億滋國際 (MDLZ) 2004 Q1 法說會逐字稿

Good afternoon and welcome to the Kraft Foods 2004 first quarter earnings conference call. My name is Stephanie and I'm your conference call operator. Today's call is scheduled to last about an hour, including remarks by Kraft Foods management and a question-and-answer session. In order to ask a question, please press the star key followed by one on your touch-tone phone at any time. I will now turn the meeting over to Mr. Mark Magnesen, Vice President of Investor Relations for Kraft. Please go ahead, sir.

Good afternoon and thanks for joining us for Kraft Foods 2004 first quarter earnings conference call. On the call with me today are Jim Dollive, Chief Financial Officer, Dave Johnson, President of North America Commercial, and Hugh Roberts, President of International Commercial. Jim will review our first quarter results and outlook for the year. After the prepared remarks, Jim, Dave, Hugh and I will take your questions. For those of you listening on our website, you are in a listen-only mode.

Earlier today we issued a press release with our results, and this release is available on our website. I remind you that our comments today contain projections of future results and are made only as of today's date. Please refer to the Safe Harbor Statement at the end of our release for a review of some of the factors that could cause actual results to differ from projections. With those details behind us, I will now turn it over to Jim.

Thanks, Mark, and good afternoon, everyone. Before we get started, Roger asked me to pass along his sincere thanks for your comments and well-wishes during the past few weeks. He's indicated he's feeling better each day and is very much looking forward to his return on May 10th.

Turning now to the business at hand. In January, we laid out a new strategic direction for Kraft, including our four point sustainable growth plan. As you'll recall, the four-plan elements are to invest in brand value, to drive our costs in assets, to transform our portfolio and to expand our global scale. The first and second elements, reinvesting in brand value and driving out costs, are our focus for the first half of this year. Against these two priorities, we made good progress in the first quarter. Our brand value reinvestment efforts yielded solid results in the key categories that received spending increases. In fact, we have fairly broad-based growth across much of our portfolio.

At a total company level, however, these solid results were masked by the timing of our new products this year versus last year and weakness in a few categories in international markets, resulting in modest overall top-line growth. Our cost reduction efforts are very much on track with the announced exit of five facilities and significant reductions in our workforce. Thus, from a macro perspective, the first quarter was one of progress. Earnings were in line with our expectations, top-line growth, though modest, included a solid response to our investment initiatives and the key elements of the sustainable growth plan are moving forward.

Turning now to the specific results. First quarter EPS was 33 cents, a 33% decline or 16 cents per share versus prior year. The EPS decline reflects the negative impacts of several items, including eleven cents from exit costs for the restructuring program, five cents from higher commodity costs, three cents from increased marketing investment, two cents from higher benefit and restricted stock costs, and one cent from an asset impairment charge. The negative 22 cent collective impact from these items was offset by a 2 cents benefit from a lower tax rate, a penny favorability from currency driven primarily by the euro and about 3 cents from the remainder of our operations, including top-line growth.

On the top line, net revenues grew 4.5% in the quarter with about 4 points due to currency. This growth also includes a half point negative impact from divestitures with the balance due to the volume and favorable mix. Our reported volume was up a half a percent with ongoing volume growth of eight tenths of a percent partially offset by divestitures. Within ongoing volume, a few key issues masked some fairly solid underlying growth across much of our portfolio. These issues include a shift in the timing of new product launches in the first quarter of last year to the second and third quarters of this year, trade inventory reductions in certain categories in international markets, and health and wellness impacts, particularly the low carb trend in the U.S.

Looking at North America, revenues were up 2.5% and volume was up 1%. Our cheese, meat, snack nuts, desserts, enhancers, and food service business all delivered at least mid single digit volume growth and many of our businesses had a particularly strong quarter in non-measured channels. However, these were somewhat offset by the cons in our biscuit and cereal businesses primarily as a result of low carb trends. As of yet, it's difficult to determine if this diet phenomenon has peaked. Regardless, we believe there has been a fundamental shift in what consumers buy and eat and that consumers' focus on carbohydrates and weight management is here to stay. We'll discuss how we are approaching this challenging cookies in a few minutes.

Additionally, our beverage business, which has been an important growth driver for us, was down in the quarter due to the combination of a shift in the timing of new products versus last year, a related reduction in trade inventories, and increased competitive activity. We estimate that the reduction in ready-to-drink beverage inventories alone impacted North American volume growth by about half a percentage point.

In the first quarter, we increased our marketing investment by approximately $75 million, with the increase focused in three U.S. categories: cheese, cold cuts and snack nuts. All these businesses delivered solid top-line growth. In cheese and cold cuts, where much of the spending is targeted to improve price gaps versus key competitors, our spending is having its intended effect and the consumption and share momentum which began in the fourth quarter of last year continued in Q1. On a pound basis, natural cheese share was up one point, cream cheese share was up almost four points. Processed slices share was up 2.5 points and cold cuts share was up 7/10 of a point. In snack nuts consumption was up double digits as consumers seek alternatives and we increased spending mind some compelling marketing. Importantly, the collective volume for these three businesses was up a strong 9%.

Coffee remains a focus category for us, although our coffee marketing spending was up only marginally in the quarter. While coffee consumption and share in measured channels were soft in Q1, total coffee volume was up mid-single digits behind strong merchandising and growth in non-measured channels. Similarly, marketing spending behind biscuits was flat in the quarter. Our increased biscuit spending will occur later in the year, timed with the launch of our new items and other product news. Thus, first-quarter biscuit trends were pretty much where we expected.

For the quarter, we essentially held dollar share in cookies, down 2/10 of a point while category consumption declined. Cracker performance was better, with dollar share up one point, but consumption also remained soft. Biscuit growth trends are expected to improve in the second half behind new product news that is focused primarily on health oriented options. Recently announced items include Nabisco hundred calorie packs, which aside from having only 100 calories per pack have three or less grams of total fat and zero grams of trans fat. We'll launch Nabisco Carbwell cookies, a line of cookies that launches our Carbwell trade mark and has single digit per net carbs per serving. Also we're launching Golden Oreos, white sandwich cookies that further broaden the Oreo family. And we'll continue to support Rich Chips, which we launched last fall and are selling as fast as we can make them. Finally, during the remainder of the year, you'll see a continuous stream of products from our biscuit portfolio that have reduced for zero grams of trans fat per serving. Net, we feel good about the plans we have in place to improve the trends in biscuits.

Shifting now to international, results were mixed with weakness in a few key markets resulting in soft overall top-line growth. Reported volume was down 9/10 of a percent due to divestitures, with volume from ongoing businesses up 4/10 of a percent. In Europe, Middle East and Africa segment, ongoing volume was up a half a percent at the reduction -- as the addition of the family nutrition biscuit business in Egypt and growth in the UK and Germany were largely offset by declines in France and Russia.

