J M Smucker Co (SJM) 2006 Q2 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the J.M. Smucker Co. second-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 a listen-only mode. At the request of the Company we will open the conference up for questions and answers after the presentation. I would now like to turn the conference over to Mr. Mark Belgya. Please go ahead, sir.

Good morning, everyone, and welcome to the J.M. Smucker Co.'s second-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 Smucker Company are Tim Smucker, Chairman and Co-CEO; Richard Smucker, President and Co-CEO; Vince Byrd, Senior Vice President Consumer Markets; Fred Duncan, Senior Vice President Special Markets' Steve Oakland, Vice President and General Manager of our Consumer Oils & 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 Tim for opening comments. I will then review the financial results for the quarter and Richard will provide closing remarks. 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 website at Smuckers.com.

This quarter we introduced a new press release format that streamlines the text with the use of tables. Our goal was to provide a more readable release. If you have any follow-up questions or comments 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 follow may relate to future events and expectations and as such constitute forward-looking statements within the meaning of the Private Securities Legislation Reform Act of 1995. I invite you to read the full disclosure statement concerning such forward-looking statements in the press release.

I also want to point out that the Company uses 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 Tim.

Thank you, Mark, and good morning, everyone, and thank you for joining us. Let me begin by briefly summarizing the key points for the quarter. First, we reported record performance in sales and earnings for the quarter. Second, we are having a successful fall bake (ph) and experienced sales growth across our core businesses in both the U.S. and Canada. Third, we continue to invest behind the brands providing strong marketing support. And finally, we essentially completed the rollout of our new distribution network.

This year is the first year we were able to develop and execute our own marketing strategy with the acquired Multifoods brands. Let me just summarize a few of these initiatives. We believe that Pillsbury is a leading innovator this year in the baking aisle with 11 new items that we introduced. Our product development efforts focus on value added products that provide convenience, variety, great taste to the consumer and opportunities for greater margin to the Company and our customers. We support all of the brands with increased marketing spending and take advantage of opportunities to leverage our expanded presence in the baking aisle.

As we mentioned last quarter, in Canada we introduced new advertising campaigns for Bick's and Robinhood and are more closely timing our promotions with the key buying months. We focus on our traditional channels where the Multifoods brands have been under represented and are making good progress in filling these distribution voids. In summary, for the Multifoods brands we are executing the strategy we set forth when we made the acquisition which was to grow these icon brands by communicating with the consumer, innovating with new products and providing marketing support. We are seeing positive results from each of these actions.

Smuckers, Jif and Crisco brands all experienced sales growth in the quarter. Crisco had a good quarter as the combination of new products and stronger marketing and trade support have contributed to sales growth for the quarter of 8%. We are seeing good early results from our test of Crisco olive oil and our launch of Crisco flour spray, co-branded with Pillsbury flour, and are encouraged by the initial consumer reaction. Crisco's performance for the first six months has been strong in both sales and margin and we expect a good second half.

Overall we did not experience any major disruption from the devastation from the hurricanes. Several of our suppliers had plants in the affected regions and we were challenged to ensure sufficient resources to meet our production needs. We were able to do so but at additional cost that will continue into the third quarter.

Turning to our supply chain initiatives, we essentially completed the rollout on our new distribution network. Under this new network the Company is utilizing third-party warehouses to combine shipments of our brands. Long-term this network redesign, coupled with the closing of our Salinas, California manufacturing facility, will allow us to lower our total cost structure. However, through the first six months we incurred increased costs associated with this implementation. Our investments in supply chain improvements are a part of our continuing efforts to lower our overall cost base and improve margins over the long-term. I'd like now to turn the call back to Mark to have him review the financial results with you.

Thank you, Tim. Sales for the quarter were up 3% compared to last year and income from continuing operations was up 14%. All core businesses experienced sales growth during the quarter. If you exclude the U.S. industrial business which was divested sales were up 4%. Results for the quarter and first six months included a favorable adjustment reflecting a change in estimate of the expected liability for trade merchandising programs. The impact to sales was approximately $6.7 million and the after-tax impact to earnings was approximately 4.3 million.

