J M Smucker Co (SJM) 2007 Q2 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the J.M. Smucker Company second quarter 2007 earnings conference call. [OPERATOR INSTRUCTIONS] At this time I would like the turn the conference over to Mr. Mark Belgya. Please go ahead, sir.

Good morning, everyone and welcome to the J.M. Smucker Company's second quarter 2007 earnings conference call. I am the Company's Chief Financial Officer and thank you for joining us. Also on the call from the Smucker Company this morning is Jim Smucker, Chairman and Co-CEO; Richard Smucker, President and Co-CEO; James Berg, Senior Vice President or Consumer Market; Steve Oakland, Vice President and General Manager of Consumer Oils and Baking; Mark Smucker, Manager and Director of Canada and Vice President of International Market; and Paul Wagstaff, Vice President of Food Service and Beverage Markets. After this brief introduction I will turn the call 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. A replay is available on the Website in downloadable MP3 format. If you have any follow-up questions or comments after today's call, please feel free to contact me. I would like to remind you 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 our 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 will turn the call over to Tim.

Thank you, Mark. Good morning, everyone and thank you for joining us. Let me begin by summarizing the key points for the quarter. First, we continue to execute our strategy to achieve profitable growth in our icon brands. In support of this strategy we closed the sale of our Canadian non-branded grain-based food service and industrial businesses. With this divestiture, we have essentially completed the portfolio realignment we began several years ago to sharpen the focus on our brands.

We also acquired the White Lilly brand, a premier provider of all-purpose and specialty flours that complements our existing baking brands. We realized the benefits of our investment in product innovation, as new products continue to enhance the growth of our brands. Second, we achieved solid sales growth in the quarter, with sales up 4%. The sales growth was led by our Smucker's, Jif and Crisco brands and particularly strong performance in our special markets segment. Our back-to-school period was strong and Fall Bake is off to a good start in both the U.S. and Canada.

Third, despite significant cost pressures we increased our earnings per share by 5%. We continue to focus on long-term brand building, while at the same time paying strict attention to cost management in this difficult cost environment. We realized a solid quarter in our consumer strategic business area, with good growth and record share for our Smucker's and Jif brands. Uncrustables experienced strong growth in the quarter, as the new products introduced last year contributed to the top line.

Our Crisco brand was up in the quarter despite facing tough comparables from last year is and is off to a good start in the Fall Bake period. New products contributed to growth as we started shipments of our peanut oil during the quarter. From the outset of Fall Bake, we have worked with our customers to more closely align our Crisco for promotional timing and shipments with the key holidays and their expected consumer takeaway. We would expect our oils business in the third quarter versus a year ago to reflect these efforts.

Although baking sales for the quarter were down slightly, we recorded share gains for our Pillsbury brand. We continue to be encouraged with our progress in the baking business. We view brand building as a long-term process and continue to invest in marketing and new products. We have continued to exit certain nontraditional customers that were less profitable.

As evidence of the success of our strategy, Pillsbury's share of market has increased for the most recent twelve-week period. This performance has improved the 52-week share to the point where, for the first time in several years, we are flat with last year. We are executing the same strategy with our Martha White brand. The acquisition of White Lilly brand combined with Martha White, Red Band and Pillsbury provides us a strong portfolio of baking brands in the south, a key baking region.

Our special market segment also contributed nicely to our top line growth during the quarter as each of the business areas in that segment showed double-digit year-over-year growth. In Canada with the portfolio changes complete, we are able to fully focus on our branded business. Unlike the U.S., the Canadian Thanksgiving holiday is already behind us, giving us even more confidence in the success of our Fall Bake. We have significantly improved our execution at the store level, and we continue to support the brands with advertising campaigns.

Looking ahead, we are new products under the Robin Hood and [Brick's] brand, bringing new excitement to the categories. We have many opportunities in Canada to drow these icon brands, and we look forward to continuing to execute our strategy. Our beverage business,s once again, experienced strong growth. The category is growing in both the natural foods and traditional retail channels where our R.W. Knudsen and Santa Cruz Organic brands are leaders.

