J M Smucker Co (SJM) 2017 Q4 法說會逐字稿

Good morning, and welcome to the J.M. Smucker Company's Fiscal 2017 Fourth Quarter Earnings Conference Call. This conference is being recorded. (Operator Instructions)

I will now turn the conference over to Aaron Broholm, Vice President, Investor Relations. Please go ahead, sir.

Thank you. Good morning, everyone. Thank you for joining us on our fourth quarter earnings conference call.

Mark Smucker, President and CEO; and Mark Belgya, Vice Chair and CFO, will provide our prepared comments. Also participating in the Q&A are Steve Oakland, Vice Chair and President, U.S. Food and Beverage; and Barry Dunaway, President, Pet Food and Pet Snacks.

During the call, we will make forward-looking statements that reflect the company's current expectations about future plans and performance. These statements rely on assumptions and estimates, and actual results may differ materially due to risks and uncertainties. I encourage you to read the full disclosure concerning forward-looking statements in this morning's press release, which is located on our corporate website at jmsmucker.com.

Additionally, please note the company uses non-GAAP results to evaluate performance internally as detailed in the press release. These non-GAAP results exclude certain items that affect comparability. One such item for the fourth quarter was a $58 million or $0.34 per share noncash impairment charge primarily related to certain trademarks of the Pet Food business, representing less than 1% of the company's total non-goodwill intangible assets. This charge is excluded from the segment profit and the non-GAAP profit measures we will discuss this morning.

We have posted to our website a supplementary slide deck summarizing the quarterly results and our fiscal 2018 outlook, which can be accessed through the link to the webcast of this call. These slides and a replay of this call will be archived on our website. If you have additional questions after today's call, please contact me.

I will now turn the call over to Mark Smucker.

Thank you, Aaron. Good morning, everyone, and thank you for joining us. The end of the fiscal year is a good time to take stock of where we've been, but more importantly, to talk about where we're going in the future. So today, I'll spend a few minutes highlighting 2017 accomplishments, but I'll spend most of my time talking about our strategic road map for the next 3 fiscal years.

Here are a few thoughts that I hope you will take away today. We are well down the path of transforming our company with new capabilities and specific actions to ensure sustainable, long-term growth. We are well positioned for success with great brands in some of the best food categories. And we are capitalizing on current consumer and retail trends, shifting our focus to faster-growth areas.

Our goal in all of this is to deliver on 3 key financial priorities: first, achieving year-over-year earnings growth -- earnings per share growth; second, growing the top line, both organically and through acquisitions; and third, achieving significant cost savings that will provide the fuel for investments in growth and support the bottom line.

Fiscal 2017 has proven to be a pivotal year in gearing up for future growth. While top line softness persisted throughout the year, both for the broader industry and our business, we were able to deliver near-term earnings growth by accelerating synergy delivery and managing budget and cost effectively.

Here's what we accomplished. We achieved adjusted earnings per share in line with our projections for the year, representing a 7% increase over 2016, excluding a prior year gain in tax benefit. We returned over $775 million to shareholders in the form of dividends and share repurchases. We grew key on-trend brands. Sales of Smucker's Uncrustables frozen sandwiches were up 10%; Café Bustelo coffee, up 13%; and Nature's Recipe pet food, up 8%, all for the full year. We drove value by investing in innovation, with products introduced in the past 3 years contributing 9% of 2017 net sales. This included further growth for prior year product launches, such as Dunkin’ Donuts K-Cups and Jif snack bars.

We positioned our pet food business for stronger growth, bringing Nature's Recipe premium dog food to grocery and mass channels, improving the competitive position of Kibbles 'n Bits dog food, investing in innovation and e-commerce to capitalize on growth opportunities for the Natural Balance brand and building out our innovation pipeline in pet snacks.

Lastly, we made significant progress on our cost take-out programs. This included approximately $120 million in incremental synergies for the year, exceeding our initial guidance. We also initiated the next phase of our cost-reduction initiatives, which I will discuss in a moment.

Now let's turn to our company's 3-year strategic road map and how our 2018 plans fit into it. As we began the new fiscal year, we are more confident than ever that our multidimensional strategy provides a clear path to sustainable long-term sales and earnings growth.

First, our brands participate in excellent categories: coffee, pet food, peanut butter and snacking, generally. And we are focused on improving our position in the fastest-growing segments within these categories.

Second, with the mix of leading iconic brands: Folgers, Smucker's, Jif and Milk-Bone, and expanding on-trend brands, like Café Bustelo and Sahale Snacks, we have a strong portfolio that is adaptable and flexible to meet consumer needs. Examples include our success extending the iconic Smucker's brand with high-growth Smucker's Uncrustables frozen sandwiches and, similarly, the Jif brand through the launch of Jif snack bars.

Third, we have reorganized and strengthened key functions within the company to be more agile in responding to customer and consumer needs and added new capabilities to support future growth. The quality of execution and speed-to-market of the Dunkin’ Donuts K-Cup and Nature's Recipe launches are 2 recent examples of our agility. Supported by these strengths, we have developed a robust strategic road map that defines our path to growth and specific initiatives over the next few years. We'll be sharing details of this plan over time. And you'll be able to monitor our progress and our success against this plan. Any strategic plan, of course, has to start with a clear understanding of where the consumer is today and, more importantly, where they are heading in the future. We recognize that consumers' lives have fundamentally changed. Through our insights and analytics, we're developing an increasingly sophisticated view of the link between food and the consumers' sense of a more purposeful life.

Consumers today expect a lot from food. It has to deliver an enjoyable experience, connect them to people and communities, satisfy cravings, promote health and even define who they are. Brands used to be seen as a status symbol of what one could afford. Now they're seen as a signal of one's personal values.

Against this backdrop, we see future consumer choices being driven by several trends. Food increasingly needs to fit into nontraditional fast-paced schedules, providing instant fulfillment while also becoming more personalized to meet specific wellness and functional needs. Consumers are unwilling to sacrifice convenience for quality. They demand both. Consumers recognize that enjoyment and indulgence are essential to a well-balanced life and won't feel guilty about occasionally choosing indulgent foods. And food continues to evoke strong emotions as consumers look for authentic brands with fewer but recognizable ingredients that help them nurture their own identity and connect with others.

All of these themes apply both to consumers' own food choices and what they choose to feed their pets, which are also an integral part of the family.

We believe companies that embrace and address this accelerating pace of change can and will thrive. Change is not new for our company. We have evolved as a company many times before over our 120-year history. Our 3-year strategic road map is designed to capitalize on opportunities that will generate sustainable, profitable growth.

So let me explain how we're doing just that by highlighting key components of the plan that will guide our actions, investments and focus over the next 3 years. At the highest level, this plan is about balancing a focus on top line growth with a diligent approach to cost savings, allowing us to deliver our earnings-per-share growth objectives.

