J M Smucker Co (SJM) 2003 Q2 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the J.M. Smucker company's second quarter of fiscal 2002 earnings conference call. At this time I would like to remind you that this conference is being recorded and all participants are in a lisp only mode. At the request of the company we will open the conference for questions and answer After the Fall presentation. I would now turn it over to Mr. Steven Ellcessor. Please go ahead, sir.

Good morning, everyone, and welcome to the J.M. Smucker company's second quarter investor conference call. I'm Steven Ellcessor, Chief Financial Officer. Thank you for joining us. With me this morning from the Smucker Company are Tim Smucker, our Chairman and co-CEO, Richard Smucker, our President and co-CEO, Vince Byrd, our general manager of consumer markets, Fred Duncan, our VP of special markets and Steve Oakland our general manager of consumer oils.

The purpose of today's call, of course, is to discuss our second quarter results and to give you a brief update on the business activities of the Smucker company. After this brief introduction, Richard Smucker will provide you with a review of our financial performance for the quarter and then Tim Smucker will discuss the outlook for the remainder of the year. At the conclusion of their comments, we will be available to answer your questions. If you have not seen our press release, it is available on our Website at www.Smucker's.com. If you have any follow-up questions after today's call, please feel free to contact either 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 follows, 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 now turn the meeting over to Richard Smucker.

Good morning, everyone, and thank you for joining us this morning. The second quarter was marked by record results in our traditional businesses as well as by strong contributions from the Jif and Crisco businesses, which not only met, but in several ways, exceeded our expectations. As you know, this was our first full quarter of operations with the new brands.

This quarter for Jif and Crisco, we have rolled out new marketing plans and promotions, implemented major pricing decisions for each brand, and responded to ongoing competitive initiatives while at the same time ensuring we continue the momentum of our traditional businesses. It's been a very busy quarter, but with very good results. We now feel comfortable that the Jif and Crisco brands have been successfully integrated with no surprises and have and will continue to provide growth and strength to our company.

Turning to the results, the company recorded sales for the second quarter ended October 31 of $367 million, which is an increase of over 100 percent from the second quarter last year. The Jif and Crisco businesses contributed 173.4 million to the second quarter sales. However, even without their contributions, sales would have still increased by 20.8 million, or 12 percent over last year. Our EBITDA for the quarter excluding merger-related expenses, was $60.4 million, up from 21.7 million in the second quarter of last year.

Net income was 29.1 million, or 58 cents per share in the second quarter versus 7.7 million or 33 cents per share in the same quarter last year. The earnings in the second quarter included merger-related expenses of approximately 2.5 million, or 3 cents per share. Excluding those costs, earnings per share were 61 cents for the quarter. With the benefit of full quarter of the Jif and Crisco sales, plus continued strong performance by our traditional businesses, second quarter operating profits increased 37 million over last year, and improved as a percentage of sales from 8.4 percent to 14 percent, excluding merger-related costs.

Gross margin performance also improved in the quarter, increasing by over 200 basis points from 32.3 percent last year to 34.4 percent this year. Good volume through our plants during the quarter and improving operational efficiencies contributed to margin improvements. With those strong second quarter results, we are now at sales of $641.9 million for the first six months, up 87 percent from last year.

Although the Jif and Crisco businesses contributed 260.4 million to that total, our traditional businesses also contributed strongly, up 11 percent over last year for the first six months. Earnings per share for the first half were 99 cents, or $1.09 prior to the merger-related expenses.

Now let's take a look at the results for the quarter in our main businesses. Turning first to our consumer business area, sales of traditional Smucker products were up 7 percent for the quarter. As we mentioned in the release, sales were up in most key categories, including fruit spreads, toppings, natural peanut butter, and our Goober combination, peanut butter and jelly product. In addition we have now introduced Smucker's Uncrustables, our new frozen peanut butter and jelly sandwhich to over half the country at retail, and it's doing very well. The Jif peanut butter line is also part of the consumer business area, and it had a very good quarter with sales up approximately 6 percent in volume over the same period last year. Our competitors in this category have been very active during the transition.