In France, coffee volume was down due to aggressive private-label pricing that resulted in higher price gaps. We have already adjusted our programming and expect to return to targeted price gaps in the second quarter. One of the areas we say we would improve this year was to react faster to situations where our brand value equation got out of balance and in France we're doing just that. The decline in Russia was due to trade inventory reductions on our confectionery business as a result of matching extended holiday trade terms of a competitor at the end of last year. We do not expect this trade inventory issue to repeat in coming quarters.

In our Latin America and Asia Pacific segment, volume was up 4/10 of a percent with solid growth in China and several Latin American countries largely offset by decline in Puerto Rico, Australia and Southeast Asia. In China, new products drove double-digit increases in biscuit volume, and effective marketing behind the tang brand drove an increase in our powdered beverage business. In Latin America, Brazil, Argentina and Venezuela were all up with particularly strong results in confectionery, which was up over 20% across the Latin America region. A significant decline in our beverage business in Puerto Rico was due to increased price competition from the major carbonated soft drink companies and the timing of shipments.

As we indicated, we're pleased with the impact of our marketing investment in the first quarter. As we look to the balance of the year, our task is to expand the success to other parts of our portfolio and we believe we have the right spending, new products, and programs to do just that.

Looking briefly at our restructuring efforts, we made good progress and remain on track. In the quarter, we announced the exit of five facilities, four in North America and one internationally, and the elimination of over 2,000 positions. First quarter pre-tax costs for the restructuring program were $279 million, or the after-tax equivalent of 11 cents per share, and savings in the quarter were about $10 million. For the full year we continued to project pre-tax savings of 120 to $140 million or the after-tax equivalent of 5 cents per share from the program.

Also in the quarter, we completed our annual impairment review of goodwill and intangible assets. As a result of this review, we recognized an impairment charge of $29 million for two smaller businesses. On the year, we project a combination of this intangible asset charge and the exit cost for the restructuring program will impact EPS by about 30 cents.

Finally, looking at first-quarter cash flow, discretionary cash flow, which is net cash provided by operating activities less capital expenditures, was approximately $350 million, up about $250 million versus prior year. Improved working capital, especially lower inventory levels, was the largest driver of the gain with our inventory base down about nine days from last year's first quarter. Capital spending for the quarter was $148 million, and we continue to project full-year spending of 1.1 to $1.2 billion.

Turning to our full-year outlook, we project EPS to be in line with current Street estimates at the lower end of our previously issued guidance range of $1.63 to $1.70, including an estimated 30 cents in exit costs for the restructuring program and asset impairment charges. The primary driver for the skew to the lower end of our guidance range and our most significant risk to earnings is higher commodity costs. Costs for many of our commodities increased sharply during the past three months and are up significantly versus prior year. finished skew to the lower end of our guidance range and our most significant risk to earnings is higher commodity costs. Costs for many of our commodities increased sharply during the past three months and are up significantly versus prior year. Our cheese costs the U.S. finished the quarter at $2.06 per pound, almost double the prior year and closed today at $2 .17, an unprecedented high.

Among other key commodities, at quarter end soy bean oil was up 49% versus prior year, wheat was up 44%, and arabica coffee was up 24%. But U.S. dairy is obviously the most critical commodity for us, given its size and importance in our portfolio. Today, tight milk supplies are driving the increase in costs. While supplies are likely to remain tight in the near term, we believe current cheese market costs are not sustainable and will decline as supply improves. However, what is more difficult to predict is how severely cheese costs will decline and when. We are in new territory with this commodity, and it presents us with a risk that we will manage very closely.

The key message that I want to convey, however, is that despite the challenges posed by higher commodities, we intend to increase our marketing spending as part of the sustainable growth plan. Our plan was implemented to better position us for longer term growth, we are encouraged by the early successes, both in the last four months of 2003 and the first quarter of 2004, and we are committed to stay the course on our strategy despite disruptions in commodity markets.

With regards to our full-year guidance, many of you have pointed out that it implies a solid second half rebound. You are right and we expect the improvement to come from two drivers. First, top-line momentum is expected to build throughout the year. While we expect full-year constant currency revenues to grow around 3%, several factors will drive momentum in the second half, including the timing of new product launches, marketing spending increases that are largely timed with our new products, increased advertising spending that will have a cumulative impact on our consumption and prior-year comparisons that become more favorable after the first quarter. Additionally, the balance of the year projection now includes our recent acquisition of Very Fine beverages and our licensing arrangement with Starbucks, for Tazo teas.

The second is the timing of our restructuring savings. The majority of the savings will be realized in the second half as we progressively drive costs out of the organization. Our full-year earnings are also expected to benefit by about four cents per share from the lower effective tax rate versus last year. Our first-quarter rate was 31.9%, three points below last year due to the favorable resolution of tax items. Based on our current tax profile, we project a full-year average tax rate of approximately 33.5%. I want to point out, however, that our tax rate will not be even by quarter, as it will fluctuate depending upon how various tax items fall during the year. We expect, for example, that our second quarter effective tax rate will be approximately 36%, about one point higher than last year.

In closing, first-quarter results essentially met our expectations. EPS was within our guidance, and we made good progress on the sustainable growth plan priorities of reinvesting and brand value and driving out costs and assets. Increased marketing investment drove improved volume growth in several businesses. We made good progress on our cost restructuring program, and we remain on track with higher levels of marketing support planned and further cost reductions in process. And now Dave, Hugh, Mark and I will be happy to take your questions.

Ladies and gentlemen, we will now conduct the question-and-answer portion of the conference. Again, in order to ask a question, please depress the star key followed by one on your touch-tone phone. Our first question today is coming from John McMillin of Prudential Equity Group. Please pose your question, sir.

Good afternoon.

Hi, John.

Glad Roger's doing better. I guess you don't -- you gave first-quarter guidance, specific guidance, but I guess you don't want to give a specific number for the second quarter, is that right, Jim.

John, we normally don't give quarterly guidance but with all of the changes we had starting in the year, we felt it was appropriate to give some pretty hard guidance for the quarter. We did give some indication, though, I think in the press release, concerning --

Yeah, I read it.

Yeah. So we're trying to give some direction to help you in that process.

Yeah. I guess as you try to make your products lighter it looks like some of these numbers in guidance are lighter. You know, and it just looks like that 51 cent number that everyone is at, you have to take a significant haircut. Would you give that broad --

Well, clearly, we -- the items we indicated for the benefit of those on the call, aside from the tax rate, deal with the -- the pricing we're seeing on the commodities right now and that's impact as we price to recover some of those. And the fact that the second quarter is going to see one of the larger increases on the year in terms of the spending increase.

