expect with this first quarter versus prior first quarters.

Great.

Thanks a lot.

I will end it here.

Okay.

Thank you, everyone.

Matthew, that will conclude our conference call today.

Ladies and gentlemen, thank you for your participation in today's conference.

This does conclude the program, and you may now disconnect.

Everyone, have a great day!