As the quarter's results indicate, though, we are growing the brand plus we are making the brand-building investments need to do drive continued growth for the brand in the future. We have already started advertising behind both brands and have increased the consumer market and expenditures. As we stated in our press release, the consumer oil business met our expectations overall in the second quarter. Sales were behind the same period last year by approximately 2 percent in volume, with increases in sales to non-retail customers partially offsetting a shortfall in retail. This shortfall was primarily due to a very difficult comparison to last October. Last year Procter & Gamble made large shipments in October in anticipation of its fall bake holiday promotions.

This year, however, our promotions are more evenly spread throughout the holiday period, and shipments, therefore will be as well, including key displays in November and December. In general, we're very pleased with the oils and shortenings promotional opportunities that our teams have been able to procure for this year's holiday season, and we look forward to good results.

Turning now to special markets, this segment is composed of the food service, industrial, international and beverage business areas. Each of the four business areas in this segment was up at least 16 percent over the prior year, with total sales in the second quarter of $109.5 million, versus $89.1 million for the prior year. While these businesses are relatively small individually, together they make up a significant contribution to sales and earnings, and we are pleased to see them performing as well as they are.

I'd now like to turn the conference call over to Tim, who will comment further on our progress to date with the Jif and Crisco brand and also discuss our expectations for the remainder of this fiscal year. Tim?

Thanks, Richard. And good morning, everyone. As Richard said at the beginning of this call, we are pleased with our results this quarter and proud of the teams that accomplished them. Last quarter we talked about the pricing decisions on peanut butter and consumer oils that had to be made, and we reacted quickly and decisively in both cases, and we remain confident that the decisions we made were right for our businesses and right for the categories and right for our consumers. We also were faced with strong competitive initiatives that our teams had to react to while at the same time implementing new marketing and sales plans for the Jif and Crisco brands. And we had to stay focused on our traditional businesses and build upon the momentum that we had going into the year.

We believe that our people have done an excellent job in responding to all of these challenges and the results of the quarter and the first six months, we think, are evidence of that. Our goals for the Jif and Crisco businesses are twofold: Short-term, our goal is to reenergize those businesses after a period of under-performance and position them for growth going forward. We believe that we are on the way to doing that in both cases. Then longer term, we will use the strengthened consumer equities that we developed through our brand-building investments to drive share market growth. We have done that successfully over the years with our Smucker's brand, and we believe that we can do the same with Jif and Crisco, as you've heard us say many times.

With this in mind, let me now discuss our thoughts on the prospects for the remainder of the year. Obviously, we had an excellent first half with strong traditional business growth and a smooth and successful transition of the Jif and Crisco businesses. And we look to the second half of the year, as we look to the second half of the year, we expect to see continued growth. The fruit spreads, peanut butter and toppings categories all continue to exhibit good growth characteristics, and the oils and shortenings categories, which have been soft in recent years, are stronger over the past 52 week period than we have been -- than they have been for a while. Our market leading position in each of these categories positions us well to take advantage of the growth opportunities in each of them.

In our first quarter call, we explained that we did not believe that we had enough experience with the brands or enough information on the businesses to adjust the guidance previously given. Therefore, we kept our full-year earnings per share guidance at $1.84 to $1.94. Since then, we have implemented our initial marketing and sales plans and have a much better feel for what the impact of our Jif and Crisco pricing decisions likely will be. And we also have the benefit of experiencing several consecutive strong quarters from our traditional businesses.

Those facts support a higher range of year-end earnings. We have already announced that we intend to take advantage of lower peanut prices during the second half of the year to lower prices on Jif products and to invest back into the peanut butter category and in support of the Jif brand. Also, given the success to date of our Smucker's Uncrustables, we want to support the growth of that new product and so we will be making incremental expenditures in support of it during the second half of the year.

With all of that taken into account, we are now raising our earnings guidance for the fiscal year 2003 to a range of $1.98 to $2.05 a share. In closing, let me say, again, how pleased we are with the performance of our traditional businesses and with the smooth integration and transition of the Jif and Crisco businesses and their very positive contribution to this quarter's record results. We look forward very much to using the progress made so far this year as the base for continued growth. We thank you for your time, and now are happy to answer any questions.

