金寶湯 (CPB) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Campbell's Soup second-quarter 2011 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 is being recorded.

I would now like to turn the conference over to your host, Ms.

Jennifer Driscoll, Vice President Investor Relations.

Please begin.

Good morning, everyone.

Welcome to Campbell Soup Company.

It is our third-quarter earnings call and webcast.

With me here in Camden today are Doug Conant, our President and Chief Executive Officer; Denise Morrison, Chief Operating Officer; Craig Owens, Senior Vice President, CFO, and Chief Administrative Officer; and Anthony DiSilvestro, our Senior Vice President of Finance.

Doug will kick us off and then Denise will provide her perspective on the quarter, followed by our financial performance and our outlook from Greg.

Following their remarks we will take questions from analysts and investors.

As usual, we have created slides to accompany our presentation.

You will find our slides posted on the website this morning at investor.CampbellSoupCompany.com.

Please keep in mind that our call is open to members of the investment community.

Media are listening to the call in a listen-only mode.

As a reminder, our presentation today includes certain forward-looking statements that reflect the Company's current expectations about future plans and performance.

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

Please refer to slide 3 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 in any forward-looking statement.

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

In an appendix to the slides, we have provided a reconciliation of those measures to the most directly comparable GAAP measures.

All of our slides and our earnings release and selected quarterly financial data can be found on our website.

Last, I would like to remind you that we are hosting our annual analyst day on Tuesday, July 12.

At the event, Denise Morrison will share her strategic framework for the Company with you.

We will also feature presentations by several other senior members of our leadership team.

We will end with Q&A and naturally feature many Campbell products, including several new products, at our luncheon.

We hope you will join as either via webcast or, better yet, live at world headquarters in Camden, New Jersey.

With that I give you our President and CEO, Doug Conant.

Good morning, everyone, and thank you, Jennifer.

We reported today that sales and EBIT rose modestly and earnings per share increased nicely in the third quarter.

As you know, I am stepping down as CEO of Campbell Soup Company at the end of July, which makes this my lucky 42nd earnings call while I have been Campbell's CEO and it will be my last one with you.

From my vantage point Denise Morrison has her arms around the challenges in our US soup business and her leadership team is coming together quite nicely.

Things are shaping up for a richer conversation with you at our analyst day in July.

As I have said before, it's not about the quarters or months, it's about the years.

And I don't say that just because we are in a seasonal business.

As you know, while quarters are important, I believe it's over the years that shareholder value is created -- one product, one customer, and one consumer at a time.

It's best done by simultaneously creating a winning environment in the workplace, leveraging your workplace success to create a winning financial profile in the marketplace over time, winning in the community by helping to build a better world, and winning with integrity in everything you do.

As I look back, while I am sure we could have done better, I am proud of what we have accomplished as a company on all of those fronts over the last 10 years and I am very excited about what we will accomplish in the future under Denise's leadership.

Perhaps the importance of understanding long-term trends is why the food industry is intrinsically different at its core.

In my opinion, the food industry is special in terms of the continuity of the players, the collaboration of the people, and the long-term perspective, which is often easy to lose sight of with the day-to-day vagaries of the market.

I have always viewed our shareholder base and our analyst coverage as an asset to the Company.

So on this, my lucky 42nd call, let me thank you warmly and sincerely for your support, your candor, your insights, and your friendship over the last decade.

With that I will turn it over to Denise.

Good morning.

Thank you, Doug.

It has been an amazing 10 years and everyone at Campbell is proud of what we have accomplished under your leadership -- in the workplace, in the marketplace, and in the community.

Now turning to the third quarter, as I reflect on our performance I am encouraged by our progress but I want to be perfectly clear -- I am not satisfied.

We remain focused on creating long-term shareholder value by stabilizing sales and then driving profitable net sales growth.

We still have more to do.

Let me share 5 key takeaways with you.

First, we are executing a different second-half plan in US Soup.

Our new management team has set in motion the plans we described to you in the second quarter.

We have sharpened our focus on profitable volume.

This quarter we began shifting our marketing investments to more brand-building initiatives, such as our portfolio advertising campaign.

We have increased our soup advertising with GRPs up by double digits, and we are highlighting the positive benefits of soup.

We have also increased price realization.

We have raised promoted prices and are in the process of implementing a list price increase in US Soup to offset cost inflation.

And we have innovations that are poised to ship in the summer.

As I said, we are definitely not satisfied and clearly have more work ahead.

Second, we are experiencing some softness in Beverages and Sauces.

In Beverages recycling a very strong quarter year ago when sales rose 13%.

In the third quarter of this year we experienced increased competitive activity.

That said, our year-to-date performance in Beverages still outpaced the shelf-stable juice category and our innovation pipeline is robust.

Sauces also continue to face strong competitive activity.