In summary, then, we have good momentum in our brands and expect our strategy to result in long-term profitable growth. I would like now to turn the call back to Mark to have him review the quarter's financial results with you.

Thank you, Tim. Before I begin, I would like to remind you last year we included a trade merchandising adjustment in our second quarter results. This favorable impact was $6.7 million in sales and margins and $4.3 million in after-tax earnings or $0.07 per share. Most, if not all of you, have removed this from your earnings numbers, so for comparability purposes I will provide certain comparisons excluding this adjustment.

Reported sales for the quarter were flat with the prior year but up 4% excluding divested businesses as we define in our press release. Excluding the $0.07 trade merchandising adjustment as another percentage point resulting in a 5% quarter-over-quarter increase. GAAP earnings per share were $0.80 this quarter and $0.79 in the second quarter of last year, including restructuring and merger and integration costs detailed in our press release. Excluding these charges in both years, earnings per share were $0.83 this quarter and $0.86 in last year's second quarter.

Excluding the trade merchandising adjustment last year, earnings per share were $0.79, thus resulting in a 5% increase this quarter over last year. The favorable impact of the trade merchandising adjustment included in the prior year and the increase in restructuring costs in the current quarter accounted for over 50% of the decline in our gross margin. Higher manufacturing expenses, and increased raw material costs primarily in soybean oil, certain fruits and wheat, both in the U.S. and Canada and freight related costs, also adversely impacted margins for the quarter.

We were able to partially offset the impact of the lower gross profit with a decrease in our SG&A spending for the quarter. Lower distribution and marketing expenses were partially offset by a charge to amortization expense. During the quarter, we divested our Farmhouse brand, which was acquired as part of the multi-foods acquisition and wrote off intangibles of approximately $1 million. The decrease in marketing is partially timing related, particularly in oils and baking as we're spreading our spending more evenly between the second and third quarter compared to a heavier second quarter spend last year.

However, we now expect full year marketing spending to be about flat with last year. The focus of that spending remains on longer term brand building activities and we continue to strongly support these areas. Sales in our U.S. retail segment were $434 million in the second quarter, up 3%, excluding the trade liability adjustment last year. Sales in the consumer business area were up 5% on strong performances in Smucker's and Jif. Sales in the oils and baking business area were essentially flat, as sales gains were offset by lower industrial oil sales and the continued exit of certain less profitable customers. Uncrustables experienced another good quarter as sales across all channels increased by 26%.

The level of growth this year has exceeded our expectations as consumer demand remains high to allow us. To allow us to keep step with this level of growth, we're bringing on a new line at Scottsdale and have elected to keep our Fargo, North Dakota plant open. This will provide us manufacturing flexibility and provide additional capacity. We continue to make progress and our overall Uncrustables profitability improved over the first six months of this year compared to last year.

In the special markets segment, sales were $171 million for the quarter, up 12% excluding divested businesses. The beverage area continues to experience strong sales growth in both its branded and had non-branded businesses, up 16% overall in the quarter. The food service business area was up 10% with gains being in traditional and schools channel and Canada was up 11%, driven primarily by the addition of Five Roses Flour brand and the impact of favorable exchange rates.

Let me conclude my remarks with a couple of comments regarding our cash flow. Our cash provided from operations is up significantly for the first six months of the year compared to last year, primarily due to improved inventory management. In addition, the divestiture of the Canadian businesses generated cash during the quarter.

Key uses of this cash include funding the acquisition of White Lilly, repayment of our short-term revolver debt and the repurchase of 745,000 shares. These shares were repurchased under our 10-B-5-1 plan. This leaves 255,000 shares remaining available under the plan and nearly 2 million total shares available under the Board's authorization. I would now like the turn the call over to Richard.

Thank you, Mark, and good morning, everyone. We're pleased with the results for the quarter, which saw both sales and EPS increase at levels consistent with our core growth objective. In addition, we are continue to go see share growth across most of our brands. We remain committed to our strategy of investing behind the brands with marketing support and new product introductions. We are confident that this strategy will continue to provide future growth opportunities.