Each quarter we review key asset and liability balances as part of our closing process and make adjustments as appropriate. These adjustments are made to reflect updated information on a regular basis. The trade merchandising liability is included in this review and the resulting adjustment is a normal recurring outcome.

GAAP earnings per share from continuing operations were $0.79 this year versus $0.69 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 14% while earnings per share were $0.86 and compared to $0.75 last year.

Gross margin for the quarter improved due to a favorable mix of sales and improved cost in the oils and baking business area partially offset by higher commodity and freight cost. The trade liability change in estimate contributed approximately half of the overall gross margin improvement.

SD&A as a percent of sales increased primarily as a result of planned increases in marketing expenses and higher distribution cost related to the implementation of the new distribution network. We did see our administrative overhead cost remain flat in dollars reflecting the Company's efforts to offset cost pressures related to commodities.

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 $430 million, up 3% compared to last year excluding the trade liability adjustment with the consumer business area up 4% and the oils and baking business up 2%. In the consumer area sales increases were driven by growth in the Smuckers, Jess, Hungry Jack and Uncrustables brands. Fruit spreads and peanut butter's share of market remains at record highs.

The demand for Uncrustables continues to be strong. Sales of Uncrustables across all channels were approximately $22 million in the quarter and $37 million for the first six months, an increase of 22% over both periods last year. In the consumer oils and baking area Crisco sales in the second quarter were up 8% compared to last year. The Crisco results include the impact of a 6% price decrease implemented last January. Volume was up 11% for the quarter.

Special market sales were 177 million for the quarter, flat with last year. Excluding the U.S. industrial business, which has been divested, sales were up 4%. The beverage business area was up 6%, and the foodservice area was up 9% due to growth in portion control and Uncrustables in the school market. In Canada increases in our core retail business and favorable exchange rates partially offset the planned rationalization of certain unprofitable industrial business.

Regarding other initiatives, the Company purchased 99,000 shares in the quarter against its authorized repurchase plan of 1 million shares. Currently we have approximately 235,000 shares remaining under our Board authorization. Also during the quarter the Company repaid a $17 million tranche of long-term debt due on September 1st. I would now like to turn the call over to Richard.

Thank you, Mark, and good morning, everyone. We are encouraged by our performance to date. As we make investments in our brands and new products, marketing and a more efficient distribution system we will continue to enhance our opportunities on both the top and the bottom line. As we enter the third quarter we are excited about a consumer and trade promotion that we are currently launching -- the largest in the history of the Company that includes all of our major brands.

We hope you noticed the coupon insert in your local papers this past weekend. As part of a three pronged approach of this promotion we are supporting the coupons with in-store merchandising and TV spots. We are leveraging our many brands and taking advantage of our increased presence in the center of the store.

While we have momentum going into the second half we also face some challenges. What we are seeing is no different than what other companies are experiencing. Energy and petroleum costs have been volatile and it's difficult to predict the magnitude of the future impact. However, we have identified areas where we are already seeing cost above our plans.

First, our freight costs are impacted by diesel prices that have risen sharply and continue to remain high. September through December are our heaviest shipping months. Our costs were higher in the second quarter and we expect a variance of around $5 million in the second half of the year. For the year we are forecasting freight costs to increase 25% over last year. However, we believe our new distribution network, with centers closer to our customers, will keep the increases lower than they might have been had we not made these changes.

Resins relating to our packaging costs are another area that is well above our plan levels. These costs have been and are projected to continue to be volatile this year resulting in cost variances probably in the range of 5 to 7 million. Compared to last year, we expect resin costs also to be up approximately 25%.

Natural gas prices are increasing and, while we have incurred some variances to our plan, we expect additional variances for the second half of the year to be approximately $3 to $4 million.

Let me now comment on our outlook for the year. We maintain our forecast of revenue growth of 6% to approximately 2.16 billion. I have just described the cost challenges that we're facing for the second half. We will continue to take actions to offset these cost increases and identify actions to mitigate future increases including both discretionary cost reductions across the organization and potential pricing actions.