We have plans to address this and further differentiate our high-margin sauce brands going forward.

Third, our performance in Baking and Snacking and Foodservice is strong.

We have powerful brands in both Pepperidge Farm and Arnott's that continued to perform well.

We are shipping some great new products, including Milano Melts, Goldfish Sandwich Thins, and new varieties of Tim Tams.

In North America Foodservice overall industry trends are improving.

We have strengthened our sales effectiveness with our customers and improved our profitability.

Fourth, we are focused on cost management to offset inflation and help fund our growth.

We continue to focus on reducing our indirect spending, SG&A, and total delivered cost.

Soup Common Platform, our program to simplify how we make soup in the US, is progressing well.

This program, and others like it, will help fund our future growth.

Finally, I want you all to know that we will not rest until Campbell is growing net sales profitably.

It's what I am focused on every minute of every day.

On the strategy front, our new leadership team is finalizing the plans that will position Campbell for future growth.

We are looking forward to sharing those plans with you at our analyst day on July 12.

Now I will turn it over to Craig to take you through our financial results.

Thank you, Denise.

Good morning.

I will spend a few minutes walking through the third-quarter results and segment highlights followed by our year-to-date results.

I will conclude by briefly discussing our full-year guidance.

For the quarter we reported net sales of $1.8 billion, 1% versus the third quarter of 2010.

Excluding the favorable impact of currency translation, organic net sales declined by 2%.

As planned, we reduced promotional spending in the third quarter compared to the first half, the volume impact of which has negatively impacted the sales performance of our US Soup, Sauces, and Beverages segment.

As Denise noted, we achieved good sales growth in our Baking and Snacking segment.

EBIT increased by 1% in the quarter to $307 million, primarily driven by lower marketing and selling expenses, lower administrative expenses, and favorable currency, partly offset by a decline in gross margin percentage and lower organic sales.

EPS was $0.57 in the quarter, up 6% as compared with adjusted EPS in the third quarter of 2010.

On chart 11 you will see the components of net sales as reported.

The detail of organic sales does not add to the total due to rounding.

Currency translation added 2 points of growth as the Australian dollar, Canadian dollar, and euro have all strengthened.

Our promotional spending was comparable to a year ago.

You may recall that this was a negative factor for sales in the first half, and with our efforts to raise promoted price points in the quarter it is no longer having a negative impact on our sales performance versus prior year.

Due to cost inflation and higher plant costs net of productivity improvements in the quarter, our gross margin percentage declined from 41.2% to 40.4%, a decrease of 80 basis points.

Marketing and selling expense declined from $252 million to $243 million this quarter, reflecting lower advertising and consumer promotion expenses and lower selling expenses benefiting from our cost savings initiatives, partly offset by an increase due to currency.

Advertising expense was higher for US Soup and flat for the total company.

As a result of lower incentive compensation cost, administrative expenses declined 5% to $148 million.

As I noted earlier, EBIT gained 1% in the quarter.

Below the line, interest expense fell by 11%, a decrease of $3 million as we have refinanced maturing long-term debt with significantly lower coupons.

The tax rate increased 1.4 points to 34.3%, reflecting taxes associated with a higher level of cash repatriations compared to prior year.

With lower interest costs offsetting the impact of a higher tax rate, net earnings, similar to EBIT, increased 1% in the quarter.

Average shares outstanding decreased 6% in the quarter due to the continued impact of our strategic share repurchase program.

As a result, the 1% increase in net earnings yielded a 6% increase in earnings per share.

In our segment results for the quarter US Soup, Sauces, and Beverages sales declined 8%, reflecting lower sales across the portfolio.

US Soup sales fell 7%.

Sales volumes were negatively impacted as we increased promoted price points to strengthen margins.

Sales, particularly of RTS soups, were also negatively impacted my movements in customer inventories.

Sales of both Prego and Pace were below year-ago levels.

Private-label distribution gains in the Mexican sauce category continued to have a negative impact on Pace sales.

US Beverage sales declined 9% compared to a very strong year-ago period in which, as Denise pointed out, sales grew by 13%.

Reduced advertising and increased competitive activity negatively impacted the business.

Sales of both V8 Vegetable Juice and V8 V-Fusion declined, while sales of V8 Splash increased.

Operating earnings declined 10% to $193 million this quarter from $214 million a year ago.

The decrease in operating earnings was primarily due to lower sales volume, cost inflation, and higher plant costs, partly offset by productivity improvements and lower selling and marketing expenses.

US Soup sales for the quarter declined by 7%.

Condensed soup sales were down 2%; the softness in eating varieties was partly offset by strength in cooking varieties which performed well through the recent holiday season.

Sales of ready-to-serve soups declined 15% while broth decreased 2%.

In Baking and Snacking, organic sales increased 5% reflecting gains in Pepperidge Farm and at Arnott's where we achieved significant volume growth.