Thank you, gentlemen. The question-and-answer session will begin at this time. If you are using a speaker phone, please pick up the hand set before pressing any numbers. Should you have a question, please press star-1 on your touch tone telephone question. If you wish to withdraw your question, press star-2. Your question will be taken in the order it was received. Please stand by for your first question. Our first question comes from John McMillin of Prudential Securities. Please state your question, sir.

Morning, everybody.

Morning, John..

These numbers deserve a congratulations. I assume the guidance you're giving for the year excludes these merger-related expenses, correct?

Correct.

Okay. And, you know, these numbers on shipments are very strong, and there's obvious a disconnect between these shipments and some of the IRI and Nielsen takeaway numbers that we're looking at. Can we just do it one at a time ? Let's just start with the oil category. And I guess Mr. Oakland is there. Can we just talk about, you know, if your shipments are down 2, what do you think the consumer take away was in the quarter on the cooking oil side?

Hi, John. Steve Oakland.

A couple things. The IRI numbers that we all look at, although they're very important, remit only a portion of the channels that we ship to. They also are backward looking. And so as we look at all the channels that we ship to and the merchandising timing that we have this year, which is different, slightly different than the merchandising timing of previous years, we see, you know shipments more in line with the trends you see today than the trends you would have seen a couple of months ago. So we see the trends improving, I guess, is what I'm saying.

So you don't see take-away down much worse than 2 percent ?

The -- yeah, the 2 percent number also is an offset between some industrial business that we have. So that the retail business is actually down at least as Steve mentioned a little more than 2 percent.

Yeah.

But that is true. Our timing is different this year than prior years.

And we see that retail business improving as we go through the holiday season.

And John, let me make -- Steve mentioned, this is Steve Ellcessor, Steve Oakland made the point that the base IRI data you look at doesn't include all of the channels we ship to. And, for instance, if you look at the IRI data that came out for the period ending October 6, if you look at it with food, drug and mass excluding Wal-Mart, that shows that the Crisco oil number was down, like, almost 13 percent. But if you look at the IRI food drug mass data where they try to estimate Wal-Mart, it's not probably terribly accurate, but at least it's directional. That shows the Crisco down 2.9 percent for that same period. So it's a huge swing, when you try and estimate in the Wal-Mart number.

Can we just quickly -- I don't want to take all the time. But could we quickly do it for the jelly? Because, you know, the up 6 - I should call them jams. The up 6 number, I guess, Jif was up 6 and the spreads was up 7, also are considerably higher than what we're seeing takeaways. Again, just the issue of retail inventory build.

John, this is Vince Byrd. How are you?

Hi, Vince.

John, it's basically the same answer. The information you look at does not measure the full industry specifically as you know the club and Wal-Mart super center business. And we are very strong in those alternative channels. So you know, we're confident it's not inventory build on either the fruit spreads or on the Jif business. I mean, make no mistake, we're concerned about our share market trends in grocery, given competitive activity, but overall, as Tim mentioned and Richard mentioned, we're very pleased with the results for the quarter, particularly given that it was up 6 percent for this last quarter.

And to the extent I see you losing share in all three of these areas, can I assume that in non-measured channels you might be gaining some of it back?

That would be a fair statement, but I'm not sure that I agree, even with the data that we're losing share, depending on which period that you look at.

I was talking about the 12 weeks.

The twelve-week?

The twelve-week.

Okay. Well, the 12-week data I have in front of me -- I don't know which report you're referring to. But the one that I have shows in fruit spreads were up for the 12 weeks, and you are correct on the 12-week peanut butter. The other thing, though, is to keep in mind as categories are growing, so we just aren't growing at the same rate as the category. Which, again, is a concern, but they are growing.

Okay. Thanks a lot.

Thanks, John.

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

Yes. Good morning, everyone, very nice quarter.

Thanks, George.

You've referenced that you'll be increasing investment spending for the peanut butter category, clearly this is part of the cost savings from lower peanut costs. My question is, are you also boosting investments this in other categories, or do you find that your existing spending plans are satisfactor?

This is Vince. What we plan to do with the savings is twofold. The first -- probably three fold, excuse me. First we're giving the price decrease back to our consumers through our announce price decrease two weeks ago to our customers. Secondly, we plan to invest in the brand to grow not only our brand but hopefully the overall category and thirdly we're looking at expanding much rapidly our Uncrustable product.

