金寶湯 (CPB) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Campbell Soup Co.

fourth-quarter 2009 earnings conference call.

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

Later we will conduct a question-and-answer session, and instructions will follow at that time.

(Operator instructions).

As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's presentation, Ms.

Jennifer Driscoll, Vice President of Investor Relations.

Ms.

Driscoll, you may begin.

(technical difficulty) following their remarks, as usual, we will take questions from investors and analysts.

Similar to last quarter, we have created slides to accompany our presentation.

You can find those posted on our website this morning.

A replay of our conference call will be available approximately two hours after our call is complete.

It will be accessible until midnight on September 18.

Our replay number is 1-888-266-2081 or 1-703-925-2533.

The access code is 1387520.

You also may listen to a replay and view the accompanying slides by logging onto our website, www.CampbellSoupcompany.com and then click on the webcast banner.

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

Members of the media also are listening to our call.

As a reminder, our presentation today includes certain forward-looking statements that reflect the Company's current expectations about future plans and performance, including statements concerning the impact of marketing investments and strategies, pricing, share repurchase, new product introductions and innovation, productivity and cost saving initiatives, quality improvements, inflation, commodity hedging, currency translation and portfolio strategies, including acquisitions and divestitures and their impact on our sales, earnings and margins.

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

Please refer to slide three in the presentation or to the Company's most recent Form 10-K and subsequent SEC filings for a list of the factors that could cause our actual results to vary materially from those anticipated or expressed in any forward-looking statement.

Our presentation also includes certain non-GAAP measures as defined by SEC rules.

We have provided a reconciliation of those measures to the most directly comparable GAAP measures as an appendix to the slides accompanying the presentation.

These slides, including the appendix, can be found on our website as well.

And with that, I give you Doug Conant.

Thank you, Jennifer.

It's good to have you on our team.

Good morning, everyone.

Before I share a few thoughts with you on the highlights for the quarter and the year, I'd like to personally thank all of you who sent me warm wishes for a speedy recovery after my auto accident.

I'm pleased to report that I'm doing well, getting a little better every day.

And let me tell you, it sure feels great to be back in the office again.

Now I'd like to provide my perspective on our fourth quarter and fiscal year performance.

Overall, I'm very pleased with our results for the quarter including adjusted net earnings per share of $0.30, a 15% increase.

We finished the year on a high note.

Solid organic sales growth was driven primarily by a healthy increase in our US soup business.

We also, as promised, expanded our gross margin percentage through our pricing strategy and productivity gains.

The fourth quarter was a strong finish to a good year, and we look forward to fiscal 2010 with confidence.

Now let me share my perspective on the year as a whole.

As with most companies, virtually all companies in our sector, we confronted a very challenging set of economic conditions and we still delivered our long-term target of adjusted EPS growth of 5% to 7%.

At the outset of the year, as you recall, we thought we could deliver the 5% to 7% EPS growth excluding currency.

Ultimately, we hit our targets including currency.

This performance was enabled by the agility and adaptability of our teams during the year as we offset a number of headwinds, particularly negative currency impacts and high cost inflation.

Our growth was broad-based.

US Soup sales increased 5%, an outstanding performance for our flagship business.

Condensed Soup led the way as our marketing efforts resonated with consumers, who increasingly turned to Campbell Soups as a key part of the meals they prepare at home.

We delivered strong performance in our ready-to-serve soup business, mainly driven by the successful introduction of our Select Harvest line.

Our broth business also had a strong year in a very competitive category, highlighted by the launch of Swanson's Stock and the continued growth of the base business.

In addition, our Prego and Pace sauce businesses performed well, as they were key elements of simple, great tasting and good-value meals at home.

Lastly, our Asia Pacific business had an outstanding year, and Pepperidge Farm also delivered a very solid performance.

I'm especially pleased that we produced these results while continuing to invest for long-term growth.

This past year we continued to drive and invest in product innovation to enhance our infrastructure and to advance our plans in emerging markets, all of which will help drive our future performance.

Now, you are familiar with our industry-leading efforts in sodium reduction.

Health and wellness remains a highly relevant consumer trend.

Our sodium reduction journey allows us to position soup as the ultimate nourishing and affordable simple meal.

We advance our wellness credentials in 2009 on this front, and we will keep moving forward in 2010.

Another key example of investing for the long-term growth lies in our emerging markets business where we greatly enhanced our distribution capabilities this past year in Russia through the agreement with Coca-Cola Hellenic Bottling Company.

Hellenic's distribution capability and execution standards in Russia provide a world-class complement to our consumer insight and soup expertise.

Overall, fiscal 2009 was a terrific year for Campbell, and I'd like to thank our employees and our management team for delivering outstanding results in such a difficult environment.

