J M Smucker Co (SJM) 2002 Q4 法說會逐字稿

Good morning, and welcome, ladies and gentlemen, to the J.M. Smucker fourth quarter and fiscal year 2002 earnings release.

At this time, I would like to inform you that this conference is being recorded for rebroadcast and that all participants are in a listen-only mode. At the request of the company, we will open the conference up for questions and answers after the presentation.

I will now turn the conference over to Mr. Steven Ellcessor, Chief Financial Officer.

Please go ahead, sir.

Thank you.

Good morning everyone, and welcome to the J.M. Smucker Company's fourth quarter and fiscal 2002 investor conference call. I am Steve Ellcessor, the company's vice president of finance and administration and chief financial officer. Thank you for being with us today.

Joining me this morning in from the Smucker Company are Tim Smucker, our Chairman and Co-CEO; Richard Smucker, our President and Co-CEO; and Vince Byrd, our vice President and General Manager of the Consumer Market. After this brief introduction, Richard will provide you with a review of our financial performance for the past year, and then Tim will discuss our outlook for the coming year, including the success of our integration activities with Jif and Crisco.

At the conclusion of their comments, we will be available to answer any questions that you may have. We expect the call to last approximately 45 minutes.

If you have not seen our press release, it is available on our Web site, at www.smuckers.com. If you have any follow-up questions after today's call, please feel free to contact me, or our treasurer, Mark Belgya.

Before we begin, I would like to remind you that certain statements in this presentation and during the question-and-answer period that follow may relate to future events and expectations. And as such, constitute forward-looking statements within the meaning of the Private Securities Legislation Reform Act of 1995. I invite you to read the full disclosure statement concerning such forward-looking statements in the press release.

With that, I'll turn the call over to Richard Smucker.

Good morning and thank you for taking the time to join us on the call this morning.

Since we last spoke to you in February, the organization has been very active in finalizing the close of the Jif and Crisco transaction and preparing for the transition. While this process requires significant time and attention from all levels within the organization, we did not lose focus on our core business. All our business areas continue to perform exceptionally well, and we achieved record results for the fourth quarter and for the fiscal year in both sales and earnings per share.

Let me first comment on the fourth quarter. Sales were up nine percent over last year, as each business area realized an increase over the prior year. Our core business grew at approximately four percent, while sales from the industrial ingredients business that we acquired last October added the remainder.

This strong sales performance follows on the heels of our third quarter, which was up 10 percent. GAAP earnings per share were 26 cents. However, this included 11 cents per share of costs associated with closing the Jif and Crisco merger.

Excluding these one-time expenses, earnings per share were up 23 percent over last year, and in line with analyst expectations.

Turning now to the full year, we are very pleased with our fiscal 2002 results. The company achieved record sales of 687 million this past year. This represents a six percent increase over last year, and was the result of sales growth across all our business areas. The domestic segment sales were up six percent. Sales in the consumer business area grew four percent in 2002, versus last year, due primarily to the expansion of the Smucker's sugar free fruit spreads, growth in natural peanut butter, and Smucker's Goober peanut butter and jelly combination products, as well a number of new products.

The company's food service area increased sales nine percent this year, compared to 2001, as sales and distribution of Smucker's uncrustables to schools continued to expand. Sales of traditional food service products, while up one percent, included some softness due to the impact of a weak economy and declines in the travel and leisure industry. Sales in our beverage area were up seven percent for the year, due primarily to growth, strong growth, in the RW Knudsen family, and Santa Cruz Organic products.

Sales in the industrial segment were up 11 percent in 2002. The increase was primarily due to the acquisition of the IFF Food Preparation business in October. Sales in the international segment were up four percent over the prior year. In 2002, the Canadian business increased sales four percent in local currency, and sales in our Mexican and Latin American markets increased 22 percent over the prior year. Approximately 1.9 million of the 3.5 million increase in international sales was due to the addition of the Brazilian portion of the IFF business.

EBITDA was nearly 91 million, and represented an increase of 16 percent over last year. On a gaap basis, net income for the year was 30.9 million, or $1.24 per share, which again includes the impact of the merger related cost of approximately five million, or 13 cents per share. Excluding these costs, the company achieved record earnings of $1.37 per share, a 19 percent improvement over $1.15 for fiscal 2001.

