金寶湯 (CPB) 2011 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the Campbell Soup's fourth-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 Jennifer Driscoll, Vice President, Investor Relations. Please begin.

Thank you, Mary. Good morning everyone and welcome to the Campbell Soup Company's fourth-quarter earnings call and webcast.

With me here in New Jersey today are Denise Morrison, President and CEO; Craig Owens, Senior Vice President, Chief Financial Officer and Chief Administrative Officer; and Anthony DiSilvestro, Senior Vice President of Finance.

Today Denise will give an overview of our strategies and comment on our performance for the fourth quarter followed by a detailed discussion from Craig that also includes our expectations for fiscal 2012. Following a wrap-up from Denise, all of us will take questions from analysts and investors. As usual we've created slides to accompany our presentation. You'll find the slides posted on our website this morning at investor. campbellsoupcompany.com.

Please keep in mind that this call is open to members of the media who are participating in 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 four in our 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.

The results presented today have been adjusted for items impacting comparability including those that the Company announced in June comprised of a series of initiatives to improve supply-chain efficiency and to reduce overhead costs across the organization as well as the charges related to the decision to close the Company's Moscow office and exit the Russian market. As a result of these initiatives in the fourth quarter, we recorded pretax restructuring costs of $63 million or $41 million after-tax which equals about $0.12 per share.

Since our presentation includes non-GAAP measures as defined by SEC rules, we have provided a reconciliation of the measures to the most directly comparable GAAP measures as an appendix to the slides accompanying the presentation. These slides as well as our earnings release and selected quarterly financial data can be found on the website.

We've also made a change in our reportable segments. You can see it on slide six.

Consistent with our strategy and recent management changes effective this quarter, we are reporting the businesses that formally constituted the US Soup, Sauces and Beverages segment as two separate reporting segments.

The first is US Simple Meals which includes our US Soup and Sauce portfolio and the second is US Beverages. We also now have geographic designations on all of our segments. So Baking and Snacking becomes Global Baking and Snacking with no change to the elements that comprise it.

International Soup, Sauces and Beverages becomes International Simple Meals and Beverages to match our US naming convention. And North America Foodservice doesn't change a name, yet beginning with the fourth quarter of 2011, costs associated with restructuring activities are not included in segments results and this change affected Foodservice comparisons for the fiscal year.

All of our segment results from prior periods have been modified to conform to the current presentation. Further information on historical beverages performances by quarter will be disclosed along with our first-quarter earnings in November 22. We'll give you first through third quarters at that time. And with that, I'll turn it over to Denise Morrison.

Good morning everyone. Thank you for joining us for Campbell's fourth-quarter earnings conference call for fiscal 2011.

This is my first call as Campbell's CEO and it's an honor and a privilege for me to represent Campbell's here today. I look forward to having an ongoing candid dialogue with all of you about our Company, our performance and our progress on the growth strategies we outlined in July at our analyst day.

In fiscal 2011 after a very weak first half, our focus was on improving our bottom-line performance in the back half while developing a strategic framework for Campbell's future growth. I'll share my observations on our performance in a moment.

As I stated at our analyst day in July, our primary goal is to create value by driving sustainable profitable net sales growth. To achieve that goal, we are pursuing three growth strategies.

First, we will stabilize, then profitably grow North America Soup and Simple Meals. Second, we will invest to expand our international presence; and third, we will continue to drive growth in healthy beverages and baked snacks.

We are confident in and committed to these new growth strategies. We are heartened by the constructive feedback we received from many of you regarding our plans. Yet we also recognize as you do that the key to success is our ability to execute these strategies.

We entered fiscal 2012 energized with a renewed focus on the consumer. While the economies in our primary markets have generally improved since the lows of the economic crisis, many consumers remain cautious.

The recovery has not progressed at the pace or intensity consumers had hoped for. As a result, consumers remain careful about their purchases and feel the need for resourcefulness and vigilance.

In this environment, it is critical for us to deliver meaningful innovation focused on consumer needs and to differentiate our brands trough effective marketing that emphasizes our products' tangible benefits and value relative to the competition. Turning to our results, I said earlier that one area of focus for the past few months was on improving our financial performance in the back half.

After an improvement in the third quarter, this morning we reported that adjusted EBIT increased 24% in the fourth quarter to $232 million. On a per-share basis, adjusted net earnings grew 30% to $0.43 per share in the current quarter.

Global Baking and Snacking which has been strong all year led the way in the fourth quarter. This business which is an area targeted for accelerated growth in our strategy posted a strong quarterly gain in sales and operating earnings.

We have a solid track record of innovation in Arnott's and Pepperidge Farm. We intend to accelerate innovation with our investment in the new Pepperidge Farm Innovation Center which we will break ground on later this month.

