J M Smucker Co (SJM) 2006 Q1 法說會逐字稿

Welcome, ladies and gentlemen, to the J.M. Smucker Company's first-quarter 2006 earnings conference call. At this time I would like to inform you that this conference is being recorded and that all participants are in listen-only mode. At the request of the Company we will open up the conference for questions and answers after the presentation. I will now turn the conference over to Mr. Mark Belgya.

Good one, everyone, and welcome to the J.M. Smucker Company's first-quarter 2006 earnings conference call. I am the Company's Chief Financial Officer and thank you for joining us. On the call this morning from the Company are -- Tim Smucker, Chairman and Co-CEO; Richard Smucker, President and Co-CEO; Vince Byrd, our Senior Vice President of our consumer market who is joining us remotely this morning; Fred Duncan, Senior Vice President special markets; Steve Oakland, Vice President and General Manager of our consumer oils and baking business; Mark Smucker, Vice President and managing director of Canada; and Paul Smucker Wagstaff, Vice President and General Manager of our foodservice market.

After this brief introduction I will turn the call over to Richard for opening comments. I will then review the financial results for the quarter and Tim will provide closing remarks. At the conclusion of these comments we will be available to answer your questions. If you've not seen our press release, it is available at our website at Smuckers.com. If you have any follow-up questions after today's call please feel free to contact George Sent, Director of Corporate Finance and Investor Relations, or me.

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.

I also want to point out that the Company use non-GAAP results for the purpose of evaluating performance internally. Additional discussion on non-GAAP information is also detailed in our press release. With that I'll turn the call over to Richard.

Thank you, Mark. Good morning, everyone, and thank you for joining us. Let me begin by briefly summarizing the key points for the quarter. First, the quarter's performance exceeded our expectations with sales up 23% and income from continuing operations up 9%. Second, we are well positioned to meet our 2006 commitment to grow our earnings per share by our long-term annualized growth rate of 8%. Third, we experienced good sales growth across our brands in both the U.S. and Canada. Fourth, we invested behind the brands and are excited about the many new products that we are introducing. And finally, we continue to integrate the Multifoods operations and are proceeding with our supply chain optimization project.

As we look ahead we have a great deal of momentum; there are many new initiatives we are investing in to provide opportunities to enhance our growth. Let me talk about some of these programs. Last year we regained our position as the oils category innovator with the launch of shortening with zero grams trans fat per serving and our new packaging with a measuring cup. We continued to demonstrate our category leadership by entering the olive oil market. We began shipping three varieties of Crisco olive oil to several test markets at the end of last month and we will be providing key marketing support for those products during the second quarter. We will also be introducing new spray products in the upcoming months.

We believe also that Pillsbury will be leading the way with new products in the baking aisle with the introduction of 11 new items this fall. Our product development efforts in the baking area focus on value added products that provide convenience, variety, great taste to the consumer and opportunities for greater margins to the Company and our customers. Expanding on the success of our ultimate dessert kits we are currently introducing four new flavors and three ultimate muffin offerings.

During the first quarter we completed a full packaging redesign of our Pillsbury baking mixes leveraging the brand. We have also been taking advantage of opportunities to expand our distribution to markets where Pillsbury was underrepresented. All of these efforts will be enhanced by increased marketing support for the brand. In Canada we are introducing new advertising campaigns for Bick's and Robin Hood this month and are more closely matching our promotions with the key buying months.

Last quarter we mentioned we were proceeding or in the process of rolling out our new distribution network. Under this network the Company is utilizing third-party warehouses to combine our brands. Long-term this network redesign, coupled with the closing of our Salinas, California manufacturing facility, will allow us to lower our cost -- total cost structure for distribution. However, in the first quarter we incurred planned costs associated with this implementation.

Our investment in supply chain improvements are part of our continuing efforts to lower our overall cost base and improve margins. With the sales momentum this quarter combined with new products, new packaging, strong marketing support and a new distribution network we are well positioned for future growth. At this time I'd like to turn the call back to Mark and he'll give you a review of the financial results for the quarter.

