J M Smucker Co (SJM) 2004 Q4 法說會逐字稿

Welcome ladies and gentlemen to the J.M. Smucker Company's fourth quarter and fiscal year 2004 earnings conference call. At this time I would like to inform you that this conference is being recorded and that all participants are on a listen-only mode. At the request of the company we will open up the conference for questions and answers after the presentation. I would now like to turn the conference call over to Mr. Mark Belgya.

Good morning, everyone, and welcome to the J.M. Smucker Company's fourth quarter and fiscal year 2004 earnings conference call. I am Mark Belgya, the company's Vice President and Treasurer. Thank you for joining us this morning. On the call this morning from the Smucker Company are Tim Smucker, our Chairman and Co-CEO; Richard Smucker, President, Co-CEO and Chief Financial Officer; Vince Byrd, our Senior Vice President of our Consumer Market; Fred Duncan, our Senior Vice President of our Special Markets; and Steve Oakland, Vice President and General Manager of our Consumer Oils Business. After this brief introduction I will turn the call over to Tim for opening comments and a review of the 2004 key highlights.

Richard will then recap the quarter and discuss the outlook for fiscal 2005. At the conclusion of these comments, we will be available to answer your questions. If you have not seen our press release, it is available on our Web site at Smuckers.com. If you have any follow-up questions after today's call please feel free to contact Richard or me. 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 Litigation 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 will turn the call over Tim.

Good morning, everyone, and again thank you for joining us. Today marks a special day for the Smucker Company as we hold our shareholders meeting to approve the acquisition of International Multifoods. This acquisition is another step in fulfilling our strategic vision to own and market leading North America icon food brands that are sold in the center of the store. We are enthusiastic about the prospect of adding such fine brands as Pillsbury, Martha White, Hungry Jack, Robin Hood, Fix (ph) and Pet (ph) to the Smucker Company. These brands are complementary to our own, expand the retail sales categories in which we participate from $3 billion to $6.5 billion and add significantly to our existing market presence in the United States and in Canada.

In addition to broadening our portfolio of brands, this acquisition also supports our long-term strategic growth goals for both sales and earnings. As we have demonstrated with the Jif and Crisco brands we were able to build on the acquired sales by investing behind the brand to increase share and by developing new products. We expect to do the same with the Multifoods brands. 2004 marked another record year for the Smucker Company. Let's look first at the key strategic initiatives over the past year. First, we have provided the Smuckers, Jif and Crisco brands additional marketing support and leveraged our supply network resulting in market share gains for each brand. Second, we made significant progress in achieving our cost savings associated with our supply chain optimization program, or what we call SCOP, resulting from the rationalization of three plants and nearly one-third of our stock keeping units.

Third, we introduced our Smucker quality management systems program to apply best practices across our plants. Fourth, we continue to expand distribution of Smuckers Uncrustables, the company's most successful new product. To support its expected growth, we completed construction on our Scottsville facility, the largest capital investment in our history. Fifth, we have restructured our international business selling Henry Jones Foods, our Australian subsidiary, and cutting back our operations in Europe in support again of our North American strategic focus. Sixth, we continue to rationalize nonstrategic, low margin or nonbranded business. Finally, of course we announced the acquisition of International Multifoods.

Each one of these actions strengthens our platform for long-term growth. Many of these initiatives are continuing and will be implemented as we integrate the Multifoods operation providing even more improvements and a more focused company. In addition to these major activities a highlight for the year was the recognition by Fortune magazine as the top place to work in America, an honor that reflects our people and our -- our people basic belief and our dedicated employees of the Smucker Company. Specifically, all three of our primary brands experienced strong performance during 2004. Sales of Smuckers' branded products increased 12 percent as we increased our share of market in the fruits breads and natural peanut butter categories. Fruits bread sales were up 9 percent in 2004 adding two share points. Our share in this category once again achieved new record levels and now exceeds 43 percent.