Sure. But is any of that peanut savings, for example, being used to boost spending behind Crisco, for example, or other brands ? Non peanut butter category brands.

Not behind Crisco. Obviously, we have the peanut butter in our Uncrustable products. So to the extent we're pushing that and rolling out that earlier, that is true.

We put together much stronger budgets for Crisco from the very beginning, so the spending against Crisco is larger than it's been historically. That was from the beginning of the process.

Okay. Good. On the margin front, you referenced in the press release operational efficiencies in several manufacturing facilities, you know, resulting in lower than planned expenses. Can you give us a little color on these efficiencies? Are we seeing, you know, the benefit of shared best practices from the Jif and Crisco plants on one hand and the traditional Smucker plants on the other?

Probably -- we haven't seen a lot of those shared best practices yet. That takes longer time to implement. But we're going to -- in the future, we definitely will. What we're seeing, really, is the impact of the volume through those plants. We are running quite a bit ahead of our planned volumes, and when we do that at each of the plants we have favorable overhead absorption. And actually all of our plants were getting favorable overhead absorptions especially at Jif and Crisco. And the plant efficiencies because they're running closer to capacity or even better. So it's just been good results all around.

Let me follow-up on that to make one comment because we've had some discussion over the past couple of quarters about integration and the success of that. The Crisco operation is a he very good example. We have to recruit a number of new employees there, most of the employees there who were there with P&G. came with us but not all of them so we had to do some training. But even with that, that facility had one of it most efficient operating quarters in its history, it performed very, very well.

Also, I just like to add some color to that. One of the comments we made in our hawk this morning is that we said Jif and Crisco businesses exceeded our expectations in several ways and one of those ways is that we think we did an excellent job of recruiting the right people from Procter & Gamble to join Smucker's, and the proof really takes a little while to judge, but we are extremely pleased with the team we've gotten. Every one of those members of the Jif and Crisco team that came from Procter & Gamble has done an outstanding job and performing above our expectations, and we just think that that's a real benefit to the company.

Excellent. Well, thanks very much.

Thank you, George.

Thank you. Our next question in cue comes from Jaine Mehring of Smith Barney. Please state your question.

Hi, everyone.

Hi, Jaine.

I have a number of questions, please. First of all this bigger picture on the guidance, the -- if I take your sort of mid-point of your new range versus your mid-point of your old range -- actually, no let me do the range. If I take out the first half which I calculate at 1.07, although you said it was1.09, that means you're talking about second half of 91 to 98 cents. And my second half number is 94, and I think the second half con census is, like, 99. So you know it's a wonderful thing that you did a lot better in the first half. But it does actually seem like the second half is taking a more cautious tone. Can you talk about that ?

Yeah, Jaine. I think the -- one of things you need to realize is that with our business now, there is a little more seasonality than there used to be. Our traditional business did not have much seasonal it in it at all.

Right.

With the addition of the Jif and Crisco businesses, there is a little bit more now. The second quarter is going to be the largest quarter, generally speaking.

Right.

The third and fourth quarters generally, are going to look more like the first on an apples to apples basis. It's a little different this year because we didn't have Jif and Crisco for three months in the first quarter, and I realize that. But you know, we would normally expect to see both top-line and bottom-line numbers for the third and fourth quarter more comparable to the first quarter. And that's sort of our starting point for the second half. And then we look at where we see some of the benefit coming from, the peanut pricing offset by the additional investment spending that Vince spoke to.

Right.

And I think, Jaine, we ought to mention that, you know, with the results we've had for the first six months, we looked out in the future and said, this does give us the opportunity to make some greater investments and, for example, to roll the Uncrustables quicker than we would have otherwise.

Right.

So we're taking an opportunity here to really make some investments in our brands, which, you know, you may not have done in a normal year.

Right.

And there are some minor changes in each of the individual businesses. For instance, in industrial, you know, they're not going to have the benefit of the comparisons they had in the first two quarters because of the timing of the ISF (ph) acquisition last year. So we expect them to continue to grow, but it's not going to be at same rate that it was in the first half.