In Pepperidge Farm sales increased due to gains in Goldfish snack crackers, Milano cookies, whole grain and swirl breads, and in frozen products which benefited from the launch of artisan stone baked rolls.

Sales of Arnott's increased due to gains in savory crackers led by Shapes, Cruskits, and Vita-Wheat, as well as growth in Tim Tams chocolate biscuits and in Tiny Teddy sweet varieties.

Earnings increased 8% due to the impact of currency and solid earnings growth at Pepperidge Farm.

Organic sales in our international Soup, Sauces, and Beverages segment increased 1% as sales growth in the Asia-Pacific region, primarily Australia, was partly offset by lower sales in Canada which were negatively impacted by higher promotional spending.

Operating earnings increased 11% in the quarter, primarily due to the impact of currency and gains in the Asia-Pacific region, partly offset by declines in Canada.

In our North America Foodservice segment, organic sales increased by 4% reflecting volume gains in refrigerated soup and the overall improvement in the US foodservice sector.

Earnings in the quarter increased $13 million driven by lower administrative and selling expenses, reflective of our cost reduction efforts, lower promotional spending, and productivity savings.

Looking at our first 9 months' result on slide 19, reported net sales were 1% lower.

Organic net sales were down 2% driven by promotional discounting primarily in the first half in our US Soups, Sauces and Beverages segment.

EBIT of $1.1 billion was down 5% versus a year ago, primarily due to a decline in gross margin percentage and lower organic sales, partly offset by lower marketing and selling expenses and the favorable impact of currency.

EPS declined by 1% to $2.11.

For perspective, it's important to note that we are lapping a very strong 9 months a year ago in which adjusted EPS increased by 13%.

For the first 9 months of the year our reported net sales declined 1%.

As you can see on chart 20, our increased promotional spending drove a 2-point decline in sales, accounting for the overall decline in organic sales as volume mix and pricing were comparable to a year ago.

The 2-point decline in organic sales was partly offset by a 1 point gain from currency translation as the US dollar has weakened.

Our gross margin percentage for the 9 months declined from 41.2% to 40.3% year to date.

The 90 basis point decrease was primarily due to cost inflation and higher plant costs and increased promotional spending, partly offset by productivity improvements and favorable mix.

While we have benefited from our procurement contracts and commodity hedges, we are beginning to see higher rates of inflation, particularly in grain-based commodities, packaging, and other ingredients.

We have taken pricing actions in our Baking and Snacking businesses, and we have announced a list price increase in US Soup effective June 17.

Marketing and selling expenses decreased from $837 million to $811 million, primarily due to lower selling expense.

We continue to benefit from our cost savings initiatives implemented at the beginning of the fiscal year.

Administrative expenses increased from $438 million in the first 9 months of 2010 to $442 million this year.

This increase was primarily due to the higher benefit costs including pensions and healthcare, also information systems related expenses, cost associated with our new headquarters facility, and an increase due to currency partly offset by lower compensation expense.

Below the operating line net interest expense increased 6%, or $5 million, to $85 million, driven by a higher percentage of long-term debt in the portfolio.

The tax rate at 31.3% was down 20 points as compared to the prior-year period.

For the first 9 months, net earnings declined 6% and benefited from a 4% reduction in diluted shares outstanding thus EPS declined 1% to $2.11.

In segment results for the first 9 months, US Soups, Sauces, and Beverages sales declined 5% reflecting a 5% decline in US Soup sales and lower sales of Sauces.

Within Soup condensed sales declined 3% reflecting weakness in our condensed eating varieties.

Sales of ready-to-serve soups declined by 10% and broth sales increased 1%.

Beverages sales were comparable to a year ago as increases in V8 Splash and V8 V-Fusion were offset by lower sales of V8 Vegetable Juice.

Sauce sales declined for the first 9 months, reflecting lower sales in Pace Mexican sauce and Prego pasta sauce as both had been negatively impacted by increased competitive activity.

Operating earnings declined 12% to $708 million.

The decrease in operating earnings was primarily due to increased promotional spending, cost inflation, and lower sales volume, partly offset by productivity savings.

Category performance in the United States during the latest 52 weeks, based on IRI panel data and Campbell internal estimates, is shown on slide 24.

The overall category declined in dollars by 3% in the past 52 weeks.

Our Soup sales in dollars declined 4.9% underperforming the category.

Heavy promotional activity did not generate the expected volume lifts.

All other branded players and private label were relatively flat, showing growth of 0.3% each.

While it's not shown on the chart, total volume in the Soup category was essentially steady with the prior year.

Campbell dollar share in wet soup for the past 52 weeks was 62.2%, down 120 basis points.

Similar to last quarter, the decline in our dollar share came from ready-to-serve soup.