Now, many of you have heard me emphasize the importance of being sustainably good.

Over the last seven years we have delivered solid, strong, consistent business performance while making investments in our products, infrastructure and geographic footprint to ensure that we will realize our mission of becoming the world's most extraordinary food company by nurturing people's lives everywhere, every day.

Looking ahead, I am excited about the innovation we will bring to the market throughout fiscal 2010.

We have an extraordinary team of engaged people, a portfolio of leading brands and strong plans for the year ahead.

I'm confident that all three of our core categories -- simple meals heavily anchored by soup, baked smacks heavily anchored by biscuits and bakery, and healthy beverages heavily anchored by vegetable-based beverages, are well-positioned for good continued performance in 2010.

And I look forward to accelerating our performance in the years ahead as a result of some of the investments I mentioned earlier.

With that, I'll turn the call over to Anthony DiSilvestro.

Good morning.

I will be reviewing our financial results for the fourth quarter of fiscal 2009.

My review will begin with our consolidated results, and then I'll cover each of our operating segments.

With respect to the financials, the current quarter and fiscal year have one less week than the prior period which is negatively impacting growth rates.

As a reminder, the results of our divested Godiva business are presented as a discontinued operation.

There are a few items that impact the comparability of our results.

In the fourth quarter of 2008 we announced a series of initiatives to improve performance and long-term profitability.

We recognized expenses associated with these initiatives in the current and prior fiscal year.

Also in the fourth quarter of 2009, we recorded adjustments related to commodity hedging.

And, in connection with our annual testing of the carrying value of intangible assets, we recorded a pretax $67 million non-cash impairment charge related to certain European trademarks.

The results I will present have been adjusted for the impact of these and other items impacting comparability, which are detailed in the non-GAAP reconciliation attached to this presentation.

We will present organic sales results which exclude the impact of currency, M&A activity and the impact of one less week, as we believe this is a better indicator of our ongoing business performance.

We will also present segment operating earnings adjusted for the items impacting comparability.

In the quarter, we reported net sales of $1.528 billion, down 11% versus the fourth quarter of 2008.

Organic net sales increased 2% in the quarter.

Adjusted EBIT of $198 million for the quarter is flat versus a year ago, impacted by one less week and 6 points due to currency translation.

Excluding the impact of one less week in currency, EBIT increased, primarily due to lower marketing expenses and a higher gross margin percentage.

Adjusted net earnings of $107 million increased 11% versus 2008, due to the benefits of lower interest rates and a slightly lower tax rate in the quarter.

Adjusted earnings per share of $0.30 increased 15%.

Our EPS results includes a $0.02 negative impact due to currency translation.

For the fiscal year, reported net sales declined 5% with organic net sales up 3%.

Adjusted EBIT of $1.274 billion is flat to a year ago, also reflecting the negative impact of one less week and a 4-point decline due to currency.

Adjusted net earnings of $794 million are comparable to a year ago.

Adjusted net earnings in 2008 include the $32 million from the ongoing operations of Godiva recorded in discontinued operations.

By utilizing $600 million of the net proceeds from the Godiva divestiture to repurchase shares, the loss of the earnings is offset through lower shares outstanding.

Adjusted earnings per share(Sic-see press release) of $2.22 increased 6% versus 2008 despite a $0.09 per-share negative impact due to currency translation.

In the fourth quarter, our reported net sales declined 11% and as you can see on the chart, reflects the negative impacts of currency, one less week and acquisitions and divestitures.

Organic net sales grew 2%, driven by our pricing actions taken earlier in the year to offset the significant levels of cost inflation.

This organic sales growth of 2% reflects gains in US Soup, US Sauces and Canada, which were partially offset by declines in North America Food Service and US Beverages.

For the year, our reported net sales declined 5% and, similar to the quarter, reflects the negative impacts of currency, one less week and acquisitions and divestitures.

Organic sales increased 3% as growth in US Soup, US Sauces and our Baking and Snacking businesses was partly offset by declines in North America Food Service, Europe and US Beverages.

For the quarter, our adjusted gross margin percentage increased from 39.1% in fiscal 2008 to 40.6% in the current quarter, an increase of 1.5 points, and for the year increased from 39.7% to 40.2%, an improvement of 0.5 point.

The improved performance in both periods was driven by pricing and productivity improvements in excess of cost inflation.

For the year, inflation in ingredients, packaging and energy was approximately 8%.

For the quarter marketing and selling expenses have declined 21% from $263 million in 2008 to $209 million in 2009, due to lower marketing expenses, the impact of one less week and the impact of currency.

We reduced marketing expenses in our US Beverage and Pepperidge Farm businesses as we redeployed spending to promotional programs to address the price-value equation in these premium-priced segments.