While line extensions will play a role in our path to growth, our goal is to launch new platforms that extend the strength of our iconic brands to meet consumer needs. We will place increasing emphasis on key growth segments within existing and new categories and, thus, transform our portfolio over time. This will lead us to disproportionately invest in key growth brands and platforms. As we have noted previously, we see the greatest opportunities with Jif, Smucker's Uncrustables, Sahale Snacks, Milk-Bone and all of our coffee brands.

We also will extend our current food business to further align with consumers' eating patterns, which center around snacking and low-prep meals.

Innovation will be critical. In fiscal 2017, our growth and innovation teams made great strides, bolstering our new product pipeline, which is now more robust than ever. This includes near-term innovations, such as Dunkin’ Donuts cold brew and naturally flavored Folgers Simply Gourmet coffee, new Natural Balance high-protein offerings and on-trend varieties of grain-free Milk-Bone snacks.

With an acceleration of launches beginning late in fiscal 2018, we expect to deliver above-average organic growth in fiscal '19 and '20 supported by new platforms planned for Folgers coffee, Jif snacking and across our pet snacks brands.

In e-commerce, we are redefining every aspect of our approach, including organization, capabilities and investment, and have recently hired an experienced Vice President to lead these efforts. Our plans call for 5% of net sales to come from e-commerce in fiscal 2020. Pet food and coffee will lead in this area. For example, we expect e-commerce sales for our pet business to increase 50% in fiscal 2018, led by the Natural Balance brand. While the increase in online sales will not all be incremental, we do see growth opportunities for many of our brands.

We are increasing CapEx to add new manufacturing capacity, improve flexibility and productivity at several existing manufacturing plants and enhance our information technology capabilities. We recently broke ground on our new Uncrustables sandwiches plant in Longmont, Colorado. When complete in 2020, we will have the capacity to double sales from the current $220 million level we realized this past fiscal year.

We also have plans for key capital improvements at our coffee facilities in New Orleans and peanut butter plant in Lexington, Kentucky. When complete, these investments will improve efficiencies, lower cost and enhance quality.

This growth journey needs fuel to be successful, and I am pleased to report that in fiscal 2018, we expect to deliver the remaining portion of the $200 million in synergies associated with the pet acquisition. We will continue to emphasize cost management by formally adopting a zero-based budgeting program this fiscal year. This complements work already in progress around organization design, SKU rationalization, revenue growth management and supply chain initiatives, including anticipated benefits related to improved K-Cup economics moving forward.

We are highly confident in our ability to deliver incremental cost savings. This morning, we announced a $100 million increase to our cost management program, resulting in $450 million of total annual synergies and cost reductions under our programs by fiscal 2020.

Finally, acquisitions will still play a part of our future growth. As demonstrated by our recently announced agreement to acquire the Wesson brand, bolt-on transactions provide opportunities to add top and bottom line growth where we benefit from our existing customers and channels, broader participation in existing categories or synergies in our supply chain and go-to-market infrastructure.

Even with the step-up in capital expense and probable future M&A activity, we remain confident that our capital structure and future cash generation supports our capital deployment model: to balance investment in the business with returning cash to shareholders while maintaining our investment-grade rating.

As mentioned earlier, we returned more than $775 million to shareholders in 2017. And during the past 5 fiscal years, we have returned over $3.1 billion to shareholders through dividends and share repurchases.

We are committed to executing against the 3-year strategic road map to delivering growth and to drive shareholder value, and we'll hold ourselves accountable. Consistent with our commitment to transparency, we will keep you updated on our progress along the way.

Yet as important as the road map is for charting our course for the next 3 years, we will continue to pay attention to the factors that have guided us for 120 years: a focus on the consumer, strong relationships with all our constituents and our culture and longstanding basic beliefs, all of which will help the Smucker Company achieve its strategic objectives and provide long-term shareholder value.

In closing, I would like to thank all of our employees for their efforts, their continued dedication as we move ahead.

I will now turn the call over to Mark.

Thank you, Mark, and good morning, everyone. I'll start off by sharing information on the company's recent performance, specifically fourth quarter results and 2017 cash flow performance, before shifting to focus on the road ahead and a little more detail on how we expect fiscal 2018, the first year of our 3-year road map, to look.

GAAP earnings per share were $0.96 in the quarter. This represented a decline from $1.61 in the prior year, which included a $0.42 noncash deferred tax benefit related to the integration of Big Heart Pet Brands into the Smucker Company.

The current quarter results include a $0.34 impairment charge, which was primarily attributable to certain pet food trademarks, reflecting a reduction in near-term sales expectations for these brands. However, longer-term growth rates used in its most recent pet food impairment analysis remain relatively unchanged from prior tests. In addition, the latest analysis continued to indicate no impairment of goodwill.

Excluding the impairment charge and reflecting other non-GAAP adjustments, which are summarized in this morning's press release, adjusted earnings per share were $1.80. This compares to adjusted EPS of $1.81 in the prior year, excluding the $0.42 deferred tax benefit.

Net sales decreased by $24 million or 1% in the fourth quarter, primarily attributable to declines in pet food and, to a lesser extent, the coffee segment.

Adjusted gross profit decreased $13 million or 2%, mostly reflecting the impact of lower coffee volume/mix. Gross margin declined 20 basis points to 37.5%.

SD&A decreased $17 million in the fourth quarter or 5% compared to 2016, reflecting the incremental synergies that Mark referenced earlier. A 10% increase in marketing and higher distribution expense partially offset this benefit. The lower SD&A led to adjusted operating income growth of 2% over the prior year.

Below operating income, the fourth quarter tax rate of 32% was consistent with our expectation. As a reminder, the prior year rate was unusually low due to the integration of Big Heart.

And lastly, fourth quarter results benefited from a lower share count as during the quarter, we completed the 3 million share repurchase program that we announced in February.

Now that I've shared overall fourth quarter results, let me dig a little deeper into segment-specific results, beginning with coffee.

Fourth quarter net sales decreased 1% as lower volume/mix of 5% was mostly offset by higher net price realization. Net sales for the Folgers brand declined 4% on lower roast and ground and K-Cup volume. Conversely, sales for Dunkin' Donuts increased 4%, while Café Bustelo had another strong quarter, up 21%, this on top of a plus 28% comp in the prior year.

Coffee segment profit decreased 14% compared to last year's record fourth quarter, primarily due to lower volume/mix. An unfavorable price-to-cost relationship and increased marketing expense also contributed.

In consumer foods, fourth quarter net sales were flat to 2016. Our spreads business had a strong finish to the year with sales for both the Jif and Smucker's brands up 6%. For Smucker's, this included another quarter of double-digit growth for Uncrustables frozen sandwiches, with fruit spreads also contributing.