As we stated in our earnings release, the company elected to change its method of accounting for certain inventories, from LIFO to FIFO during the fourth quarter. This change puts all our inventory on FIFO. It also improved our interim reporting, as the company will no longer need to estimate fruit cost before the completion of a growing season. As a result, and as required by this changed, we restated our fiscal 2001 financial results, reducing the fourth quarter and full year's EPS by six cents and 14 cents respectively.

Turning to our balance sheet, you will note that we ended the year in a very strong cash position, as a result of strong sales, efficient management of working capital needs, and lower capital expenditures. Our debt level remains at 135 million, or approximately 45 million net of cash, and our debt as a percent of capitalization is 11 percent. Clearly, we have a very strong balance sheet to support our future growth.

The strong results this past year are a product of the successful implementation of our three-pronged growth strategy. Let me tell you a little bit about our success in these three areas, and provide examples of how we are achieving growth.

First, our leg is to grow expanding market share of our existing products. We continue to identify opportunities to expand our share of market in the fruit spreads category, as evidenced by record levels of share of market, in excess of 40 percent this past year.

We also experienced strong growth in the natural peanut butter category. We have a proven ability to expand our presence in so-called mature markets, and will call on these skills to further develop the Jif and Crisco brands.

The second leg of our growth strategy involves developing new products. As I mentioned earlier, sales and distribution of Smucker's Uncrustables to schools continued to expand. For those not - for those of you not familiar with this product, Smucker's Uncrustables is a frozen peanut butter and jelly sandwich without the crust.

In fact, over the past year, sales of Smucker's Uncrustables to schools have doubled. Uncrustables are also sold in our consumer area, and we are currently rolling the product out to an additional 45 percent of the United States, giving us a total retail distribution of 55 percent of the country.

We will continue significant investment spending against this new product for the next couple of years. But we know it has great potential and offers the company a new platform for growth.

Other new products that we anticipate will contribute to growth in the coming year are grape and strawberry fruit spreads in a squeeze container, and the introduction of two new co-branded ice cream toppings - an expansion of our relationship with Mars. These are the Twix Magic Shell and Milky Way spoonable toppings.

The third leg of our growth strategy includes pursuing acquisitions to strengthen our market-leading positions. In addition to the Jif and Crisco brands, which certainly demonstrate this, we have also added smaller acquisitions, such as the IFF acquisition that I mentioned earlier. This acquisition had a significant impact on the performance of our industrial business, as sales were up 11 percent in 2002.

The IFF acquisition contributed to total company sales at approximately 15 million, and five percent per share in earnings during the last year.

The additional IFF business has higher margins that should work to offset the $40 to $50 million of industrial business scheduled to be discontinued in fiscal 2003 and 2004.

At this point, I'll turn the conference call over to Tim for an update on our Jif and Crisco brands, and the outlook for the coming year.

Thank you, Richard, and good morning, everyone.

I would like to give you a brief update on the status of the Jif and Crisco integration, and a brief overview of our business going forward.

We completed the merger of the Jif peanut butter and Crisco shortening and oils business into Smucker on June 1, 2002, in a tax-free stock transaction. The integration of the two businesses and the 400 employees of Jif and Crisco is going very well.

Thanks to the efforts of all of our teams working on the transition and integration plans over the past eight months, we anticipate that we will be able to complete the transition by July 1st, only 30 days after the closing.

The Jif business is performing as expected, and continues to maintain its strong market leadership position. Jif currently has over a 32 percent share of the peanut butter category. The peanut butter category as a whole is up approximately four percent. The Jif facility in Lexington, Kentucky is fully staffed and there are no indications of any operational or supply chain issues.

Inventories are in line with historical levels and there does not appear to be any significant channel loading. Our sales and marketing teams are very excited about the brand, and our focused on expanding the Jif business and creating exciting opportunities for new products and growth.