For the year marketing and selling expenses decreased from $1.162 billion to $1.077 billion primarily due to the impact of currency, lower marketing expenses and lower selling expenses.

While we increased advertising in the US Soup to support the launch of our new soup items, we reduced marketing expenses in other businesses to fund increased promotional activity.

Our total marketing support, which includes promotional spending, is up for the year, currency neutral, and is up about 1 point as a percent of list sales.

For the quarter administrative expenses increased $16 million to $184 million, due to higher incentive compensation costs partly offset by the impact of currency.

For the year, administrative expenses declined 3% from $608 million to $591 million, primarily due to the impact of currency.

Currency neutral, expenses are flat, reflecting our efforts to manage costs in the current economic environment.

Net interest expense declined 39% in the quarter and 33% in the year as our debt portfolio was well positioned to benefit from the significant decline in short-term borrowing rates available to companies with strong credit ratings.

In the quarter, our adjusted tax rate declined by 1.1 points from the prior year to 38.9%, and for the full year the adjusted tax rate was 32%, slightly above the year-ago rate.

Diluted shares declined 5% and 6% for the quarter and year, respectively, due to repurchases utilizing Godiva divestiture proceeds in 2008 and our ongoing strategic share repurchase programs.

In our US Soups, Sauces and Beverage segment, sales on a reported basis of $650 million in the quarter compares to $673 million in the prior-year period.

Organic sales increased 4% in the quarter.

US Soups sales increased 7%, driven by growth in condensed, RTS and broth.

Our Sauce businesses performed well with double-digit sales growth in Prego Pasta Sauces and sales growth in Pace Mexican Sauces.

Beverage sales decreased due to lower sales of V8 Vegetable Juice, reflecting higher promotional spending and reduced volumes as demand has been negatively impacted in the current economic environment, partly offset by strong gains in new sales of V8 V-Fusion juice.

Operating earnings increased to $148 million from $124 million in the year-ago quarter, an increase of 19%, primarily due to lower marketing expenses and an improved gross margin percentage, partly offset by the impact of one less week.

As I mentioned, excluding the impact of one less week in acquisitions, US Soups sales increased 7% in the quarter.

Sales of Condensed Soups increased 4%, driven by significant growth in cooking varieties benefiting from increased meals at home and growth in eating varieties.

Ready-to-serve sales increased 14%, driven by growth in Select Harvest, V8 and Chunky Soups.

Driven by the successful introduction of Swanson stock and continued growth of Aseptic Varieties, broth sales increased 7%.

Sales, mainly RTS and broth, benefited from a reduction in new item introductory costs as the year-ago quarter reflected costs associated with the launches of Select Harvest and Swanson stocks.

We are very pleased with the strong performance of our US Soups business for the year.

Excluding the impact of one less week and acquisitions, sales increased 5%.

Driven by a double-digit gain in condensed cooking and growth in eating varieties, Condensed Soups sales increased 6%.

RTS sales grew 4%, driven by the successful launches of Select Harvest and V8 soups, partly offset by a decline in Chunky.

Broth sales increased 8%, driven by our new Swanson stock line and growth in Aseptic varieties.

On a reported basis, Baking and Snacking sales in the quarter of $466 million compares to $533 million in the prior-year quarter.

Organic sales increased 1%.

Sales increased in Pepperidge Farms Cookies and Cracker business, driven by gains in Goldfish, partly offset by declines in our Bakery and Frozen businesses.

Sales in our Arnott's branded business in Australia increased in the quarter, driven by gains in both chocolate and savory biscuits, partly offset by a decline in private label and industrial sales associated with a plant closing Australia.

Our biscuit business in Indonesia achieved significant sales growth.

Operating earnings declined from $72 million to $69 million, due to currency, one less week and lower earnings in Arnott's, partly offset by growth in Pepperidge Farm.

Sales in our International Soups, Sauces and Beverages segment of $289 million compares to $362 million in the prior year.

Organic sales increased 5%, driven by growth in Canada up double digits in Soup, growth in the Asia-Pacific region driven by growth in Malaysia, and growth in Europe driven by higher sales in Belgium, partly offset by declines in Germany.

Adjusted operating earnings declined from $30 million to $19 million due to currency, one less week and increased investments in emerging markets, partly offset by gains in Canada.

In North America Food Service, sales in the quarter of $123 million compares to $147 million in the prior-year period.

Organic sales declined 7% as the food service sector continues to be negatively impacted by the economy.

Reflecting lower sales volumes, earnings declined from $7 million to zero in this nonseasonal quarter.

Turning to the cash flow and the balance sheet, cash flow from operations of $1.166 billion compares to $766 million in the prior year.