Of our share decline, two-thirds went to other branded players, while one-third went to private label.

For the first 9 months of 2011 Baking and Snacking organic sales increased 4% as both Pepperidge Farm and Arnott's achieved volume gains.

Earnings increased 6% primarily due to the impact of currency and volume-driven growth at Pepperidge Farm partly offset by lower earnings at Arnott's in local currency.

We continue to be pleased with the results of our Baking and Snacking business, which has benefited from high levels of innovation and compelling advertising.

Organic sales in our international Soup, Sauces, and Beverages segment decreased 1%, primarily due to declines in Canada reflecting higher promotional spending, and in Latin America partly offset by gains in the Asia-Pacific region.

The sales increase in Asia-Pacific was primarily due to volume-driven gains in Australia.

Segment operating earnings increased 4%, primarily due to favorable currency and gains in Asia-Pacific.

Organic sales of North America Foodservice declined 1% while earnings increased 27%.

The increase in earnings was primarily driven by productivity improvements in excess of cost inflation and lower administrative and selling expenses.

Cash flow from operations of $858 million was comparable to the prior-year performance.

Within cash flow the impact of lower pension contributions in the current year was offset by higher working capital requirements.

Capital expenditures of $133 million were down from $177 million a year ago.

For the year we continue to forecast capital spending of approximately $275 million.

In the first 9 months we repurchased 20 million shares at a total cost of $696 million under our strategic share repurchase program authorized in June 2008 and our ongoing practice of buying back shares sufficient to offset those issued under incentive compensation plans.

Net debt was $2.7 billion, an increase of $249 million.

As you saw in our news release this morning, we project that we will be at the favorable end of our range of our full-year guidance for sales, EBIT, and EPS.

Our guidance for fiscal 2011 includes a change in sales of between plus 1% and minus 1%, adjusted EBIT to decline 3% to 5%, and EPS to decline between 1% and 3% from an adjusted base of $2.47 in 2010.

Thank you.

At this time we will conduct a Q&A session.

I would like to remind our callers that we prefer you limit yourself to one question and then stay on the line in case we need a clarification with you.

This way we hope to respond to more callers.

Mary, can you start the queue?

(Operator Instructions) Chris Growe, Stifel Nicolaus.

Good morning.

Just had a question for you, Denise, in relation to the Soup category.

With promotion -- you are pulling back on promotion in the category and your advertising was up, as you mentioned, in GRPs, and of course the volumes are still a little weak.

Is there still time for this advertising campaign to take effect?

And has the reduction in promotion gone as you expected or was there a little more negative volume response to that reduction in promotion?

Chris, we continue to be encouraged by the advertising and, of course, that is a longer-term build.

What we are experiencing at this point is the cycling of the heavy promotion discounting that we started this time or this quarter last year.

Okay.

And then could you just maybe also give a little color on the inventory adjustments in ready-to-serve?

Was that unique to this quarter or was it the comparison to the prior year or was it more about what happened within this quarter?

Typically in this quarter at the close of soup season the inventory has followed its normal pattern this year.

However, we are cycling the quarter last year where, when we launched our heavy promotion discounting, retailers actually increased their inventories to support that.

And so this quarter we are seeing consumption and shipments differences.

Okay, so are you at normal levels of inventory today or has that kind of worked through?

Yes, this year's pattern would have been more normal.

It was last year's pattern that was the aberration.

Correct.

Okay, great.

Thank you.

Next question, please.

Alexia Howard, Sanford Bernstein.

Good morning, everyone.

Can I just ask how your thinking has evolved about the weakness in the Soup category over the last couple of years?

I think about a year ago we were talking about price-based competition from other simple meals.

With your planned increase in list prices are you now thinking that the category has moved on, that the consumer has moved on from that?

Alexia, the soup category is being shopped differently than in former years.

We definitely have evidence that stock-up trips are down; however, soup continues to be one of the most pervasive food items in the consumer's basket.

We just saw a recent report from IRI which talked about the top categories that build store traffic and soup is definitely in those top categories.

We have also not seen a difference in the amount of inventory of soup in the consumer's pantry, but the way they are shopping it is differently and we are navigating that.

But we believe going forward the right thing to do here is to focus on brand building and increasing usage of the product, and that is what our marketing plans are designed to do going forward.

Great, thank you very much.

I will pass it on.

Next question, please.

Robert Moskow, Credit Suisse.

Thank you.

It might be a little early to ask this question, but I wanted to know about the strategic plans for growth internationally.

Some people I speak to were a little concerned that you might adopt a pretty aggressive acquisition strategy.

Can you talk a little bit about how you are viewing international and just kind of -- if you are making acquisitions is it more of a tack-on approach as opposed to needing to do something bigger?

Thanks.

Rob, we are looking at all of the key trends, as I had mentioned at CAGNY.