Thank you, Richard. Sales for the quarter were up 23% compared to last year and income from continuing operations was up 9%. Excluding the estimated contribution of the additional six weeks from Multifoods and the industrial business area which was divested, sales for the quarter increased 5%. GAAP earnings per share from continuing operations were $0.51 this year versus $0.50 last year and included restructuring charges and merger and integration costs that were detailed in our earnings release. Excluding these charges income from continuing operations increased 6% while earnings per share were $0.56 compared to $0.57 last year.

As explained in our press release, GAAP earnings per share were $0.51 this quarter compared to $0.60 last year which included a $0.10 gain on the sale of Henry Jones Foods, the Company's Australian subsidiary. Gross margin for the quarter declined due to the incremental sales of the lower margin Multifoods businesses and higher raw material costs. While the Company successfully implemented price increases on its fruit spreads and peanut butter items during the quarter to address these cost increases, the effective date of the increase did not allow us to cover the higher cost for the entire first quarter.

SG&A as a percent of sales declined from 22% to 21.7% for the quarter as the Company benefited from the increased sales base. There were a number of items included on the SG&A line that impacted margins and earnings per share for the quarter but were more of a timing issue as the Company considered them in its outlook for the year. First, as we mentioned last quarter, the Company instituted a restricted stock program to replace its employee stock option plan and we expected charges of approximately $5 million for the year. Although our expectations for the year have not changed, almost half of these charges were recorded in the first quarter with the remainder to be realized equally throughout the rest of the year.

Second, we wrote off certain idle software assets related to Multifoods amounting to $1.2 million during the quarter. And third, we continued to implement our new distribution network resulting in additional cost for the quarter. The total impact of these additional costs in the first quarter was approximately $0.08 per share. Again, they were included in our plan for the year, but the timing of the cost fell heavily in the first quarter. In terms of operating margin, if you exclude the impact of these three factors, our operating margin without restructuring and integration-related costs would have been closer to 12% versus the reported margin of 10.6%.

As expected interest expense increased over the prior year as we realized the full quarter of the additional debt outstanding resulting from the Multifoods acquisition. Interest income was also up as a result of improved yields and an increase in average investment balances. The tax rate for the quarter was 34.4% as the Company recorded the estimated impact of Ohio tax legislation signed into law during the quarter. Factoring the first-quarter impact, we expect the tax rate for the full year to be approximately 35.5% which assumes a 36% rate per quarter for the remainder of the year.

Now let us take a look at the results of the quarter by our two business segments. Sales in our U.S. retail segment were 342 million, up 19% compared to last year. In the consumer business area sales were up 11% for the quarter driven by the additional six weeks of Hungry Jack, growth in the Smucker's and Jif brands and the continued growth of Uncrustables. Excluding Hungry Jack the core consumer business was up 7%. Demand for Uncrustables continues to be strong as evidenced by our sales performance for the quarter. Sales of Uncrustables across all channels were approximately $15 million, a 25% increase over last year. We continue to make manufacturing progress as we strive to meet our production goals. We expect to have sufficient supply to meet our future forecasted demand.

In the consumer oils and baking area sales increased 35% due to the additional six weeks of the Pillsbury, Martha White and Pet brands. Crisco sales in the first quarter were up 3% compared to last year. The Crisco results include the impact of a 6% price decline implemented in January. Volume was up 8% for the quarter. In special markets sales were 169 million for the quarter, an increase of 35%. The incremental Multifoods sales, primarily in Canada, contributed to the majority of the segment's overall growth. The beverage business was up 15% and the foodservice business was up 8% due to growth in portion control and Uncrustables in the school market.

Regarding other initiatives, the Company purchased 300,000 shares in the quarter against its authorized repurchase plan of a million shares. Currently we have approximately 350,000 shares remaining under that authorization. I would now like to turn the call over to Tim.

Thank you, Mark, and good morning, everyone. We are encouraged by our momentum. As we make investments in the brands, in new products, marketing and distribution we will continue to enhance our opportunities on both the top and bottom line. We made significant progress towards integrating the Multifoods businesses last year and we continue to execute on other initiatives related to our brand portfolio. We recently opened our new R&D center in Orville, Ohio where we continue to enhance our capabilities to innovate in the baking category and, to that point; we're in the process of bringing several new products to the baking aisle as we are reacting quickly to the category that responds to innovation.