Natural peanut butter under the Smuckers, Adams and Laura Scudder's brands continued its trend growing by over 10 percent. Uncrustables also contributed to the growth of the Smuckers brand in both the retail and foodservice business areas. During 2004 we completed the rollout of Uncrustables into national distribution. As a result of the overwhelming acceptance of the product we did experience some capacity constraints during the year as we have previously discussed. We worked diligently to manage the situation and are pleased to report that sales were approximately 50 million in 2004, meeting our target for the year. Our new Uncrustables plant in Scottsville, Kentucky came online in May as we planned.

We are currently in the process of ramping up production. With additional capacity we will resume support of Uncrustables with significant promotional and marketing activities as we enter the important back to school period. The return on investment in the Jif brands has exceeded expectations. For the year Jif sales grew by 6 percent and the brand achieved a record 36 percent share of market. When combined with our growing natural peanut butter brands, our overall share of the peanut butter category is also 43 percent. Recently we completed a major capital addition by adding a new roaster to our Lexington, Kentucky facility. This provides additional capacity to support the continuing growth of the Jif peanut butter products.

Crisco sales for the year were up 4 percent, primarily on gains in the industrial market and additions from new products. Crisco regained its position as a category innovator in 2004 with the launch of shortening with zero grams of transfat per serving, a new olive oil spray and 100 percent corn oil. The consumer response to these new products has been positive. In addition to investing in new products, we increased advertising behind the brands including a new television campaign. The fall bake period was supported with the first integrated consumer and trade promotion plan in several years and the results were strong, exceeding expectations. The performance of our new products and the response to our increased advertising provides further support to our belief that there are significant growth opportunities for the brand.

During 2005 we will become more prominent in the baking aisle and expect to begin the process of leveraging the Crisco brand with Pillsbury, Robin Hood and Martha White. Our biggest event of 2004, of course, was the announcement of our agreement to purchase International Multifoods. Since then we have invested a great deal of time on integration and have learned much about the brands, the businesses and the people. We appreciate the hard work from the employees of both companies and would like to compliment the Multifoods' employees on their dedication and support. Now I would like to turn the call over to Richard to review the financial results.

Good morning everyone. As Tim mentioned, had a record year in 2004. Sales on a comparable basis were up 7 percent and GAAP earnings were up 9 percent. As noted in our press release, excluding restructuring merger integration cost in both years we exceeded First Call's estimate of two forty by 2 cents. Smuckers, Jif and Crisco all gained share for the year and we made significant progress on the many initiatives that we have in place. We look forward to closing the Multifoods acquisition bringing the new brands into Smuckers and adding to our platform of growth. In the fourth-quarter sales were 325 million. Sales increased in the consumer, beverage, food service and industrial areas. The very competitive market in consumer oils that we noted in our last conference call led to the expected sales decline for Crisco. In addition, sales in the industrial area decreased.

Overall sales for the quarter increased slightly if you exclude the industrial area. Net income was 22.2 million, a slight decline from last year's net income of 22.2 million. Earnings per share for the quarter were 44 cents compared to 46 cents last year. Again as noted in our press release, excluding the charges as noted above, we exceeded First Call's estimate of 52 cents by 2 cents per share. Let us now take a look at the results of the quarter by our two business segments. Sales in our U.S. segments were 218.1 million compared to 222.4 million last year. In the consumer business area sales were up over 5 percent for the quarter. Sales of Smuckers branded products were up nearly 9 percent due to strong performance in the toppings category and continued gains in fruits spreads and natural peanut butter.

Uncrustables also contributed to the increase in Smuckers sales. Jif sales for the quarter were up 5 percent. Crisco sales were down 19 percent in the quarter. As we previously stated we expected a very competitive market in the fourth-quarter and as we have noted, there will be fluctuations from quarter to quarter. Our goal is long-term, profitable brand building. The performance of our new products and those in development combined with our increased marketing support continued to provide growth opportunities for the brand. The addition of the Multifoods brands will provide opportunities in the baking aisle for leveraging our expanding presence there.