Obviously the growth in international is an important trend to be addressed in the food industry, and we hope to give more color on our plans going forward in July.

All right, so it is too early to ask.

Another long-term question.

You mentioned private-label growth in salsa, also private-label growth in soup.

Would you ever consider making an acquisition in the private-label space?

At this point we see ourselves as a branded company and have no plans to expand private-label.

That said, in the few instances we already are making private-label for some of our customers.

Okay, thank you very much.

You are welcome.

Next question, please.

Terry Bivens, JPMorgan.

Good morning, everyone, and best of luck, Doug.

Thank you, Terry.

Denise, if you look at the data it seems to show every time you guys raise prices above General Mills your market share gap widens out with them.

So my question is this, have you received any indication that Mills is going to follow?

Have you received any indication from retailers at this point that maybe Mills is going to garner some more shelf space as we go into the fall?

Thank you.

Terry, we really don't comment on other manufacturer's pricing.

I can tell you, though, that we have been in the marketplace discussing our increase with retailers and they have been very supportive.

We intend to market these brands with increased advertising and more innovation, and so, therefore, we have to cover our cost of inflation.

Okay, thank you.

Next question, please.

Jason English, Goldman Sachs.

Good morning, folks.

Thanks for the question.

Let me circle back to, Denise, your last comment there about supporting the category with increased advertising.

I think you guys started talking about that fourth quarter coming into this year and, Denise, you mentioned that GRPs are up in Soup.

I am trying to square that with the decline in marketing, selling, and consumer promotion expense as a percentage of sales.

In the measured media data that we see it looks like -- it's not the most recent -- but through February measured media spend in the US for Campbell was down around 11%.

How do I square that?

And do you guys feel that you are at the right threshold level that this is sustainable, or do we need to see an increase to generate demand?

There is a couple things going on underneath those numbers.

First of all, our working advertising in the quarter for US Soup was up 11% and our GRPs were up double digits, and so we made a conscious effort to make sure, as we increase our price realization on soup, that we couple that with an increase in brand building which again is longer term.

And we are seeing encouraging signs from our advertising campaign, which emphasizes the positive benefits of soup which we think is very important right now.

We have been very conscious about working on our cost for indirect spending.

We, literally, this year have gone after our indirect spending in media and advertising costs with a vengeance and have realized a great deal of efficiency from that effort.

So you are seeing some of that reflected as well.

You are also seeing somewhat lower expenses on the consumer piece of advertising as we have had some sampling programs same time last year.

Right.

We have had lower advertising in the quarter on beverages.

However, year-to-date our beverage advertising is up 10% and it will be about even with last year by year-end.

Thank you, that is helpful.

And one follow-up if I may.

Craig, you mentioned in the comments about mix being a benefit for gross margin year-to-date and that surprised me given the soup trends, because I always deemed that to be one of the highest gross margin products in your portfolio.

Where is the mix benefit coming from?

I think probably within Soup we are seeing some mix benefit as condensed is outperforming ready-to-serve.

I think that is probably the primary piece of that.

Thanks, guys.

I will pass it on.

And we would like you to restrict yourself to one question per caller, if we could do that.

Moving along, Mary, our next question please.

Ed Aaron, RBC Capital.

Great, thanks.

Good morning, everybody.

I was just hoping you could maybe give us a little bit of a feel for the magnitude of the price increases that are coming and also whether you expect that promotional spending will decline as a percent of sales as those price increases are put through.

Well, we are not going to comment on the amount of price increase that we are taking.

The details have been announced to our customers, but suffice it to say that we expect that that will cover our cost inflation and so far that has gone very smoothly.

That is cost inflation net of productivity?

Yes, the formularies that we look for our productivity savings and price increase to cover our inflation.

Thanks, I will jump back in the queue.

All right, next question, please.

Akshay Jagdale, KeyBanc.

Good morning.

Thanks for taking the question.

Denise, I wanted to ask you about the use -- you mentioned usage of soup is down.

I wanted to know how confident you are about your findings about usage because you haven't really shared that much.

And then, if you just look at the performance of the soup category and your soup sales over the last year and your comments that you weren't happy with them, I wanted to know what about your findings about the soup category and your response to it has been subpar.

Just for clarification, all indications we have seen is that the pantry stock and the absolute levels of soup inventory in the consumer's home is about flat.

Where we have seen a change is the stock-up behavior, so the way they are shopping is fundamentally different and that has affected the pattern of our shipments.

So I wanted to make sure that was clarified.

We believe, though, that with the altered behavior of consumers not stocking up -- it's understandable because their household budgets have been challenged by increased fuel prices, etc.

-- that for us it's healthier and it's more important for us to focus on driving the usage of both the category and our brands with the dominant share so that we increase our business that way.