Sales for the Crisco and Pillsbury brands declined 11% and 6%, respectively, compared to strong prior year comps.

Consumer foods segment profit grew 19% compared to the prior year. Segment profit growth was fueled by effective management of supply chain costs and successfully executing our pricing strategies. These factors more than offset a significant increase in marketing.

While looking at the pet food segment, net sales decreased 5%, mostly attributable to lower price realization across the portfolio. Taking a closer look at the key drivers impacting this segment, sales for our mainstream pet food brands declined 7%. Nearly half of this decline was attributable to 9Lives as private-label activity is impacting brands that participate in the value segment of the cat food category.

Increased competitive activity within the broader snacks portfolio affected our pet snacks sales, which declined 5%. Notably, Milk-Bone sales grew slightly.

And for our premium pet food brands, distribution gains for Nature's Recipe in grocery and mass outlets were offset by declines for Natural Balance that were attributable to continued softness in the pet specialty channel and supply constraints with a key protein ingredient. As a result, premium pet food sales were down 1%. Pet food segment profit was down 15% compared to a strong segment margin comp in the prior year. The lower net sales were only partially offset by reduced input cost.

For International and Foodservice, net sales were up 4% compared to the prior year. This was driven by growth across nearly all key categories within our Foodservice business and the initial contribution from the launch of the Jif brand in Canada. Segment profit increased 26%, with favorable volume/mix being a key driver.

In addition, during the fourth quarter, we divested our minority interest in Seamild, an oats-based business located in China, resulting in a gain of nearly $4 million, which is included in the segment profit. China remains a priority market for our long-term growth strategy. And we look to leverage insights from this venture as we explore additional opportunities in that region.

Free cash flow was $208 million in the fourth quarter, falling short of our expectations due to higher-than-anticipated working capital, including accruals and taxes, partially offset by lower-than-projected CapEx. This resulted in full year free cash flow of $867 million compared to our guidance range of $950 million to $1 billion.

We ended the year with debt of $5.4 billion. Based on 2017 EBITDA of $1.6 billion, our leverage stood at 3.4x at April 30. This was higher than our original year-end projection of just over 3x, reflecting borrowings to finance the $420 million share repurchase program completed in the fourth quarter.

Now that I've covered fourth quarter results, let me walk you through what we see for fiscal 2018. This guidance excludes any impact from the recently announced agreement to acquire the Wesson brand.

We expect net sales to increase approximately 1%, primarily reflecting the full year benefit of several price increases implemented in fiscal 2017, including coffee, peanut butter, oils and Uncrustables. The net impact of volume/mix is expected to be neutral for the year. Overall commodity costs are expected to be higher, representing 3% of COGS, most notably for coffee, oils, protein meals and peanuts.

While we have announced price increases in several categories across the industry, there's currently an elevated level of pricing pressure, and our business is not immune to this challenge. As a result, we expect the net impact of higher commodity cost to price to be unfavorable in 2018. However, after factoring in incremental synergies and cost savings, we expect adjusted gross margin to be up approximately 50 basis points compared to the 2017 gross margin of 38.8%.

SD&A expenses are expected be up low single digits over the prior year. This reflects a substantial increase in marketing, most notably in support of Nature's Recipe launch and in the coffee segment. Project costs associated with the construction of our new Uncrustables facility in Colorado and investments in e-commerce and other initiatives are also expected to contribute. These items are expected to be mostly offset by incremental synergies and cost savings.

Including the portion expected to benefit gross profit, we are projecting an incremental benefit of approximately $140 million related to our cost reduction programs in fiscal 2018. This includes the remaining $40 million of pet food acquisition synergies and $100 million related to our $250 million cost management program.

Adjusted operating income is projected to increase 2% compared to 2017. Below operating income, we expect interest expense of $172 million and a tax rate of 32.5% to 33%.

Lastly, the weighted average share count of 113.6 million shares was used based on current shares outstanding following the recently completed repurchase program, which reduced shares outstanding by approximately 3%. A portion of this benefit was reflected in the weighted average share count used for our fourth quarter results. Factoring in all of this, we are projecting 2018 adjusted EPS to be in the range of $7.85 to $8.05. As a reminder, this range excludes potential accretion from the announced agreement to acquire Wesson. Our EPS outlook would result in a year-over-year increase of 3%, assuming the midpoint of the range. Excluding $6 million of gain in operating profit associated with the Seamild divestiture and current year expenses associated with the construction of the new Uncrustables facility of $8 million, the EPS growth would be 4%. We anticipate EPS performance to be significantly weighted toward the back half of the fiscal year, primarily due to timing associated with the recognition of incremental synergies and cost savings. This will most notably impact the coffee and pet food segments, which are projected to experience segment profit declines in the first half of fiscal 2018. Specific to the first quarter, we anticipate adjusted EPS will be down in the mid-teen percent range compared to the prior year. This reflects marketing spend associated with Nature's Recipe launch, an unfavorable price-to-cost relationship for coffee and pet food, and a strong first quarter comparison in 2017.

We project free cash flow for the year will be approximately $775 million, with the decline from 2017 reflecting an increase in projected CapEx due to $100 million of spend on our new Uncrustables facility. Capital expenditures are expected to total $310 million for the year.

Other key assumptions affecting free cash flow include depreciation and amortization expense, which are each expected to approximate $200 million; share based compensation expense of $25 million; and lastly, onetime costs of $65 million, which are mostly cash related.

In closing, let me reiterate Mark's opening comments that we are well down the path of transforming our company to ensure sustainable long-term growth. We are confident in our 3-year strategic roadmap and look forward to keeping you informed on our progress towards delivering on our 3 key financial priorities: one, achieving earnings-per-share growth in line with our stated long-term objective; two, growing the top line; and finally, achieving significant cost savings.

We thank you for your time this morning, and we will now open the call up to your questions. Operator, if you would please queue up the first question.

(Operator Instructions) Our first question comes from the line of David Driscoll with Citi.

I want to use my 2 questions, one on pet food and then one on just the philosophy on cost cutting. So on pet food, our data suggests that the company's key brands, the Natural Balance and Nature's Recipe, are being outspent by rival (inaudible) on advertising (inaudible). Can you guys comment on the...

David, you're breaking up. Could you repeat that? We started losing you on Natural Balance and Nature's Recipe.

Sorry about that. So our data suggests that the company's brands, the Natural Balance and Nature's Recipe, are being outspent by the rival brands on advertising. We just like to hear some of your comments on the size of the reinvestment on both brands as they seem to be rather key to the growth algorithm in pet food.