Turning to US Simple Meals, as you recall in the first half of fiscal 2011, our Simple Meals performance suffered as increases in promotional spending behind US Soup did not deliver the expected volume lifts. Midyear we changed our marketing strategy and pulled back on heavy promotions.

As a result, we began to improve the profitability of the Simple Meals business in the third quarter. Subsequently, we took a list price increase in US Soup due to inflationary pressures. In the fourth quarter we continued to see further profit improvement in our Simple Meals business despite anticipated volume declines.

Emphasis on brand building combined with more consistent innovation is the right approach to stabilize and then profitably grow our Simple Meals business. To that end, customer reception to our new products in Simple Meals -- Slow Kettle soups, Swanson Flavor Boost and new Prego and Wolfgang Puck sauces -- is positive and the sell-in is progressing as planned. We also have begun the important longer-term process of reinvigorating our Simple Meals innovation pipeline.

As we told you, we intend to rebalance our consumer marketing support in US Soup and are on track to stabilize and profitably grow the broader Simple Meals business over the long term. Soup volumes and consumption were softer this quarter as we expected because price realization is coming through.

We have two more quarters ahead where we will be cycling the heavy discounting activity. While we expect further volume declines, we will be competitive. And we believe elasticity will normalize over time.

As you have seen in our news release this morning, we have broken out our US Beverages results. This new reporting segment is aligned with our strategic framework and increased emphasis on accelerating growth in beverages. It also provides a greater degree of granularity on our performance.

US Beverage sales declined slightly against very strong prior-year performance while operating earnings declined amid significant cost inflation and discounting in a highly competitive environment. Craig will comment further on our new beverages segment.

In July, we provided updated guidance for the year. We finished the year slightly better than that.

However, we are by no means satisfied with where we are. Changing our growth trajectory will take time as we fully implement the strategies we laid out for you in July.

Now I'd like to turn the call over to Craig for his analysis of our financial results and an elaboration of our expectations for fiscal 2012. Craig?

Thanks, Denise, good morning. I will spend the next few minutes stepping through our fourth-quarter results and segment highlights followed by a recap of our fiscal year results. I will conclude with a brief discussion of our fiscal 2012 guidance.

For the quarter we reported net sales of $1.6 billion, a 6% increase versus the prior year. Organic net sales increased by 1%.

Excluding items impacting comparability, EBIT increased 24% in the quarter to $232 million. Earnings per share was $0.43 this quarter, up 30% compared with EPS in the fourth quarter of 2010. The net sales increase of 6% reflected a 5 point increase due to the currency translation as the Australian dollar, Canadian dollar and euro have all strengthened.

Excluding the favorable impact of currency, organic net sales increased by 1%. Pricing added 2 points, reduced promotional spending added 1 point and volume and mix subtracted 2 points. The price increase is primarily in our Pepperidge Farm and Arnott's businesses in reaction to significant inflation in grain-based commodities.

The variance in promotional spending reflects our strategy to reduce promotional spending in US Soup in the back half of the year and as expected, this has had a negative impact on volume. Our gross margin declined by 60 basis points from 40.4% to 39.8%. This decline was primarily due to cost inflation, the rate of which increased in the quarter partly offset by productivity improvements, higher selling prices and reduced promotional spending.

In the fourth quarter, marketing and selling expenses decreased by 11% to $196 million compared to $221 million in the prior year primarily due to lower out of season advertising spending in US Soup, reductions in Australia to reallocate more spending to trade in a very competitive retailer environment and lower spending in Russia given our decision to exit that market. Administrative expenses increased $3 million to $170 million this quarter driven by the impact of currency.

Below the line, interest expense was comparable to the prior year. The tax rate increased 2.7 points to 32.5% reflecting taxes associated with a higher level of cash repatriations compared to the prior year. Due to the impact of our ongoing share repurchase program, diluted shares outstanding declined 5% in the quarter contributing to earnings per share growth of 30%.

In our segment results for the quarter, organic sales within the Global Baking and Snacking segment increased 7% as both Pepperidge Farm and Arnott's benefited from higher selling prices and strong volume gains. In Pepperidge Farm, sales increased primarily due to gains in Goldfish snack crackers while sales at Arnott's rose due to gains in savory crackers led by Shapes and the growth in Tim Tam Chocolate Biscuits.

US Simple Meal sales declined 8% reflecting lower sales for both US Soup and US Sauce. US Soup sales fell 9% in the quarter.

Soup volume performance was weak impacted by our strategy in the second half to reduce promotional spending, our list price action to help offset inflation and also unfavorable movements and customer inventories compared to the year ago quarter. Sales of both Prego and Pace declined for the quarter.

The decrease in Prego sales reflects continued competitive merchandising and new items in the Italian sauce category. The decline of Pace sales reflects share losses to private label.

Within the International Simple Meals and Beverages segment, organic sales were comparable to prior year. Gains in Europe and Canada were offset by declines in the Asia Pacific region and in Latin America.