And that is going to require different marketing techniques such as more advertising and more brand-building activities, and more innovation.

So in terms of your response to these findings, what about your response has been below your satisfaction levels?

Because clearly soup category and your sales have not performed the way you would have liked.

Yes, I attribute that dissatisfaction to the fact that the first half we engaged in the intense promotional spending and did not see the lifts because of the consumer's shopping behavior.

Therefore, we are repurposing our efforts towards more brand building and I won't rest until that gains traction.

Perfect, I will pass it on.

Thanks.

Next question, please.

Jon Feeney, Janney Montgomery Scott.

Thank you very much, good morning.

I wanted to follow up specifically on the line of questioning that is about marketing and advertising.

If you look over just this quarter a trend has continued, I think, that has been in place for the past few years, sort of reduced, more efficient, however you want to look at it, marketing and selling expenses against a flattish top line.

Two parts to the question.

First, do you think the decline -- I mean I am talking over the past 3 or 4 years -- in relative marketing and selling costs has been a cause of the problems in the soup category, given your huge share and how you have to make it compete with the other categories?

And secondly, what metrics do you sort of look at when you say trade-off -- do you measure these things over the ROI on advertising in the course of a year or a longer-term timeframe when you consider the ROI on current marketing investments?

Thank you.

I will take the last part of this first.

We do measure ROI with a lot of discipline on our advertising and, quite frankly, there has been a lot of new avenues to advertise with the advent of the digital age.

We are very disciplined about measuring ROI and, quite frankly, have made some spending changes, even recently, to go out of lower ROI advertising vehicles and into our higher ROI vehicles.

So that is well underway.

I think we had two things that challenged our sales over the past couple years.

Number one is we spent more time and resources on renovation as opposed to innovation.

We are course correcting on that front.

We do believe that our sodium reduction efforts were important so that we can start to talk about the positive benefits of the category, but we now have sufficient scale out there that we can repurpose our resources to other types of innovation.

And we are doing so.

Then, finally, I think that the proportion of dollars we spent on promotion discounting was not in the right proportion to the amount of dollars we need to spend on advertising.

And so we are correcting that as well.

John, this is Doug Conant.

I can't help myself here.

I am really biting my lip; I am chomping to get in the action here.

Denise has made all the right points, but the way we -- we also view our spending in terms of total marketing, not just advertising and consumer.

And total marketing spending is very healthy.

As Denise indicated, we got out of balance by leaning too much into trade and discounting.

We are repurposing that money over time.

But our -- quite frankly, in terms of total marketing, our brands have never been more fully supported.

So the challenge for us is to get it balanced properly, that is what Denise and her team are in the midst of doing.

But the good news is they have resources to work with here and so I think this is a manageable proposition.

Not easy but manageable.

Okay, thank you.

That is very helpful.

You are welcome.

Next question, Mary.

Bryan Spillane, Bank of America.

Good morning.

Just I guess a follow-up on the discussion about the change in stock-up behavior.

Clearly understand that soup is a category where there has been a lot -- where it has been -- traditionally a lot of volume has been sold on promotion.

But I guess what we have heard from some of your peers and also from retailers is it's more general.

It's an issue that is affecting consumption in general, maybe not just specifically the soup category.

So I guess my question is twofold.

One, is soup more affected by this change in stock-up behavior than maybe some other categories?

And then second, as you are addressing that issue and I am sure talking to your customers is there something more broadly that you are discussing in terms of addressing that issue that is maybe beyond just specific to the soup category?

I believe that soup has been impacted by the changes in stocking behavior based on the fact that we are in over 85% of households with multiple cans in the pantry.

What we are talking to our customers about are some new innovations that will be shipping in the fourth quarter and beyond that we believe will bring news to the category and increase the usage.

But, Brian, I think your first point is exactly right.

The data would say that stock-up trips broadly are down, so they are impacting us and because we tend to be a stock-up item they are impacting us significantly.

But they are impacting lots of other categories and it's even reflected through in the results of different channels, the way the different channels react to stock-up behavior.

I was going to say, I guess what I would ask is just are we at a point where your customers believe that the change in stock-up behavior is still a cyclical thing?

It's a reaction to higher gas prices in the economy or is it a more fundamental shift that we can expect that to happen?

We don't know how permanent it is, but we have got to operate our business given the fact that that is the reality we are in right now.

We have got 64% of people living paycheck to paycheck and 1 out of 6 on some form of, assistance, and that is a large population.

So I believe that we need to continue to take that into consideration.

And then would it be correct for me, if I have heard this right, you feel like, for soup at least, you have inventories at home at correct levels?

Like there is this rebasing or destocking at home is probably happened, so if you shift the consumption then at least you ought to be able to grow with consumption?

We believe with the brand building we will.

Okay, that is great.

Thank you.

Thanks, Bryan, for the question.