So if I take the second quarter, I know it's kind of hard to dice it and slice it this way. I'm aware of the seasonal al it because we've been chatting about that for a while. But, you know, how much of the upside would you say was just, you know, a seasonal factor that was, shall we say, mis-communicated or not communicated well by the company versus just sort of an underlying surprise, you know, greater-than-expected strength in the core businesses?

Well, I hope that we didn't miscommunicate anything, Jaine.

Obviously, you know that you did, because if you looked at con census, I mean, some of us had tried to incorporate it, I think myself and maybe one other analyst. But concensus was, I think, 49 cents going into this quarter which sort of takes me into another issue, I just love to hear your thought process on, you know, why you wouldn't get people squared up a little better sooner on season at it?

A couple things, as you know, these Jif and Crisco, we doubled our business, and we wanted to make sure that the integration went well. We wanted to make sure that there weren't any surprises. And in something this large, you know, you're never 100 percent sure. At this point in time we are 99.9 percent sure. It's everything that could go right because I think of good planning went right. And the things that we thought could go wrong that we developed alternative plans for, we covered. So I think the reason we probably didn't give more definitive guidance in the second quarter is we want to make sure that we were right and that we weren't missing anything and we'd give unfair guidance. And we feel now we're very comfortable we're past all those issues.

Let me add to that. Just from a macro sense, and we've talked about this before, doubling the size of the company.

Right.

And under our watch, we decreased the prices in a significant category and we increased the prices on the other category. Those are huge things to happen.

Right.

So you know, I think we were prudent in the guidance that we gave. Certainly, you know, I suppose we could have looked at it differently, but I think that was a really prudent way to approach it.

Okay. Jif up 6 percent in volume. What was it up in sales ? I guess I'm trying to figure out if you, maybe, gave some price break a little earlier than the, you know, official timing of the list price reduction. Because I guess we had been hearing that the peanut costs are now going to be down, like, 40 percent instead of 30 and you were actually realizing some of those savings earlier.

Jaine, the, again, the dollar comparison is a bit difficult given, you know, net sales of ours versus net sales of Procter & Gamble. But having said that, roughly, it's in line with the 6 percent. So it's not a situation of, you know, discounting.

Okay. And, again, sort of after John McMillin's question, I think I had gotten that IRI number sort of all channels including the estimation for I think Wal-Mart and Club sales for you would have been 0.7 for the -- I'm sorry, that's the 12 weeks ending 10-6. So I know there's a little bit of timing difference. But again to say that your sales are almost 6, your shipment sales are up almost 6 in an environment that at least tries to estimate all channels, that's a big gap, no?

Well, again, though, the IRI data does not -- that even attempts to estimate Wal-Mart does not have all the other channels in it, specifically Club and some drug customers, some military. So the point is -- if I didn't make this earlier, I will again. Steve tried to make it. If you look at our business in Jif specifically a greater percent of our business than our main competitors goes through channels that are not measured by either Nielsen or IRI.

Right. No, I thought the 0.7 which was a number that I think you had provided was a number that you told us tried to estimate both Wal-Mart and Club.

No, the number that was quoted is the information I believe that most of you get. And, again that's to my knowledge does not try to estimate the entire channel.

All right. We'll follow up on that. Just to wrap up and then I'll let someone else have a go. Just on the marketing and SG&A, SG&A as a percentage of sales came in a lot lower than we're looking for. It's hard to model because of the seasonality in the year over year. I think marketing spend as a percent was down year over year. Just what's the sort of right sort of way to think about SG&A as a percent of sales going forward and marketing spend? I know you said you're going to reinvest, but could you give a little better sense as a percent of sales what it's going to do?

Yeah. I would think, Jaine, that going forward, we would expect SG&A as a percent of sales to hold about where it is.

In this quarter or in the first half?

In the first half.

Okay.

Jaine, you asked a question about the EPS number, you said you had 1.07 and we had $1.09. I think the difference there is the shares, because the deal didn't close until the first of June. We have to use weighted average shares. So you just add the first and second quarter to get the first half.

Yeah, I was taking the first call. So that would take your second half guidance to really, like, 89 to 97?

That's correct.

All right. I'm done. I'm never done, but -

You can come back later, Jaine.