US Beverage sales declined 1% versus prior year, lapping strong growth of 12% in the prior year quarter. Sales of V8 Vegetable Juice declined increased competitive activity while sales of V8 V-Fusion and V8 Splash both increased.

The launch of new items including V8 V-Fusion, V8 V-Fusion plus tea, new flavor varieties and the 8 ounce slim cans contributed to V8 V-Fusion sales gains. Organic sales of North American Foodservice increased by 8% primarily due to decreased promotional spending.

Operating earnings in the US Simple Meals segment increased 4% to $101 million this quarter. The increase in operating earnings was primarily due to lower marketing and selling expenses and an increase in gross margin percentage reflecting our price realization efforts.

Earnings within Global Baking and Snacking increased 26% due to growth at Arnott's and the favorable impact of currency partly offset by a decline in Pepperidge Farm. The marked to market impact of open commodity hedges had a negative impact on Pepperidge Farm earnings in the quarter.

Operating earnings for US beverages declined 29% versus very strong results a year ago. The decline was due to significant cost inflation and increased promotional spending partly offset by productivity improvements. We experienced significant inflation in fruit and vegetable concentrates as well as packaging materials.

This quarter we saw strong earnings growth within our International Simple Meals and Beverages segment and in North American Foodservice. In the International Simple Meals and Beverages segment operating earnings increased by 300% primarily due to gains in Canada, reduced spending in Russia and the favorable impact of currency. Operating earnings within North American Foodservice increased by $13 million primarily driven by reduced promotional spending and productivity improvements.

US soup sales for the quarter declined 9%. Within Soup, condensed sales decreased 10% with declines in both eating and cooking varieties. Ready to serve was down 5% reflecting declines in Select Harvest canned soups and in microwavable varieties.

Broth sales fell 11%. Soup sales especially condensed varieties were negatively impacted by unfavorable movements in customer inventory levels. As I mentioned earlier, our reduced trade spending and list price actions are also pressuring volumes.

For the full year now, reported net sales increased 1%, organic net sales were down 1%. On a segment basis, the organic sales decline is primarily due to the decline in US Simple Meals partly offset by growth in Global Baking and Snacking.

Excluding items impacting comparability in both periods, EBIT at $1.3 billion was down 1% versus a year ago. This decrease was primarily due to the decline in gross margin percentage and lower sales volume partly offset by lower marketing expenses and favorable currency. Earnings per share for the year increased 3% to $2.54 benefiting from fewer outstanding shares.

For the fiscal year, our reported net sales increased 1% and included a gain from currency translation of 2 points. Excluding the impact of currency, organic sales were down by 1%.

As you can see on chart 27, the negative impact of our increased promotional spending and our decrease in sales volume was only partly offset by higher selling prices. For the full year our gross margin percentage declined from 41% to 40.2%, an 80 basis point reduction that was primarily due to cost inflation of approximately 2% and higher plant costs and increased promotional spending partly offset by productivity improvements and higher selling prices.

Marketing and selling expenses decreased, reflecting lower advertising and lower selling expenses partly offset by the impact of currency. Administrative expense increased $7 million primarily due to the impact of currency. Excluding the currency impact, higher pension and benefit costs and costs associated with the new headquarters facility were offset by cost savings and lower incentive compensation costs.

Below the operating line, net interest expense increased 5% to $111 million for the year reflecting a higher percentage of long-term debt in the portfolio and a slightly higher average net debt balance. The tax rate at 31.5% was comparable to the year ago rate.

For the fiscal year, net earnings declined 2% and benefiting from a 4% reduction in diluted shares outstanding, EPS increased 3% to $2.54 versus $2.47 per share in 2010. Segment results for the full year, the most significant movements were in US Simple Meals and Global Baking and Snacking.

US Simple Meals sales declined 6%, reflecting a 6% decrease on US Soup sales as well as lower sales of Prego pasta sauce and Pace Mexican sauce both of which had been negatively impacted by increased competitive at activity. Sales for Global Baking and Snacking increased 4% versus prior year as both Pepperidge Farm and Arnott's achieved volume gains and also benefited from higher selling prices.

In US Simple Meals, operating earnings declined 11% to $657 million. The decrease in operating earnings was primarily due to lower sales and a reduced gross margin percentage partly offset by lower marketing and selling expenses. Global Baking and Snacking operating earnings increased by 10% primarily due to the impact of currency and volume driven gains at both Pepperidge Farm and Arnott's.

Within the International Simple Meals and Beverages segment, operating earnings increased by 15% primarily driven by growth in the Asia-Pacific region, the impact of currency and the benefit of reduced investment spending in Russia. Operating earnings of US Beverages declined 12% due to the increased promotional spending.