Next one, Mary.

David Driscoll, Citi.

Thank you for taking the question.

Doug, just wanted to say thanks for all the insights over the year, they will be missed.

I love the chomping at the bit.

It has always been true for you and we appreciate it.

Thank you, David.

A couple of questions here.

Just some details and I know I am violating the rule, but what was the list price increase in soup -- RTS, condensed, and broth?

That is okay.

We won't answer that one, so that one doesn't count.

What is your next one?

All right.

Well, let's tick them off fast then.

The question was -- it kind of goes back to what both Doug and Denise these been commenting on.

Advertising and consumer promotion expenses in F10 were down 3%, in F9 they were down 2%.

For this year what is the number going to be?

Is it positive, negative, flat?

I don't think you said it on the call.

We are looking at how we can be helpful with that.

And we don't provide guidance for the year on spending but I think we can give you a directional perspective.

Down 4% in the quarter.

Go to the next question we will come back to you.

Give us one we can answer.

Great, great.

Well, hopefully this is the right one.

You have got a nice soup business in Australia.

That business used to be number 2; it's now the number 1 business there.

You know, what I struggle with is understanding why that business has performed so much different than the US soup business and perhaps there is another way for us on the outside to understand what has happened.

Can you contrast the two different markets and explain why Campbell's has done so well, on a relative basis, in Australian soup versus US soup?

Yes, as a matter of fact, I just came back from a trip to Australia and had the privilege of seeing that team's plans.

They are at a different stage of development in the market than we are in the United States.

But that said, I do think they have a great balance of advertising and innovation and they are out there at the right price value for the consumer.

They have just done a great job.

Is their advertising significantly higher on a percentage basis than in the United States?

No.

Not particularly, David.

Okay.

David, on marketing and selling we are down 4% for the quarter, 3% year to date.

Good, I appreciate that information.

Thank you, everyone.

Okay, next question, please.

Diane Geissler, Credit Agricole Securities.

Good morning.

I wanted to ask on the incentive comp, down pretty big in the third quarter.

I think if I remember the first quarter it was up a little bit.

Could you comment on your expectations for the full year?

I am really trying to think about what is the comp for next year if your plan works as you think it will, Denise, and you reinstate that plan, what would the comparison be with this year.

So, Diane, you are seeing an adjustment, a year-to-date adjustment in the quarter.

So it's distorting the quarter a little bit.

For the full year we would expect it to be about $0.04 favorable impact to this year, and if you connect it to your other question that will be $0.04 that we will have to cycle next year.

Okay, thank you.

You are welcome.

Next question, please.

Eric Katzman, Deutsche Bank.

Good morning, everybody.

Doug, best of luck again.

Thanks, Eric.

Denise, I have one question but it has 14 parts, is that okay?

That is very innovative, Eric.

Well, it's tough in the food industry to be innovative but we will try.

Okay.

I guess the question is just it sounds like, Denise, that you are trying to maybe have a little bit more effective co-promotion.

Smucker does a great job with their portfolio seemingly linking the brands.

I think, to your point, a lot of the brands across the Campbell's portfolio are well-known but it just seems that, for whatever reason, the Company hasn't been able to, let's say, link so effectively the Pepperidge Farm Goldfish with, I don't know, tomato soup or what have you.

So is that 1 kind of lever that you hope to pull?

And then I just have a quick follow up.

We have had some co-promotions with Pepperidge Farm around holiday, for example, where we actually do a great job in terms of getting a complete solution out to the consumer.

We have also had some co-promotions with Chunky, Chunky Soup for Pour Overs, with different retailers or other branded rice or pasta.

I do think we can do more of that, because when we have done it we have yielded really good results.

And so you can count on the fact that we will be doing more of that.

Okay.

And then I asked this question maybe last call, and as I have kind of dug a little deeper in terms of the industry it just seems to me that like this fixed cost absorption off of the tomato processing platform, if beverages and sauces are down -- and even soup is obviously down as well, at what point is it kind of a fixed cost absorption or a capacity utilization issue?

Because obviously tomatoes has to be one of your biggest raw materials and you have just effectively used that historically and converted what would be kind of waste into extremely high margin business.

So why shouldn't I worry about this more?

Eric, your point is right.

As volumes drop, and particularly as they drop across the whole portfolio in the primary North American manufacturing estate, it does put pressure on us.

The good news is that we have been doing an awful lot of work at the same time in improving productivity and improving our enabler program.

Some of which you are not seeing the full benefit of because it's offsetting the absorption pressure in the other direction.

We have talked some before about our soup common platform project, which is directed at simplification and later-stage differentiation.

That will ultimately take -- it will take manufacturing costs out of the plant.

It will actually take capital costs out of the plant over time and it will diminish the impact a little bit, but it won't make it go away.