Like many food companies, we are experiencing cost increases on a number of raw materials including soybean oil, peanuts, wheat, sweetener, potatoes, and certain fruits unique to our beverage business. Freight costs are also up. We must be diligent in offsetting these increases whether by pricing actions or reducing discretionary cost across the organization. As we look forward, we understand that commodity costs tend to be cyclical, and while it is important to manage through the near term effects of the cost environment, we remain committed to our strategy.

To this point, we confirm our long-term sales growth goal of 8%. 50% to come from our core businesses in new products and the remainder from acquisitions. Long-term earnings per share growth would be in line with our sales growth. For the year, we expect sales to increase by approximately 4% over last year excluding $100 million in sales related to the divestiture of the Canadian non-branded businesses.

In terms of earnings per share, we are on track to deliver earnings per share growth in line with our core growth objective of 4% from 2006 earnings of $2.65 a share. The 2006 base excludes restructuring and merger and integration costs, the gain on the sale of the Salinas, California, plant and certain nonrecurring tax benefits.

To summarize, first we continue to execute our strategy to possibly grow our icon brands and we expect new products and acquisitions to enhance our future sales growth. Second, we achieved solid sales growth of 4% this quarter. And, third, despite significant cost pressures, we increased our earnings per share in line with our sales growth.

We have developed good growth momentum during the first half of the year and look forward to a successful completion of the remainder of the year. We thank you for your time, and we're now happy to answer any of your questions.

[OPERATOR INSTRUCTIONS] Our first question will come from Stevens Inc., Farha Aslam.

A couple questions. First, could you could just give us some detail regarding the pricing actions you've taken to offset some of these commodity costs and how volume has been impacted?

Farha, this is Vince. I will start and then I'll turn it over to Steve. I think as you may recall earlier in the year from a calendar perspective, we took potatoes up, and then we took most of our fruit spreads up, and we've taken Uncrustables up. And quite honestly, it's not dramatically affected our food spread volume or our Uncrustables volume. Potatoes has been affected to some degree but overall, we're very pleased that the volume has remained relatively strong.

And if you have to average, what would be the average price increase in your --?

3% to 4%.

3% to 4%. And is that all in the market now?

Yes. Well, for what we've announced to date, Steve will talk to his area, but all of that's been in the market. But we are contemplating some other increases given the costs that Richard referred to in his comments.

Okay. And has competitors largely followed?

For the most part, in some segments, they have and some they haven't gone up as much as we have.

Hi, Farha. It is Steve. In oils and baking, we have pricing out on our baking business that goes into effect in December. And we have oils pricing out that typically go into effect at the end of Fall Bake. So although that pricing is out, it is all through, we won't see the impact of that until the very end of third quarter and the fourth quarter.

And you've had the area that's faced the highest impacts with oils being up and wheat being particularly strong. I know you don't tend to give us your hedge positions but could you just kind of comment on what types of price increases or cost increases you're seeing versus the market? Because wheat is up 20% year-over-year.

There is no question. Both commodities are up. Soybean oil is up substantially and wheat is at least 10 year highs. These businesses, though, the pricing for Fall Bake is set with our retailers many months ago. So obviously, when we commit to that pricing, we do the right thing as we look at the market from a hedge position. So those impacts typically lag what you see in the futures market as far as when they impact our business. But they're substantial commodity increases, and they're crop driven, the wheat increase is crop driven. So, we're going to live that for at least a cycle, so we would expect those prices to be reflected. We have taken six price changes in Crisco since we've owned the brand. So, we've seen tremendous volatility before, and we've seen that be transparent not always immediately but over time, we've seen that be transparent.

If you have to say net actions that you would see in oils and baking, could you just give us color about how much those pricing actions are anticipated to be?

In baking to date, they're 3% to 5%. In oils they're 5% to 7%. We've seen that from our business and from some of the areas from our competitors.