North American ood service operating earnings increased 49% driven by reduced promotional spending, productivity improvements in excess of inflation and lower administrative expenses. US Soup sales for the fiscal year fell by 6%. Within Soup, condensed sales declined 4%, ready to serve soup decreased 9% and broth sales decreased 1%.

Category performance in the United States during the last 52 weeks based on IRR panel data and Campbell internal estimates is shown on slide 33. The overall US wet soup category declined in dollars by 1.6% in the last 52 weeks.

Our soup sales in dollars declined 4.2%, underperforming the category. Our soup sales performance this year reflected our heavy promotions in the first half which did not generate the expected lifts, followed by a rebalancing of the marketing mix and a list price increase in the back half.

All other branded players saw an increase in US soup sales of 3.4% this year while private-label soup sales grew by 2.6%. While it's not shown on the chart, total volume in the soup category was essentially steady with prior year.

Campbell's dollar share at wet soup for the past 52 weeks was 61.8%, down 170 basis points. Our market share for condensed soup and broth was essentially unchanged.

As has been the trend, the decline in our soup dollar share came from ready to serve soup. Of our share decline, two-thirds was picked up by other branded players while one-third moved to private-label, reflecting the relative size of these players in the market.

Higher price realization in the second half contributed to our market share losses. But as Denise said, this move in conjunction with our efforts and innovation in brand building is an important part of the transition to a more profitable growth in our US Soup and Simple Meal business.

Cash flow from operations increased by $85 million to $1.1 billion. Cash flow benefited from lower pension contributions and higher cash earnings. Working capital requirements were also higher.

Capital expenditures of $272 million were down from $315 million a year ago. Looking ahead we forecast capital spending in fiscal 2012 of approximately $325 million.

For the year we repurchased 21 million shares at a cost of $728 million. We completed our strategic share repurchase program announced in June 2008, authorizing repurchases of $1.2 billion over the three-year period.

In June 2011 we announced that the Board of Directors authorized a new share repurchase program with no expiration date to purchase up to $1 billion of our outstanding shares. Net debt was $2.6 billion, an increase of $74 million.

With respect to 2012 guidance, there's no change to our fiscal 2012 expectations on an absolute dollar basis. However given that we finished fiscal 2011 slightly ahead of the guidance we provided in July, we've adjusted our 2012 growth rates to reflect this and to maintain our commitment to support brand building and innovation in 2012.

In fiscal 2012 we expect net sales growth to be between 0 and 2% with the assumption that currency will not have a significant impact. We expect a decline in adjusted EBIT of between 9 and 7% negative which includes an incremental investment of $100 million in innovation and brand building, input cost inflation of between 8% and 10%, a $60 million benefit from our recent restructuring program, and a negative impact related to restoring incentive compensation to targeted levels.

Finally, we expect a decline in adjusted earnings per share of between 7% and 5% with interest expense comparable to the prior year and a tax rate in the 32% to 33% range. Thank you. With that, Denise will now conclude our presentation.

Thanks, Craig. Before taking your questions, I want to make some closing remarks. We improved our EBIT performance in the back half and began to make the transition in US Soup towards a rebalanced marketing mix.

We continue to believe that improved innovation and brand building is the right thing to do for all of our businesses. We are confident in our strategies and plans.

It's early and we are just beginning to implement these plans. But the Company is energized by the new course we have charted.

We also recognize that changing our growth trajectory will take time and solid execution. Fiscal 2012 will be a transition year as we work to create a different company at Campbell. Our primary goal is to create value by driving sustainable, profitable net sales growth and that is our focus going forward.

With that, we will open up the call to your questions.

(Operator Instructions) Terry Bivens, JPMorgan.

This is Jessica Schmidt on for Terry. So we understand there's not been a significant change to the overall soup category shelf space at Wal-Mart. And our question is, have you either gained or lost any portion of that shelf space at Wal-Mart or any other retailers? Thank you.

We don't really comment on particular situations with retailers. So we --

I think we would say overall that our shelf space is about flat versus prior year in the total grocery and discount channel.

Right.

Okay, thank you. I'll pass it on.

Next question please.

Chris Growe, Stifel Nicolaus.

I just wanted to ask you in relation to the guidance for next year just on the percentage rate being down a little more -- it was a percentage point less than we thought, what is that driven by? Are you trying to do more in the form of marketing or --? I heard you say about a $100 million increase in marketing. I thought that was pretty consistent with what you said before. So what is it that led the growth rate down a little bit more for next year?

Chris, the only thing that changed is the base year. The base year was a little bit higher.

Part of that overdelivery was a little bit lower spend on marketing and we are just hanging on to the absolute guidance if you will. I know we gave it in percentages, but if you look at the absolute numbers, we would come back to what we said in July.

We just said we thought it was really important to maintain the integrity of that spending plan as we make 2012 a year of investment.