David, it's Barry. Let's me provide some commentary on the Nature's brand and also Natural Balance. First on the Nature's Recipe launch, it's -- it has gone as expected. And we've delivered on the distribution, the points of distribution that we anticipated here early into this fiscal year. The retailer feedback on the brands has been incredibly positive. And we have just begun our national advertising campaign. We indicated that we were going to be spending about $50 million to support this launch. That is the largest support behind any of our brands in the company's history. We think the support that we have behind this brand is appropriate based on the size of the opportunity. Clearly, we're competing with other major competitors in the category. But we think we put together a very robust marketing plan behind this brand with TV advertising, in-store support, digital, across every marketing medium. So we -- we're confident that our marketing plan for Nature's Recipe is appropriate and is competitive. As far as Natural Balance is concerned, that brand has been built through in-store recommendations over the years. And when that brand was exclusive to the indie channel and to one of the major retailers, that brand grew through in-store personnel recommending that brand. When we moved that brand to national distribution, we lost that exclusivity and that in-store support. We spent significant dollars on shopper marketing and in-store support for those brands. We're going to have to shift those dollars from that in-store support because it's not driving incremental sales. We're going to have to shift that to advertising support for the brand to be more competitive with some of the other major players in the pet specialty channel. We can't do that overnight. We're going to have to work with our retail partners to shift those dollars and to demonstrate that by shifting those dollars, we can then drive incremental traffic to the store as well as incremental purchases across the brand.

And if I can move topics to the philosophy on cost cutting. It really seems, Mark, that you have changed materially in your view on cost cutting on the company. I think the $200 million in savings that had been announced just simply since February, that nearly doubles the company's prior goal. Can you talk to us a little bit about this, what looks like a philosophy change and just the key items that caused such a sizable change in, I think, your view as to what the company had to do to be competitive?

Yes, David. This is Mark Smucker. I don't think it's fundamentally a philosophical shift. But as we got deep into our strategic plan, our roadmap for the 3 years, and specifically for this year, we really stepped back and looked at, first of all, have we done enough and what is going to be required to drive both earnings growth and then overall total company growth over the strategic time frame. So as we dug a little bit deeper, we realized that we do have some other opportunities. We had already started down the path. We -- everybody's been talking about in ZBB. And we had already started down a path similar to that. I think what you're seeing now is some more formalized approach on some of those initiatives. But I think the key point is that by undertaking that work and as we map out our 3-year roadmap, we believe that those savings, and we are incrementally building in investments in things like marketing, similar to what Barry just referenced, along the way, that will continue to help fuel our overall growth. So philosophically, not a significant shift. But you're correct. I mean, I think we recognize that we needed to do a little bit more to make that roadmap work.

Our next question comes from the line of Ken Goldman with JP Morgan.

Two questions for me. First, thank you for the guidance. I think one of the things you suggested or said was that as we look at '20 -- or fiscal '19 and '20, perhaps the top line in your plan will be better than usual. I was a little bit surprised to hear that, not because I don't believe that you have some strong innovation coming. I'm sure you do. But just because of the general environment we're in, as you guys discussed today, as many of your peers have discussed, it's still a very challenging food environment. So I just want to think about or get a better sense of, in your plan, are you assuming any stabilization, any rebound of the general food-at-home environment? Are you assuming any slowdown in sort of pressure you're getting from your customers? I think you mentioned at some point that you're not able to take as much pricing as you usually do. I'm just trying to get a better sense of what's drawing that confidence out of you.

Ken, it's Mark Smucker. Thanks for the question. At the core is making sure that we're going where the growth is, and that can be not only in the smaller brands, but it can actually be in our core iconic brands. So as we think about the -- organically, the innovation that is required to continue to support both core and sort of new segments, we have spent a lot of time and lot of work, as I mentioned in my scripted comments, just on the consumer trends and I feel really good about what we've got in the pipeline. You'll start to see some of that at the -- in the back end of this year and then into the next couple years. So our goal, of course, is to grow the top line, which, in turn, of course, will grow earnings. So I think that's sort of at the root of it.

Ken, this is Mark Belgya. Just maybe to add a little bit and tying a little bit to David's previous question from a philosophical perspective and change. One of the things that we've talked about a fair amount internally, and I think you hear us talk continually out from an external perspective, is this whole concept of fueling the top line and the relationship that exists with innovation and top line growth and cost savings. And so as we look to that, as we -- obviously, a lot of that supports the innovation that we're bringing to market in '19 and '20. But sort of to your point about how we're also addressing base business and some of the assumptions assumed there is that as we do generate some of these savings, particularly some of the $50 million that we talked about in excess of the $200 million Big Heart, we can plow that back in and, for example, we can beef up some of our marketing support around the Folgers brand or in some [buried] areas. So while, again, a lot of it's supporting platform-based innovation in those brands, it also allows us to get the marketing spend, and particularly like in coffee, up to maybe a little higher level that can address some of the roast and ground trends that we've seen in the last couple of years. So there is some of that, that is being directed to help address some of the base business to shore up some of the volume challenges.

Okay, that's helpful. And then for my follow-up, I just wanted to sort of expand a little bit on the topic that I touched on a minute ago, which is sort of your customers, I guess, for lack of a better word, not allowing you to pass on as much pricing or as much cost as you once had. A few months ago, we had talked with a bunch of food producers. And they suggested that although the environment is difficult now, that it really wasn't much more difficult than it was previously. Your comments today maybe signal a change. Have things changed in the last couple of months? Perhaps, the [legal entry] is getting closer because it's not often that we hear companies say that they're getting enough pressure from their customers, their grocers that they actually can't take pricing. That's kind of a new phenomenon. So just if you could help us with that a little bit, that'd be great, too.

Ken, it's Mark Smucker, again. I'll start. Maybe Steve has some additional commentary. But the first thing I would say is we have been successful and effective at pushing through price changes, particularly increases. I think that speaks to our customer relationships and -- that they've always been strong. So we have heard a lot about this additional pressure. I think one way you could think about it in a few instances with a couple of the larger customers, it might take us maybe a little bit longer, but -- to get the prices through. But at the end of the day, we've been very effective in explaining to our customers and justifying that these price increases truly are needed. And therefore, I think we -- that's why we've been successful.

Sure. Ken, this is Steve Oakland. I would say, to add to what Mark has said, I mean, the level of rigor and support is probably the greatest we've ever seen when we have pricing to have our customer understand why. We're fortunate to have the bulk of our volume, at least our U.S. retail volume, to be #1 brands. And those brands that are commodity tied, it's important that the leader is priced right with the commodity because that drives the umbrella for private label. It drives all of those things. So in the end, those dialogues have been difficult. But we've been successful. And we've been successful in oils. We've been successful in coffee. We've been successful in peanut butter, Uncrustables. Now those are market-driven. We -- as you know, we've been in a long trough of low commodity cost. And as those things have firmed, as the future looks a little stronger for some of those commodities, we've been able to reflect those. To your point, though, there's been a tremendous amount of rigor to get that done.