And have competitors largely followed? Have you led or have you been following the price increases?

We typically lead in oils where we're the leader, and we typically follow in baking where we're not. So, that would be consistent this time.

That's very helpful. My final question and I will pass it on, the acquisition of White Lilly, could you give us some color, Mark, on the size of the acquisition and if there is any seasonality in that business?

Sure. Basically, the business is about a $33, $35 million business primarily in the southern region of the U.S., heavily concentrated in that area, and it is probably no more seasonal than the other pieces of our business. It is primarily an ingredients business, so flour being the largest component of that. So -- And there might be a little bit around the Fall Bake, but not dramatic.

Okay. That's very helpful. Thank you.

And our next question will come from Christina Mcglone with Deutsche Bank.

Good morning. First question, on the last call, you had said you still needed some time to determine grape and peanut costs. And I was wondering now that there is more visibility there what the outlook is for those costs?

Christina, you cut out. Did you say grape and peanuts?

Yes.

Yes, I can put more color on that. We are anticipating peanuts cost to be higher, and we are in the process of looking at a price increase to cover those. In the case of grapes, they were higher but the yields were up, so we did not experience the significant cost increases on grape at this particular time.

Okay. And then in terms of Uncrustables, what were the new products introduced last year that you said benefited this quarter?

If you recall, it was a peanut butter and honey on wheat bread and a peanut butter only. And we had a slight expansion of the cheese variety that we had introduced sometime earlier.

And then are you -- do you have any other new products planned for this fiscal year there?

No, we don't actually because of the volume situation that is driving, we are not going to introduce anything. We may or may not expand those that are in test market currently but we're not looking at expanding in consumer.

I'm trying to figure out, keeping Fargo open, how does that impact your cost structure relative to your original plan?

Hi, Christina, this is Paul Wagstaff. The overall cost structure in Fargo was similar to what we see Scottsdale. So, the net/net the cost impact isn't going to be anything different really we have in Scottsdale right now.

And what about distribution, will that increase?

No, right now our distribution will not increase.

Okay. And so, if you're running Scottsdale and then Fargo profitably now and there won't be any more product increases -- or introductions, do you think that then Uncrustables will actually be profitable as a product for the rest of fiscal '07?

Well, actually from a profitability standpoint, the current overall venture is actually not profitable based on the fact that we've been investment spending on that total venture. We are looking to have profitability for the total venture in 2007 calendar year.

Okay.

And Christina, this is Mark, just to reiterate a point we stated earlier, is that, despite it not being profitable, our profit has improved from a year ago for the first half of the year. So, we are seeing progress being made.

Okay. I think that's it. Thank you very much.

And our next question will come from Prudential Equity Group, John McMillin.

The 4% does not include acquisitions. The White Lilly happened after the end of the quarter, correct?

That's correct.

And then Tim, when you use these market share gains, you're using unit share, not dollar share, is that right?

No. It is dollar share.

So, then you're not using Nielsen because that's not what I see. What -- are you using IRI?

We use IRI.

We use IRI, I think as we've mentioned before, what you see isn't all market.

Okay. So, you're using all market, you're using Wal-Mart's stuff.

Exactly.

Yes but John, this is Vince. Let me just answer, from what we understand you may see through IRI's supermarket news, if you took a look across every one of the categories and even the limitations of what it measures across all brands, we're up 3.5% for the 12 week period.

So, the oil number just has me surprised. Because if you take the 12 week period that I have through November 4, and again your comp is not an easy one, so this is a little bit unfair. But I have you down in oil 110 basis points dollar, 100 basis points in share. What are you seeing with your composite data?

Hi, John, Steve Oakland. John, that is the one segment of our business and again, we would argue its timing, that is down in share. It is not down in shipments. And that's the thing we're most emphasizing.

Okay. That's what you said.