The prior-year cash flow reflects the negative impact of approximately $230 million of taxes paid in connection with the sale of the Godiva business.

Adjusted for the tax payment, cash flow from operations improved versus the year-ago period.

Capital expenditures increased from $298 million to $345 million, reflecting higher spending in the US as we complete initiatives to increase the capacity of our US beverage business and undertake improvements in our headquarters facility.

Looking forward, we expect capital expenditures in fiscal 2010 to be approximately $350 million.

In fiscal 2009 we repurchased 17 million shares at a total cost of $527 million under our June 2008 strategic share repurchase program and repurchases to offset the dilutive impact of our stock compensation programs.

Net debt at the end of the quarter was $2.573 billion compared to $2.534 billion a year ago, an increase of $39 million, as cash from operations was sufficient to fund capital expenditures, dividends and share repurchases.

Now I'll turn it over to Craig.

Thanks, Anthony, and good morning.

I'd like to spend a few minutes looking forward to key topics in fiscal 2010 and discussing our guidance.

As Doug mentioned earlier, we entered the new fiscal year with a great deal of confidence in our plans.

We have a portfolio of healthy, well positioned businesses.

We have a broad array of planned innovations touching all three of our core categories, particularly soup.

The restaging of our Chunky line, the launch of lower-sodium condensed tomato soup, our new Select Harvest Varieties and new Light Condensed Soups are all part of our plans for a stronger consumer offering this soup season.

We are projecting moderating inflation, between 1% and 3% for the full year.

This enables us to be less dependent on pricing, and we anticipate driving sales growth, primarily through volume, as we indicated at our July analyst event.

We continue to expect benefits from our enabler programs and supply-chain efficiencies.

We also look for benefits from our SAP implementation.

And as a result, we expect to see another year of improvement in our gross margin percentage.

These programs and efficiencies are important to us so that we can allocate resources to further innovation and long-term opportunities such as emerging markets.

Due to our investments to date, we currently enjoy high awareness levels and an outstanding repeat rate in Russia, which we will begin to leverage through our distribution agreement with Coca-Cola Hellenic.

We remain optimistic about China and continue to invest in our current products and new product development, based on consumer insights.

We expect the earnings impact from our total investment in emerging markets for fiscal 2010 to be similar to last year's.

Included in our guidance for fiscal 2010 is higher pension expense, which we alluded to at the end of the third quarter.

Like many companies, we saw the global recession affect the value of our investment portfolios that fund the pension need.

Our fiscal 2010 pension expense will rise on a year-over-year basis by approximately $30 million or $0.06 per share.

This reflects the contribution to our US pension plans in fiscal 2010 of about $260 million.

We assume currency will be slightly favorable for the year.

As you think about the first quarter of fiscal 2010, keep in mind that we are lapping a tough comparison to a very strong first quarter in fiscal 2009, driven by especially dynamic performance in the US Soup business that year where we've benefited from two prior pricing actions.

However, we are confident that we'll deliver on our plans for the full year and feel particularly good about the innovations for the entire soup season.

In summary, based on all the factors I've discussed, we're looking for revenue growth of 3% to 4%, adjusted EBIT growth of 5% to 6%, including the pension expense, and adjusted EPS growth of 5% to 7%.

All of our guidance for fiscal 2010 is consistent with our long-term growth targets.

With that, we'll take your questions.

(Operator instructions) Terry Bivens, JP Morgan.

A couple of things just on the soup front, as we enter the soup season.

Again, I know sometimes panel data can be somewhat misleading.

But I wanted to ask you two things.

From our vantage point it looks like Progresso, as we go into the series, appears to be maybe a little bit more aggressive than normal in some of the alt channels.

And I'm thinking there of Wal-Mart.

And the other thing I wanted to ask you about is just the microwavable line.

I know it is just a portion of RTS, but it seems to be continuing a slump.

If you could address those two things?

Well, I'd suggest if you want any help on the Progresso plans, I can give you a phone number in Minneapolis where they will be happy to answer those questions for you.

We feel good, first of all, about our position here.

Basically, as we said, we reported very good sales growth this past year in US Soup.

And we also mentioned separately that retail inventories are down a little bit.

And so what that is suggesting is it translated into very good consumer take-away, all in.

I wish we had a solution to help you between panel data, IRI, Nielsen, to make this more transparent.

And I do want to mention that we're working against a goal of doing that.

But overall, we feel very good about our sales and our consumer take-away in US Soup.

As in all soup seasons, there are ebbs and flows to our performance and our competitors' performances.

We were very aggressive kicking off Select Harvest last year, and so comparing our latest four or 12 weeks versus last year is not going to be particularly useful to you.