We remain committed to investing behind our brands and will continue to significantly increase marketing spending this year compared to last year. It is likely that the earnings per share growth rate will be within the range of 5 to 8% this year.

In closing let me summarize a few key points. First, we experienced record results for the quarter. Second, we do have great momentum for the remainder of the year. Third, we continue to take actions to mitigate future cost increases. And finally, we are committed to a long-term view of running the business as we implement our strategy on multiple fronts and will continue to invest in our brands to ensure their steady growth. We thank you for your time and now we'd be happy to answer your questions.

(OPERATOR INSTRUCTIONS). John McMillin, Prudential Equity Group.

Good morning, everybody. Richard, I guess your new earnings guidance is 5 to 8%; your prior guidance was 8% if I'm correct. Is that essentially right?

That's correct.

So basically you're just taking a nickel or so out or at least giving yourself some flexibility due to the higher cost. Would that be kind of a rough way to describe it?

That's a good summary. Yes, John.

I've been doing this for a while. If you call this a normal recurring outcome adjustment, I'm glad it's normal for you, but in my 20 or so years -- I hope to do this 20 years more, that I'll see more Smuckers in the queue here -- I've never seen a second-quarter favorable adjustment to this magnitude. I've seen a lot of third-quarter negative adjustments in trade due to expected liabilities as volumes haven't hit expectations, but I've never seen a second-quarter favorable adjustment. Can you just tell me exactly what happened that you obviously booked 6.7 million of trade expenses in the first quarter and now you're undoing them? So obviously a trade program that you had planned has fallen through. Is that correct?

Not exactly. Basically if you go back historically, our trade spending was about 40 million a year, with the acquisition of Jif and Crisco brands it raised to 100 million and then the Multifoods brands, because a lot of are trade driven, went to 240 million -- or 220 million, excuse me. So we have a lot more trade spending to look at and to judge what that's going to be. And we're just basically getting a better handle on what that trade spending is and this was a time that we adjusted that and feel much more comfortable with the history that we now have that going forward we have a better handle on specifically what we're spending and when it hits the income statement.

Well, to make this adjustment -- I guess I'm just trying to understand why the first-quarter number was so high and what could have possibly changed in a couple of weeks other than some trade programs not being implemented. In August it's just a big change so early in the year. You're basically saying it's not business related.

John, this is Mark; let me offer a couple comments. I think that when you look at the liability we're speaking more to the liabilities of programs that were related to fiscal '05. And I think the reason we're making the adjustment now is that information that drives that calculation, that estimate of liability comes through the first half. Basically if we look at retailer performance and other variables and that information, while we estimate it at April 30, it comes in typically three to six months post the promotional period. And thus that ties into why we're booking it in the second quarter.

So this relates to prior year expenses?

It relates to the liability as of the end of fiscal '05.

I thought at the end of every year you had to get promotional expenses in line and I know if they do it the other way they put you in jail. But I thought promotional expenses had to be evened out at the end of the year.

Clearly at the end of the year you need to go through and you do your best estimating what the liability -- any liability and then, of course, the expense is sort of driven from that. And at the end of the year based on the programs we had in place we felt comfortable with that liability level. But as I said, as the performance had come in and the information had been received over the last quarter or during the quarter we felt comfortable that the liabilities as they were needed to be adjusted to better reflect what it's ultimately going to be settled out at.

So all this $0.07 relates to prior years, not to this year?

That's correct.

Now, will there be any more? I certainly regard this as non-operating. So not only are we going down $0.05 but now we've got $0.07 coming from prior year. Am I thinking right?

To answer your question, we believed at the end of October, at the end of the second quarter this is our best estimate of the liabilities so we recorded to that. We clearly feel comfortable with the forecast at the end of the quarter.