Can you talk about your hedges? You know, other companies have hedged -- hopefully that didn't make you cough. But certainly -- you know, soy bean oil. Some of these products are hedgeable.

And we do take positions in these commodity markets, John. Many of the commodities we have, the grains, the oil, coffee, some of the meats, trade on established markets where we can take positions based upon our forecast of the commodity and our perception of our ability to pass through those commodity fluctuations. It gets a little more difficult, though, when you talk about something like cheese where the market for our hedging purposes, is not very well developed. And right now that's the commodity that we're seeing the most -- the most volatility.

And just my last question, you know, for the year you're targeting -- I guess with the January meeting, you wanted to look at some kind of real currency adjusted revenue target, which you picked, you know, at 3%, uh, you could argue in the first quarter you did, you know, about a half a per cent or less than a half a percent. And I guess you have this acquisition which helps you, and I guess it -- but it just seems like to go from a half a percent to 3% for the year is -- you know, is a long -- is a big recovery, maybe you'll have some pricing that you're implementing. Just how do you plan to kind of -- how can you bridge that gap from going where we were in the first quarter to where you expect to be at the end of the year?

The constant currency revenue in the first quarter, you know, it's a little better than a half a percent when you do the adjustments, but your point is well -- well made, that we have an objective of 3% on the year. The programs we mentioned in terms of the improved volume performance, the initiatives we have in place for -- for the spending activities, etc., are all geared towards delivering that kind of objective, John. Now, the Very Fine acquisition, that business last year had about $140 million of revenue, we'll own it for three quarters of the year. So when you do the math it'll have a couple of tenths of impact on revenue, not really enough for us to modify the guidance at this time.

And is there -- are there list pricing moves that you're implementing now in things other than cheese?

Well, um, we -- we certainly took pricing on cheese at the end of the first quarter. We just announced a price increase, I think Dave it was Friday, on frozen pizza.

On pizza.

So to the degree that these commodities move, we will make every attempt to pass those increases on through higher prices.

Just seems like going from here to there, you know, is just a big stretch and all you're setting yourself up is the more lower, lighter guidance down the road.

This is -- this is what we had as part of the sustainable growth plan. I think the important thing I'd want to -- message I want to leave you with is we feel pretty good about the success we're seeing on that program, and that program I think moves into a higher gear as we now move into the second quarter. And it's on that basis that we have the 3% revenue guidance.

Okay. Thanks a lot.

Thanks, John.

The next question today is coming from David Adelman of Morgan Stanley. Please pose your question, sir.

Good afternoon, everyone.

Hi, David.

Hi, David.

A couple of questions, Jim. First, the commitment to 5 to 600 million in this increment spending, is that being skewed at all to promotional support, given the commodity cost pressure?

Well, the -- the -- and I'll let Dave and you comment specifically about their businesses here, but we said at the outset that we needed to get our price gaps in line, and that a good portion of the total spending was going to be earmarked towards -- towards the price gap. But it still results in a fairly strong increase in the total level of -- of marketing support that goes behind the A and C lines. Dave you can comment about the specifics.

Our spending is a mixture of equity building and promotive price points and in our sustainable growth plan we really want to make sure that we're driving the spending behind the new product news that was largely Q2, Q3, and very much want to manage to our target price gaps and do what that will require.

I'd say in international, that our spending is split about equally between A & C and trade.

And in the U.S., what was retail take-away for your products, broadly defined?

Broadly defined, we were down about 2% on total consumption, but as Jim mentioned, we had a particularly good quarter in non-measured channels, which got you back to our volume growth.

Okay. And then two last things. Did the price increase in cheese or the end of the West Coast labor strike flatter the volume shipments in the U.S. from where they otherwise would have been?

Not so much on the pricing. You know, on the West Coast, I think that contributed to that skew, to non-measured channels that I just referred to.

Actually, Jim, one last thing. Can you enlighten us as to what assumptions you're making about commodities broadly through the remainder of the year? In other words, can you deliver on your targets if, you know, you just -- you have a modest decline in cheese costs and the other commodities stay where they are, or are you now baking into your forecast that commodity pressure will moderate as you go through the remainder of the year?

Well, we certainly have anticipated higher commodity costs than what we saw last year. As I mentioned, we do expect some of the cheese costs to moderate. It's really too early for us to make a call as to the degree to which that's going to influence our ability to hold or change our guidance. Clearly, we've posed it as a risk. Now, the real challenge here is how much we and the rest of the industry -- because this is common to industry, can recover through the pricing mechanism. But within that, you know, I'm going to keep going back to what our fundamental objective, and that's really to improve our long-term growth through our sustainable growth program, and at the end of the day that is the thing that we're driving for first and foremost.

Thank you.

The next question is coming from the David Nelson of Credit Suisse First Boston, please pose your question, sir.

Good evening.

Hi, David.

And my best to Roger, please. On your marketing costs, there were only 3 cents this quarter but we're looking at 19 to 23 for the year, so that's going to be going up for the balance of the year, so the theory is that as marketing costs are -- are going to go up, income's got to improve because, you know, we had OCI down in all six divisions this quarter, is that the thesis?

Well, certainly the marketing investment will go up, your math is spot on in terms of what we've said for the full year, what we're talking about for the balance of the year. I think the thing that helps us and gives us confidence is the degree to which we saw the success in the first quarter. The businesses that were the primary beneficiaries of that three cents impact really did have some good results during the quarter. And, you know, that is built into the expectations for the balance of the year.

These -- trying to track this going forward, you know, overall you are characterizing this as good progress with -- you know, 0.5 in volume versus 0.8 in volume last year. What would be good progress in volume for Q2?

Well, it's -- we do expect volume growth to improve, and we have said the revenue growth -- we have given guidance on that, 3% cost and currency. So by did he have things we're going to have to see it step up over the course of -- course of the year. And I would expect our volume growth to pretty much stay in tune with the revenue growth.

Okay. If I could ask one last question. What part of the new product's better for you that you talked about there was -- in reducing trans fats, moving to palm oil. Have you had any push back on using palm oil because it has some saturated fat?

No. I mean, really the way we're going to do this, David, is our goal is to reduce or eliminate TFAs without eliminating the level of sat fat plus trans fat, so that's not going to be an issue and obviously we're not going to do this without compromising the performance of the product either.

Okay. Thank you very much.

Thanks, David.

The next question today is coming from Eric Katzman of Deutsche Bank, please pose your question, sir.

Hi, good evening, I have a few questions.

Hi, Eric.