Okay, and then I just wanted to ask about in ready to serve soup -- for example you had a new product launch with Slow Kettle. Is a lot of that baked into -- is a lot of that the shipments in this quarter?

No, no, most of the shipments will happen in the first quarter. It just started shipping.

Gotcha. Thank you for the time.

Okay (multiple speakers) next question.

Andrew Lazar, Barclays Capital.

I think in your recent meeting in Camden, you had talked about being able to hope to hold gross margins roughly flat year over year given some of the incremental pricing to help with the productivity for the inflation rate. Is that still generally what you are thinking about?

Yes.

Okay, and then just on the way we should think about earnings, sort of the trajectory if you will through the year, obviously the EPS sort of results last year in your fiscal first half were lower year over year, so those comps a bit easier, but I know they will be ramping up spending I would assume in the first half as well. I'm just trying to get a sense of how some of these things play out and if there's any dramatic difference in the way earnings flow throughout the year even if it's just directional.

We don't give quarterly guidance and we intend to start spending against the $100 million investment starting in quarter one, but the pacing will of course vary by business. You know, that said, we're not expecting the first half to be easy.

We've had a list price increase and competitors have delayed, following suit. So we expect that competitive pressures will continue. So we have to watch this very carefully.

Next question please.

Judy Hong, Goldman Sachs.

Denise, just on the competitive environment heading into the soup season, you've talked about the competitors slow to reacting to pricing actions. But just in terms of some of the promotional activity that you are expecting from your competitors in the soup season going forward and then how that could potentially affect some of the merchandise and support that you could be getting as it relates to some of your innovation and new product launches.

We have not seen our branded competition move up base price in the marketplace and we believe that with the latest round of pricing, we have the opportunity to offer the best price value across the category while still covering our inflation and our marketing investments.

So we -- and our intention is to be competitive. I don't know if you have anything to add to that, Craig?

No, I think -- I don't want to get into the business of trying to project what the competitor is going to do. As Denise says, we are going to be competitive. We're going to manage our way through the year.

But directionally and strategically what we've done in the second half is the way that we're going to approach the business coming into 2012 which is with more emphasis on brand building and less emphasis on trade discount.

Yes, I think it's important to recognize that even though we're pulling back a little bit on trade, we are still spending a significant amount of funds on both promotional spending as well as advertising.

Absolutely, but we're providing a whole new level of discipline to that spending.

Okay, and then, Craig, is there a way to quantify in the fourth quarter how much the Russian closure lowered your marketing and selling expenses?

Russia was worth about a penny in terms of savings from the closure and reduction in marketing spend.

(multiple speakers) next question please.

David Palmer, UBS.

Just a question on that competitive pricing and price gaps. I'm sure you look at the effective price gaps for soup categories in detail and not just versus private label for the condensed category, but maybe even versus ready to serve soup which has become more promotional and maybe effectively their prices have been coming down to condensed.

Do you feel comfortable with the price gaps where they are today? Do you think that that is a problem for condensed or is that more or less where you think is a sustainable gap?

Actually, with the price discounting we did last year on ready to serve soup, David, we actually saw a compression in the retail prices of ready to serve and condensed. So we believe that by focusing on the pricing and promotion strategy we have going forward with the discipline we are exercising, the consumer will continue to see a good array of value from Campbell's with condensed and ready to serve soup.

And effectively you think that that price gap will widen a little bit this year with some of the pricing actions that are being taken? Is that the thought?

It's early to tell. The price realization is just coming through on shelf, so we'll see where that ends up.

And you think -- basically you think that the price gap -- if there's any sort of price gap widening, that might be helpful, might be that those two categories versus some sort of private label problem for condensed?

I think there will be consumers that will continue to shop the category for price and then there will be consumers that continue to shop the category for the benefits offered for the price paid. And we intend through our marketing to communicate our value proposition to the consumer in a much bigger way. We believe that is a healthier way to drive the usage of our brands.

Next question please.

Ed Aaron, RBC Capital Markets.

Thanks for taking the question. I actually wanted to ask about the snack business. You had a pretty good quarter there and that business has a fair amount of Australia exposure.

We've heard some pretty awful things recently about that market in particular. I was just hoping you could maybe give us a little bit of a context around what you're seeing over there.

The Australian market from an economic standpoint is starting to become more under pressure. However, we believe that with the size of the business we have over there in the categories we play, and the customer relationships that we have will continue to be responsive and continue the momentum we have built in that marketplace. We are very bullish on Australia.

Thank you. And then one follow-up if I could on the US Soup side. You had an inventory drawdown at the retail level this quarter which I think is kind of the second fourth quarter in a row where you've talked about that.

As we think about the kind of the first and second quarters of the year, should we expect an addback there? In other words should your shipment growth exceed your consumption growth in the first quarter for example just to replenish what you didn't get in the fourth quarter?