Sales in the special market segment were 107.3 million equal to last year. Sales in both the beverage and foodservice businesses increased for the quarter. Favorable exchange rates added approximately 4 million in sales. The segment's results were negatively impacted by performance in our industrial business. Approximately 60 percent of the decline was from the planned exit of certain contracts, with the remainder of the decline due to soft sales in the bakery, fruit filling ingredients category. Excluding the industrial business, special market sales would have been up over 7 percent. Now let me comment on fiscal 2005. We remain committed to increasing our earnings per share by our stated long-term annualized growth goal of 8 percent which equates to an earnings growth rate for 2005 of approximately 24 percent.

The additional 8 million shares to be issued for the Multifoods acquisition accounts for the difference in the growth rates. The following factors are included in our assumptions. First, we expect to maintain our strategic annualized sales growth rate of 4 percent excluding acquisitions on existing Smucker business. Second, we have conducted a thorough review of the synergy opportunities related to the Multifoods acquisition. At the time of the original announcement we estimated a range of 40 million to 60 million in savings to be achieved over a three-year period. We have spent significant time confirming these estimates and further developing the organization to take the Multifoods' business forward. We would expect to realize approximately one-third of that total in 2005, which of course will contain only ten months of activity.

In addition, we will reinvest most of the savings in the first year as we plan to reinvigorate these icon brands. We followed this strategy with Jif and Crisco and firmly believe that there are great opportunities to copromote these brands with our existing brands. We see these savings categorized into three areas, G&A, supply chain and marketing and selling efficiencies. Some specific activities are the closing of the Minnetonka headquarters, consolidating our broker network in the U.S. and Canada and driving savings in the North American supply chain. Third, as we prepare to integrate Multifoods we are reviewing their U.S. foodservice business and evaluating strategic alternatives. As a result this business will continue to operate on a stand-alone basis.

Fourth, we will have an accounting change with the sale of Henry Jones Foods. Henry Jones will be restated as a discontinued operation. Sales from continuing operations will be restated from 1.417 billion to 1.380 billion, and earnings from consolidated operations will be restated from $2.21 per share to $2.17 per share. For fiscal 2005, Henry Jones Foods' financial results include a 10 percent gain on the sale and will be reported as part of the discontinued operations. Fifth, during 2005 we will complete the planned exit of certain contracts in our industrial business area that began over two years ago. We anticipate an additional reduction in sales of about 12 million in 2005 which will bring the total business eliminated to over 50 million.

Sixth, interest expenses will increase significantly in 2005 from historic levels. We expect interest expense of approximately 26 million in 2005. Our new capital structure after the close will include debt of approximately 535 million but will still leave us at an A rating or better. Finally, the number of fully diluted shares used to calculate earnings per share will be approximately 58 million taking into account an estimated 8 million new shares expected to be issued as part of the Multifoods acquisition. The share count will be slightly lower in the first quarter since the additional shares will only be included for half of the period. We view the 8 percent growth on an operational basis so all restructuring, merger and integration costs and any other gains on asset sales such as the two cent gain on sale of the Watsonville plant, would be excluded.

The earnings for 2004 would exclude the four cents from Henry Jones Foods which will be restated out. As a result our base operating earnings for 2004 would be $2.36 per share. Included in our GAAP earnings will be merger and integration costs related to the Multifoods acquisition. These amounted to $20 million or 20 cents per share. Also included are the remaining restructuring charges of 3 million or 3 cents per share. For cash flow purposes we have included the following assumptions: capital expenditures of 80 to 85 million with approximately 25 million related to Multifoods; merger related costs of nearly 90 million with approximately 20 million of the total to be charged to earnings and the remainder to be capitalized as a component of goodwill; depreciation and amortization of about 70 million; additional pension contribution of 16 million; and cash savings of 7 million from the use of net operating loss carryforwards added as part of the Multifoods acquisition.

In closing, I want to recognize the entire Smucker team for a very successful 2004 and at the same time welcome the Multifoods' employees to the Smucker Company. We are fortunate to have talented and dedicated employees who continue to be responsible for turning our opportunities into strong financial performance. We are on track for another record year of financial results. We look forward to continuing the momentum that we have created, strengthening our leadership positions and improving our cost structure. Thank you very much for your time and now we would be happy to answer your questions.