Our next question comes from the line of Farha Aslam with Stephens.

Could I ask just more color on coffee? You highlighted that volumes in the quarter were soft. How they appear in the first quarter? And how do you anticipate volumes to progress into the year?

Farha, Steve Oakland. Farha, I think if you go back and look at last year's numbers, you'll see that the first quarter a year ago was one of the better quarters we've had in mainstream roast and ground in a long time. So we've got a pretty steep comp. We've got higher green costs earlier in the year. As you know, the current green market probably will hit us later this year. And so I would expect, as Mark Belgya said in his opening comments, I would expect the coffee segment, in particular, to have a back half loaded year. So I think the first quarter trends might be difficult in that business. We don't see that as a -- we don't see that fighting us all year though. We do see some real opportunities in all of our segments, in mainstream roast and ground, in premium. We did touch very briefly on the K-Cup opportunity. We talked about that at CAGNY. We do feel more confident than ever in our relationship with Green Mountain that we are going to be able to unlock that, the potential of that business as we get later into our fiscal year.

That's helpful. And then If could you comment on your Milk-Bones and your pet food -- or sorry, pet snacks portfolio? You highlighted that you're introducing the innovation of grain-free snacks, the marketing support behind it. And can we expect Milk-Bone to accelerate and how should we think about the entire snacking portfolio in pet food?

Farha, it's Barry. Let me just add some commentary to that. As you know, we're the category leader in snacks, and that we've driven that category growth. As far as Milk-Bone is concerned, that brand remains strong. Over the last year, we've stepped back and developed a master brand strategy really to reinforce and build relevancy of the Milk-Bone brand, and we also think that will also help provide a solid foundation for us to move into some other segments, growth segments that the Milk-Bone brand doesn't participate in. We launched the grain-free products that Mark referenced earlier. We're supporting that with some marketing investment. We have some other closer-in innovation that we'll launch this fiscal year that also will be under the Milk-Bone brand, and we have a tremendous pipeline of innovation that we're building that you'll see come to life in '19, so that will allow us to grow the Milk-Bone brand significantly as we move it into some new segments. So we've developed these innovation platforms that have multi-year growth opportunities for Milk-Bone. One of the other challenges we face this year is in the natural meat segment with the Milo's brand. And our plan going forward for fiscal '18, we have incremental marketing, we have new packaging, we have new product innovation that we'll be launching in fiscal '18. So we think that will also drive some incremental growth in '18 across our snacks portfolio. So those will be some highlights I would add, both near-term for '18 and then longer-term into '19 and '20.

Our next question comes from the line of Chris Growe with Stifel.

I had 2 questions, if I could. The first one is, as I think about this new strategic road map, kind of this 3-year plan, is fiscal '18 sort of setting the stage for fiscal '19 and fiscal '20? Is this sort of an investment year? Is marketing going up a lot? Just trying to get an idea. You, obviously, have a lot of innovation coming through later in the year, into '19. Is this the investment year to kind of get ready for that? Or does that come as the innovation hits?

Chris. It's Mark Belgya. Thank you for the observation. It is an investment year, particularly in marketing. Obviously, we'll need to support those brands as we bring out the innovation in '19 and '20. But we do see '18 as an opportunity to do -- to invest in a host of things. And again, to go back to what I said earlier, we did take about $50 million of those over-delivery on the Big Heart synergies and are plowing those back into the business, both in investment and marketing as well as other capability building. So we do see it as a year. I think that the point of real positives though is that despite a fairly significant increase in marketing, which is sort of characterized as sort of low double-digit over '17's numbers, we're still showing a reasonable good EPS growth as we indicated by our earnings guidance range. So more to come, but all in all, it is a bit of an investment year.

Maybe along those lines, if you've got a total pool of savings of $450 million and we have talked before about $50 million of those savings being earmarked for reinvestment, is there a larger number you can give now in relation to that total $450 million? How much do you intend or hope to reinvest back in the business? Or is that getting too far ahead of ourselves?

Yes. So let me just give you some -- a couple of points that -- actually I appreciate the question because we wanted to get a couple of things out just as it relates to our cost programs as it -- to differentiate a little bit what we do with synergies. First of all, we really are looking at the pool as $250 million. So despite the fact it was sort of built incrementally, we would like for everyone to think of it that way. And the first $50 million, as we just talked, is being reinvested. The second thing is we're not going to go through a lot of detail in future quarters to outline the buckets where the saving have come from. I think that measure for you will be, are we delivering margin enhancement and growth. But to say -- to be specific where the savings are coming from that's just -- I don't think that benefits. And candidly, it gets a little bit more difficult as the savings sort of merge and lines go more blurry. But to your question specifically, I think what you're going to see is there's not going to be a penny-for-penny drop to the bottom line. We still feel at the end of the day, we'll see a lot of profit growth and most of those dollars will hit the P&L. But as we innovate, we expect to bring to market very profitable products that will drive margin growth. So at this point, I -- certainly, the majority of it will, but I don't want everyone to take away that we're just going to take the $200 million and sort of portion it out between now and 2020 as the way it will hit the bottom line. So -- and I think Mark and I both said it, we'll continue to keep everyone abreast to our delivering of our savings so you'll be able to track it along. I think as things materialize, too, how those spends will occur. But we feel very confident that a vast majority of that will ultimately hit the bottom line.

Our next question comes from the line of Jason English with Goldman Sachs.

A couple of quick questions. First, I think you guys mentioned the potential savings really to your K-Cup business. On that front, any chance you could quantify what you're thinking? Can you let us know if it's buried in guidance? And can you let us know if it's assumed in your incremental cost savings?

Jason, that -- it would be not prudent for us to get specific numbers on the exact amount of savings. But it is in our guidance, and we feel confident enough with our partner, KGM, and with -- under Bob Gamgort's leadership. We feel like both companies understand that there's a real opportunity here. And the Folgers brand, the Dunkin' brands are key to that system, they need to be successful and I think we're aligned on a whole new level of cooperation. So unfortunately, it's going to be in the back half, and it's going to be in future years. But I might quantify one other comment. If you look at the K-Cup category, the K-Cup category right now, 41%-ish, that would be a round number of the dollars or K-Cups. It's only 21% of the Smucker Company's sales. So if we have the right agreement, the right partnership with KGM, there's a significant unlock over the next couple of years for us with K-Cups.

Jason, it's Mark Smucker. It's Mark Smucker. I might just add to Steve's comment that really, what -- one of the couple things that we'd like you guys to take away from the Keurig comments is that, as you all know, over the last -- I don't know, maybe couple years, our K-Cup business, particularly our Folgers business, has been underdeveloped as -- versus the rest of our portfolio and as you compare us with potentially some of our other competitors. What we would love for you to take away is that with this, the partnership and the level of cooperation that we're getting between both companies, that we will be on a level playing field, that we will have better distribution and potentially an expanded portfolio. So relatively speaking, that portion of our business should come more in line with the category.