In terms of microwavable, it is a segment that is premium priced, by and large, relative to the canned products.

And it has been adversely affected as people have made more value-oriented choices, which have benefited the canned businesses for the whole segment, not just Campbell's.

And as a result, the segment has struggled a bit.

But the convenience factor is still valued, it is still driving incremental sales.

And so we are comfortable with where we are.

We expected to do better this year, but it is the one modest [washout] in an otherwise very positive story for our soup portfolio, a story that, quite frankly, has never been better across all segments.

Judy Hong, Goldman Sachs.

Doug, your volume mix in the quarter was down 2%.

The third quarter, your vol mix was down.

I know you said in fiscal '10 that you should see a lot of sales growth really coming from volume.

Can you just give us your confidence level in terms of achieving that volume growth?

What really needs to happen to get the volume growth to accelerate from the current pace?

First of all, when I look back over the last nine years, we've had a lot of -- when we look at every year's annual guidance, whether it's performance overall or performance on key measures, when we've articulated a commitment to doing something, we've done it.

So I have a lot of confidence coming in that we will deliver volume growth.

The key challenge last year was we had, as you know, unprecedented inflation pressure that drove us to take some incremental pricing actions that were not originally contemplated in our plan.

And, as we all know, you take those pricing actions, they can have a short-term impact on volume.

We have worked through all that now, and as we get into particularly the second and third quarters but partially the first quarter, we expect that pricing to all be bedded down and us to be able to look at an improvement in volume.

We've seen that in prior years, and I think the key is, we expect less pricing volatility than we experienced over the last two years with the crazy inflation environment we were in.

And then just a quick question on guidance.

As it relates to currency, if we look at spot rates it actually seems like currency should be a much bigger benefit than slightly favorable comment that you made.

So -- and you think about 3% to 4% sales growth then 5% to 7% earnings guidance this year, is that on a constant currency basis?

And how should we think about currency impact on that number?

First of all, to be completely clear, as we said even last year when we went through so much negative currency headwind, our long-term growth model targets the assume currency [in].

So, in other words, we believe that, over time, the ups and downs of currency in -- particularly in developed markets, will mostly offset themselves, and in the less developed markets that we need to be seeking acceptable return on dollar-based investments.

And so, over time, we believe we can hit top-line EBIT and EPS growth, currency included.

Last year we had a very negative dislocation with currency and we communicated that we were still confident in being able to deliver our EPS growth, currency neutral.

In the event we delivered our EPS growth currency in, we had some favorability in interest expense.

And, ex-the 53rd week, we've even delivered our top-line growth, currency in, inside the range of our long-term growth target.

This year our plan assumes, as we said, just a minute ago, a slightly favorable impact from currency, and that we'll be able to deliver, given that, within the guidance that we've given.

The currency rates, as you know, over just the last few weeks, have been fairly volatile.

And now that -- I agree with you.

If you look at current spot rates, it would be more than slightly, and so our guidance includes an assumption of slightly favorable currency.

And hopefully there some upside to that, but we have a long way to go.

Ed Aaron, RBC Capital Markets.

Doug, I wanted to maybe just ask a big picture industry question about consolidation.

Obviously, a lot of headlines after this weekend.

I'm just kind of curious to get your view on whether we are about to see a big wave of M&A in this space and how you see Campbell's Soup fitting into that picture.

Well, I don't have a crystal ball here, Ed.

Personally, I believe -- as I've shared with all of you before, I believe in the power of more focused food companies where the management team is very focused on a few core categories and developing world-class capabilities in those categories.

That is our strategy.

That someone flies in the face of a position of larger diversification and large-scale mergers.

So I think we are better positioned to deliver our numbers and to create shareholder value in the near-term and long-term just the way we are positioned today.

It will be interesting to see how the environment shakes out.

There are several companies that are looking to improve their performance in the near-term, and they may make some decisions that I might not make.

But in our case, Campbell's case, we are very happy where we are.

Just on the inflation, that 1% to 3%, that's probably the lowest that I've seen from the peer group.

And it's not entirely intuitive when I think about your mix of inputs.

Is it fair to say that a lot of that difference might just have to do with maybe some unfavorable hedging in fiscal 2009?

Yes.

Clearly, as we said several times in 2009, our input costs were impacted by some hedging activity that we did.

So I think that assumption may be right with respect to our numbers.

I can't comment on anybody else's.

I know, certainly, across the sector there were other people that were suffering from the same problem with respect to hedging just because there was such a sharp drop in commodity prices early in the year.

Just trying to understand a little bit better why the administrative costs were up so much, especially when you factor in the extra week last year.