(OPERATOR INSTRUCTIONS). John McMillin of Prudential.

I am in a jam, so to speak, trying to figure out your guidance. But basically you're guiding to a 255 operating number Richard. What is the tax rate assumption in that?

John, we are currently going to use 37.5. We believe that as we get into the integration there may be some opportunities now that we have a broader presence in Canada. But for planning purposes, I would suggest 37.5. Our year end was 37.7.

I thought when you bought Multifoods there was some tax savings associated with the deal that were expected to total 12 cents on an annualized basis. Where do those flow in?

That is the point that Richard made. We are expecting $7 million per year in the use of the net operating loss carryforwards that we're getting for Multifoods. However that is a cash item only. That does not affect the effective tax rate.

Or earnings?

Or earnings. It has a 12 cent per share on cash flow basis but not on a GAAP basis.

I misread that at the time of earnings, I guess. I'm just -- the 255 guidance number for next year operating with the assumption is considerably lower, or is lower than where the street is. Are you just kind of setting us up? We have all seen this movie before where you guide lower and you kind of wind up doing the numbers anyway. What are the one or two key variables and why did you guide lower than the street?

I think the real issue here is that we have a lot of moving parts right now. We close the Multifoods acquisition hopefully by Friday, all things going well and we think it well. We also have some strategic decisions to make regarding their foodservice business. We are integrating these multiple plants into our own operation. We think it is prudent -- we feel very confident with the 8 percent growth rate because that is our strategic guideline. But at this point in time, we think that those are good numbers.

The four percent sales growth for Crisco for the year, I don't think you cited pricing as one of the reasons for that four percent sales growth. Clearly with the increase in soybean oil that was the majority of that. Is that not right?

That is true. The majority of it was priced. There was some volume growth in a number of different channels but as we stated the retail channel was soft for the fourth quarter.

But there was no net volume growth if you put it all together, that four percent sales growth for the year --?

Almost exclusively price, yes.

What happened? You have really just been getting beat up here the last three or four months in Crisco. Again some tough comparisons, but is ConAgra just hedging soybean oil cheaper than you? Is it as simple as that?

We have really been on a share role from last Easter through fall bake. We had, if you remember, record commodity prices, thirty-year highs in January. We took on the back of very strong volume in the fall bake period, We took basically two 6 percent price increases. Our price in January 1 went up 12 percent. Our competitors didn't follow that pricing. In fact, they took pricing down during that period. It was really a pretty simple model for us. We looked at, do we go back, spend all of that back and chase the volume or do we use the position that we had in our new prices and let them have that low price promotion volume. It was an easy model to make that decision.

Thanks a lot.

George Askew of Legg Mason.

I noticed in the release that the Uncrustables to the foodservice, schools channel up 40 percent in the quarter. Just to clarify, that was before the Scottsville plant opened? Can you give us a sense of sort of with the opening of that plant, the fact that you've been on allocations, what kind of -- are you building momentum in the fourth-quarter in Uncrustables in the schools' channel as well as retail? Is that what we are seeing?

I will speak to the school side. Yes, we resumed building momentum on the school side in the fourth quarter and see that continuing into this new fiscal year.

If you are on allocation in the fourth quarter, were you sacrificing at the retail channel to fulfill the schools channel?

We started to relieve the capacity constraint in the fourth-quarter and basically that is where we started building momentum again. We are not on allocation at this point in time.

The fourth quarter is one of are smaller quarters in the school area because they are winding down the school year. It is really fall and right after the Christmas holiday that is the biggest quarter. This was a smaller quarter.

Okay. In my mind I have about sort of 20 percent of school districts are using Uncrustables products. Can you update that number for us? Is that still a good number or is it --?

There are more school districts, but there are a lot more opportunities to -- they are only served certain day parts, but as a percentage they are a higher percentage. Fred, I'm not sure what the percentage is right now. Do you know?