Okay, good luck with that. My second question is on cash flow. It seems like you guys are spending a lot of cash to make, I guess, what you call cash EPS. In free cash flow, you continue to fall short of the bogeys that you're putting out there, and it looks like it's going to be another disappointing year ahead. What is the path to try to get you back to your targets of cash from ops and free cash flow? Is it just going to be more burn through the P&L to keep the savings going? Or is there something truly episodic here? And is there reason to look forward and see an inflection going forward?

Jason, it's Mark Belgya. A couple of things, and we had this conversation internally. Free cash flow measurement, and this is going to sound elementary, I admit, but it is at a point in time. And so while this year, we delivered call it $870 million, if you add that to what we delivered last year, which is $1.2 billion, we've delivered over $2 billion in 2 years, which is pretty much right in line where we thought we would be after 2 fiscal years. So -- but recognize that we did fall short of our estimate this year, so just to point that out. I think in terms of future, this year or next year, you're going to see an accelerated CapEx number, primarily because of Longmont. We disclosed those numbers, but that will drive -- I think what we need to do is as we continue to drive earnings growth, I mean, earnings growth is going to be a big driver of our free cash flow. And then I think the other opportunity, and this is some of the cause for the undelivered -- under delivery this year is that we have opportunities still in our working capital. While we did a great job in fiscal '16 around inventory, I think there's continued opportunity across all components of working capital, inventory receivables, payables to continue to improve those to capture some cash there. So I think as you see earnings growth, the CapEx requirements drop off, particularly like in '20 and '21, and then as -- I don't want to say we're going to put a large program into place on working capital, but I think just kind of putting our nose to the grindstone, those 3 components will get us back on track to what we talked about a few years ago.

Our next question comes from the line of John Baumgartner with Wells Fargo.

Steve, I'd like to come back to the coffee business, really in 2 areas. On the single-serve side, it seems as if you're selling a product that isn't private label or attached to a foodservice name like a McCafé or a Dunkin' or a Starbucks, growth is pretty hard to come by, and that's just the nature of the category. So I guess, A, how do you stabilize Folgers K-Cups? Is it really just a pricing game at this point? And then B, in the regular roast and ground business, the category of volumes have been weaker there, I guess, calendar year-to-date. What do you attribute that to, and how do you feel about the price points there relative to demand?

Okay. Let me touch on the K-Cup opportunity first. Clearly, there's been a segmentation within K-Cups, right. And there's a super-premium segment, there's a premium segment and there's the mainstream segment, right, and then there's a value entry-point segment. We've got to get Folgers positioned and priced right. And if you can imagine, we were the first big brand in this, right. So the agreements that we have are not contemporary. Volumes in K-Cups this last year grew 10% in volume, but only 3% in dollars, right. So the deflation in this category was not contemplated in the -- in our legacy agreement. So we've got to get an agreement that allows us to have the right pack sizes, the right items, in the right channels with the right price points. So we're convinced, if you dig into that, you'll see other mainstream items that do well if they're priced and merchandised in the right places at the right price points and the right sizes. So we've got some work to do that and our partner understands that.

So with regards to Folgers. Now will Folgers be the fastest-growing piece of that business for us? Probably not. Dunkin' will be. And so having the same characteristics for Dunkin', the right economics and the right access to the right spots, will -- we think Dunkin' will lead the growth in our one-cup segment. But we think Folgers can play the right role. Folgers has a great opportunity, so that's with regard to there. If I go back and I look at mainstream roast and ground. If you dig deeper into the IRI, you'll see that the Folgers business did pretty well in some of the discount channels, in some of the mass retailers and some of the club accounts, right. The traditional grocer in the United States has a lot more options today and with 41% of the dollars coming from K-Cup, roast and ground has to be able to give that retailer the right price point, the right margin requirements, which is new in this, roast and ground usually didn't provide the retailer enough margin. In order to get to the kind of excitement in merchandising. So as we go forward, both the innovation, the marketing support and the trade dollars will be designed to give that retailer a viable option for roast and ground to make roast and ground, again, an attractive merchandising opportunity. And that's what you see reflected in our plan for next year. So we think roast and ground has its place. It's a big business for us. Does it need to grow for us to be successful? No. Do we need to perform at/or a little better than the category for us to be successful? Yes. And we think that's a reasonable objective for that team.

Our next question comes from the line of Rob Dickerson with Deutsche Bank.

I just had a question very generally on the long-term guidance that you had set forth, I guess, and kind of walked through when you had purchased Big Heart Pet. And if we think about 3% net sales growth, right, so for next year, but I don't know, depending on the timing of Wesson when that comes in, 1% organic sales growth would be a potentially -- actually could hit a 3% number on the top line. But just in terms of some of the growth targets you had outlined, which kind of always come up, the pet foods growing 4% to 5%; coffee, 2% to 3%, et cetera, and then as it kind of flows down into the 3% net sales and the 8% earnings per share. Is there -- from a timing perspective, when you say '18 is kind of somewhat of an investment year, the '19 and '20 should be better, maybe a little bit ahead of plan on the top line, which I'm assuming should translate into maybe a little bit, obviously, better earnings growth on the bottom line. Is there any like -- is there any change in those buckets and then also in total aggregate long-term growth targets over, let's say, the next 3 years given the plan, given reinvestment needs, given the uptick in savings? Or is basically everything still status quo even though we have all these kind of pretty volatile moving parts within the business?

This is Mark Belgya. Thanks for the question. I think that the shorty answer is there's nothing dramatically different from our long-term growth objectives. And I appreciate the question since we have talked about the 3-year road map. With where we are guiding this year, obviously, to get to an 8% earnings growth, we would have to tick that number up in '19 and '20. We really are talking more longer term when we speak about our growth rates. We do think that the earnings should accelerate as we see more of the cost program flow through the bottom line. And I think the other thing, and again, this is a little bit longer out, as we continue to delever, we get the benefit of obviously, the lower interest and then share repurchases as those opportunities become available. So I think we still feel good about that longer-term, sort of 8-plus percent that we talked about. As the year goes and we get into next year, we'll be more specific about the growth rates in the time frame of '19 and '20. But then on the top line, we still feel good about the growth rates that are out there. If you just -- like you said, if you look at Wesson, once that's in the company, that's a couple percentage points of growth, and so that 3% still feels right even in the environment we're facing. So again, a little bit of an -- added on there, but we still feel that the 3% top line and ultimately, 8% EPS is still the right way to think about Smucker Company.