I guess the first question has to do with kind of the assumptions about, you know, hopefully this happens, that the industry kind of passes through a lot of these raw-material costs. You know, in the past, some of your more nimble competitors in private label have not played ball when it came to commodity costs, so I'm kind of wondering, even though you may be assuming higher commodity costs, are you assuming, you know, some kind of volume hit should private label not play ball? That's the first question.

Well, I think the biggest factor in that area will obviously be in cheese, and to date we pretty much have seen private label move with the market. All the indications that we have, that will continue. So -- but we will monitor that.

Okay. And, then, I guess the second question has to do with, you know, the -- sort of following up on David's question about the -- the spending levels of only 3 cents in this past quarter. I mean, Jim it of the analysts coming out of the Roger's meeting back in January, a lot of us came away feeling that you just made things so tight for yourself because if you don't get the product growth, then productivity doesn't come through, commodity costs have ramped up more than you thought. It seems like more of the year is now back-end loaded. I just go back to that meeting and wonder why decide on something that's such a tight thing for a company that's in a turnaround position?

Well, the -- the volume performance and the momentum was always back-end loaded so we really haven't changed on that. I think the new news and the place that we're a little bit cautious and you obviously are cautious as well is on the surge and commodity cost certainly in the last few months. And that's the piece -- as I said, we're kind of in new territory here. I think we're going to be able to pass those on in terms of higher costs. But most importantly, we feel good about the progress we've had with our -- with our initiatives and the items we have poised to go into market, particularly the new items, over the course of the next three to six months.

Okay. And then the last question, obviously this is something of a -- a touchy subject and we always wish Roger the best. But I mean, you know, given what happened at McDonald's today, I mean -- and maybe this is more a question for -- for Altria to answer tomorrow, but I mean don't you think that the company should have been a bit more open as to what is going on? I mean, even at this point we're not really clear as to what happened. And you have another example of a McDonald's, you know, losing their CEO, they immediately have a successor to name, they tell us exactly what's going on, and yet shareholders here have basically been forced to kind of -- you know, kind of just deal with the -- you know, the unknown about something that I think most people would have wanted to be a bit more public about sooner on.

Well, at the risk of being a little bit defensive, there wasn't a lot that we could say. You know, in terms of what did happen, the board -- I think our board took the appropriate action from a governance perspective of recognizing the CEO was going to be out for a period of time, didn't know what the exact diagnosis was at the time, and -- and they took the proper action of making sure we had continuity for the organization. You know, beyond that, I think it got to be a bit of a media frenzy, you know, and that kind of took it to the wrong place. So, you know -- and if you want, certainly Altria's call is tomorrow, you can pose the question to them. But I think we handled it the way we should have handled it.

Okay. Thank you.

The next question today is coming from Fillipe Guzins of Credit Suisse First Boston. Please pose your question, sir.

Yes, good afternoon.

Hi, Fillipe.

I actually have three questions. The first question is a housekeeping question. Do you have the depreciation and amortization number for the quarter please.

Depreciation was 207, amortization was $2 million for the quarter.

Okay. Then, Jim, on the last call, you had indicated that the severance, $50 million of bonds that are coming due in November, that you would basically pay those down. Given that you might finally see some increase in interest rates, is that still your -- your current plan, or might you actually refinance those?

You're referring to the bonds that are coming due at the end of this year?

That's correct, Jim.

We really haven't firmed up our exact plans on how we want to handle those bonds at the end of November. We just recently filed a shelf so we'll have the flexibility to either refinance it or allow them to mature in front of that of operating cash. Okay.

And then my final question is related to the rating agencies. Given the process which they started last year towards the -- start delinking, the Kraft, from the ALTERA ratings, have you been in touch with the agencies following Roger's illness to keep them posted in terms of certain management issues?

I really haven't called them directly specifically on -- on Roger's situation. I have from time to time had conversations with the agency just to keep them informed of things overall and, uh -- and we will be doing -- you know, in the second quarter, an annual review of the business with the rating agencies. So to answer your specific question, I haven't given them a call on the update of Roger. The information that's available on Roger is the stuff that we -- is put out publicly and that's the beginning and the end of it.

But you have not heard any concerns in terms of Lou taking a kind of direct control of the --

The only concerns we've heard have been those expressed in the -- in the media. Okay. Great. Thanks very much, Jim.

The next question is coming from Chris Growe of AG Edwards. Please pose your question, sir.

Thank you, good evening.

Hi, Chris.

Hi. A couple questions on some of the top-line side. I'm just curious if you have forecasted additional tack-on acquisitions or have you said what percentage of that 3% growth would come from tack-on acquisitions.

Well, in the original guidance we had included tack-on acquisitions that were in the '03 results, so that would be things like the friendly nutrition business in Egypt. Regarding the recent Very Fine acquisition, that's the only one that's happened since then, as I said, that's -- that's a couple of tenths of a percentage point, so it's not big enough for us to really materially change our guidance.

Got it, okay. And then just two other ones on the top line. Could I get a little more exact breakdown of sales that included mix -- product mix and trade promotion expenses? And then also just curious what the category trends were? I think you mentioned 2% measured consumption declines, how about the category trends?

Well, let's start with the top line where we had 4.5% in -- in total revenue. The bulk of that, just over 4 percentage points was really the currency piece.

Uh-huh.

We had a slight negative associated with divestiture. When you cut through all of those pieces, the combination of -- of the base business, Mark, I think was, what, agent eight tenths of a per cent or so.

Correct.

And directionally I want to say about half of that is due to volume and half of that is due to mix. You know, I might be off by a tenth of a point or so on that.

That's fine. And then how about the category trends? Do you have those numbers by chance, the composite number by chance.

I'll let Dave kind of run at the composite number here.

Yeah, the composite number was just a little bit positive on the quarter across all our categories. And obviously there's a mixed bag, you know, going through all the various categories.

Sure, okay. So it would imply that your 2% decline meant there was some sort of share loss across your major categories?

In measured channels.

In measured channels, right.

Correct.

And then on the EPS side, on the earnings side, I'm just curious, you've mentioned, Jim, you considered a commodity cost the biggest risk, I'm just curious to what extent, you know, not meeting your volume targets would also fall into that same conversation?

Um, well, that would -- that would suggest we don't have confidence in our volume call and if I look at what we've got for the balance of the year in terms of the program, the spending and the initiatives, you know, we are -- we do have some -- you know, that is our call, so I feel pretty good about that.

So with your volume estimates, from here it's purely commodity costs, we should keep an eye on them.

Volumes can always change when you think about what happens in the marketplace. If a competitor decides to do something that forces us to react, that obviously could have an impact.

Absolutely.