It's actually a bit hard to predict because the heavy discounting was so severe last year that inventory didn't necessarily fall where consumption occurred. So you know we are watching that relationship very closely as we go into the season. But suffice it to say that it was really the discounting we did last year that made the inventory situation course correct in the fourth quarter for us this year.

Just to add to that point, because of the fourth quarter is a small quarter for soup, a small change in inventory does have a meaningful impact on fourth-quarter volumes. But when you look at the first and second quarters, it won't be material.

Next question please?

Akshay Jagdale, KeyBanc.

This is Adam Josephson in for Akshay. At your analyst day, Sean mentioned three factors that have negatively affected your soup business -- fewer stock-up trips for heavy users, sodium reductions and an overemphasis on promotions.

Obviously the latter two factors are within your control and you stated your intention to add back sodium to your soups and to focus more on branding. But if stock-up trips remain low or even decline from where they are today given the state of the economy, how would that affect your ability to return to growth in your soup business?

I think that the fact that stock-up trips are down are not an excuse. They're just a different dynamic we have to deal with.

And the way we promote the product, the fact that we are funneling more investment into advertising of the product to generate usage will work more with the consumer's pattern for buying. We believe that's the way to proceed at this point.

Okay, and just one other one. Sean also pointed out that over the past few decades, the number of items in grocery stores has skyrocketed and the number of options available to consumers for lunch and dinner is much higher than it ever has been.

How does that situation change the way you approach marketing soup to the extent it does so at all? In other words, do you market it differently than you did five, 10 years ago? And if so, how?

We are still in the throes of developing our advertising campaign for next year. But I do believe that everything we do now will be in the lens of a broader competitive set within Simple Meals and recognizing that the consumer does make those choices and we want to compel them to choose Campbell's.

Terrific, thank you.

You're welcome, Adam. Next question please, Mary.

David Driscoll, Citi.

So two questions but they're just related to one another. It's on the quarter and then on fiscal 2012 guidance.

So on July 13, it seems that you had the guidance for -- sorry, you've exceeded the guidance by about $0.05 and that's all from the fourth quarter beat from lower marketing investments. When you say that marketing is going to be up $100 million in fiscal 12, that is then on a slightly lower base than what you were talking about on July 13.

So the first question is do I have this right? And then I think that translates into on just an EPS basis when I plug my numbers in, the percentages you've given, guidance for 2012 is about $0.02 better on both ends than it was on analyst day. Is that -- Craig, do I have these numbers rights?

Well, yes, first of all, David, the $100 million number that you have is not all going to appear in the selling and marketing line. We talked about $100 million as incremental investment in innovation and in marketing.

So some of it yes will appear in marketing. Some of it will appear in R&D and some of it will actually appear in other SG&A lines to support the infrastructure that we have put in against innovation.

I think the best way to think about the guidance change is really that we overdelivered the quarter. Part of that was because we had lower marketing spend, but we also delivered at the gross margin line a little bit more strongly in a couple of the divisions.

And as Denise said earlier, we've just made sure that we have taken the approach that for 2012 we're going to hold the plan that we had in place which implies a little bit lower lift at EBIT and EPS on a percentage basis, but it's the same plan.

Okay, but sometimes the percentages get confusing. The EPS numbers by my calculation are up two pennies on the low end and high end for the 2012 numbers.

And I suppose if that absolute calculation is correct I just -- since analyst day basically the economic situation in the US has worsened and it just is -- it's interesting -- maybe these are just slightly minor numbers in the margin. I mean if that's the answer, that's fine. I'm just curious that at this early juncture in the year, you'd even make any changes to the absolute EPS guidance.

Yeah, I would have one penny instead of two, but I think we're slicing it pretty thin here for a forecast for the full year when we're talking about the difference in a penny. And again the approach was not so much to agonize over the penny as to just say we're going to hold our plan for 2012 and how does that work out in terms of percentages.

That makes sense, I appreciate the comments, thank you.

You are welcome, David, next question please.

Robert Moskow, Credit Suisse.

Just a question about the transition away from trade spending. You said you're walking away from some unprofitable spending you did in the first half of 2011.

One of your competitors has actually made a lot of progress on their margins by reducing trade spending. And I'm just wondering in your guidance here, you're guiding margins down about 200 basis points despite shifting away from these unprofitable programs.

I'm just wondering if you could help me understand how that is. Maybe it's just inflation or being put in another bucket. And maybe a follow-up, thanks.

We do have as we talked about in July, Rob, a pretty significant inflationary pressure in the numbers and in the assumption for next year. Of course we haven't given guidance on the gross margin line per se.

So I think we also talked about in operating expenses that we've got a headwind related to the incentive pay that we hope to get back to pay out at targeted levels. So I think there's some combination of maybe inflation above gross profit and SG&A pressure related to benefit cost and incentive cost below the gross profit line.