We closed the Minneapolis headquarters of Multifoods in June as planned. We intend to significantly increase our marketing spending again this year with a great deal of the increase related to the acquired brands. During the quarter we converted the UPC codes on all U.S. Multifoods products, which was a significant undertaking. We made progress in rolling out our new distribution network as we continued to make long-term investments to improve our overall cost base.

Now let me comment on our outlook for the year. We remain comfortable with our stated expectations. We exceeded our plans for the quarter and are well-positioned for the rest of the year. We expect to see revenue growth of 6% to approximately 2.16 billion. We remain committed to increasing our earnings per share by our stated long-term goal of 8%. We feel that this mark is achievable even as we spend significantly to support our portfolio of brands.

So in closing let me summarize the key points. First, we are pleased with our performance in the quarter. Second, we are well-positioned for strong performance for the remainder of the year. Third, our momentum continues to be strong. And finally, we are committed to the long-term steady growth of our brands, our employees and our Company. We thank you for your time this morning and now are happy to answer your questions.

(OPERATOR INSTRUCTIONS). John McMillin, Prudential.

The $0.56 operating number is below where the Street was -- I guess at $0.63, but it was on target with your plans. And partly because the Street numbers did not have these $0.08 worth of additional items, the software reduction and so forth, is that a fair synopsis?

This is Richard. That's exactly right, John. That's a good summary.

And on the negative side I guess this tax rate came in lower than expectations and that would be a penny or two there. But I think where I'm a little bit unclear is your full-year guidance range. It seems a little vague to me, but when you say 8% earnings growth -- I know rules are it has to be from reported GAAP numbers, but I think your -- what base -- we all deal with this 260 operating base I guess from last year. Do you also think you'll get 8% growth from that base looking at operating trends that were $0.56 in this quarter, if you follow me?

John, this is Mark. You're correct. When we speak of our 8% earnings growth we do factor out special charges if you will. I think we're consistent in our thinking. And yes, we do feel that with the quarter and our expectations and as we discussed those $0.08 clearly were included in our thinking and we believe that that 8% is achievable over the course of the year.

Okay. And this stock option -- the option stuff, is that the new options reporting or is this additional restricted options that you have put in place?

John, again this is Mark. This is a new plan, this is restricted stock. We put this plan into place in the beginning of our fiscal year in anticipation of the fact of the new accounting around options. So we went ahead and changed our plan to a restricted plan.

And we're eliminating, John, the stock option plan; this replaces that. So basically we're ahead of everybody else in recording the charge.

So if Street expectation is around 280, 285 excluding items but including the software, including stock options, is that still kind of a reasonable operating range to be assuming? Or can you not get there?

I think that if we've talked about a common base as last year is an 8% growth factor it puts you somewhere in that number, that range.

Okay. Thanks a lot.

Farha Aslam.

You had several pricing actions during the quarter. Did the volume lift or compromise? Were they in line with your expectations?

Vince, do you want to answer that?

Overall I think, as Mark said, we're very, very pleased with the quarter. If you look at our core business primarily in U.S. markets, we're up like around the 5% range specifically in consumer. If you take out the effect of Hungry Jack our core business was up 7% for they quarter. We obviously had a little bit of buy in early on with the price increase, but that smoothed itself all out in the quarter. It was nothing excessive. So overall, yes, we're very pleased with the result.

Okay. And in terms of the IMC synergies, are they coming in in line with what you were expecting? Are they ahead of plan? Where are we with IMC?

Farha, this is Fred Duncan. They're right on plan and, again, we maintain our position on between 40 and 60 million. So we're right on plan.

40 to 60 million this year or would that be next year?

That was over the three-year time period.

And that would be fully completed next year, right?

Correct.

And in terms of your divested businesses, is most of the impact this quarter of industrial or will it be equal throughout the whole year?