That our shipments are just slightly ahead for the quarter. And if you remember a year ago, we came out of the gates in Fall Bake, we had a lot of customer support very early on and that fell off as we got into December. And that was reflected in our third quarter. So, we really wanted to avoid that this year. I think we balanced it better. We've got more of the marketing a little later in the period, and we're really pleased, frankly, that against that comparable we were able to beat it slightly. And then we've got the bulk of the activity coming in the third quarter.

Fair enough. In your last conference call, you mentioned that the majority of the total Company marketing would be in the second and third quarter. Yet in this quarter press release, you mention that marketing declined and certainly a lot of that earnings gain came from all of it came from below the gross profit line. Can you just kind of comment? Steve mentioned the change in oil plans. But in terms of what kind of happened Companywide?

Yes, Mark -- John, this is Mark. High level, I think what we've seen is we have pushed more of the marketing to the back half of the year, both in the oils area, as Steve mentioned, and I think at the last quarter, we saw more of a second and third but just had pushed it back. I think the point is is that we do expect our marketing in the back half of the year to be up pretty significantly over last year. So we would expect to see the benefits of that in the latter half.

Year-on-year marketing will be pretty comparable.

Pretty comparable to last year, that's right.

Just a timing issue.

You would think these Canadian -- the divested business would have lower gross margins than the overall Company. Is there any way to kind of assess what happened to gross margins kind of apples on apples or fruit on fruit?

John, I think your point is taken. And those margins are low. I think a better way of looking at it, though, is that for this fiscal year, our expectation is that our overall operating margin will gain about 50 basis points by divesting of those businesses. And of course, that reflects the fact that we owned the business about half the year. So, there will be operating margin improvement. It is a little harder when you try to be as specific at gross profit.

Thanks for all that.

Our next question will come from Stifel Nicolaus, George Askew.

Yes hi, George Askew. Can you hear me okay?

Yes, we can George.

I just want to address the topic of operating leverage. Once your pricing initiatives are fully implemented, what you already announced and what's to come, will those pricing initiatives offset your higher projected raw material costs? Is it a fairly even offset?

In the consumer business, yes. They will offset the projected increases that we referred to earlier, in peanuts and others. And of course we're not sure what's going to come at the new fiscal year but we'll look at all of that but we will clearly cover those costs.

Right. Okay. But based on what you're projecting, it should offset?

Yes. In the oils and is baking area the flour costs are really dramatic and it may require more pricing as we get into the Easter period. It is clearly going to or has caused us to look at all discretionary budgets and all the nice to have stuff. We're focused on the brand building marketing activities, those things we haven't cut. But obviously, with record high commodity costs, we'll be as tight as we can on everything else in those businesses.

Right. And of course you're getting costs savings in SG&A and whatnot as well as, Mark, it sounds like, plus you've got a number of shares -- diluted shares outstanding should be down around 2.5% year-over-year this year. Yet we're still seeing 4% sales translating into 4% EPS. Is that strictly because of the timing of the pricing versus costs, Mark, and Richard or what am I missing?

Usually when we up -- this is Richard. And usually when we go up on pricing there is a lag. We usually experience some of the cost increases before we have -- before the prices go into full effect because of promotion protection and et cetera. And so, there usually is a lag. And we experienced that. And also in a couple categories where we aren't the market leader, we sometimes wait for the market leader to make a move before we do. And so, there is sometimes a lag there.

So -- but the only reason we're not seeing operating leverage in your income statement is the lag, is that a fair statement? The timing lag.

I don't know if I would say that's the only. But it clearly has a significant impact on it.

Okay. So looking out, at some point hopefully in the future, we'll see operating costs or raw material costs ease.

These are cyclical. Over the years we've seen raw material costs go way up, and we've seen raw material costs drop. And usually, you have margin pressure on the way up, and usually it helps you on the way down.

Do you think that you'll be reporting and showing operating margin expansion in the future when that occurs? Or would you take that as an opportunity to invest those extra dollars into brand building, et cetera?

We would probably historically we've done both, taken a little bit each direction. So we'd want to increase margins but we also use it as an opportunity to invest long-term in the brand.