I will.

Our next question is from Mark Chekanow with Sidoti and company.

Morning, gentlemen.

Morning.

With regard to the pricing changes that you've implemented, decreasing the peanut butter price and decreasing on otherwise, has there been any difference in what the competition is doing? Are they raising prices even more or less than what you are doing with your customers?

On peanut butter, our major competitor, Skippy, is in line with our price decrease, and we have not heard anything from Peter Pan or private label at this point.

What about on the oil side?

As far as otherwise are concerned, there's been a little bit of difference in actual effectiveness. But all major brands on gone up similar numbers to what we did and will effectively at the first of the year be up. We all had different commitments with customers on advertising commitments, those things. In private label, the mechanism tends to work differently. They tend to be on contracts to tie to the futures market. So they've been moving up in increments all fall. So virtually the entire category is up.

So you wouldn't say that because of the pricing increases or decreases that would change market share ? It's not like anyone else is increasing prices less to take share?

No, it doesn't appear so at this point.

Okay. And again, just to reiterate on the operating margins side, at 14 percent for the second quarter, we should likely be expecting the remainder of the year to the numbers probably more in the 12 percent range like you had experienced in the first quarter?

Yes, that's right.

Okay. Thank you very much.

Before we go onto the next question, or let me go back to one of Jaine's question and clarify on some of the IRI data we were talking about. There is IRI data that does try to estimate wall marlt, and they use panel data to do that, as I understand it. But Jaine, to the extent that I suggested that also included Club's, I think probably I was mistaken. My understanding is that that does not include Club's. It's just a Wal-Mart estimate.

Thank you. Our next question comes from Scott Van Winkle of Adams Harkness. Please state your question.

I'd offer my congratulations well.

Thank you.

A first of questions. Could you give us a little more detail on what you saw competitively against the Jif and Crisco brands post the acquisition ? Then second, the revenue guidance, if you want to offer any for the full year, it sounds like we could, you know, back into first quarter levels.

In terms of competitive activity on Jif, I think it's fair to say that there was a fairly significant amount, given that we were probably viewed in a transitional period, specifically around the whole back-to-school. But having said that, again, we are looking at building these brands and categories long term, and we have a number of plans into place to respond to those activities. So I would say, yes, that it has been fairly heavy.

And as far as the oil business is concerned, I think we had a unique phenomenon. There were three major brands, and two of them changed hands in a relatively short period of time. So the third brand was very aggressive, did take advantage of some record low oil prices, you know, earlier in this year, if you look at April, May, June, there was an opportunity to buy some very inexpensive by historical standards, soybean oil. And they took advantage of that, and they were very aggressive. Those things have changed dramatically and we see that all coming back into line with what it's been historical. But there were some very aggressive pricing over the summer and into this fall.

Let me just add a long-term perspective on that. There was a lot of activity. But actually, a long-term perspective, that's good for the category. It makes attention to the category. It provides our customers look at it more often. They say, oh gee, this is a better category than we thought it was. And the same thing with the consumer. So we look at long term really provide more interest in the category, we're talking more about it, whether it's recipes or whatever it is. So we look at that as a positive. I mean -- I think it's the best in all of us.

And if you want to give any revenue guidance, you've given a nice range for earnings, if you want to give it for the full year.

Mark -- or Scott, I'm sorry, on revenue, we are basically still expecting to come in around 1.3 billion for the year as we've been talking, it depends a little bit on whether we hit a small acquisition or not. But I think the first quarter isn't quite accurate on the revenue side because it only included two months of Jif and Crisco.

Sure.

If you add another month of Jif and Crisco, you probably get pretty close. So that probably ends up adding about another five or 10 percent on the revenue side for the first quarter.

Okay. And on the Crisco brand the comment that there's a change in timing of shipments this year more spread evenly through the holiday period and last year it was mostly in October, might we see a positive comparison after that Crisco business in the upcoming quarter because of that phenomenon?

Yes, we do. We expect November and December to be better than last year. Granted, those are shipments from us not consumer takeaway. Procter, their timing was different. That does not affect the IRI shares that you'll see. Although we hope to make continued progress on that front as well. But our revenues will shift a little bit more into November and December than prior years.