With the addition of the Jif business, Smucker has become one of the nation's largest buyers of raw peanuts. And as many of you know, the recently signed bill has dramatically changed the support program for peanuts. It appears almost certain that the impact of that legislation will be to decrease peanut prices eventually.

Clearly, the effect for us will be a positive impact on our cost structure, but we do not have enough information yet to assess exactly what that impact will be or to predict to what extent on pricing or margins will be effected. We're currently in the process of analyzing the various elements of this program to determine its effect on our cost structure.

What we do know is that any effect will not be felt until the last half of our fiscal year. And that we hope to use this opportunity to reinforce the value of the category for our consumers and to reinvest some portion of any savings back into support of the brand.

Let me now speak to the Crisco business. Staffing is also complete at the Crisco facility in Cincinnati. The Crisco business, while also maintaining a market leadership position, is facing competitive pressure and sales are approximately $30 million below the levels that we had anticipated at the time of our original announcement. This equates to a reduction of approximately $10 million in EBITDA and 12 cents per share.

We have developed both tactical plans to address short-term competitive initiatives and longer-term strategy to support both the brand and the edible oils category. We are confident and committed to bringing growth to the Crisco business.

With the close of the transaction on June 1st, we want to update the guidance that we provided previously on the combined businesses. Please note that with the June 1st closing date, we will have only 11 months of consolidated results for fiscal year 2003. Therefore, our updated guidance reflects three key factors: first, the previously announced discontinuation of $40 to $50 million of industrial businesses; second, a lower revenue base in the Crisco business; and, third, having only 11 months of Jif and Crisco sales.

For fiscal year 2003, the company expects revenues of approximately $1.3 billion, nearly doubling its fiscal 2002 sales. EBITDA is expected to be in the range of $190 to $200 million, or approximately 15 percent of sales.

Finally, earnings per share are expected to be in the range of $1.84 to $1.94, compared to the $1.37 this past year. These expectations do not include additional merger related expenses, which are expected to be approximately $10 million, or 13 cents per share. It is important to note that the impact of closing a deal one month into our fiscal year, resulted in a reduction of EBITDA of approximately $11 million, and reduced earnings per share by five cents.

Had the businesses been in place for the full 12 months, our estimates would have been in line with our original guidance, albeit toward the lower end of the range, due to the softness of the Crisco business. So in summary, we have never been more excited about the future of the J.M. Smucker Company than we are today. We just finished a year of record results where our core business continued to grow at a strong and steady pace, both top and bottom line.

We added two American icon brands to the family of Smucker, with the addition of Jif and Crisco. This gives us U.S., this gives us brand leadership in seven U.S. food categories, and significantly supports our vision of a company comprised of American icon brands, with the leadership position in their respective categories.

And finally, this success would not have been possible were it not for the amazing dedication of all of our employees at Smucker, Jif and Crisco. It's been a great effort, and we thank each of them for the continued commitment and hard work. We believe that the best way to continue to grow our business, and provide value to our shareholders is by offering high quality, great tasting products to the consumer, at a good value. Pleasing the consumer has always been a priority for us. These commitments have helped to develop a 100 year old brand loyalty that keeps our demand strong.

We thank you for your time, and we're happy to answer any questions that you might have.

Thank you gentlemen. The question and answer session will begin at this time. If you are using a speakerphone, please pick up the handset before pressing any numbers. Should you have a question, please press star one on your pushbutton telephone. If you wish to withdraw your question, please press star three. Your question will be taken in the order that it is received. Please stand by for your first question gentlemen.

Our first question comes from from Prudential Securities. Please state your question sir.

Good morning everyone.

Hi .

Good morning .

Steve, do you have the pro forma EBITDA for the year, including Crisco and Jif, and any kind of pro forma numbers?

I'm not sure I understand what you're asking for.

Well including Crisco and Jif, pro forma numbers for the fiscal year, what they actually came in at?

Well what they actually came in at, no we have not broken that out at this point . We don't have that information frankly, from Proctor and Gamble.

OK. Richard, you know, when you last spoke at Cagney, there was not only a belief that targeted earnings could be achieved, but there was even, you know, some hope for upside to these numbers. Now I know the extra month, but you've kind of like not only taken away lowered guidance, but you've also kind of taken away some upside, which some people, you know, thought existed, particularly with the lower peanut prices.