Okay. As you can tell, I am eagerly awaiting the operating leaf story here.

Well, so are we. And I think we would have seen more if we wouldn't have had these large increases this year in almost all the commodities that we deal in.

Yes.

We've been able to still maintain our margins or maintain our EPS growth even with the increase.

Right. With that you've actually got the 2.5% fewer shares, so --.

True.

That actually suggests that operating margins even a little down year-over-year, even with the pricing and of course maybe the timing issue.

Well, I think that's it, George, particularly just an example on our beverage business, we clearly know that the cost has been well ahead of the pricing action there.

Yes, yes. Okay. Fair enough. That was my question. Thank you.

Our next question will come from Eric Serotta with Merrill Lynch.

Good morning. I just wanted to follow up on George's question with regards to operating leverage. Your overall growth algorithm is about 8% top line growth and 8% bottom line growth, with about 50% coming from acquisitions, both the top and bottom line as I understand it. Now, in response to George's question, you were really responding to this year the timing issues sort of masking the potential for operating leverage. But why in your longer term targets are you not forecasting operating leverage? Is it a question of conservatism or is it how you're going to manage your business in terms of reinvestment?

Well, it is a little bit of both. We try to reinvest and we try to grow the brands. This is Richard again. As we continue to grow we look for opportunities to invest behind the brands. So we would want to get a little bit of operating margin each year whenever possible. But we also are going to invest behind the brands for the long-term. If you actually look at over a five or 10 or 15 year history, you'll -- and do a study on our company, you will see that our sales growth is slightly lower than our earnings growth. And I think the number is something like 11% earnings growth and a 10% sales growth.

Yes. I have seen that. I have seen those numbers. I am just wondering why you don't more explicitly target operating margin expansion over a longer time period?

Eric, this is Mark. I think that we do target improvement. I think to Richard's point is that we do want to reinvest that. One point I would like to make and I know we talked about this in the past, is just that as we look at our acquisition strategy, clearly, bolt-on acquisitions are an opportunity to drive some margin improvement. And albeit small, the things like White Lilly and Five Roses are the type of acquisitions where we're acquiring very little in terms of assets other than good strong brands. And I think that that's a key focus as we do look out is; Where can we drive synergies and acquisition opportunities and where are those bolt-on's to help leverage the sales a little more?

Okay. Thank you. Moving onto marketing expense, you talked about the big -- the substantial increase you're expecting for the second half of the year, part that far related to timing. If I remember correctly, going back to last quarter, you were looking, though, at marketing expense for the full year being up on the order of the increase that we saw last year, which I remember to be about 7% to 8%. What's changed that you're now looking at full-year marketing expense being about flat on the year?

It truly is the commodity costs. We've experienced large commodity costs. And so we look for every possible way to mitigate those cost increases. And what we think we've cut some of what we might call the marketing fat but not the marketing muscle.

And could you talk about other potential areas of discretionary cost reductions in -- whether it is in G&A or manufacturing or other potential areas?

Sure. It is clearly across the organization. In our budget from a corporate standpoint, we're actively managing those as we have all year. And as you know, there is some discretionary spending as built-in budgets that we'll be able to focus in on. And our manufacturing facilities, again, we're focusing on the area that is are driving costs right now and putting the manpower behind that to get those costs down. And it is clearly across organization, and we realize that in these times of high costs there are, I think Steve mentioned, that there are some nice to haves that we'll just have to challenge right now.

Okay. Lastly, a focus of the organization since the acquisition of Multifoods have been increasing the distribution of the Multifoods brands in some traditional channels where they were under index. Could you just give us a broad update on your progress on that initiative? How much -- broadly, are you where you need to be in terms of distribution on Multifoods brands or is there further scope for improvement going forward?

Sure. Hi. This is Steve Oakland. There is a lot of opportunity left. I would argue that we've made some great progress in core customers. There were large customers in all regions that did not stock the Pillsbury brand. We filled most of those. Now that doesn't mean we have the right distribution by segment, the right number of cake items, the right frostings, the right brownies. That activity takes time. We have to prove ourselves to the retailers. But if you look at our sales for the quarter, we're up in the Pillsbury brand in traditional grocery.