But the one that's pretty much out of our control is going to be the commodity costs and the degree to which they stay up or even increase, because cheese, as I said, is up 2.17. It was up almost I think 2 cents today.

Okay. Well, thanks for the time.

Thanks.

The next question is coming from David Driscoll of Smith Barney. Please pose your question, sir.

Thanks, a lot. Hi everybody.

Hi David.

So am I correct that there was -- I think you said there was a 2 cent tax benefit in the quarter and a 1 cent foreign exchange benefit in the quarter.

Correct.

So then if we were just to look at kind of the quality of the quarter itself versus your original guidance it came in at the low end of the range at 42 cents versus if we strip out the tax effect there and the foreign exchange?

Uh, not necessarily. Because we really didn't have that tax item built in to any of the guidance that we have provided so we're pretty much on the expectations where we thought we would be and I would also say that we didn't really have the kind of commodity increases built in that we're seeing in Q1 as well.

Can you comment on your expectations for foreign exchange? So clearly it looked like it was -- I mean at one cent, you know, it's maybe not a huge deal but, you know, the euro was very strong in the quarter and it did provide a good favorable comparison but of course as we go forward in 2Q, 3Q and then especially in 4Q, those comparisons get much more difficult over time. What's your -- I know you don't like to give specific guidance on foreign exchange but can you give me your broad outlook here.

Certainly if you look at where we are today on the euro in particular, it came down a little bit from the level that we saw in the first quarter and you're absolutely right in terms of the euro gaining in strength throughout all of last year. So just on those two factors alone, you would not expect the -- the momentum to be as positive as we enjoyed in the first quarter as the year progresses.

Moving on to the -- on to the volume side. In the international piece, you know, you guys talk about ongoing growth and I believe the ongoing number was positive 0.4%, the divestitures were minus 1.3%. Now -- but if you -- I think there was enough detail in there to split apart, because I believe you said acquisitions contributed two points of growth to your ongoing businesses, which would imply that the businesses you had all along grew at a negative 1.6% rate.

Uh-huh.

Now, a couple of points here on that. That number does not sound good in -- in addition to that I would -- I'm curious as to the 500 to $600 million in marketing spending, not all of that was destined for the U.S. focused categories, if I understand that January call correctly. Some of that money in fact a substantial part of that money was going to be put into Europe. So then that would kind of take me back to this minus 1.6% organic volume number in the -- in the international side and it would look pretty weak. Can you talk to me a little bit about the marketing spending and then why the weakness in the organic volume growth and maybe identify some of the areas where it was.

Well, let me start that and I'm going to ask Hugh to pick it up with the -- with the details. But in the first quarter, the bulk of the spending increase was in the U.S. markets. We did say and it is correct that that five to six hundred will also include a fairly healthy increase in the international side of the business, but that's mostly in front of us. And if you want to talk to the volume?

Sure. Look, David, we were certainly not pleased with our overall results internationally, but we have taken steps to deal with it and we're already starting to see the impact of some of these changes. There were a few pockets of volume issues during the quarter, but unfortunately they were each fairly sizeable. Jim talked about France and coffee volumes there down due to aggressive private label pricing which resulted in higher price gaps. We've already adjusted our programming and we expect to see the targeted gaps return in the second quarter and we're already seeing improved results in April. In Puerto Rico we had a significant decline in our beverage business due to the increased competition from the carbonated soft drink people. Our business there was also impacted by some timing issues on shipments and again we're already seeing some of those come back in April. So as I said, some sizeable issues during the quarter. But we also had several markets with strong results, the UK and Germany both had good quarters and that's important because those are markets where we started reinvesting in quarter '04 of last year, continued in quarter '01 and it seems to be working. And many of our other key development markets like China and most of Latin America had good results. So I'm confident that our numbers will continue to improve as the year proceeds and as we increase support behind our brands.

Does international then play a significant role? I mean so -- clearly, you know, on -- on, you know, 0.4% volume growth, you know, that's kind of in line with the entire corporate average of 0.5%. You know, the numbers then would seem -- I think, you know, a number of other callers have already asked the same question about your full-year volume numbers. Can you give me a little breakdown here between, you know, KNAC and KIC, your new acronyms here on volume growth.

Well, what we have said in this -- and this continues to be true as we look to the balance of the year, we are expecting some -- some pretty good growth out of the North American piece, but we are looking for faster growth out of the international side and we do expect a developing market to kick in, in a broader way going forward to help drive that momentum and drive that trend. And I don't know if you have anything else you want to add to that.

No. Similar to North America, our spending is skewed toward the back half and our new product activities is skewed toward the back half so we expect to see an improvement.

Okay. Let's see. Just one -- maybe one last question here. Can you tell us -- I think on -- on -- I think it's basically the second page of your press release you have a number of different products that you've listed out there for us, you've referenced a number of times here that second quarter and third quarter are going to be the big quarters of -- of new products, but can you just -- can you just hit the very highlight ones so we under what to focus on. Maybe just give me -- if -- it would help me greatly if you tell me the numbers of new products that we're talking about in those quarters or if that's not relevant then if you could just give us a couple of the very specific ones that you think that we should pay attention to, I think that would be helpful.

Yeah. Let me start with North America, I'll just give you kind of a broad overview and I think, you know, the headline is that a lot of health and wellness focused new products, uh, I think we also talked in the last couple calls about really trying to focus more on incremental volume, and that's where we're very much focused on here, incrementality. And the other thing I would tell you is very much second and third-quarter oriented versus prior year being a lot Q1. But if you look at the big health and wellness new products, certainly the Carbwell launch that we're doing, salad dressing, for example, cookies, things like that, the 100 calorie packs, we think would be a very nice item for weight management, Kool-Aid Jammers 10, like the first sugar-free juice drink. That's another big one in the beverage area.

Capri Sun Fruit Waves, 100% juice, another nice item for the beverage area. I think we talked last time about the launch of Back to Nature in the natural channels, natural organic item that we're very excited about. Even Lunchables we've got an item Lunchable chicken dunks, all white meet chucks. So we'll continue to support Lunchables Fun Fuel. Even things like Crystal Light SunRise, sugarfree with vitamin C for breakfast occasion. So there's a lot of terrific health and wellness items. And then we'll continue to push some other areas like Ritz Chips where as Jim said we're selling as fast as we can make them. We've got DiGiorno crispy crust. Those are probably the big ones but I think you will see the overall-theme really health and wellness oriented.

Super, thanks a lot everybody.

Thanks, Dave.

The next question is coming from Tim Rainey from Davidson. Please pose your question sir.

Just a quick follow-up on the health and wellness products. Everything you just mentioned seems sort of like negative attribute avoidance rather than -- you know, rather than positive attribute pharmaceutical products. Are there any products to be expected that would have, you know, positive health claims or positive attributes to carry?