I think that number still is good. Obviously within that though are major school districts and so we feel we have the majority of the volume. But to your point, we continue to expand the use of Uncrustables throughout the school systems.

Right. Clearly some of the filings the last month or so affiliated with the IMC deal, you announced the move to Acasta (ph) in Canada, the broker model. It seems as if you are ahead of plan on integration, on the integration strategy and planning for IMC. Is that a fair way to look at it?

I think we really attribute to both Multifoods and Smucker gains. I think we feel very comfortable that we are doing what we thought we would do and we are, I guess, ready to hit the ground money on Monday of next week. As I am sure you know, you do have to look forward because there is a lot of things that have to be -- there is market programs that are in the market right now, so we have done a lot of discussions with both teams so we are really prepared to hit the ground running. I don't know if you would say we're ahead of the game, but we are really right on what we thought we would be.

Okay. In these synergies and reinvesting that into against the brands, I mean to pick a number, it sounds like yours synergies could be about 15 million, maybe higher in the fiscal '05. To the extent you would reinvest most of that against the IMC brands', Pillsbury, Hungry Jack, Martha White, etc., what kind of return are you looking for from that investment? Are you modeling sales growth in those businesses?

I think your numbers are partly right. It is about a third that we are going to be hitting this year. So you are very close in your numbers. But as you recall last fall bake, they didn't do very well. We are trying really I would say, to get the business back to where it should be historically. I can't say there's a lot of growth built into that number.

Okay. Are you going to be able with the closing here late June to have a fully engaged marketing strategy for the fall bake season?

I would say that we are very pleased with the plans that they have in place and they have been working very hard on what they learned last year. Most of those plans will be set. The impact of the two brands together, or the brands together, probably won't be felt until closer to Easter.

This is very similar to the Crisco, Jif and Crisco transaction that a lot of the marketing plans had to be set before the deal was complete. But as Steve said, we feel comfortable with the plans that they have set. We now have to implement them.

Okay. Last thing. ADM came out, ADM & Cal (ph) came out with saying that they are going to take this Enova oil national, the cooking oil product. Any comments there from a competitive standpoint with regard to that rollout? It seems like very much a niche product at a much higher price point than Crisco, but any thoughts there you can share with us?

Again, I think you have got it in a nutshell. It is a niche product in the markets where it does well. They are able to make some health claims and things in Japan that you're just not allowed to make here. Some of those fundamental positions are much more difficult to make here. Obviously we watch it, but given the price points, given its performance in its existing markets, it is hard to think it will be more successful nationally.

Thanks for the extended question period for me. Thank you.

Farha Aslam of Merrill Lynch.

Regarding share repurchase, now that it has been two years since the P&G transaction, can you engage in share repurchases and what are your thoughts behind that?

As you stated, the time period is up. We have the ability to repurchase shares and we have a program in place and approval by the board to do that from time to time. We just look at the right opportunities to do it when the price is right and so I assume that, you can assume that at some point in time we'll be back in the market.

Great. With regard to Crisco and your performance, you had anticipated a soft quarter. Was the performance of Crisco below your expectations or did they meet your expectations?

I think we knew where they would be and they met our expectations and frankly we're pleased with the brand. In a category that most people would consider a commodity category, do have the kind of price gaps and we had price gaps of up to $1.00 a unit on promotion against Wesson, and to only lose 20 percent of our business in the quarter we think is a statement for the brand.

My final question is looking out to '05 could you share with us the commodity outlaw with each of your businesses and how you think it is going to impact earnings next year?

You're talking about raw material commodities?

Flour, oil.

I can speak to the baking businesses. We experienced 30 year highs last year. The soybean oil market although very tight in the end of this old crop, is below that for the next year, and there's nothing to suggest right now that next year's prices are going to be anywhere near where they were at the end of last year. We don't anticipate that and Crisco traditionally has moved with the market. So we don't expect an impact there in our margins.

The nice thing about the baking businesses is that they are flour, sugar, cocoa? It is a number of commodities. There is no one single commodity that has near the impact that it does in the Crisco business. Although those commodities are at relatively high prices, unlike Jif and Crisco, again we're buying the business with relatively high prices built in. We bought Crisco at 30 year lows. We don't anticipate any impact.