It's a bit of an interesting distinction with the incentive comp, just in that competitors are cutting back in that area and it seems like you must have increased it fairly significantly in the quarter.

Well, we had an adjustment in the quarter because the quarter finished the year higher than our previous projection.

And so we adjusted the compensation rates accordingly.

If you look across the full year, our administrative cost performance was good.

It was about flat.

Alexia Howard, Sanford Bernstein.

I have a question about the outlook on margins.

The margins came up very nicely this quarter.

They were up, obviously, phenomenally last quarter as well.

It seems as though, as we look out to 2010, you're talking about pretty flat marketing expenditure.

I'm assuming that productivity savings are still coming through.

I think you will have some carryover from the pricing that you took in the February-March time frame that should give us positive price in the first half of the year, at least.

And you've got this moderation in commodity cost pressures and, I believe, a similar level of investment in emerging markets.

Are you comfortable that you are going to see pretty solid margin expansion through the course of the year?

Is there anything else that I'm missing out on that might be weighing on margins?

I think you mentioned most of them, Alexia.

The only thing I would add is that we continue to have, as we said in July at the analyst event, when we had a lot of focus on our supply chain, we continued to see strength in our supply chain efficiency programs, in our enabler programs, benefits from the SAP implementation.

We'll have the first full year of benefit from the Beverage capacity implementation that we've done in our Texas plant and the Aseptic line implementation that we've done in North Carolina in 2010.

So all of those things play into it, too.

But your list was a pretty good one, generally.

And just a real quick follow-up.

You mentioned the year-on-your comparison in the cost of new item introductions and how that plays favorably for ready-to-serve soup this quarter.

Will we see any sort of impact negatively next quarter from the re-launch of Chunky?

Or is that all a whole different ball game because it's just replacing existing products?

That's the answer.

There was no new item introduction cost, sliding cost, associated with the Chunky relaunch because we were replacing existing items, which contrasts versus prior year, where we were launching a whole new Select Harvest line at a higher sliding cost.

That's the only difference.

David Driscoll, Citi Investment.

Doug, I pass along my welcome back to you as well.

Certainly, we missed you at the analyst day.

Well, all things considered, I would have much rather been there.

But if you hear Chicken Noodle Soup every day, it's amazing how much better you can get.

I'm sure if you weren't an expert on every single variety before, you are now.

I wanted to ask you just to explore your thoughts a little bit further on unemployment and its effect on the Company.

So at Maxton, I believe the number was quantified for the last soup season at perhaps a benefit of around 1.5 points, but that was offset by the price and volume elasticity.

Unemployment rates just keep going higher.

Job losses continue.

Certainly, that seems to be the thematic at least for the next several quarters.

How do you view the benefit of unemployment as regards the impact on soup volumes for the coming soup season?

Well, I wasn't there, so Craig will have to answer it.

But I will tell you conceptually, the soup portfolio is very well positioned as the value item.

We are really focusing on driving volume through value offerings this soup season.

So broadly speaking, I think we're going to find ourselves in a positive position there.

But, Craig, do you want to --

I don't recall at Maxton that we correlated very specifically unemployment rates and soup sales.

Obviously, unemployment is one of the things that we look at in terms of the general health of the consumer out there.

But recognize that, as you look across our line, as we did say in Maxton, we've got some pieces of our business that actually benefit somewhat from a more difficult economy.

And, of course, other pieces of our line that suffer from it.

So I wouldn't get too precise in trying to correlate unemployment rates with our expectations on soup.

We continue to be very focused on the value proposition as we recognize that the consumer is under significant pressure in this economy, unemployment being part of that pressure, both the reality of people being unemployed and the concern and pressure on those who still have jobs but are concerned about increasing unemployment rates.

So I would stay away from some sort of false precision around the correlation, but say that we view this year, this year's economy, economic assumptions in 2010 and the US economy are somewhat similar to the way we viewed 2009.

We have maybe a tailwind in this regard in soup, but we have headwinds in this regard in our Food Service operation, relying on improved away-from-home eating.

Our premium priced Beverage business is seeing pressure during this economy, as it has in prior recessions and difficult financial times.

And our Pepperidge Farm business, although it grew, grew at a much slower rate this year as the premium nature of that portfolio was pressured more than it had been, although, again, we did grow that portfolio.

So there are puts and takes here.

Overall, we feel very good about the portfolio and our ability to grow it.

That was a very comprehensive answer, thank you; just a quick follow-up.

Sorry if I missed this -- what did you say for the marketing spending outlook for 2010?

And also, interest expense guidance for 2010?

We didn't give any specific guidance on either marketing or expenses.

We said we thought we would expand our gross margin and that -- there is an implied expansion in our margins between the 3% to 4% top-line growth and the 5% to 6% at EBIT.