You know, just in terms of what happened between February and now, is it just 100 percent Crisco?

Well, yeah, I guess the answer is - the short answer is yes. Crisco, if you look at those numbers, that's about 12 cents a share. You add that back in there, that's a significant amount.

We, as Tim mentioned, we don't know the impact of the peanut pricing yet. We anticipate that, if anything, that'll be positive, not negative. And it'll also give us some more money to spend back against these brands.

So, we're not discouraged at all. We think that there is still opportunities here.

Well, Crisco - by my calculations, Crisco sales fell by 21 million in the June of 2001 period when it was owned by Procter. Now you're indicating it's fallen another $30 million.

So we're kind of - you know, I don't know why this trend would have surprised you since February, since it was kind of existing the previous year.

I'm just trying to see why, you know, Crisco drops surprised you.

It, I guess, it wasn't really a - it's not the fact that it surprised us. And it really didn't fall by $30 million. What we're looking at is $30 million below the levels Procter said it would be at year-end.

So, it wasn't just a drop. It's the fact that they said it was going to be at X level. It's $30 million below that level. That wasn't - that wasn't just a drop from the prior year.

And Jif sales were in line with what they said.

Yes.

And again, the fact is, I think Procter kind of went out of their way to sell you the businesses with low retail inventory levels, which might have meant some less aggressive promotions, retail promotions for Crisco.

Is that part of what may have happened, the fact that when you pull retail promotions, this is a business that kind of needs that to have sales?

That's definitely true, and it just lacked attention from their sales force. I mean, this is a product that really requires attention from the sales team. And as soon as they announced that they were going to sell this business it lost focus - much more so than the peanut butter business, because the peanut butter business is much more stable, much more steady, much more day-in, day-out, less sold on deal.

But the Crisco business does require that attention from the marketing and sales team. And to be honest, we felt very good about next year. We already have plans in line for next year's fall bake season. And we actually have commitments already from a number of major retails for next season.

So we think we're going to hit our plan, albeit off a lower base. But we definitely feel very confident about our plan for next year.

OK. Thank you.

Thank you. Our next question comes from Bill Leach of Banc of America Securities. Please state your question, sir.

Good morning.

Good morning.

I was just wondering, roughly, when you look at your sales projection of 1.3 billion, you know, what are you assuming from each business for the new year, and particularly at Crisco?

In terms of absolute sales by ...

Well, in terms of sales or year-to-year. I mean, are you assuming Crisco stabilizes? Or are you budgeting it at a continuing decline?

Yeah, Bill, we generally don't break out our projections by business are like that. But, to your question, yes. We are assuming that we're going to be able to stabilize the Crisco business.

So you're assuming it's basically flat on an apples to apples basis?

Yes.

Yes.

For this year, while we sort of get its feet back under it, focus on, as richard said, giving it more attention, particularly with the customers and then look to take it forward from there.

And is there any way you can quantify at all very vague about that. My understanding is its floor prices dropped about 30 percent. Doesn't that just go right to you?

Well there obviously - we have kind of the same numbers, but the point is, is the question is, honestly, how much of that will we pass on, how much will we reinvest in the brand? Those types of analysis that we're doing now. And, again, these really don't come into effect until the crop comes in. And the crop doesn't come in until October-November.

So we will not see those until, as Tim mentioned, the latter half of our fiscal year. And we have to analyze how we're going to treat those savings.

Right. And until the crop come in, while those numbers are being thrown about, we don't really know what they're going to be until we see what the crop looks like.

Wasn't there a specific cut in support price, though?

Yes.

How big was that?

That's about the right percentage for the cut in the support price.

About 30 percent.

So assuming the crop comes in as expected, yes, you would expect to see that kind of number.

So that should certainly benefit you the following year, shouldn't it?

Certainly.

Yeah.

I mean, assuming that, again, that we're able to get the crop that we would expect, we would see that kind of reduction in the cost of peanuts.

OK, thanks.