Farha, this is Mark. It was primarily in this quarter.

The divested businesses?

Yes, we'll be ending the co-pack (ph) arrangement that we mentioned in our release this month so that would be just a small part in the second quarter.

Okay, great. Thank you for your help.

Alton Stump, Longbow Research.

A quick question on the baking mix segment. Could you give me an idea what the organic top-line growth was within that business in the first quarter?

Hi. Steve Oakland. We had strong growth in Pillsbury and that was really the star in the group and that was a result of a lot of marketing activity. The new items didn't ship. They start shipping August 1st. So we feel good about that going forward, but Pillsbury had a great start of the year, Martha White was solid. The only area, frankly, that didn't perform was flour and there has been a number of pricing competitively we matched, so I think that affected the first quarter. But as far as baking mixes are concerned, Pillsbury was very strong, Martha White was above last year and flour was a little behind.

So could you give me sort of what the overall number was or at least kind of a range?

The overall number was up 2%. We don't give by brand.

Okay. Also very quickly, looking over at the oils business did you notice any pressure from private-label that might have been a little bit stronger than expected this quarter or is that pretty much performing in line?

Actually, if you compare it to prior years it wasn't as intense. The overall veg oil commodity prices have come down over the last year. They have been very volatile this summer with the weather, but I would say the brands -- we took price decreases at the beginning of the calendar year, early in -- or late in our fiscal year last year and those have taken some of that pressure off actually and the price gaps have come much closer, the brands are much closer to private-label. So I would say it was less pressure than the last couple years when we've had very high commodity costs.

And Crisco had a great -- as we said, Crisco was up 8% in shipments for the quarter. That's total Crisco. The veg oil business was up more than that. That factors in the category for shortening has been declining for some 15 years for a little bit every year so that takes into account that. So the actual liquid oil business is better than that.

Okay, great. Thanks, guys.

(OPERATOR INSTRUCTIONS). George Askew, Legg Mason.

Looking at the IMC businesses in isolation on a year-over-year basis, how do they perform for the six weeks or so that you had an overlap?

Again, Steve Oakland. We included the whole quarter. As we evaluate those we go back and look at the total shipments. And the number I gave for the baking side of it of being up 2% includes all IMC shipments. On a quarter-to-quarter basis, apples-to-apples basis, and again Pillsbury being the strongest there.

And George, this is Vince. On a Hungry Jack basis, although it was down in total consumer, part of that was by design because we got out of some business in alternative formats that were not profitable. So that was by design as I mentioned, but our grocery business was actually up for the quarter.

Okay. And then Canada, those brands were up it sounds like certainly on an apples-to-apples basis?

Yes, that's correct. This is Mark Smucker. Yes, in Canada brands were up -- you may or may not be familiar with the fact that from a branded standpoint our three biggest brands in Canada are Bick's pickles, Smucker's jam and Robin Hood flour. And Bick's and Smuckers were up significantly. Flour, we've seen a little bit of a pull back there just because we have pulled back some of our spending and redirected it towards fall bake so we should see those numbers come back in the next quarter.

Thank you. By my calculations the costs related to the changes in the distribution network were around $4 million pretax or $0.04 a share. Is that the right amount?

That's right, George.

What are the planned costs for the second quarter '06 for that revamp?

the cost will not be that significant. We have another warehouse that we will be opening later this year but the bulk of the costs associated with opening that network were incurred in this quarter.

Okay. On a marketing basis, we know that for the year marketing should be up 20% to 25%, for this quarter it was up about 15%. I assume the October quarter will be the big quarter. Can you give us a little bit of an outlook for the next three quarters on marketing, where the big hits are?

Actually -- this is Steve Oakland -- it will fall in the second and the third. And that's really to support the fall bake business and back to school and fall bake -- all of those activities fall in that period.

Right. And then lastly, on the new product launches, I mean clearly you mentioned the Crisco olive oil opportunity and some Pillsbury brands, can you give us a bigger picture of new products? As I recall, you're going to have new product activity in virtually every brand at the Company.