On the interest expense we would expect some slightly upward pressure as a result of two things -- some long-term financings that we've recently completed as well as some expectation for some upward pressure on short-term rates.

Eric Serotta, Consumer Edge Research.

First, I know that, earlier in the year, you had some disconnect between your shipment volumes and consumer take-away related to retailer inventory de-stocking.

When you look at the overall soup season as a whole, did consumption, by your measures, pretty much track sales?

Or, was there any net effect for the year?

Just to reaffirm, we had good sales growth.

We reported 5% on an adjusted basis, adjusting for the 53rd week.

And we have retail inventories that went down, so it suggests that consumer take-away was very solid, and we were very satisfied with it.

The full-year impact of the retailer destocking was not very significant in our numbers across the full year.

But it was -- as Doug says, it was slightly lower at the end of -- inventories were slightly lower at the end of the year than they were at the end of last year.

Certainly -- I guess my point would be that, we didn't increase sales by building customer inventories.

There is nothing there.

So you can take the 5% to the bank, and if it went through and there's no meaningful inventory change, it would suggest that there was very good consumer take-away.

Okay, good.

And as I look to your fiscal 2010 top-line guidance of 3% to 4%, and I look to various components, you are talking about volume being the primary driver.

So, assuming volume is up, assuming some sort of positive impact from FX and some sort of positive impact from the carryover of pricing, since you raised your promoted price points towards the middle of last fiscal year, it seems to me that that 3% to 4% could be conservative.

Could you give us any sort of breakdown as to what you are looking at in terms of pricing versus volume contribution to that 3% to 4% top line?

I think we don't want to slice it apart into all of its pieces.

We've said that we thought that volume would be the primary driver of the top line, and I think I'll leave it there.

As I said earlier, on the FX our assumption is slightly positive but not as positive as the current spot rates.

And we are just not going to get into any pricing discussion in a forward-looking way.

So we're just going to stay clear of that.

Lastly, certainly looking in tracked channel data we've seen continued private label share gains in the condensed category.

Wondering whether you could put that into broader context and what actions you guys are taking this year to manage that.

I know you clearly have a dominant share position relative to your only competitor private-label.

But what actions are you doing to offset that, in addition to your innovation and the like?

Well, I guess the place to start is the momentum we've got in condensed soup.

We reported 6% sales in soup.

And if you just say, okay, and there wasn't much of an inventory build, that 6% looks pretty good relative to the way the category performed.

So we are very satisfied with our position with soup.

And then we are building on it nicely with the launch of our light Condensed Soups, first-ever breakthrough there with the launch of our reduced sodium tomato product and the promotional support behind that, along with a re-launch effort around some of our -- around our Healthy Request line, which cuts across all of our Condensed Soups.

So the key to our success is to leverage the tailwind that's going on with at-home eating and with our branded presence in Condensed Soup, and then continue to innovate in key areas, which the key area for us -- in Condensed Soup is in cooking and in wellness.

And we're fully loaded.

I'm very comfortable that we'll be able to compete there.

My sense is, the pressure is going to be on other ready-to-serve brands that aren't meaningfully differentiated.

If Condensed, the segment, grows, I suspect it's going to -- the pressure will be on the other ready-to-serve brands that don't have a clear reason for being.

Jon Feeney, Janney Montgomery Scott.

Doug, let me add my welcome back and continued recovery.

Whatever the merits of chicken soup for its healing, I think a V8 Bloody Mary has always been effective for me.

That works, too.

I wanted to talk a little bit about advertising.

I know, Craig, you said you didn't want to get too specific about how we pull apart the components for next year.

But just two questions, I guess.

I know currency has impacted this big relative decline in selling and marketing expenses.

Is it possible for you to break out like a constant currency decline in relative marketing expenditure for this quarter, first of all?

And, second of all, as we look forward to next year, Doug, we talked about on the last call how advertising, you thought, would still be up for the year, despite the second-half decline.

Would you forecast any kind of increase for next year; and if so, an order of magnitude?

Just a couple of comments, and then Craig and Anthony will jump in.

First of all, it's not going to be helpful to look at the fourth quarter.

It's the smallest quarter.

It's not indicative of anything other than a year-end close.

I don't recall the exact comment on advertising spending, but my recollection is, it was around our soup spending, and our soup advertising was up for the year.

The way I view our marketing spend, and we've got to be careful with it because you remember what a crazy year it was a year ago at this time, in October, November, December and costs were going up, pricing had to be affected.

Everybody was managing their P&L's very carefully.

We ended up having to shift some of our advertising spending into close-in promotional spending to be competitive and to meet some of the competitive activity.