Yeah. You know, it's a good question. I think things like Kraft Singles where we're doing 2X the calcium very much on the positive front. Balance Bar where it's really performance driven in energy with high protein, vitamins things like that. There are things we're doing in the dinners category on protein and iron and calcium. So a lot of those are marketing initiatives on the base. I was really getting into some of the newer products but clearly there's a lot in the positive nutrition area as well, just -- you know, happens to be an area here where we're dealing with the low-carb trend which we're trying to address head on and weight management which is really hot right now.

I would say, Tim, that internationally presence is good is pretty important to our, where we're playing calcium fortified cheese, uh, roll out of Tang Plus, which is calcium fortified and vitamin A fortified in some markets as well as nutritional enhancements like Pacific and China.

Got it, and then on the $75 million marketing spending number you cited, is that number analogous to the 5 to $600 million number for the full year or is there a trade-spending component.

No. Those are done on the same basis.

Same basis, okay. And just to follow up on earlier question, you mentioned earlier that top-line momentum will accelerate as the year progresses, is that number ex-currency impacts because it seems like it would be very difficult to do on a reported basis, given the recent weakness in the euro versus the dollar.

Well, that recent weakness is relative to Q1, not relative to year-ago. And the guidance we're giving, however, is a constant currency guidance in the -- in the materials in the earnings release we do for revenue separately show the impact of currency.

Okay. So.

It is a cost in currency.

Cost in currency.

Correct.

And just a quick one on the new product introductions and the spending benefits. It's -- you know, it seems that several of us are having trouble reconciling the thought of spending money and getting a benefit almost concurrently, do you have examples in your recent history where you've, you know, been able to -- to do that? And I know you're probably going to cite the first quarter, but in total you didn't move the needle in the first quarter for Kraft.

Well, there's a lot of things going on in there that we have -- we're executing, not the least of which is the -- the restructuring program and so on, coupled with the commodity costs that we're managing through. As far as initiatives, you know, other initiatives --

I think, you know, the spending return, if you look at where we spent in Q1 in North America, the cheese, the cold cuts, the snack nuts, we feel terrific about it and that was -- we -- we pretty much targeted the money there with the news that they had and some of the trends that they had and -- and they showed market share increases and so we feel that we're getting the return for the spending.

Okay. Thanks.

The next question is coming from Andrew Lazar of Lehman Brothers. Please pose your question, sir.

Good evening.

Hi, Andrew.

Trying to get a sense, if you can give us a little more specifics around perhaps across the entire cheese business, what the price increase you took would average out to be on a percentage basis?

Yeah. Obviously, that differs by item. We price many categories, but if you want to look at it in total it was about 5% to 15% with the range if you look at the various categories.

Got it. So if I took it, you know, again on average it would be somewhere in between there. Okay. If you make assumptions on -- and it's hard to do, but where cheese might end up for the year, and I presume it's somewhere lower hopefully than where we are today but still perhaps quite a bit higher than usual, it would seem like -- again just from the way I've worked out the numbers and it's rough, you'd need probably the higher end of that range on let's say a lot of that product lineup to quote kind of cover it. So I'm trying to get a sense of maybe -- it's kind of asked in a few different ways. This type of price increase, basically assumes what type of assumption, at least as a yearly average, let's say, for cheese?

Well, I'm not going to get into a forecast for the aggregate cheese number as an average, but, you know, we do assume in our forecast that cheese prices will moderate in the -- in the balance of the year. And when we price the -- when we took the price increase, it was targeted more towards that average rather than a -- a peak period.

Okay. And then separately, Dave, you mentioned before you talked about, you know, focus on new products run on incrementality, and just to broaden that out a minute. A lot of what we've heard about and rightfully so has been around a lot of the tactical things that you need to do, whether it's tightening the price gaps, things of that nature, which are what kind of has to be done at this stage. If you could pick the -- the one or two things that, you know, perhaps are changing from a process-oriented standpoint, you know, structurally, internally, that maybe we don't see externally, that might help you beyond the tactical piece, you know, once we get into maybe the second half or maybe more importantly in '05, maybe the focus on incrementality around new products is one of them but -- I don't want to put words in your mouth, what would be one or two of the most important ones.

Number one, getting the return for the spending, getting the spending in the right places, where we have news. I think on the new products like we talked about, more incremental and I think those are probably two pretty key areas. But at the end of the day, you know, within our -- our sustainable growth plan, it's all about getting return for that spending and getting the top line going and I think to date we have good evidence of that.

And lastly, in terms of incrementality and things like that and getting a return on promotional spending, are there sort of structural procedural changes internally in the way folks are now running these businesses relative to let's say a year or two ago, be done at a greater pace, or is it, you know, just kind of an increased focus?

I think it's an increased focus and we've always had a good database on where we can get the returns and measuring the end-market returns on those and so I don't think there's any revolutionary change, no.

Okay. Thanks a lot.

Thanks, Andrew.

Thanks, Andrew.

The next question is coming from Terry Bivens of Bear Stearns. Please pose your question.

Hi, good evening, everyone.

Hey, Terry.

As you look at the three products where you did have good improvement in the first quarter, cheese, I guess, cold cuts and nuts, kind of a reverse Atkins there, have you taken a look at that to kind of separate out, you know, what improvement was due to your efforts and what improvement may have occurred naturally as people eat more of these items?

Well, certainly the category in fact would be more on the -- you know, the Atkins or protein, whatever you want to call it, and -- but the fact is on cheese and cold cuts we had some very nice share performance and so -- and I think, you know, on things like snack nuts we did a really nice job leveraging that in advertising, reminding people that, you know, in Planters we were always counting carbs and there was some very good marketing behind it. But I think the share results speak to what we're doing beyond sort of the category phenomenon.

If you look at the logistics exclusive to the nut business, do you have numbers that would take in the non-measured channel to kind of measure how you did versus total category?

No, not really. Not at the category level.

Okay. I'll follow up with that one later. Okay. And this gets back to the cheese question I guess following on what Andrew asked. You know, obviously, I guess, year in year out we're talking about $1.40, somewhere in that range for cheese, have the grocers -- I'm wondering of the level of resistance as you come to them with what, you know, in what years would be viewed as some what outsized price increases. Have you met resistance with that?

The -- the cost increases we're seeing are affecting every participant in the industry.

Okay.

So -- so to the degree that it is an industry event, you know, we're seeing other private labels, for example, increase their prices as well.

Are they going up, Jim, in such a fashion that the traditional spread is kind of maintained?

Pretty much.

Okay.

And remember our objective isn't just to recover the price increases, it's to continue driving our sustainable growth plan and as a key component of that it's managing the price gaps within the appropriate ranges.