Our next question comes from of Salomon Smith Barney. Please state your question, ma'am.

Hi - good morning.

Good morning.

Good morning.

A couple of questions. Number one, on your sort of marketing plans, you mentioned that you have both a short-term plan and a long-term plan for Crisco, aside from you just referenced the . Could you go into that a little more and, you know, kind of talk to the issue of, you know, how - maybe not how you're going to price, but how you might - sort of your assessment of how the competition prices in this category and what you think of that.

And also, maybe talk a little more, now that you've had Jif, kind of, you know, preview what you're planning on doing to it. And then I have one follow-up.

Let's turn it over to Vince Byrd to talk about the Jif, and we'll come back to Crisco.

Well let me just say, in general, on both Jif and Crisco, since the day of the announcement, we've been focusing, as Richard mentioned in his comments, on a seamless integration over the next 30 days to ensure both our customers and consumers have product. But we have a detailed plan that we're working through with our broker network and our sales force and really focusing on the fundamentals. And that's some of the issues that Richard mentioned or Tim mentioned about short-term or tactical initiatives.

But that's making sure that things like the retail shelf is correct, whether it be distribution-driven, retail pricing. We're focusing on the key promotional periods and make sure that those are in place, whether it be the "back to school" with Jif - and, in fact, we're doing a Jif and Smucker tie-in with peanut butter and jelly in the August time frame. And then, of course, the key promotion period for Crisco is around the holiday bake period. And we're now making sure that those plans, if not in place, are secured for that key promotional period.

That's really just a shortening. I mean, the oils business is separate from that.

Well, there is some oil in that time frame as well. It goes beyond shortening.

OK.

And then the last - the last issue is where appropriate our conducting joint calls with Procter & Gamble to ensure that the plans are in place. And, obviously, we're focusing on the key retailers in that initiative.

So I would say that we really wanted to hit the ground running, and we did so starting June 1st, or June 3rd on that Monday, to make sure that we had the short-term issues addressed.

Anything new, on new products on peanut butter you can talk about yet? Not the combinations, but ...

Unfortunately no. A couple of things, couple of points. First of all, as you know, we were somewhat limited in the amount of information that we could have access to, due to competitive reasons. We are just now getting a clear understanding of the initiatives that they had in their pipeline, and the status of those within their process. But I think it's fair to say that the number of new products we're probably limited, given the, again, the lack of attention or lack of focus of those businesses.

You know, on the peanut issue, why, I mean, just a sort of hypothetical, why would you pass back any of the peanut savings in lower shelf prices? Is it, is it your view that consumption is that elastic, or you think it's what the competition will do and you want to lead? I mean, when I look at the category, I'm not quite sure, you know, it's not like coffee where it's, to me it's transparent, why would you pass any of it back?

Well I think it's all of those issues. I think first and foremost we're always, we always want to provide a value to our consumer. And obviously there's been a lot of publicity about the farm bill, and that's why as Richard mentioned, we're looking at a number of alternatives. But clearly we'll want to use it an opportunity to reinvest in the category, and also again, we don't know what the margin impact would be, but we would hope that we would benefit from it longer term. But we think it is an opportunity to hopefully build some consumption as well. And it's difficult to say what our competitors will do.

Right. And then last question, you know, the two, when you struck the deal there was supposedly a two year period of sort of limitation on things that you could do, like asset sales and structural changes in the company, and, you know, that kind of stuff, stock buy back. Is it, am I correct that the rules have changed, and definitively that preclusion has been reduced to six months? Is that ...

You know Jane, this is Steve. I saw that comment in your report, and to be honest with you, that was something that I was not aware of. I'm going to follow up on it. My understanding is that the new regulations on 355E that came out in May, did clarify a couple of different points, that was not one of them that I had heard about. So I will follow up on that. But my, as far as I know right now, we're still looking at the two year period.

So not to be pessimistic, but if you should decide that Crisco isn't something you want in the portfolio, would you have to wait two years? Sorry.

I would think, I would think that it would take us two years to decide whether we were happy with it or not.

Jane.

Yes.

Let me clarify, we are happy with Crisco, right? And ...

I'm not.