But even with that, keep in mind that the November and December revenue is much lower than normally the October, so even with a little more shifted into November and December, it's still lighter than the second quarter.

Okay. Thank you.

Our next question comes from Michael Prover (ph) of Clovis (ph).

Thank you. You mentioned that the consumer business was up pretty nicely. How much of that was the pipeline fill from the Uncrustable business, or was that just too small to make a difference?

I would guess -- I would guess, roughly, probably half of that growth was due to the Uncrustables.

Half the growth in the consumer business was from the Uncrustables?

But not from pipeline fill, though.

That was regular sales.

Right.

Okay. Terrific. Thank you.

. Our next question comes from John McMillin of Prudential Securities. Please state your question.

Hello, again.

Hi, John.

Can we break down the third and fourth quarter ? I don't know if that's been done just in terms of how you expect the rest of the year's earnings to come out from a seasonal standpoint ?

John, we haven't broken it out. We had internally broken it out by quarter, but we don't do that externally. That hasn't been our policy. I will say this though. That our rollout of Uncrustables is primarily going to come in the fourth quarter. So we are going to make a pretty good-sized investment in the fourth quarter, because that's when it will be going to the marketplace. That's when the intros will be hitting. And the advertising and so forth. So we're going to have a bigger investment in the fourth quarter than we will in the third quarter.

But, you know, again, I can look at the old company where you traditionally earned a little bit more in the fourth quarter, I guess with the new company and Crisco, they might be somewhat even quarters.

Normally they would be more even. But this year, because of the investment in the fourth quarter, you'll see that investment in the fourth quarter.

Okay. Just in terms of, you know, the fall bake program and going back to Crisco again, I guess I understand another competitor was made, category manager of Wal-Mart during the fall bake season. Is that a big loss ?

You know, I would say that Crisco's fall bake category kept a year ago really want that strong. In fact, that's when they started to lose shipment and share. That has driven the timing to be different for us this year, but we feel that we've been able to be much more flexible and be able to put the right products and the right timing, and we feel good about where we'll be at the end of the year with maul part Wal-Mart. In fact, I think it will be better than last year.

Let's make no mistake. We will love to be the category leader, and that's our goal and objective, and we've got a good relationship with Wal-Mart. We're going to do everything we can to get that make.

They made the decision during the transition, and we were not in a position to compete for that when that decision was made.

Thanks. Congratulations again.

Thank you.

Thank you. Ladies and gentlemen, if there are any further questions at this point, please press star-1 on your phones at this time. Once again, should you have any further questions, please press star-1 on your push-button phones. Our last question comes from Bob Simonson from William Blair. Please state your question.

Good morning. Two questions. I believe it was in the first quarter conference call you talked about the corn prices and its possible negative impact on sweetener costs. Can you update not only that, but also are there any other factors like that that are part and parcel for what you're thinking of for the second half? The second question is, could you also talk a little about the rollout on Uncrustables, the timing of when you expect to have it national?

As far as corn prices, it's not going to affect and impact it this year at all. We are covered this year.

Are there any other commodity costs that

-- Not really. You know, as always, some fruits are up and down, but generally we're pretty good this year, actually. Grape, one of our biggest products, was down this year. Some minor food says were up a little bit. But no, we're in good shape.

Okay.

And in terms of the Uncrustable rollout for the balance of the United States, we will obviously be looking at that for in time for back-to-school next fiscal year.

So you would hope it would be all out by back-to-school next year?

Yes, by back-to-school next year.

Thank you.

Gentlemen, we do have one further question that comes from Jaine Mehring with Smith Barney.

I told you I'd be back. Can you say on Crisco peanut butter and fruit spreads how much as a percent of revenue of each of those goes through Club ?

No, we really can't say that. That's just not something that -- we can say it, we're just not going to say it.

We want to protect our customers and so we really try not to.

It was a good question, though, Jaine.

Oh, you know. And I'll be asking it again.

I know.

All right. New products. You know, for good reasons, I'm sure you've been focusing a lot on integration and getting the marketing plans where you want them and such. But where are we now on sort of new product visibility on things like, you know, peanut butter and some of the fruit spreads and I guess maybe even Crisco, like I saw the new Skippy in a tube product or whatever that's out there. Any thoughts over the next twelve months ?