I would like to piggyback Farha's questions here by just one question, if I might. Even though my physique would be belie the fact, I can't remember the last time I sat down and ate a heaping bowl of instant potatoes. I'm just curious as to how you see having worked with these brands now, could put a growth a growth rate -- what kind of a growth rate are you seeing in the categories that you bought from Multifoods, particularly potatoes and obviously in cake mix where I think the competition was stronger across the board than anybody would have thought? After you get done with your cleanup, what should we be looking for as far as you can see, in the growth in those categories from your perspective, not necessarily a competitor's perspective?

I can speak to the baking brands and maybe Vince will speak to the -- the way we're organized is the Hungry Jack businesses are in the consumer SDA and the baking businesses are in oils and baking. As we look at these businesses, they are very large categories with brands that probably have underperformed. Even though you may not see category growth you will see flat category growth. Our goal is always growth from three things, from growing our existing share against our competitors, new products and acquisitions We do think there is room to grow against our competitors from execution and there is room to grow in new products, especially out of our (indiscernible) baking business. That is a new product driven business and I will comment the Multifoods folks.

They have been working hard for the last two years and they have a pipeline of new products, some of which are launched right now. They have entered whipped frosting, a segment that General Mills has had to themselves for, I don't know, 10, 15 years. They have launched a product could Ultimate Desert Kits. That pipeline on the desert side is robust and has already started to launch this summer. So it will be very similar to our other brands and the same things could have been said about the jam and jelly business years ago.

This is Vince. I would just, the only thing I would add to Steve's comment is that when we look at any segment or any category that we participate in, we try to fill all consumer needs and provide products that meet any particular dietary or flavor or variety of choices. We will apply that same philosophy to the new categories. And as Steve said, even though overall they have been probably flat to growing one percent, that is not that much dissimilar to categories we have been in for years. We have been successful in growing share over the long-term and that is what we're really in it about.

So are you saying, you think you can grow a category that is flat to down one percent or between plus and minus one percent you think you can get the category growth up to 2 to 3 percent? Is that what we should be looking for in a couple of years?

We won't get the category growth up --.

Carry the brand growth. I beg your --

Our brand growth is -- our stated strategic objective is to grow the Smucker base business by four percent a year. If you figure, one percent of that is new products then the other two to three percent is going to have to be taking market share and that is our historic record. That is what our goal is.

Good luck, thank you.

Maybe we want to get back, Fahra, to your commodity question. I think we (indiscernible) come up with the other two commodities. Fruits generally are stable, so we feel very good about those and I think you know in the past that we have forces in a variety of areas. Peanuts are up a little bit. We anticipate them to be up a little bit with the new crop.

And packaging is up a little bit because of oil pricing and that, but nothing overall too significant.

Right.

Mark Chekanow of Sidoti & Company.

Looking at the low carb trend, it has probably benefited your peanut butter business over the past year or two. So you haven't really been hurt there, but as you bring in Multifoods and you look at General Mills with their Betty Crocker brand putting out carb monitor, what kind of things are you looking at? And I ask that because in the past Multifoods' management had long said that their products are occasioned base driven and probably not as sensitive to low carb trends, but the competition seems to be out there. I guess what are your plans in the baking mixes area?

Let me again just reinforce what I said earlier. Any category, we will take a look at all consumer segments. And if you look at, for example in fruits spreads, one of the significant growth opportunities this past year was our sugar free and then specifically in the fourth quarter was our low sugar product which all we did was flag that in fact it had 50 percent lower carbs. If you look in our peanut butter segment, we're doing the same thing with Simply Jif. And the benefit that we have been able to provide, is those products are not at a premium price versus our competitors and all of those segments are growing. We will apply that same philosophy to the new categories. However, your statement earlier is correct that we believe and at least we have been advised, that these tend to be event driven, celebration type products. But that doesn't mean that we will ignore what the trend is in the market. We will be looking at that very, very closely.