And just if I could get Steve Oakland, just on the -- I know we look at measured markets and they don't tell the whole story, but you do have a major competitor now that has a new CEO who seems a little more with it let's saying and your goal is to gain a share point a year and sometimes that can be done easy, my sense is it might get more difficult. But I'm just looking at some oil market share numbers that just for the 12 weeks ending October 8th I have your dollar share down about 60 basis points versus a year ago comparison that's not that difficult where you were also down a little bit. Are you seeing anything new out of your principal competitor? I guess you see Crisco up -- you're talking about Crisco up six but I don't see it looking at these numbers.

Hi, John, Steve. A couple things. I think you've got to look a little deeper into that IRI. If you look at that IRI on the four-week -- I think we're looking at the same document, I've got it in front of me -- you'll see volume up 5 and if you look at it on a 52-week you see it up 3.8. So I think those are more in line. You're absolutely right, it doesn't capture obviously the fastest-growing retailer in the country in the segment of -- they operate most of their stores in the largest regions for the vegetable oil business, right? So it's easy to understand that they over indexed in the vegetable oil business.

So you don't see the whole universe on Crisco and on baking. Both of those things, just the realities of the category, the regionality of those categories. But as far as the competitors, there probably aren't too many more competitive categories, but if you look out where we are four years into this business, right, we've got a stable team, we've had the same director of marketing for four years. I would argue that's probably not the case on my competitive brands. We've got new items in the market. Our category management team has been ranked best of class two years in a row now by the grocery trade.

So we're doing more and more of the little things and new items, new spray products, the simple measures cap, our corn oil has been in market a couple years now. So it's a long-term battle, but we don't see our feelings changing.

Great. Thanks a lot.

George Askew, Legg Mason.

A lot of my questions have been asked, but I have two follow-ups. One, you had indicated at the end of the fiscal '05 year that marketing investment would be up 20 to 25%. Can you give us an update on that number through the six-month period and the latest quarter? How much is marketing spend up?

Marketing through the first six months is up about 12% and we do still see marketing probably at the lower end of that original 20 to 25% range for the year.

Okay. And then secondly, looking at your earnings guidance and it's highlighted there are a lot of moving parts here, the change in the merchandising liability estimate and obviously restructuring charges. Is the right base still 260 for fiscal '05?

Yes.

Okay. And then through the six-month number, what's the right number through the six-month period that you've done?

It's $1.42, but that -- again, just so that we're clear -- that does include the adjustment that we spoke of.

Right. And that's part of the 5 to 8%?

That's right, yes.

Okay. I'll leave it there. Thank you.

(OPERATOR INSTRUCTIONS). Christina McGlone, Deutsche Bank.

My question is on IMC sales. I was looking and in the press release it says that consumer oils and baking was up 2% and you said Crisco was up 8%. So does that imply that Pillsbury and Martha White were down in the quarter?

They are off just a little bit, virtually flat for the quarter. Big difference in mix of customer sales, though, in that if you remember the plan we inherited a year ago, the IMC plan, it was really weighted towards some nontraditional customers and segments. And if you look at what I would call core grocery business, which would be grocery and Wal-Mart, we're in good shape here today. Those brands are up and the Pillsbury brand is up. So we're in a process of really refocusing some of the dollars on customers, channels and products that we think are going to pay out long-term, but for the quarter it is off just slightly.

So we should see their growth accelerate in the third quarter?

We think we'll have a good quarter but we're going to fight that number -- some of those other numbers for the rest of the year. They're not material at the margin line but they are at the net sales line.

Okay. And going back to the trade adjustment. Can you -- I know it was in consumer or U.S. retail, can you tell how it allocated between the consumer business and consumer oils and baking?

Christina, can you just repeat just the beginning part of that, please?

Sure. The trade adjustment catch up, I think it was in the U.S. retail segment and I was wondering the allocation of that reversal between the two subsegments?

It would be about 50-50.

Okay. And in terms of the distribution network cost, it seems from the comments that that distribution system is now up and running, so should we not see any incremental cost in the third quarter?