Our thought is that we have a lot of churning and a lot of great ideas, nothing that we want to talk about at this point but we certainly have -- you know, we haven't really been focused on the transition here.

Right.

And we still -- there's a lot of legs on the platform of Uncrustables. We talk about Uncrustable peanut butter and jelly, but as a platform from which to grow.

And we do have in the marketplace, as you know, in testing which is doing very well so far is a grilled cheese.

Is a what?

Grilled cheese sandwich.

I thought you said real cheese. And lastly the lef, the momentum has been great, it was part of your upside and I think said it was up 16. How long will that continue?

If you look at all of our specialty markets, which Fred Duncan runs, and maybe we'll let him comment, that whole area was up, as we said. There were four businesses there, and the smallest increase for the first six months was 16 percent. Now, that type of percentage won't continue for the second six months because part of it was the IFF acquisition for at least the industrial side of the business. And that comparison will continue. But all those businesses, all cylinders are firing very, very well. And the beverage business is somewhat seasonal because we have much more seasonal business in, of course, the summer months, and most of their sales increase came during the summer. But we look for another good summer next year, which is our first quarter. Fred ?

Unknown Speaker*: Again, I think in terms of special markets, we have good momentum and we anticipate that good momentum carrying forward for the rest of the year. However, as Steve mentioned earlier, in industrials, because we had a favorable comparison due to the IFF acquisition, we don't expect to see it at same level. And in beverages, Richard noted we're seeing good performance out of our core business. However, we did get the benefit of some seasonal items that will not carry forward into the second and third quarters. But overall special markets have a lot of momentum and we see that carrying forward.

And then my last question is what percent of your revenues go through Club stores?

Thank you.

I'll talk to you soon. Thanks.

Bye-bye.

Thank you. At this point we do have one further question. That comes from Mark Chekanow with Sidoti.

Hi, I just want to follow up on that new product innovations, peanut butter and jelly as a platform and grilled cheese trials. Do you see any type of resistance there ? I would assume that the grilled cheese would need to be heated. And does that take away from the convenience factor of the peanut butter and jelly that pretty much just thaws? Are you seeing any resistance from customers on the trial?

I'll speak to the retail execution and then maybe Richard can speak to it at food service or Fred will. On the retail side, it is a different product in the fact that you have to either microwave it or put it in, you know, an oven to eat. But it's still a very convene way to have a grilled cheese sandwich. And actually, in the test markets that we have it in, it's performing very well. And, in fact, it's outperformed our peanut butter, jelly strawberry item. Again, on a very limited test in a short period of time. So there does not seem to be a disconnect there.

Might just add on the convenience of it. Actually, some ways it's more convenient, especially if you microwave it, take it out of the freezer microwave it for 45 and heat it.

And a real one, you take the bread out, put the butter on, put the cheese on and you grill it. So whatever the benchmark it, this is still really very convenient.

I suppose we might be seeing slightly different usage occasions, the grilled cheese might be more at home.

Right. I was going to say, seemed it would be more convenient at home. But if you were trying to push that into schools, if it came, you know, individually wrapped, it would probably have to be put on large sheets and heated. Do you foresee that, really, going into the food channel, or if the school channel?

Yes, we're introducing it in schools, and the reception of that's been very positive, although it's early. The individual wrapped basically the sandwich is also pre-browned and can be heated in that wrapper. So there are a lot of advantages in the school system in terms of preparation.

You said it can be heated in the wrapper?

Yes, it can.

Okay.

So again, initial reception of product has been very positive. Unknown Speaker*: Okay. Thank you.

Thank you.

Gentlemen, at this time I am showing no further questions. I would now turn the conference back to you to conclude.

Well, we thank you for joining us today. We're pleased about our quarter, and we appreciate your joining us this morning. Look forward to your next quarter. Thank you.

Thank you, sir. Ladies and gentlemen, if you wish to access the rebroadcast after this live call, you may do so buy dialing 1-800-428-6051, or 1-973-709-2089 with an ID number of 266786. This concludes our conference call for today. Thank you all for participating and have a great day. All parties may now disconnect.