When Multifoods got hit with their preannouncement, assume they had good traction throughout the earlier part of the year in the non-key seasons and then really got beat pretty badly during the key fall bake season when it really counted. Probably a little bit of a surprise and maybe a little bit of a failure on competitive intelligence on what kind of promotions were coming. Can you be specific as to what you are doing to improve the competitive intelligence so you don't get caught off guard with very aggressive promotion programs. And if you could respond to that in time?

I would just say that the combination of Crisco with these brands gives us significantly more reach. Multifoods, as an organization, was relatively new. Their resale organization was only about two years old. We feel comfortable that by putting the two of them together we provide a lot more history, a lot more reach and I think they learned a lot from last fall. And I commend again, their plans are such that they are in good shape should those same things happen this year.

Lastly, you had talked about the opening of the Scottsville facility in the past as probably being four or five cents of expenses in the quarter. What that about what it was?

That is correct, Mark.

Four or five cents?

Four to five. It's in between.

Okay, thanks.

Ann Gurkin of Davenport.

Good morning. Just wanted to review again to make sure I understand correctly, the savings from IMC, you're reinvesting all of those back into those brands this year, so it is a neutral impact, is that correct?

Putting much, yes.

Then if you look out into '06, do you care to put any comments out on that?

As we have said, more of that will drop to the bottom line in the second and third year than the first year.

Great. My other questions were answered. Thanks very much.

Bob Cummins of Shields & Co.

The latest published figures from International Multifoods obviously indicated a good deal of weakness in their earnings. I'm just wondering if you have any sense that their business has picked up since the latest numbers that we have seen? In other words, going into the merger are they still seeing disappointing earnings results and will you have to correct some issues there before you get back on track?

Well, we don't own the business yet so we really can't comment on their earnings. We have been tracking their performance just in the marketplace and they seem to be doing fine in the market. Again it is not one of their big quarters, but they don't seem to be -- there doesn't seem to be any problem.

Okay, that is good. Thank you.

Chris O'Donnell (ph) of Jackson Associates.

Wanted to talk a little bit about marketing spending in your core businesses. You note that SG&A spending or SG&A spending last year was pretty high due to the Uncrustables rollout. You also talked about higher benefit costs in this current quarter. Can you give us a sense as to how marketing spending in your core businesses was year-over-year?

As you know we've put incremental marketing against both Jif and Crisco in the first two years. We did pull back some of our marketing support in the fourth quarter, or actually in the third and fourth quarter, as it related to Uncrustables because of the capacity situation that we are facing. But year-over-year I would assume that it is up slightly over the previous year.

As a percent of sales.

As a percent of sales, up slightly.

I see. Up slightly, so probably flat to down slightly on the dollar basis?

Up.

Or up.

It would be up on dollars.

It's a percentage of retail sales?

Yes. We also had -- the comparison we had the one more month with Jif and Crisco, so it's going to be up proportionately to that as well.

Okay, for the year.

For the year, correct.

And the quarter?

The quarter was actually probably down because I last year in the fourth quarter we were rolling out our Uncrustables to the Northeastern part of the U.S. We had accelerated our rollout, so we had marketing dollars last year that obviously did not reoccur this year.

Okay. In the earnings per share figure for the fourth quarter of 54 that you said (indiscernible), that includes the two cent gain on sale on Watsonville, correct?

That is correct.

Okay, so on an ongoing basis excluding that, the number was 52?

Correct.

Thank you very much.

(OPERATOR INSTRUCTIONS). Gentlemen, I will now turn the conference back to you to conclude.

Thank you very much for the time and interest and participating on the call. We are excited about our shareholders meeting today and look forward to the close of our transaction with Multifoods tomorrow. Thanks a lot. Have a great day.

Ladies and gentlemen, if you wish to access the rebroadcast after this live call you may do so by dialing 1-800-428-6051 or 1-973-709-2089 with a pass code of 356719. This concludes our conference call for today. Thank you all for participating and have a great day. All participants may now disconnect.