... well you know, somebody, that category has been around for a long time, and some, we have a 22 percent share, it's a leading share, but 20 years ago we only had a 20 percent share of the fruit spreads category, and there were a lot of players in it, and the margins weren't as good as they are today, and we were able to take that category and grow it.

Now we don't know if we can do that with oils, but somebody's going to do it, and we're going to be back on air this fall, advertising, for the first time in about three years on that brand. So we are going to, we're going to see what it takes, and we're somewhat patient. And, but obviously if it doesn't fit in the portfolio long-term, we'll look at that, but right now we're excited about it.

OK. All right, I'll let you go. Thank you.

Thank you ma'am. Our next question comes from of Legg Mason. Please state your question.

Yes thanks. Good morning gentlemen.

Hi George.

Hi George.

The, it, you know, I just wanted to clarify. You're one of the - you're the largest buyer of raw peanuts in the United States now with Jif under the corporate umbrella. Is that correct?

Close.

OK. I mean, what I'm hearing is that it's the largest, you know, top three or four, are buyers of, you know, anywhere from 150 million pounds to 200 million pounds a year. Can you confirm that that's the range of volume we're talking about?

yes.

OK.

You're correct. That's ...

It's at least that much.

Yeah, OK.

Shifting gears a little bit to the transition from the Jif and Crisco sales forces to your broker network, can you give us a little bit - Tim, you mentioned that it was a very smooth integration so far. Can you give us a little bit more detail, you know, to the extent regarding, you know, channels? Any - have you seen any in any regions, for example? Or any other issues on that front?

Not really. I mean, there's the natural tendency on customers to be cautious. And they may a little bit, because they've, you know, there are transactions that perhaps haven't gone so smoothly. So, there's some of that.

But all in all, I guess I would say that our customers are very, very enthusiastic about Smucker's with these brands. And we have gotten tremendous support from them, and they're really eager to work with us.

And, as Vince said, we've hit the ground running here, and we're very pleased with the response so far. And we're - we are grateful that there hasn't been, as I said, any significant loading, and that's been beneficial to, actually to us as well as our customers.

Right. OK. And lastly, in April the company deferred the traditional dividend increase, saying that you would wait until after the merger closing. Can you give us a sense of timing there, and perhaps what kind of adjustment we should see in the dividend rate going forward?

Yeah. Our next dividend payment is in September, and we would expect that sometime before that payment we will look at the dividends and increase them.

Would you declare that in July typically?

Yes.

OK. All right. Thank you.

Ladies and gentlemen, just as a reminder, should you have any further questions, please press star one at this time.

Our next question comes once again from of Salomon Smith Barney. Please state your question, ma'am.

Oh, thanks. Yeah, just sort of a broader strategic question. You know, you kind of talked about your mandate as being, I think you said a company comprised of American icon brands with leading market share.

Can you just sort of go into that a little, a little bit more? I mean, you know, there are companies that have taken that strategy and really cast a wide net, and they've become what's known as orphan brand companies. And, you know, I mean, we can debate about whether it's a good strategy or not.

But, you know, talk about how your strategy will differ from that, and kind of what areas you want to expand into, and what you think your unused debt capacity is right now.

Well, first, , the - we are interested in leadership brands, number one or number two. And we think that there is a direct relationship to their profitability and the leadership that they have. And so that's one thing.

We are interested in North American brands. We are also interested in brands that are sold in the center of the retail store that provides leverage for our broker network. And we think those are all consistent.

And then finally, and to your point about Crisco. We're also interested in brands that are sold to the same consumer demographics, and that's one thing that's great about Smuckers, Jif, and Crisco, they all are. And there are other brands that -- that are in that same ilk and we think that perhaps do not fit with other companies that have different focuses at this time. And to our debt level, you know, we've talked about that. We think that this provides with tremendous debt capacity going forward, up to probably, right now, half a billion dollars.

OK. And then, just in terms of sort of management capacity, I mean, you seem like things have gone well in the last, you know, 30 days. Are you -- would you be ready now to do something if something came along?