The way I'm viewing this past year is that -- I think Anthony talked about it -- spending as a percent of sales, our total marketing spend, which is our advertising and our trade, was at 23.1%, which was up a full point versus the prior year.

But there was a mix shift there because we had to meet some close-in promotional challenges.

I think, within the context embedded in that 23.1% spend, we have enough resources to support our advertising and our trade.

And that's contemplated in our plans.

We are not going to break those apart for you.

But if we can, on a steady-state basis, go forward with 22% to 23%, 23.5% of list sales spending we have found over the last nine years I've been here that we can be competitive and grow our top line around 3% to 4%.

So that's the way we are viewing it.

We're not going to get into breaking the pieces out or forecasting spending.

I'd like to say, the market is now nice and easy to predict, but it's just not.

And so that's the perspective we have.

I don't know if you guys have anything to add.

I think that's the right answer.

If we had broken it apart at the same time last year, then we wouldn't have delivered it because we reacted to the market as we came through the year.

So, exactly as Doug said, we redeployed assets in the way that matched the needs of the marketplace.

Just to touch on a couple of the technical pieces of your question, I think there was about [3%] of currency is what we said in the fourth quarter, impacting the marketing line.

Ed Roesch, Soleil Securities.

On Pepperidge Farm, you mentioned the trade down.

That seemed to be very prevalent earlier in fiscal '09.

Is there any let-up in that -- you know, it's uncontrollable, but it's a bit of a headwind against that brand being a little bit more premium position and having some trade-downs.

Has that effect diminished at all lately?

Well, we are very competitive in this space, and we did grow Pepperidge Farm last year, top and bottom line, so we feel very good about it.

The growth slowed relative to prior years.

Even in a tough year we've got a great brand, and we actually are seeing some short-term -- a little better traction of our brands in Pepperidge Farm right now.

So, knock on wood, we should have another solid year in Pepperidge Farm.

Sounds good, and one other question.

I'm thinking back to a couple years ago, when it seemed like the pricing and promotional setup for the soup season was somewhat locked in, for lack of a better term, from this point forward until you get through the bulk of this soup season.

Last year it seemed like it was a little more dynamic, where you could react on the fly to things that you saw in the marketplace.

Could you comment on whether things are still a little more dynamic, or are we back to things being locked in a little bit?

Well, using your language, broadly speaking, our soup programs for the year with every customer are presented to that customer for the full fiscal year, certainly through the soup season, which goes through February.

And typically, we'll run through the beginning of our fiscal year but really don't get up and running until September.

And that has been true every year.

And, depending on the customer, that can get -- it gets hard, if not impossible, to move things around because then they plug those programs into their planning.

And soup happens to be such a large, important category for them, they are reluctant to make many changes.

My hypothetical answer to your question regarding last year is that I think last year got so crazy not only for us but also for our customers that we were collaborating together to try to find ways to keep the category healthy and help the customers meet their needs.

And everybody was a little more flexible last year.

But by and large, I think you've got to contemplate that the programs you put in place are the programs you have, in the soup business.

Now, there's more flexibility in some of our other categories that operate on shorter lead times.

Our Pepperidge Farm business and some of our other categories are little more flexible.

But soup is, by and large, as a rule, not very flexible.

Congratulations on the quarter.

Thanks for the help.

Vincent Andrews, Morgan Stanley.

If we look at the volume loss in the US Soups, Sauces and Beverages, could you help us understand where that was concentrated or whether it was spread across the segment?

Without looking at the numbers -- that's dangerous, I know, Jennifer; don't worry, I won't get us in trouble -- the key area that we had in the US Soups, Sauces and Beverages -- Beverages were soft, particularly V8, where we were premium priced.

And we are addressing that this year through our marketing programs.

But overall, for the year and for the quarter, the Beverage business has been the challenge for us.

Anthony, would you build on that?

The only thing I would add is that our Prego and Pace Sauce businesses performed very well with volume gains.

Were your Soup volumes up, or was there any weakness in a particular part of Soup?

The part of soup was noted on the call.

Our microwavable platform continues to be softer than the rest of our portfolio.

But the rest of the portfolio held up well.

So the rest of the portfolio group was just negative mix from the convenience platform.

All right, thank you very much.

Thank you, Doug, and thank you, Anthony, for the answers to those last questions there.

We appreciate all of you for your participation in our fourth-quarter earnings webcast.

As a reminder, a replay will be available beginning in approximately two hours.

If you are reporter and have questions, please call Anthony Sanzio.

His phone number is 856-342-4390.

Investors and analysts with questions can call me, Jennifer Driscoll, at 856-342-6081, or at Len's old number; I'm getting those forwarded to me.

This concludes today's program.

Everyone may disconnect.

Have a nice weekend.