Okay, great. And then secondly, just on the Wesson acquisition, in your guidance as of now excludes Wesson like on the top line, and also for the bottom line. I think you said it when you announced it, it was -- I think it was $0.10 potentially accretive in first year post-closing. So I guess number one is, are we -- what are the expectations for that closing? And then off of that $0.10, let's say, if it were to close at the end of Q1, is guidance, obviously, then, whatever, 75% of the $0.10. So really kind of true guidance of whatever you have plus $0.07 and maybe there's upside from that?

Yes, it is Mark, again. At this point, as we announced the transaction, you got the numbers right. When -- the first full year after the closing will be $0.10. We're really not in a position at this point to comment on the closing. It's obviously going to be subject to regulatory review and approval. We're nearing the submission of that, so that clock will start. What we will do is we will provide updates as we can, as we move through the course of the quarters, and where appropriate we'll adjust the guidance to include or not. But at this point, we have just specifically excluded because we just are uncertain as to the actual closing date.

Our next question comes from the line of Alexia Howard with Bernstein.

Okay, so can I ask about the retailer environment and then consumer trends? On the retailer side, we've been hearing that some of the retailers have been promoting their private-label products pretty heavily. I'm just wondering if you could comment on whether you've seen that, where it's concentrated and how you're responding to that. And then my follow-up would be on the consumer side, we're hearing that consumers are sort of flocking to the edge of the store. Obviously, your Uncrustables area is in the chilled section, but is that going to be continue to be structural trend away from the center into the edge? How do you respond to that strategically over time?

Well, Alexia, it's Steve Oakland. I'll start. With regard to the customer private label, there is no question that a number of our customers see the growth of hard discount, right, of Dollar, of all the -- of the inference of Lidl as a threat, especially those large mass merchants, right. And I think they see private label as one of the arrows in their quiver to get them price points to compete with those channels. And so we've seen aggressive activity in all the commodity-based things, in coffee, and across a number of different categories, right. I -- so are we concerned about that? Yes. Does it interact with some of our business? Yes. We are fortunate in most cases to be the brand leader in our core categories of peanut butter, of roast and ground coffee, those things. So we're probably a little less impacted than the #2 or #3 brand is, but we do have Folgers, in particular. We understand what price points we need to hit on that product to maintain the right pricing gaps. In the vegetable oil business, we understand -- we have great detail on the gap we need to have with private label. We can be above private label in all of those cases, but we can't let those gaps get too large. And so we've got pretty good analytics on that. I think we've got a pretty good line of sight on that and it's in -- and I would say it's in our plans for next year, right. Those activities are reflected in our plans.

Steve, maybe I would add a comment just on pet. Alexia, one of the reasons we were so attracted to the pet category initially was because it has one of the lowest concentrations of private label across any of the categories, really, across the retail environment. So although we're seeing some increased focus by a couple of retailers in private label, we don't see any significant shift there from an overall category perspective relative to pet.

And Alexia, it's Mark Smucker. I'll take your consumer question. So you're right, as we all know, we've been talking, but this has been a trend for some time. The shift of -- some shift to the perimeter of the store, I would say that is one trend of several that we sort of outlined in the prepared remarks. What I would say is that the reason we still feel so good about our business is because we're in good categories. We're not in -- we're in categories that still have growth potential, and so part of our objective is to make sure that we are shifting to those parts of the respective categories where the growth is. And so the consumer is not going to abandon the center of the store. They will focus on some of those key categories, and there is value. If you think about the mainstream consumer and the value consumer, those folks will continue to shop in the center of the store as well, as will the higher-end consumers. So we think we're well positioned. We still have confidence in the center of the store. Are we opposed, as we think about our portfolio over time, would we participate in the refrigerated section? Potentially. It's certainly not out of the realm of possibilities. In our frozen business, the frozen category has been challenged. But again, we're in the right part of that category. So I think that's overall why we still feel good about where we're positioned.

Our next question comes from the line of Akshay Jagdale with Jefferies.

So 2 questions. First on organic growth and second on M&A. Historically, obviously, you've done a great job with M&A. But just going back to a question you answered on the long-term growth algorithm. When you look at the next 3 years, why is it still the right algorithm to be -- show 3% growth when, if you look at the last 3 years in each of your segments, you've underperformed that pretty significantly, especially in pet food and coffee? So can you just help me understand why you still feel that in a tougher environment potentially, where you had last 3 years where you've underperformed significantly, those long-term algorithms, why it's still the right algorithm to look at? And then I have a follow-up on M&A.

Yes. Akshay, it's Mark Belgya. So a couple of things here is that, I think you have to look at our expectations holistically. So again, not to put too much weight on Wesson, but Wesson is a 3% top line growth rate. So we think that those bolt-on opportunities do exist in a host of categories for us, so that's there. But I think it comes back to what we have experienced the last few years there, as Steve mentioned earlier, we were in a period of low commodity cost, so those have been reflected in deflation. Yes, we've had some challenges in the category. We're not going to certainly blame it all on deflation. But as we talked throughout the course of the morning, we are generating these additional dollars to support growth through innovation. And we've talked over the last few quarters about platform developing and not just line extensions, and we firmly believe that the categories -- or platforms we're going to bring to market are going to allow us to hit those numbers. And again, it's why we thought it was so important to talk about this 3-year road map and this constantly circling back to see how we're delivering, because we feel that these innovation capabilities are going to allow us to hit 3%. And while we have to be aware of what's happened in the past, we can't be driven by what's happened in the past, and we have to take responsibility for growth, and that's what we're doing.

Okay. And so -- again, it seems like M&A is part of that. I was focusing more on the organic side. But on M&A, the large deal that you've done recently, I mean, what are your learnings from the business that you just recently acquired, where there's clearly been some challenges relative to what you would have expected from that business when you bought it? So what are the learnings from that one that you can apply to future deals? Obviously, your -- over a long period of time, you've created a lot of value with deals. But can you just help me from that lens if you look at pet food, what you learned?

Akshay, it's Mark Smucker. I'll start and then ask that -- the others if they have any additional comments. So first of all, again, pet is a fantastic category. This -- we've got some great brands in there. As we've acknowledged in the past, I think the integration was a little more difficult than we would have expected historically, but we're through that now, and so that's why we continue to feel optimistic about the pet business. I guess, another learning would be is, we're up against two very formidable and well-respected competitors. And we have to continue to compete with them, and they do a great job, so I think -- just thinking about the competitive set. And then as part of the integration, as we did get through the integration, we inherited a -- some nice innovation. But as we were integrating the business, we probably maybe took our eye off the ball a little bit on making sure that, that pipeline was full. And so we're back, and we've got a great pipeline as Barry alluded to. So over the next year or two, you're going to start to see some things come to market that should help the business overall. So there's components of the business that are -- we have to be mindful of getting our pricing right. There are other parts of the business that are really less about value and more about benefits to -- or perceived benefits to the pet and the consumer. And so it's a broad portfolio. We play in basically every segment of the pet business, and so, again, I think that's why we continue to feel optimistic about it. I don't know if you guys have anything to add.