I think what you'll see, Christine, is that if you recall when we talked about our new distribution network, it is a combination of both a distribution and a manufacturing network change. So the distribution cost should improve as efficiencies continue into the future. What you will see is we are in the process of now closing down our Salinas facility and relocating production back East and that will have a positive impact on cost. We're going to be doing that during the third quarter, so once we get that behind us you will see an overall net improvement.

Okay. So in the third quarter there still could be a little bit of a drag from costs related to closing Salinas?

Well, there will be a drag because we are actually just in the process of starting to relocate equipment from the West Coast, so it will take a good part or at least half of the quarter to get those new lines up -- back at Orrville plant.

Okay. And then industrial sales, they're done now, right? There's no more co-packing, we shouldn't see them next quarter?

That is correct.

And this last question for Steve. Crisco, if you look at the first and second quarters last year, Crisco really had easy comps this year. Now we're starting to go against tougher comps. I know you have a lot of new products out there; soybean and (indiscernible) prices have started to rise sequentially. What's your outlook for the second half given the comps, the rise in prices and the competitive landscape?

I think it looks great through -- similar momentums through the end of fall bake, through Christmas. Easter will be competitive. Easter typically is competitive. Soybean oil has been very volatile, it's come off a little bit lately and I think the prices are still much more in the -- if you look at the 10- or 20-year averages. So given the current prices for soybean oil and what we see on the competitive landscape we wouldn't make any real changes for the Easter season. We expect it to be competitive, but we plan that every year.

Okay, thank you.

Leonard Teitelbaum, Merrill Lynch.

Michigan is going to take Ohio State this weekend; I just thought I'd tell you now.

We tend to disagree.

We'll talk about that later. Let me just as a question two ways. Number one, can you make your numbers if the Multifoods brands fall at all? Do you have enough let's say levers to pull in the other areas? And how critical is the year-over-year pull from Multifoods to making your estimates?

Well Multifoods is very important to making our estimates, but those brands are doing very well. We have a great fall bake right now and we're hitting our numbers in fall bake and going forward the third quarter looks good. So we're confident that those brands are contributing and are important to the Company.

I understand that. The reason why I posed the question that way first was that if we had liabilities booked on a pre-existing marketing plan, why wasn't -- if indeed you don't need the funds, if you will, or the liability structure against those brands, why wouldn't you have shifted them, A, to others as opposed to canceling the program which is what it appears to me as I believe it did to others? And it seems to me that if you've got a critical piece of this business, that really has to drive through in order to make the earnings, why you would reduce promotional budgets against those brands at a time, by your own admission, we've got some challenges ahead of us across the entire productline due to noncontrollable costs.

This is Vince Byrd. It's not really a reflection of canceling programs. As Mark explained earlier, it had to do with an estimation of a liability that was (multiple speakers) market.

That you inherited basically.

Yes, because a lot of those programs were put in by our predecessor and we had to make sure that we accounted for those programs.

That part I understand and that's standard accounting for it and that part wasn't the surprise. The surprise -- and excuse me for interrupting -- the surprise was that having booked those liabilities or the planned expenditures against a budget why that money wasn't either, A, redirected or left in. That's my only question.

I think the key there is we have plans in place for the remainder of the year that we think are good plans. And just throwing more money on top of something is not long-term brand building. And really that's the rationale. We just don't want to throw money behind brands unless it's really going to pay dividends. And one of the things we're doing, we're actually spending -- we're trying to spend less on trade and more on the consumer and we're actually getting -- we have a measurement for that and we're getting actually bigger returns on our trade spend than we have historically.

That's helpful. So are you saying then also that with the redirecting of the approach to this and, by all admission, your predecessors weren't the sharpest in trying to get some of this stuff on the shelf, that the programs frankly have been supplanted by other programs, is that basically the point that we need to take away here?

Yes. And first of all, this fall bake is the first time these were our programs that were put in place. So those are different programs than our predecessor and we think they're more effective. And we did spend a lot of money last year and this year on new distribution drive slotting fees where they were weak in distribution. So that money was spent this year and we're going to continue to spend in those areas.