George, that is true and I think -- fall bake, we have a number of new products, as we said, in Pillsbury and we also have the -- Uncrustables still is being rolled into markets that it wasn't in before. It was probably the cheese Uncrustables sandwich which is going into new markets that it currently is not in.

And if we look at the bakery -- Steve Oakland again -- if we look at the bakery next and the Crisco, those brands had not had a lot of new product activity in a number of years. So our activity is significant now. The baking category in particular has seen a lot of new product activity over the last couple years and it's responded to it. But I think we felt it important from a category leadership point of view to get on these things early on as we own the businesses.

So a lot of activity -- we see more growth probably in baking from new products than the other brands over the long-term. But I think you'll see a continuous -- hopefully a continuous stream of new products from all the brands.

George, I would just add to what Steve just said by saying that we have a lot of new productivity across our entire Company and that results in two things. First of all, we'll exceed our 1% growth objective for the year from new products; but secondly, it speaks to the investment that we're making in the brands and hence why our marketing costs are higher than maybe historically.

And it sounds like there's just more to come -- things that we haven't heard about yet.

There are always more things to come. Yes, that's true.

And as I mentioned -- this is Tim, we have now finally got the whole team together in one location and that makes a huge difference. And as Vince said, we're beating the 1% goal. And we think, as you know, new products are long-term things but we're very enthusiastic that we have the team in the right place and that we have the right people on the right bus there. So we're really encouraged about the new product efforts.

Thanks. Sorry for the lengthy questions. Thank you.

Christina McGlone, Deutsche Bank.

A question on commodity costs. I was wondering if they are running in line with your expectation or if given the spike in energy if they're coming above expectations?

Commodity costs in general are really in line with our expectations. Bruit costs were down slightly. Steve can talk a minute about oil cost because obviously that's -- soybean oil costs not crude oil. But crude oil costs have gone up for everyone and natural gas is going up and natural gas will have some impact on us because -- especially in the plants like our peanut butter plant uses a lot of natural gas to roast peanuts. So those costs will be somewhat higher. I don't think they'll make a major impact on our bottom line, but we do have some additional commodity costs going up. And Steve, you might speak to the oil costs.

As far as both oil and flour, we've seen hot, dry weather in the Midwest this summer, but we work so far out with our retailers that we've been able to hedge that to meet the price points that we need for this fall. So it shouldn't have a material impact.

Okay. So the 3% to 4% pricing taken at the end of May, that should be sufficient? You don't think additional pricing will be necessary?

That is correct. We think the price increases we've taken should cover us.

Probably the only category that we're going to need to look to is the potato category because we understand that there could be some issues there with the new crop. But as Richard just mentioned, the increase that we took did cover our cost primarily as it related to the packaging side and fruit is up basically a little bit year on year as is peanuts.

Fruits up you said?

Yes, exactly. For the fruit that we're utilizing currently, it is up.

And with the new crop for peanuts is the outlook to come down in the fall year-over-year?

We understand it may come down slightly.

Okay. And then Mark, industrial, how much in sales did that contribute? I guess I'm still fuzzy on what that's contributing in terms of sales and EBITDA and does it just end completely in August or do we see more after that?

The amount of sales, Christina, for the quarter was approximately 12 million and that pretty much winds down during the rest of the quarter. Fred, maybe you'd want to comment on the timing of that.

Basically we will be completely out of the industrial business at the end of this month. So we have one more month essentially of contract backed sales versus last year -- that's your question -- last year sales were about 50 million in total. So you can understand the difference.

And then the EBIT contribution is very negligible?

That's right.

And then I guess just a question just to clarify on Uncrustables, we are no longer capacity constrained, is that right?

Yes, that's correct.

And Mark, can you remind me about the margins on that business? I remember at one point you saying they would -- I thought you said approach the corporate average, but I just wanted to get clarification on that?

Ii think right now you look at it from two kind of perspectives. At the end of the fiscal year we're looking at a breakeven on a production cost and then we said, Christina, long-term it's going to be somewhat contingent upon our new product offerings and the marketing support around that. So I think that time will tell a little bit on the long-term profitability and Uncrustables will clearly move positive once we get the production costs in line at the end of this fiscal.