Okay. And I guess, lastly, in cheese, you know, in previous years it's been my understanding that with some of the cheese you have in storage I think you alluded to how poorly developed the cheese futures market is, but if I'm not mistaken in previous years Kraft can kind of help pricing recede a bit by putting some cheese out on that market. Now I know you might be somewhat hesitant to do that for fear of charges of manipulating the market or whatever, but is that something that you would consider doing, selling some into that futures market or in some way letting some cheese out that you might not have otherwise?

Well, right now we're focusing on our own needs and how we manage the cheese internal to -- to Kraft.

Okay. Thank you.

Thanks, Terry.

Thank you.

The next question is coming from Christine McCracken of Midwest Research. Please pose your question.

Good afternoon.

Hi, Christine.

Just looking at commodity costs again, looking at the current environment, and clearly it's been a pressure for you this quarter and it's going to be an ongoing issue but also looking at the crop going in the ground, roughly twice the rate or -- or twice as early as it usually does, is it possible, and given the fact that with the Canadian border probably opening to live cattle imports in the next couple months, that you might actually have a declining commodity environment in the second half of the year, and have you built anything like that into your outlook at this point?

Well, we have taken into account in our outlook the -- the intention, the plannings that are going on, and in fact you can -- you can just look at where the futures markets are and see where the expectations in terms of those well-traded commodities lie. So clearly we've taken that into -- into forecast -- or into our estimates in our forecast.

Okay. So at this point, you'd consider all of that in your outlook, dairy and on the commodity, specifically the grains and oil seeds.

Absolutely.

And just secondly on the dairy cost environment, that is U.S. specific if I'm not --

That is correct, the -- because the rise -- the cheese is a protected commodity in virtually every market in the world, so -- when we talk about cheese we're really talking about the U.S. cheese market, which is pretty important for us.

Sure. But in terms of your international cheese environment, is that more rational at this point.

Well, we have seen some increases in select markets but nowhere near the magnitude of change we've seen in the U.S. the U.S. is pretty much driven right now by the declines that the -- in the milk production where we saw 2.2% decline in the milk supply in February and on Friday the government reported a 2.1% decline in the March production.

Sure. And there's no -- no clear view on when that's going to turn given the --

We think it will improve. Right now farmers are doing reasonably well in terms of selling their milk supply so we do expect the supply to improve and the supply to moderate in the balance of the year.

Thanks so much.

Thank you.

The next question is coming from Pablo Zuanick of J.P. Morgan. Please pose your question.

Hello, everyone.

Hello Pablo.

Just in terms of the original guidance for the first quarter, I have assumed that you are only investing $150 million in marketing investments in the first quarter as opposed to half of the number so what I want to understand is what happened and you changed -- changed that investment.

I'm not sure I can comment to the $150 million estimate.

Well, I'm talking about the original number, 500 to $600 million for the year, I think on January 27th you made a comment that the number would be pretty much spread out in a normalized basis that gross every quarter, so I can assume 125 to 150. Another way to put the question would be, last year you were investing in the last four months $50 million per month which would be 150 million in the fourth quarter.

Uh-huh.

So what happens -- and you made comments that in the end of January, that -- did not work for all the five products, only for three or four.

Uh-huh.

So why would the number have declined on a sequential basis to pretty much half?

Well, it's -- I would look at it relative to a year ago where in fact it is up $75 million and as we said, we're trying to target the news to do a couple -- or the spending to do a couple of things. One is to link in with the new product initiatives so we have the news and excitement and the other is to get into the price gaps in the appropriate target ranges. If we can get the price gaps in the ranges we want without having to spend the monies, that's a good thing.

Right.

And that's what we're trying to do in this -- in this whole initiative.

Okay. And I don't know if you said this before but of the 500 to 600 million how much for the domestic market and international markets?

I don't think we split it out between the two. It's a little bit obviously skewed more towards the domestic market than the international market just given the size and weight of the portfolio, but proportionately, I think the -- the international market is getting its fair share.

Right. But again I'm sorry to insist on the point but if I think in terms of comparing it on a year on year basis and if I took the $50 million per month for the last four months last year, that's 200 million annualized 600 million just for the U.S. market and for five products, you know, now you're saying that not only 600 for U.S. market and therefore more than just five products. So what has actually changed that makes you believe you can spend less than 2004 and 2003?

Again it's a function of where can we get the best bang for the dollars that we're spending and where do we need to manage the price We're going to start to lap some of the spending in the U.S. market in the third quarter, so on a year-over-year change, you know, we'll still be spending at that higher rate in the -- in the U.S. markets.

Right.

And commodities affect spending as well obviously with higher commodities you need to spend less and trade dollars to get to the right price gaps. So a few things have moved since we talked in the fourth quarter.

Right right. And just a separate question. When we think of a new products you're launching I understand that there is incremental but can also be beneficial to profit margins or do they come out at the same price?

Uh --

Like I mean the Golden Oreos, are they going to come out at the same price or are they accretive to profit margins in that line.

Typically we don't look to -- to denigrate the margin for the category with the new items although with any new item you typically have introductory support during the window when it goes out, but on average the products that we're introducing, we expect them to generate a fairly strong return and get a -- and have a positive net present value for us.

Again, I guess what I'm coming to is that when I think of Coca-Cola and other food companies talking about volume to volume, in the case of Kraft when you guys are launching new products it seems to be more incremental in terms of volume but not necessarily skewed to improving the mix.

Well again when you -- when we launch a new item the introductory support tends to be focused against that new item and for the first couple of quarters, um, you know, that -- that will depress that -- that particular new item. But on average, we look at every new item in terms of its business proposition, what kind of returns can we get out of that new item and is it a good business investment for us and if it doesn't pass muster, it doesn't get introduced.

Thanks. [INAUDIBLE]

I don't think we want to comment on any of our intentions regarding -- regarding acquisitions, although we already have a fairly strong confectionery position within that particular market.

Right. So just not allowed then. That's good. Thanks very much.

Thank you.

Your next question is coming from Ann Gurkin of Davenport. Please pose your question.

Good afternoon.

Hi, Ann.

I wonder if you can tell me a little bit with the direction for the portfolio, maybe in terms of SKU rationalization and acquisitions in this quarter. In terms of new product development, kind of where the emphasis -- if you give me some development of the portfolio direction, I realize health and wellness is certainly a big part this year.