As volumes go down, it does create an absorption issue.

All right, we will see you in July.

Thanks.

Next question, Mary.

Robert Dickerson, Consumer Edge.

Good morning, everyone.

Just two quick easy questions.

One I guess is just focused on the buyback.

Obviously, you continue to buy back shares in Q3, so for your full-year guidance is there buyback activity that is baked into your Q4 to get to your EPS for the year?

Robert, we don't normally give guidance on the buyback, but the reality is that we have got a program that runs out at the end of the fiscal year and there is a very little bit of authorization left.

So I will just leave you with those two facts.

Okay, cool.

I appreciate it.

I just asked again because I think I asked the same question at Q2 and it got the same answer.

And obviously it drove a significant part of Q3.

Then the other question is just, I think you stated before that your expectation for fiscal year 2012 cost inflation was 3%-plus on the ingredient side.

Does that still hold or has it gone up a little bit?

We just said that it was higher than this year we haven't given a (multiple speakers).

Yes, we haven't given any guidance for 2012 yet.

Okay, perfect.

All right, I will pass it on.

Thanks a lot.

Good try, though.

Next question, please.

Vincent Andrews, Morgan Stanley.

Thanks.

I just wanted to ask are you seeing any variation in soup performance, either across the different retail channels or maybe another way to think about it would be in different geographies?

Are there any sort of interesting variances there that might be helpful?

And then, Craig, if I could just ask you, if 31% for a tax rate for the fourth quarter sounds about right that would be great?

Well, I think that there is definitely multiple channel shopping going on and, as I said before, the stock-up trips are generally down across channels.

We are seeing increases in fill-in and we are seeing shopping increase in the first couple of weeks of a month based on when people get paid, but I haven't seen any differences, per se, across channels.

There has been some movement to -- although this has been like this for a while, to some of the discount channels.

On the tax question, I think you should assume that this year's rate will be pretty close to last year's rate.

So closer to the 29% from last year?

That was the full year idea.

The fourth quarter a little higher than 29%, probably closer to your 32%.

Okay, thanks very much.

I will pass it along.

Next question, please.

Robert Moskow, Credit Suisse.

Thanks for the follow-up.

I guess the follow-up to Eric Katzman's question is if volume declines are becoming more of an issue, Craig, and it sounds like they might be, does that necessitate the need for something to really spike volume in the short term?

Can you afford to keep kind of taking this, what I think is actually a more rational approach of raising price, and then hoping that volume stays stable?

Thanks.

I will take that one.

What we are doing here in our course correcting is we are going after profitable volume.

And so, therefore, the marketing programs we are putting out are designed to increase usage which will increase volume, but it will be profitable volume.

The way I think about it is that we do have an adjustment and you see us going through that adjustment.

And actually the cost dynamics are not so bad, as I said, because the efforts on cost savings have been more or less offsetting the absorption issue.

But make no mistake, the long-term goal is to get back into volume growth.

Absolutely.

And the good news is we are going to be lapping a period where we were more challenged there.

So you don't see the need -- you can keep to this rational strategy in the short term and it's not going to require some kind of a rebound in volume to make your numbers?

No.

Right.

Okay, thank you.

Next question, please.

Andrew Lazar, Barclays Capital.

Good morning.

Denise, I am just curious, going into the meeting in July obviously our expectations are very high just in terms of getting a lot more of the answers, if you will, going forward and a lot more of the specifics around earnings goals, margin targets, specific innovations, and things.

I guess I am just trying to get myself set around what sort of expectations are reasonable to have in terms of how many of the answers are we likely to hear about and sort of what level of specificity would be helpful.

Andrew, we have been working on our strategy for several months now.

It's pretty comprehensive and we intend to be pretty transparent about it.

We are very excited about the possibilities for this company and anxious to share as much of the specifics as we can at this point.

Okay.

And then as you shift, as you said, more going forward from renovation to innovation I guess do you feel -- as you have gone through that work over the last couple of months how shackled does the organization feel, or not, maybe by the current plant configuration?

How unbelievably efficient you are in the manufacturing of soup and the way you do it.

Are there things there that are just maybe too onerous to ultimately shift a little bit if you need to change the direction of where you need to go for the consumer in soup?

Actually, our organization has really rallied and is pretty energized by some of the things that are coming along.

Every business is going to need a certain amount of renovation to bring news to the base so there is still some intensity there, but I think that I have seen people with a spring in their step around here as we reignite our creativity.

Thank you.

Okay.

So with that we are going to end our Q&A session; our hour is upon us.

Thank you, everyone, for your participation on our third-quarter earnings webcast.

As a reminder, the replay will be available beginning in approximately 2 hours.

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

His number is 856-968-4390 and investors and analysts should call me, Jennifer Driscoll, at 856-342-6081.

This concludes today's program and you may now disconnect.