I guess another way of asking it, Craig, is if those programs were really unprofitable programs, would eliminating them provide any kind of a benefit in your margin outlook or you don't think of it that way?

That would -- this is Anthony. That would certainly be true for US Soup, but you are talking about a fraction of the entire portfolio. And as Craig mentioned earlier, we do expect gross margins to be about flat in 2012, but it's not flat for each of the businesses underneath that.

Okay, and then just a quick follow-up. You're switching to a brokerage sales model in some of your channels. Can you give a little more specifics about where you're making those switches and maybe, Denise, you tell us how that is going so far?

Yes, yes, we have shifted our retail coverage to a broker sales model. And in doing so, first of all, we already had a large -- well a fairly large portion of our business in the broker sales model. So this is not a new relationship.

And what we did was added on the retail store coverage because what we found in our evaluation of our own direct retail force versus the broker is that they have made significant advances in technology and the ability to cover many more stores at a lower cost with quality. And so we thought that this was a good time for us to advance that relationship and we're very excited about the early days.

Alright, well, thank you.

You're welcome, next question please.

Bryan Spillane, Bank of America Merrill Lynch.

Just a couple of follow-up questions. Just the guidance, Craig, I guess in terms of -- just to be clear, does not include any effect of foreign exchange yet on either the top line or the EPS line? Is that right?

That is correct.

Okay and that is because you're just not going to forecast it at this point at least for us or because there's some EPS or there is some FX benefit in the base year and (multiple speakers) trying to understand that.

Yes, I need to get in the business of forecasting foreign exchange for obvious reasons. The planning assumption is that it should be approximately neutral to the current year.

Okay, and just looking at the way it helped last year, it might help the first half but be a drag in the second half I guess is the way that I am looking at it.

Yes, that is a reasonable assumption.

And then just on the trade inventories, you know to the extent that they were a little bit of a drag in the fourth quarter, is it normal now? Is there anything unusual that we should be thinking about in terms of trade inventories in the first quarter or the first half?

The unusual activity is all in the prior year. That's true for this fourth quarter. It would be to to a certain extent true as we cycle the first half of next year.

But I think Anthony made a good point earlier. The impact as a percentage of total sales is much more significant in the fourth quarter than it is in the heavier sales seasons in the first and second quarter.

In particular on US Soup, quarter four is the smallest quarter of the year.

Okay, and then finally, I guess, Denise, just at this point, is it fair to say that you have sold in -- and this is probably more specific to your soup and sauces business -- but just you have got a new plan in terms of how you are approaching promotions and how you are approaching stimulating the consumer and you basically -- you've sold those pricing plans with some volume expectation attached to them into the trade. And so it's not so much going to be a matter -- we won't be surprised by what -- how the trade reacts to it. Now it's really just a matter of how the consumer reacts to it. Is that right?

That is correct. The sell-in of this new plan has gone well. And again we continue to be competitive in the marketplace but the consumer will ultimately be the decision-maker in the first half.

And just when will we start to see more of the advertising or the mark -- I guess the pull begin to show up in the marketplace? I'm assuming it will be like now. Is that right?

Yes, the marketing actually will start a little bit later in the season to hit the high peak volume part of the season.

One of the reasons that you saw our marketing spend down so far in the fourth quarter is that we were cycling some fairly heavy out of season advertising last year and our analysis would say that just did not have very good payback. So while we're lifting marketing spend for 2012, we're also concentrating it more to the season.

So as we are watching -- as we are trying to make -- just kind of monitor progress and again I know it's very early, early on in the season, you know you're going to have the effect of higher price but not all of the marketing -- the full effect of the marketing pull on the market yet. So it might look worse before it gets better. Is that the right way to think about it?

I think it will build steam as the half unfolds.

Okay, alright, perfect.

Next question please?

(Operator Instructions) Robert Dickerson, Consumer Edge.

First question is just -- it's more strategic. I know you went over a lot of your international growth plans at your analyst day in July. But just in general was curious, we could see in the fourth quarter that sales or overall sales from your new global snacking business is obviously a higher percentage of your total Company sales.

If we just think that that category over the next five years should continue to outpace what we're seeing in soup and the second pillar of your three category -- or your three-tier growth processes, international growth, could it be fair to assume that over the longer term that growth internationally may assume some non-organic growth in global snacking? Would you potentially look to enter new markets to find that growth that we've seen in a number of other snacking businesses?

We have applied a lot of rigor to the international expansion plan. And as I said in July, we had identified some key markets.

And there is a very tailored approach to those markets depending upon what the market conditions are. But we feel with the broader described categories of simple meals, baked snacks and healthy beverages, we have a lot to work with in terms of faster growing categories in faster growing markets.

External development is clearly a tool. You've seen us use it in the China market in the joint venture with Swire and I think we are prepared to use it in other markets. But the heart of the thing is the strategy and the targeting of markets and categories that we think offer good growth opportunities.