Yes.

smucker Yes. You know, these timing -- you know, as you know, the discussions with Proctor and Gamble I think have been going on for probably some 20 years. So you might imagine that the conversations we've had with other companies has been going on for a long time and I assume if we all had our druthers, we'd like to get this under our belt a little bit before we went forward. But that doesn't -- life doesn't happen that way. So if opportunity presents itself, we're ready.

OK. Thank you.

You're welcome.

Thank you, ma'am. Our next question comes from of Prudential Securities. Please state your question, sir.

Sounds like is trying to sell your foods. She's smart enough to do that. The tax rate assumption in these earnings guidances is 39, Steve? Thirty-nine-zero?

It's about 38 percent, .

Is that lower than the guidance you gave before?

It is, slightly, yes.

OK, so it's down a point even though the estimates are going down. Why is this tax rate going down from prior guidance?

Because as we've put together our plans for the integration, you know, we've been able to focus on -- stipulate on some state and local activities that we think we can -- where we think we can drive down the rate a little bit.

But again, it's not incremental dimes, it's -- OK, and just in terms of your sales goals, Tim and Richard, can you repeat them again? What your top line is? I know you're very proud of your market share increases, but, you know, the Street, as you'll find over the next few years is kind of more margin oriented. But can you just repeat your top line goals?

In long term goals?

Yes, sales goals.

Well, our sales goals are to grow the core business, and with market share growth in new products at about 4 percent. And then added to that would be any acquisitions we think would add another 4 percent. So our top line long term growth rate's 8 percent.

OK, that's a very ambitious core rate of growth, given the categories you're in.

Well it's -- well, John, when it's core it's made up of the three new products, core business and acquisitions, so the core part is about 4 percent.

And that is aggressive, but we think we can do that. We basically have historically.

OK, and to the extent you talk about this jam and jelly market share, and you said something that it said higher margins. I mean, I go back to '94 where I see you with 11.0 percent operating margins and I see where they came in the fiscal year, you know, kind of below 9 percent. And I'm just trying to, you know, ascertain to what extent, you know, these market share gains have come at the expense of margins.

You know, actually John, it's a fair, it's a fair question. But I think the answer is that they have not come at the share, at the expense of margin in the core business. When you look at our fundamentals back in the early '90s, you were looking at what was predominantly a retail business. And the margins on that retail business were very good, they're very good today. Where the margins are somewhat lower overall today than they were then, it's because we've in our efforts at growth during that period, we got into some businesses that had margins lower than our retail businesses.

What we're doing now is frankly reverting again to more, a predominantly retail business, with those kind of margins. Adding the Jif and the Crisco business to our Smucker's core brand gets us back to a fundamental position that's much closer to what we were in the early '90s, because the percent of our retail business is much closer to what it was then.

OK, thanks a lot.

Thank you sir. Our next question comes from of William . Please state your question sir.

Good morning. Two questions. Number one, just a housekeeping item, on the shares outstanding, with the acquisition completed, what will they, what your best guess for the first quarter and then for the full year of '03? And the second question is a lot of time been focused on your change in guidance for '03, very tentatively, as you look at '04, how do, number one, '04 has 12 months of the acquisition instead of 11, so that's one factor ...

Right.

... and you will have a full year of whatever the impact is from the change in the peanut pricing, but barring those, do you see on a going forward in your, you know, let's say the, at, after the first year of working on your, on your new areas, that the growth that you see in '04 would be different than what you might have seen three or four months ago?

OK. Answering your question first on the full year number of shares would be about 47.8 million.

In the first quarter?

40, about 40.

About 40?

41, about 41.5.

OK.

And then your next question was related to ...

'04.

... '04.

Yeah.

Well I think you're right in terms of the, we haven't given any guidance on that, I think you're right in terms of we'll have 12 months of Jif and Crisco, we'll also have any favorable impact of the peanuts, but we will, for example on crustables we're still going, we're in 55 percent of the United States this year, we're going to roll that out hopefully, to the remaining 45 percent that we're not in, in the following year. And that will be some investment spending, and we want to continue to do that while the, while the momentum's there. But I think that we should be able to grow the bottom line better than the top line.