And I would add that we have the ability to leverage those brands with our brands (multiple speakers) the predecessor did not have. And Richard mentioned in his script if you saw the FSI that dropped this past weekend, that's an advantage that we have that they would not have had.

Okay. Now finally, we've anniversaried the time now. And I think the question was asked earlier, are there any -- has everything been trued up now as far as inherited promotional plans are concerned?

Yes.

Yes.

And again, the base from which you're projecting your 5 to 8% growth is what again, the way you view it?

260.

Okay. And is there any change in the numbers going forward in '07? Are you back to your previous announced goals?

We continue to -- the 8%, yes.

Thank you very much. Go blue.

Go Bucks.

Mark Chekanow, Sidoti.

Looking at the news we're seeing out of the peanut crop it seems it would have a nice crop this year. Would you be less likely I guess to take a price decrease on peanut butter and pocket that given some of the other cost increases when those costs come down?

A couple comments, Mark. The early report was very good on peanuts, although the latest isn't quite as bullish. But having said that, we are still experiencing the resin cost increases that Richard mentioned. And so, net net the costs are not down or projected to be down at this point. But again they are very volatile, as we all know. So we are unlikely to take a price decrease.

Okay. And there's obviously a lot of discussion on this trade spending issue and I heard on some other conference calls and some other companies a big focus on the efficiency of trade dollars and trade spending versus spend against the consumer. I guess is there going to be a continued push towards looking at the trade spending and maybe doing a little bit less in the trade, more toward the consumer?

Absolutely. What our approach has always been is try to make those trade dollars work as efficiently as possible. And whether they're necessarily reduced or whether they're just used more effectively is what we're trying to do. Clearly the new brands tend to be a little -- if you would look at the ratio of consumer versus trade -- tend to be a little more trade driven versus maybe some of our core brands. But it's all about making those funds work more effectively.

Okay. Now a little bit longer term, I know you're now a year past the Multifoods deal, prior to that you were running somewhere around a 14% EBIT margin. You've had about a year, obviously you have another year or two to work on this and you're (indiscernible) a number of restructurings in the supply chain optimization program. When you look two to three years out is it possible to get the 14 you're going to (indiscernible) to a 15 percentage time operating margin after all of these improvements that you've made across the business?

I think there are two points in speaking more to operating margin which I think equates to your number is that by the end of '07 our intent is to get back to the pre IMC level, 13.5. And we do think that the numbers you mentioned, 14 to 15%, are reasonable and I think we stand by what we said in the past. Clearly when we compare ourselves to the large cap food companies, they have critical mass to drive their numbers to high teens, low 20s. We don't have that mass yet, but we clearly have opportunity and we think somewhere in the midteens is a reasonable operating margin.

Any other fallout from the hurricanes? I know sugar prices have been talked about. Or you getting hit on that at all?

No, not significantly in this year.

And any other issues with the fruit crops?

No, we're in good shape.

Everything is good.

Thank you.

Farha Aslam, Stephens Inc.

Good morning. Could we just go over Uncrustables? How is that new plant shaping up now?

Farha, this is Fred. We continue to be very pleased with the progress we're making at Scottsville. As you know, we basically are continuing to meet all of the demand and we anticipate no issues meeting demand as we go forward. We still remain committed to our previous indication that we expect the plant to become profitable sometime in the fiscal fourth quarter of this year.

And are you ready to introduce new products at the start of next year?

I think we still remain committed to our previous comment that we expect to begin introducing new product sometime in next calendar year.

Great. And in terms of IMC, you guys talked about core versus noncore channels. Earnings from IMC marketing net the synergies, are they up year-over-year?

Yes.

And is distribution up for the Pillsbury brand overall?

Absolutely.

About how much would you say distribution is up for Pillsbury?

That's a tough measure. There are a number of new items probably in -- and those new items are in distribution across the country. I don't have that measure in front of me; I'd have to get you that.

But generally you're up in distribution and up in earnings?

Absolutely, distribution -- in both non-core items we've gone back and there were a number of accounts, large accounts that didn't carry Pillsbury. And those items are back in those core customers. We did that first. That's complete. They're in for their first fall bake season. Some of them have just started ordering in the last six weeks or so and then the new items are starting to work their way in.