Now, that is offset by some losses in nontraditional, some deep discount customers, and that was I much bigger focus of IMC. We just don't see the long-term returns on those segments with the Pillsbury brand. They have -- there is items and things we can sell there and we think we just have to get that distribution mix right. So, it is ongoing, and hopefully we'll have benefits from it for the next year or two.

Terrific. Thanks a lot. I will pass it on.

Our next question will come from FTN Midwest, Chuck Cerankosky.

Good morning, everyone. If we look at your efforts to raise prices to offset the raw material costs, how do you think things net out when you include what looks to me like a more active consumer promotional effort, which sort of gives something back to the retail customer, especially as you're introducing the new product and is trying to grow specific market shares and specific product lines?

I am sorry, what's the question? It is true what you said. We have increased our marketing support, the amount of activity that you see with our customers and their trade ads, the FSI's that was dropped a couple of weeks ago, leveraging all of our brands. All of that activity is clearly up. Again, this is only our second year of owning these brands, and these are our programs. But I am not sure I have answered your question.

If you're looking at a need to go off X% in costs to offset the increase in raws, how does -- how much of that is eaten up by the increase in consumer promotional expense? Or how does it all net out might be a better way to ask it?

I think, Chuck, this is Mark. As we mentioned earlier, our price increases are intended to cover our costs. And in our planning as we talked about, the shift in marketing, and consumer promotions obviously being a part of that, are included in our overall plan, as we've given our outlook for the remainder of the year.

I think it is always a combination, Chuck. This is Tim. Of costs decreases and price increases and we're doing that all the time. And as Richard said, though, we really take a hard look at cutting some of the things that are nice to have versus the real muscle. So, we don't think that we've cut into the real brand building initiatives that are continuing to build the brand long-term. But it is always a tug-a-war back and forth.

Thank you.

Our next question will come from Ann Gurkin with Davenport.

I just Wanted to get an idea on your relationship with Wal-Mart. Are you getting adequate pricing? What are inventories like, promotions, shelf space? Can you just give me an update? Hello.

This is Richard. Our relationship with all of our customers is good. We really don't specifically give specific direction on individual customers. So, we're going to defer on that question. But we just to say overall that all of our customers, our major customers are doing quite well with us right now.

You're pleased with your inventory levels and the level of pricing you're getting with your major customers?

We are.

Okay. Fair enough. I asked this last quarter. Are you still prepared to take on additional acquisitions, as we move through the rest of this year?

We definitely are. In fact, the two that we took on we were able to integrate those relatively quickly. In fact, very quickly. And as Mark mentioned, the bolt-on acquisitions are important to us. They may seem small, but they really fill a great niche. And I do want to reiterate that we do look very hard at our operating margins. We do have specific goals for those. And we're not completely satisfied with where they are today but we think we're heading in the right direction and over time we're definitely going to get where we want to be.

Great. And then lastly, can you comment on what you expect for sweetener prices? Your costs there?

Well, the corn crop, we use -- as you know, corn sweetener is one of our large and sugar both. And both of those have gone up. And corn crop is being affected by ethanol and that's going to drive those prices up. But we're calculating that in when we talk about the overall commodity increases. That's one commodity that we're also included in that discussion.

Do you look for the costs to be up double-digits?

I am not sure it will be double-digits. It is hard to tell. The per bushel cost will be up double-digit. How that converts to a final cost per pound of corn syrup is yet to be determined.

I think the real good news about that, Ann, is that just the biofuel covers everybody. And it is going to change in many ways, how people go to market with those kind of products. So it will be with us for awhile.

Great. Thank you all.

And at this time there appears to be no further questions in the queue.

Okay. Well, thank you very much for your time today, and we wish you all a wonderful Thanksgiving and with a lot of family time.

That does conclude our teleconference for today. We would like to thank everyone for your participation and have a wonderful day.