And on the, on the basic businesses, I, you know, I don't think we see anything different now than we did three or four months ago with regard to our core business, or with regard to the Jif business. Crisco business, certainly we would hope to have stabilized that during the course of this year, and, you know, if we're successful, have lost no more than a year, frankly. And that's certainly our goal, is to get that, to get that business into position to make it grow from that point on. But, you know, it's a little early for us to predict whether we'll be able to do that.

Thank you.

Thank you sir. Our next question once again comes from of Salomon Smith Barney. Please state your question ma'am.

I just wanted to actually state that I would not wish fish sticks or Lender's on a dog. So ...

So, ...

Thank you.

... let someone else. Thanks.

You can - I don't think you'll have to worry about us buying fish sticks.

Thanks.

Whether we're a dog or not.

That's it.

Good. I like ...

Thank you, ma'am. Our next question comes from Bill Leach from Banc of America Securities. Please state your question, sir.

I was just wondering about the dividend. Traditionally you paid out about half your earnings. Is that still the general sort of philosophy?

Generally speaking, we try to keep our payout in sort of the 40 to 50 percent range. And generally - that's generally speaking where we think we ought to be, yes.

So that hasn't changed at all.

No.

OK. Thanks.

Thank you, sir. Our next question comes from John McMillan of Prudential Securities. Please state your question, sir.

Don't worry. I'm not going to try to outdo . It's impossible.

Don't ask us what we're going to do in 2005, please.

OK. If I take - right now there's about 49.4 million shares out, Steve, is that right?

About that, yeah.

OK, so if I take 11 months of that, and one month at the old 24.7, I get a number for the year in terms of shares outstanding kind of closer to 47 million. And did you just say 41.5?

Forty-one five I think was for the first quarter.

Oh, for the first quarter, OK.

For the full year, yes. It would be about 47.8 with dilution.

OK. And in terms of first quarter earnings guidance, would you expect the - now, obviously, it's not going to be even quarters, because you only have, you know, two months of Crisco and Jif and probably not at peak cost saves and whatever.

Do you have some kind of rough idea of where the first quarter might come in?

John, at this point, we're not giving guidance on the first quarter, simply because we are still trying to get our arms around a lot of that.

But one might assume that it would have the least growth of any of the four quarters.

Oh, sure.

Yeah. OK. Thanks a lot.

Thank you, sir. Our next question comes from George Askew of Legg Mason. Please state your question, sir.

Yes, thanks. Just a follow-up on Uncrustables. Can you describe the rollout process there? I mean, it's a little bit of an unusual product. You know, it's buried in the freezer case. It requires a little bit of education, I think, on the part of the consumer.

What's the process there? Do you, you know, are the brokers able to market that, the Uncrustables productively? What's been your experience so far as you roll out to the retail shelves?

George, the answer from the consumer perspective is, there's two key elements. First of all, we take - getting the distribution is fundamental. And where it's merchandised in the freezer case is a very important issue that we address.

But the support for it is two-fold. As you suggest, it's not an easy product for necessarily a consumer to understand, so we do a lot of demonstrations, in-store demos to get them to taste this, because as you know, once you taste the product, you know, it's an easy sell.

Secondly, we have a fairly extensive advertising campaign that we'll be putting behind it in those - in the marketplace. We have to-date, and that commercial's been very, very effective in telling the consumer what the product is all about. And those are the two key things that we focus on.

Now, in addition, there's a lot of public relations events, and there's consumer promotion events. , more of the traditional marketing tactics against it. But it really does get down to, we make sure there's adequate funds for demos, and then the advertising itself.

And what markets are you - you're rolling out two first, and where could I see a commercial?

The 55 percent of the United States would be primarily, I would say, the middle of the United States. What we are not going to right now is the northeast, and nor are we going to the western markets. So if you took a middle slice of the United States, that would represent the 55. As you probably know, currently we're in sort of the Ohio, Indiana, Pennsylvania area.

Right. OK. Thank you.

Gentlemen, at this time I'm showing no further questions, and I will turn the conference back to you to conclude.

Well thank you very much for your time and interest, and we look forward to further discussions. Have a great day.

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