Okay, fair enough, thanks a lot. And then just a quick follow-up. You commented earlier that over the longer term that you should see elasticity in soup start to normalize, and I'm just curious, is that also based on the assumption that overall soup consumption at least in the US should stabilize over the next year or two?

Yes, that was the assumption, that it would be US-based.

Okay, thanks a lot. I'll pass it on.

Thanks, Rob, next question please?

Andrew Lazar, Barclays Capital.

Thanks for taking the follow-up.

Taking advantage of the pre-holiday lull here.

Exactly right. Taking advantage where we can find it.

Just a quick one on productivity. Craig, if you could just update us on -- of the incremental productivity that you expect this coming fiscal year, I know a piece of it is obviously the $60 million from the restructuring. And then you've got the ongoing piece that's incremental as well. So if you could just give us a sense of what that is and if you expect it to flow through in the year in any disproportionate way or fairly evenly.

Well, I guess I will take it in two pieces. One is at cost of sales where as you know we've had a pretty long established target of trying to offset roughly 3% of cost pressure.

And while cost pressure is going to be somewhat higher than 3% this year, we still believe we should be able to deliver at around that level. And that will be driven by a pipeline of activity that we've got going and annual projects, but also as we've talked about, our soup common platform work to simplify the soup making process will contribute to that number also this year.

Within expenses, the force reduction -- some of the force reduction of course is relevant to cost of sales. But the force reduction we had, particularly the piece that was relevant to administrative and headquarters expense will be one of the factors as we are really beginning to try to pursue the same thinking in the management of expenses i.e. in the planning period, can we offset about 3% of normalized inflation to the expense categories. And the negative headwind there would be the incentive cost and pension expense.

Gotcha, okay. And then just -- I was curious if you think about the logic of last year when you put out some of those trade promotions which as you mentioned were not particularly effective in driving volume, one could argue there was not a lot of elasticity to the upside from some of the trade spend. Do you think the logic works the other way around or not? Meaning now that you pulled back on some of the less effective trade, that it wouldn't necessarily be a negative to the downside?

We sure hope so. But we don't know. So we've planned pretty realistically and we will watch that dynamic very carefully.

Got it. Okay, thank you.

Thanks, Andrew. Next question please.

David Driscoll, Citi.

Thanks for the follow-up. Just so I understand the cost inflation guidance, so on analyst day, it was $3.50 to $3.50 and I think you gave a percentage number of 8 to 10% on today's call. Again if I'm doing my math right, I think you're basically giving a little bit of an increase on the absolute dollar number of expected inflation. Do I have that correct, Craig?

So the 8% to 10% is input cost, materials and packaging. That's what we said in July and that's still about right.

That gives us a total cost inflation expectation before our enabler program of around 6% to 8%. And as I just said, I think we can offset around 3 of that. So our expectation for total inflation and cost of sales same as it was at that we talked in July, 3 to 5%.

And that would then suggest to me given the fact that we've seen crop prices rallying here since analyst day that you have most of fiscal 2012 covered. Is that (multiple speakers) statement?

Right, I think the way to think about the crop price decline -- actually I think rallying for us I guess, not rallying for the market. But anyway the commodity price decline has helped us derisk that forecast a little bit.

We had at the time that we were talking, of course we had some forward buying done. We've taken advantage of some of the decreases to do some more forward buying. We're not completely covered for the year, but we feel like we're getting closer to being more certain of those inflation projections.

From an input cost inflation perspective, we are expecting increases in flour, diesel, edible oils and dairy.

Okay, and I think, Craig, perhaps what I'm saying differently was that the stocks have been up since then but petroleum and diesel is down since then, so I understand your points. Thank you.

Okay, and we have time for one more question, Mary.

Bryan Spillane, Bank of America.

Hey, thanks for letting me sneak one more in. Just on -- I didn't know if you had disclosed earlier just how much foreign exchange contributed to your earnings EPS growth for the fourth quarter and for fiscal 2011?

Go ahead, Anthony.

Yes, for the quarter it was about $0.03 and for the year it was $0.05.

Okay, and then just one follow-up. I think I caught this at the beginning of the call, but the restating the quarters in terms of the new segments, we're going to have quarters for 2011 after you have reported -- when you report the first quarter? Is that --?

That's right. When we report the first quarter, we will give you the full year of quarters for 2011.

Okay, alright, great. Thank you.

You're welcome and thanks, everyone, for your participation in our fourth-quarter earnings webcast. As a reminder, a replay of the call will be available beginning in approximately two hours. If you are a reporter and have questions, please call [Anthony Sanzio].

He can be reached at 856-968-4390. Investors and analysts should contact me Jennifer Driscoll at 856-342-6081. This concludes today's program and you may now disconnect.