Sure, sure. Well, you were -- I'm not sure the exact question here but I think you're asking about where we're going with our overall sku rationalization program and we're clearly going to have the new items, the acquisitions adding to the total sku count that we have, but as we said in the January event, we do expect to -- to reduce some of the complexity and overall business and part of that is taking down the number of skus we -- we have on the existing portfolio. We have started that process, you know, we're identifying where the right skus are to eliminate and how best we can execute against that. One of the things we are cautious of in the execution is making sure we don't disrupt the retail environment that we have. You know, and we've -- I think it'll take us a little bit of time to drive that through the global portfolio that we have. And I am looking for results to really start to kick in more in the second quarter, but we have started to make some progress on that. Not enough that I would really want to -- to tout it as a success factor in the first quarter, but what I am pleased with is the -- the momentum the organization is building against that initiative.

Great. Thanks very much.

Hey, Ann. You have -- very fine and I'll just follow up on that quickly. Something -- it's a very nice acquisition for us. As we talked repeatedly about seeking growth categories, beverages is -- certainly falls in that are the part of our portfolio that we want to invest in and some very nice trademarks that we think can work within the synergy of our company, but it -- it does put us into -- in the flavored water category, which is a very nice category and growing and we think we've got a nice niche there.

Great. Thanks.

Thanks, Ann.

The next question is coming from Evan Morris of Bank of America. Please pose your question.

Good evening.

Hello.

Just a couple of questions. First on the cheese price increase. Did you say that private label matched the increase, like sort of on a percentage basis?

Well, it really doesn't work that way. I mean, they pretty much will follow the market. There is some lag time and it -- you know, it's a fairly fragmented competitive set. So there isn't like a following, if you will, it's just -- you know, they're going to move with the market and by and large as they have done historically, that has happened.

Okay. But you haven't seen them move yet is what you're saying?

Yeah. We've already seen some move, it's just, you know, more in increments. They're moving with the market.

Okay.

On an ongoing basis. And Evan, the surge that we saw in -- in the cheese market really is in the last I would say six to eight weeks where it really has jumped up quite a bit and we should start to see if the historical trend holds we should start to see that impact start to show up about now in the retail environment.

At the end of the day, we project out where we think they're going to be and we have our target price gaps that we want to remain within.

Okay. Well, within that price gap, where are the price gaps now on cheese, on your cheese versus private label because that's sort of what got you guys into a bit of trouble about a year ago, can you give us a sense of where we are now, sort of pre and post this price increase versus a year ago and -- I guess I was a little surprised to see you take a price increase on cheese, not that I'm not recognizing the commodity cost pressures, but the fact that, you know, that price gap got out of whack about a year ago and you still are trying to fix it. So can you give us a sense of where you are? And you mentioned target price gaps a few times, can you define that a little bit more clearly for us in terms of, you know, what those price gaps are and where you are relative to that?

Yeah. You know, we have price gap targets that are very different category by category. Process cheese slices, natural chunk, natural shreds, cream cheese, brick, soft, etc. So we have target price gaps across all of those. And with the reinvestment and the growth plan we were trying to get more at the low end of our target price gaps. And that's where we really moved into the lower end of those ranges for all the categories I mentioned in the sustainable growth plan. And we're projecting based on the increases we took that we will remain at the low end and it's very important that we do that.

Okay. So is that low end of those target price gaps, is that below historical price gaps, so --

No. And bear in mind, you know, its [INAUDIBLE] we're finding out for our brand value what we need to do for grow and what price gap we can sustain for the news we have but there's a pretty good history on the database and so, you know, the low end, you know, we've within there historically, I think the last couple years we got at the higher end and we weren't happy with our results.

Okay. And can you just give us a sense then more broadly within cheese and within some of the other categories, be it the cold cuts, are there still segments of your business that were plagued by the -- you know, sort of the price gaps getting too wide that have not -- where those price gaps have not been restored yet, where there's still more work to be done? Which ones are not out of line or sort of at the lower end of your target price gaps which you just mentioned?

I think the big two were really the cheese and the cold cuts and we've done what we needed to do and it's been very successful. Certainly there are smatterings in other areas where we're -- you know, we're managing price points but it's an ongoing area. But I think those were the two where we felt we needed to restore to the lower end of the gaps and we've done it very successfully.

Okay. All right. Just a last question. On the marketing spending. It was pretty concentrated -- that incremental $75 million was pretty concentrated I guess behind cold cuts cheese snack nuts and you said the results there were pretty good. Is that sort of the strategy going forward over the remaining three quarters of the year where the spending is going to be concentrated and, you know, just different businesses that maybe, you know, following new product introductions, or -- or can you just give us a sense of how that plays out?

Yeah, I think linking back to the last question, there will always be ongoing price point management dollars to get the price gaps where we need to be and then I think in the marketing front, it's very much where we can get the -- the spending return, getting the money behind the news, whether it be on the base products or new products, and I think in a lot of other categories, biscuit, in particular, a lot of the news is Q2, Q3, and that's why the spending was really skewed there.

So the cold cut, cheese and snack nut businesses, are those still going to receive additional incrementing dollars or if not how do we get comfortable that sort of the --

The price point management dollars will be ongoing,.

Okay.

There will be news in those categories as well that will pulse into spending but yes it's all part of the broader sustainable growth plan and the broader spending plan.

Terrific. Thank you.

Thank you.

The last question today is coming from John McMillin of Prudential Equity Group. Please pose your question, sir.

Hi. Segments are changed, Jim, and maybe I'm -- I missed it. Have you given us pro forma segments going back?

Uh, we -- we've got in the earnings release the by-quarter information for prior year that bridges you to the new segment structure. When we do the Q in -- in about three or four weeks or so, when that gets published, we'll also give you at that time the -- the annualized numbers going back even further.

And can I just kind of break down snacks and just have some idea of the ongoing -- you know, the real Nabisco number in there. Can you just -- and I won't do this every year -- quarter this year, but can you just kind of give us, um, you know, -- I -- what the old segment biscuit, snacks and confectionery would have been down? What's in there besides -- besides -- what's in snacks that weren't in there before?

Well, there was no change to the snacks business, that one -- in the --

Right..

In the structural changes we made there was no adjustment in that. What's included in the snacks segment will be -- for the U.S. will be the biscuit business, it'll be the confectionery business, and it will include the snacks business and sort of buried in there is the pet snacks business as well.

Oh, I --

There's been no change to that segment.

There's been no change. We did change that segment the beginning of '03, when it -- at that time it also included the Canadian biscuit business, which -- which we -- which we provided the details on at the beginning of last year in terms of that change.

Okay. Thanks a lot.

Thanks, John.

Thank you, that does conclude the question-and-answer session of today's teleconference. I'd like to turn the floor back over to the speakers for any closing comments.

Well, thank you all for your participation this afternoon. You all have a good evening.

Thank you for your participation. That does conclude this evening's teleconference. You may disconnect your lines at this time and have a great day. Thank you.