No. I would agree with that, Mark. And probably just one other point is, at the same we were integrating the pet business, we were also transforming other parts of the organization, building an innovation organization for the entire company. We're building a market development organization as part of our sales team, another transformational capability for long-term growth. So I think that just added to the complexity of the integration, but things that we were doing that we thought made sense for the long term. So it's just one other perspective, but I agree with your comments relative to the pet business. It's a great business, it's a great category, great brands, and we still think -- we still see tremendous growth potential for the business.

Our next question comes from the line of Pablo Zuanic with SIG.

Just 2 brief questions (inaudible), if I can, please. In the case of pet food, can you give us an update for the industry level, where specialty is versus mass? It just seems that the mass channel is doing better than specialty now. That's the first question. And the second one for Steve, maybe. In terms of K-Cups, I know the question has been asked in different ways, but the volumes are up 10% at the category level you said, and then value is up 3% only. But that's not because of price deflation that you have to go through the value brand [below] the private label, right? So what has to happen at the category level in terms of innovation, in terms of category management at the shelf level, in terms of new machines, lower price entry point machines to try to open that category?

Pablo, it's Barry. Let me speak to the channel dynamics. As I think you are aware, pet specialty continues to be challenged with in-store traffic. And so that is a continuing challenge across that specific channel. But as we're seeing consumers shift to e-commerce, a lot of those consumers are moving into e-commerce. And obviously, one of the major retailers just acquired a major player in e-com, so the part of their strategy. Mark talked earlier about the initiatives we have in place as we're putting more resources against e-commerce so that not only can we capture those consumers that are shifting out of store into e-commerce, but how do we drive incremental sales through e-commerce. And then to your point, as the consumer is looking to buy their products wherever they're shopping, the category is healthier in the mass and U.S. retail channels. Just getting back to the Nature's Recipe launch, our retailers are telling us that, that launch is anywhere between 25% to 50% incremental to them. So again, it just speaks to where the consumer is looking to buy their products.

Pablo, Steve Oakland. I'll talk a little bit about our thoughts on the K-Cup, the macro situation in K-Cups. And you were right, we -- the category and the system needs to win for that category to continue to grow, okay. The good news is, units are up, so the consumer is voting with their share of coffee cups, right, that they like the system. It is fair to say that we've seen a lull in new products, in innovation, in the machinery point of view. I'm really not in a position to comment about what KGM has shared with us, beyond the fact that I think they have a renewed focus on that. They understand the exact things that you're talking about, that household penetration, regardless if it's the top end or the bottom end of the price scale, needs to happen in order for this to continue to grow. So they have a plan that they don't comment as much publicly anymore, but they have a plan for that, and we're encouraged by that. And so we do think though, it is important that we get the right sizes and the right price points in the right venues. And as you can imagine, the agreements that we did as the first player in this, the legacy agreements just did not provide the flexibility that the current agreements do. And so as we transition to that, we think there's an opportunity for us to get our fair share of the current pie and then we got to count on KGM to help us grow that pie. And that doesn't mean that we won't all work together. I think the bigger manufacturers all recognize that growth of the system is in our best interest. So our media mix, our efforts have to support what Keurig is doing.

That's great color. Can I just please, one last one. In terms of the [agreement] portfolio, I know it's only [20%] of your [input] sales, but you said, up -- down 1%, I think. Can you rate that between Natural Balance and Nature's Recipe? And then remind me, I think Nature's Recipe is $100 million in sales, so you're spending $50 million to ramp up the distribution in mass. I mean, obviously, the opportunity must be quite big, but that seems a big number on a sales base of $100 million.

Pablo, I apologize. Let me -- I think I caught the first part of your question as far as the sales for the quarter. The primary driver of that was Natural Balance. That was the softest component of the pet specialty decline. About 1/3 of the decline of Natural Balance was due to some supply issues relative to some unique proteins. We're back in a much better position relative to supply. That's why we're projecting low single-digit growth for Natural Balance going into the new -- next fiscal year. And then Nature's Recipe will provide significant incremental net sales to the overall pet business for '18 as well. So we see strong growth across both of those brands into '18.

And Pablo, this is Mark Smucker. I think your question was about the relative amount of investment in marketing versus the net sales of the business. Barry's comment about the investment was over a 2-year period.

Our next question comes from the line of Chuck Cerankosky with Northcoast Research.

Mark if -- Mark Belgya, if you could quickly explain why the new Uncrustables plant will have an $8 million cost hit this year. I'm just -- I'm thinking more of a capital expenditure. I'm wondering how that will flow through the P&L. Then I have a follow-up.

Yes, Chuck, yes, it's basically that, as you can imagine, most of the spend is going to be capital, but there are certain costs that will be associated with for example, with we have some folks [going] from Uncrustables plant in Kentucky. That's just an example, like a relocation type cost, or a training cost, other site-related costs that just can't be capitalized under accounting rules, that's what it would include. And that would just run through the segment that -- through the consumer foods segment profitability. So it's been built into their plan, but that's where it would show up throughout the course of the fiscal year.

What -- could you reiterate what Uncrustables sales were in the past year, please?

$220 million in total. That includes both the foodservice and the retail side.

Okay. And how would you look at the stock repo activity during fiscal '18? What are some of the puts and takes there? How aggressive would the company be in that?

As we've said in the past, I mean, stock repurchase is a way that we'll support earnings or EPS. We tell people as we talk to our rating agencies and others over -- we kind of average 2% a year, but that does fluctuate. And it really is a combination of what our cash needs are at the time. Obviously, we're managing our deleveraging of our balance sheet. And then certainly where the share price is at. So we just view it as an opportunity, and it's been a key driver for us over the years. But for modeling, what I think most folks have done historically is sort of use that 2% over time -- per year, I should say.

I would now like to turn the conference back to Mr. Smucker for closing comments.

Thank you. First of all, just I wanted to thank all of you for taking the time to listen in today and just reiterate that we do have a proven ability to deliver earnings-per-share growth and shareholder value. We are in the right categories. We clearly understand our consumer and the customer trends and really focusing on the right areas, and we have a clear plan to get there.

So thank you for your time, and thank you to our employees for their dedication and efforts, and we'll see you soon.

Ladies and gentlemen, if you wish to access the rebroadcast after this live call, you may do so by dialing (855) 859-2056 or (404) 537-3406 with the passcode of 17957323. This concludes our conference call for today. Thank you all for participating, and have a nice day. All parties may now disconnect.