Okay, thank you.

(OPERATOR INSTRUCTIONS). Mark Chekanow, Sidoti.

Could you talk a little bit about any competitor's response to your price increase, did everyone follow suit or are certain people maybe using this as an opportunity to get the price gap between you a little further?

I don't think that we typically comment on our competitor's pricing situation. But we're obviously monitoring the pricing gaps very, very closely.

Okay. But you wouldn't think that any volume -- there was no material impact, as you said, before your price increases?

At this point I think that's a fair comment.

Okay. Can you comment on cash flow expectations for the year? Have you talked about that at all?

We really haven't talked too much. I think at last quarter when we introduced the fiscal '06 we gave some of the components of cash flow and at this point we feel pretty comfortable with our estimates for cash flow from operations and depreciation, amortization.

Could you run through those real quick again?

Sure. Our estimate for depreciation and amortization is approximately 64 to 65 million. We will have a tranche as long-term debt comes due actually the first of next month at $17 million. We have costs associated with our pension plans, about a $15 million contribution. We're expecting a slight increase in our working capital requirements just to support this increase in sales. And then of course we spoke about the income guidance. And then lastly, in terms of fixed assets or capital expenditures, we expected around 75 million -- 75 to 80 million I think it was. And then lastly, dividends of about 63 million and that assumes our current dividend rate.

Okay. Now the integration of Multifoods seems to be tracking pretty well and now you've got the new distribution going. Are you at the stage where you could feasibly look at making another substantial acquisition or are we still a couple quarters away from that?

We really can't comment on the acquisitions. All we say is that we're always looking for good opportunities and it's just hard to estimate the timing of those, but we wouldn't certainly turn anything down if it was the right brand.

So if something came up you're far along enough with the other integrations that you could still put some more on your plate I guess at this point?

I definitely feel that's the case, yes.

Great, thank you.

Leonard Teitelbaum, Merrill Lynch.

Help me out just a little bit here if you could. I think it was John's question at the beginning where you talked about 8% rate and from 2.60 as a base. Did that include -- and if you do 8% from that I guess you get just over 2.80 a share which fell in the range that was proffered. I guess what I'm trying to get here is that that does exclude certain charges but the stock-based compensation charge, if you will, that hit heavy in the first quarter, is that in that number or is it out of that number?

It is in that number.

It is in, all right. Because I can understand the other being maybe extraordinary but certainly with the expensing that's got to be in. Now what kind of an impact are you looking for for the balance of the year? Is it going to be pretty regular?

For that particular charge?

Yes, that particular charge.

Yes, we would expect it to be fairly even over the last three quarters. And as I spoke when we said that we thought the cost would be either $5 million for the year (multiple speakers) roughly half of that during the first quarter.

Okay. I just wanted to make sure that I got that part of it right. The second is that if we take a look at the quarters and how at least as I've interpreted your remarks on the advertising of basically moving it more into the selling season, are we going to have a more muted second half of the -- or second and third quarter than might normally be given the trend you've just annunciated because of the higher marketing cost or should we still look for some percentage gains as we've seen now based on the operations? I just want to know if there's going to be a skew this year?

No, I would think it would be normal. The investment spend in marketing to some degree is going to support the new product that we just talked about as well.

Well, there's always that lag between the advertising and especially on new products when you get it in. I'm just trying to figure out if it's going to be depressed on the quarter or not.

No, we don't think so.

And one final question on your -- the commodities that you can hedge, are you taking an -- if you had answered this earlier forgive me, I had to step out for a bit -- are you looking for that to be pretty well covered for this fiscal year? I'm talking now primarily soy oil?

Yes.

Are you on the market then?

The demands of our retailers and the more progressive retailers work so far out that we have to have some type of future option position to cover that. So we're in good shape.

Okay, good. And I would expect that the balance of the share repurchase program will be completed within this year, there won't be any hangover? We'll probably get an increase in the authorization sometime near the end of this year, that would be reasonable thinking?

We can't anticipate what the Board will do.