And you've been talking about new items, but there's always holes in Pillsbury's core portfolio. Have you filled those in?

The first thing we did was look at the top couple customers across the country who did not carry Pillsbury and those have been for the most part handled and now we are going back after, to your point, the core couple of items at each retailer.

And then my final question is November tends to be a key month for Pillsbury, how are sales so far in November?

I don't think we -- we usually don't comment on months, but we see our trends continuing solid. They're solid.

Great, thank you very much.

Fred Speece, Speece Thorson Capital.

Just to make sure, I think we've got the trade thing. It came from Multifoods and was it a particular retailer or was it a line of products?

No, it was not a particular retailer. It was the basically the programs that Multifoods had in place across the country. So across retailers as well as items or category.

Okay. And so your spending at the low end of the 20 to 25% is related to this adjustment as well?

No, no. Those are separate.

Separate things, okay. These savings realized through the acquisition, can you give us a number? You had estimated --.

I'll just give you an update. Again, we said that the total savings over the three-year period following the acquisition was 40 to 60 million, roughly one-third per year, and we continue to trend achieving those synergies and we're in year two of that three years.

And then -- it may be the same -- but the share repurchase, was that a net reduction in shares or was that just share accretive.

No, that was a net reduction in shares.

Thank you.

George Askew.

Could you please give us a rundown in some detail of new products that will impact the back half of the year? And on Uncrustables, I'm thinking January of '06 we're going to hear of new products or perhaps on this call three months hence. Can you clarify if I'm thinking about that correctly?

George, this is Vince. You're not going to see on shelves the new products from Uncrustables in January. As Fred mentioned, you will see them on the back half of the year in some selected markets. There's a lot of new products in the pipeline, some things that are currently being tested and evaluated for expansion would be our Jif To Go which is a four-pack cup. There's the sugar-free product made with Splenda which somewhat is restricted because of Splenda's availability. There are some organic peanut butters being tested and those are the ones that are in market that we would look to potentially expand.

Olive oil. We have olive oil in a couple of markets. We've got sprays in a number of markets and that distribution is growing. And the baking business for Pillsbury and for our competitors is new item driven.

We have 11 new items in Pillsbury this year.

Right. And they're not national yet.

And then Uncrustables we talked about. In the special markets, Bick's and Robinhood -- certainly Robinhood has new products. And then looking at beverages for example, is that being new product driven or is that distribution?

It's a combination but mainly distribution. We're seeing good growth in the mainstream in the natural food sets which is an expanding area. So mostly driven by distribution gains.

Okay. And then on food service, will be new products out of the Uncrustables franchise drive foodservice as well, do you expect that?

No, the new products are going to be focused on the retail side. That being said, we are opening up the Uncrustables current products to more markets in foodservice such as healthcare and colleges and universities.

Okay. Good deal, thank you.

William Keller (ph), Key McDonald.

Good morning, everyone. Most of my questions have been answered, but real quick on Uncrustables, the $22 million figure you mentioned, was that just retail channel or total?

Total.

Then lastly for the rework of the distribution network, can you give us an estimate when that will be completed?

Could you repeat that? I'm sorry; we had a little static here.

Sure. The rework of the distribution and manufacturing networks, is there a time frame you can give us that that will be completed?

Basically the distribution side, we moved into our last warehouse in the quarter so those are in place. So there won't be any more movement in that. And then as I mentioned earlier, we are in the process of closing our Salinas facility which served as both a manufacturing and a distribution center. They will both close during the quarter. So we will be moving that production back East. So basically by the end of January all the components will be in place.

Okay, thank you very much.

At this time, gentlemen, there appear to be no further questions. I would now like to turn the conference back over to you for any closing remarks.

Thank you very much for participating this morning. And as we all know, this is Thanksgiving period and we wish you all well at Thanksgiving and hope you'll have a happy time with your families and do a lot of baking.

Thank you very much.

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