Oh, sure you can. What do you do, find these guys in the Yellow Pages? Okay. Thank you very much.

Bob Simonson, William Blair.

On the restricted stock charge, why was it so much higher in the first quarter than in the ensuing quarters?

Some of the parameters -- some of the age parameters in the plan require an accelerated amortization of the stock. Basically it's a four-year vesting, but for certain individuals we needed to accelerate that into this fiscal year.

And something around half of it for this year has been done with the 2.4 million, is that correct?

That's right.

Your CapEx looks like it's going to be down this year versus last year. Do you have any kind of guidance for the following year? Will it come down again unless obviously things can change in terms of acquisitions and what you might spend on something there, but with the assets you now have?

Yes, I think, Bob, we would expect it to come down slightly. We've been obviously running high the last couple years with our plant in Scottsville. I think you'll see it trend down more to an average of roughly 3.5 to -- about 3.5% of sales I think is what it'll work out to.

And this kind of speaks to the other questions on cash flow, the end of this year you might wind up with some more cash than you had at the end of last year and it could be even more dramatic next year without obviously speaking to the opportunities to make an acquisition. You said that the dividend could be 63 million this year?

Yes.

That's at the current rate?

That's correct.

Do you just keep the growing cash balance as a bank account for future acquisitions or how do you rank what you're going to do with that growing cash balance?

Clearly we would expect cash flow to grow as the businesses grow and, as we've said that acquisition is a large part of our strategy, so certainly having that cash available allows us to enact. But we do evaluate other opportunities whether it's dividends, stock repurchase, capital expenditure. So we go through a thought process to evaluate each of those alternatives.

But I think we've always said, I'm straightforward about this, that if we had an acquisition that would be our first use of cash because we think that that grows the company, grows the brand and supports our future. So that's usually our first place that we look to use the cash.

Very good. Last question, are the margins on olive oil much different than on vegetable oil, high/low?

Steve Oakland again. The olive oil is somewhat volatile as all vegetable oils are, but the absolute dollars are significantly higher. The penny per ounce is a multiple of vegetable oil. So I think the margins are competitive but the absolute dollars are much more.

Bob, ask us about two years from now once we really get them to (multiple speakers).

Once we get a better understanding of them.

Get the introductory spending out of the way.

Very good. Thanks a lot.

Chuck Cerankosky, Key McDonald.

Can you give us an update on the Uncrustables plant? And also we seem to be observing some increased promotional activity in the baking mix category and can you comment on that element of the competition in baking mixes?

This is Fred. Let me address your question about Uncrustables in Scottsville. First of all, we just want to reiterate that the demand in both channels, both schools and retail, remains very strong and our results for the first quarter we would anticipate continuing through the rest of the year. We're meeting all demand and we're positioned well for the back to school time period in terms of our inventory position. We continue to make progress at our Scottsville facility.

And I think as we mentioned last quarter, we concluded all of our startup costs and actually now are running the Scottsville facility at -- similar to our other manufacturing plants. And any variances from that facility will be reported like in other manufacturing plants and the variances for the first quarter were not material to our corporate results for the first quarter.

And then to comment on bake mix, I don't know that it's ever not competitive in that category. You've got three big brands really going after a number of different segments. So it has been very competitive through probably the last six months, but we anticipate and plan for that to continue. So I think that's just the nature of the beast.

Thank you.

There are no further questions, gentlemen. I would like to now turn the conference call back to you to conclude.

This is Tim. Thank you very much for your interest and your questions. I think that it helped all of us get a clearer picture of what the quarter was. Let me just close by saying in our core business we are -- when any business is up -- core business in jam, jelly, peanut butter up 7%; Uncrustables up 25%; Crisco up 3%; beverage up 15%; foodservice up 8% -- we're enthusiastic about this Company and its ability to grow brands in the future. So thanks a lot for your interest, have a great day.

Ladies and gentlemen, if you wish to access the rebroadcast for this live call you may do so by dialing 1-888-203-1112 or 1-719-457-0820 with the pass code of 412-4704. This concludes our conference call for today. Thank you for participating and have a nice day. All parties may now disconnect.