J M Smucker Co (SJM) 2009 Q2 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the J.M. Smucker Company second-quarter 2009 earnings conference call. At this time I would like to inform you that this conference is being recorded and that all participants are on a listen-only mode. At the request of the Company we will open the conference up for questions and answers after the presentation. I will now turn the conference over to Mr. Mark Belgya. Please go ahead, sir.

Good morning, everyone, and welcome to the J.M. Smucker Company second-quarter 2009 earnings conference call. I'm the Company's Chief Financial Officer; thank you for joining us this morning. Also on the call from the Company this morning are Tim Smucker, Chairman of the Board and co-CEO; Richard Smucker, Executive Chairman and co-CEO; Vince Byrd, President of our Coffee Business; Steve Oakland, President Consumer Business Area; Mark Smucker, President of Special Markets; and Paul Smucker Wagstaff, President Oils and Baking.

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 question.

If you've not seen our press release it is available on our website at Smuckers.com. A replay of this call 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 or Sonal Robinson, Director of Corporate Finance and Investor Relations.

I would like to remind you that certain statements in this presentation, and during the question-and-answer period that follows, may relate to future events and expectations and as such constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. I invite you to read the full disclosure statement concerning such forward-looking statements in the press release.

I also want to point out 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. Good morning, everyone, and thank you for joining us. Before I discuss the quarter I'd like to take this opportunity to welcome the Folgers employees who joined us after the successful closing of the transaction earlier this month. I would also like to welcome our new shareholders who are joining us this quarter on this quarterly conference call for the first time. We thank you for your investment in Smucker.

The Folgers and Millstone brands, along with the Dunkin' Donuts brand in retail have joined our widely recognized portfolio that includes Smuckers, Jif, Crisco, Pillsbury, Eagle Brand, Hungry Jack, Robin Hood and Bick's. As the leading retail packaged coffee brand in the US Folgers is an excellent fit with our strategy to own and market number one food brands in North America. With the addition of Folgers we hold the number one position in nine categories in which we compete and we expect 75% of our sales will come from these number one brands.

At Smucker our purpose is to help families share memorable meals and moments and we focus on our consumer with the theme Meals Together, Memories Forever. Folgers has a long tradition of being part of memorable meals, a perfect complement to breakfast or desert, two areas we know a lot about. There are many opportunities for leveraging our brands as our categories share similar core consumers. We look forward to many multi-branding events and are enthusiastic about the business and the opportunities ahead.

Now let me summarize the key thoughts and highlights for the quarter. First, we delivered solid financial results. The quarter's 19% sales growth was broad-based as every business area was up double-digit over last year. While pricing contributed much of the increase, nearly all categories and brands experienced volume gains and non-GAAP earnings per share were up 12% led by increases in operating income and fewer shares outstanding. Second, we completed a successful back-to-school period. And finally, our performance in fall back has been strong.

Our portfolio of brands are considered by many families to be essential in their pantry and thus we are well positioned to meet the needs of those consumers looking to do more for their families by enjoying meals together at home. Recent data indicate that the number of meals prepared and consumed at home is trending upward in this challenging environment and is currently at levels not seen since the mid-90s.

Let me briefly comment on the performance of our brands during the quarter. In the consumer area the Smucker's, Jif and Hungry Jack brands all contributed to sales growth. Virtually all categories in consumer experienced volume gains. Peanut butter volume rebounded from last quarter and was equal to last year despite ongoing competitive activity.

During the recent back-to-school period we were once again fully promoting Jif and offering cross promotions with Smucker's. As a result we are seeing the benefits in Jif's performance along with strong growth in fruit spreads. Hungry Jack potatoes and pancake mixes both experienced double-digit increases over last year providing further evidence of people's desire to enjoy comfort foods at home. In oils and baking, Crisco, Pillsbury and Eagle Brand milk were all up for the quarter.

In addition to the price increases taken during the last year, the Crisco brand, in both oils and shortening, and Pillsbury brand also experienced volume growth. As we entered this year's fall bake we felt our multi-brand marketing event was positioned to be the best in the four years we have been participating.

Earlier this month our holiday coupon insert was delivered to millions of homes across the US in advance of the upcoming holiday baking season. Strong merchandising programs coupled with investments in marketing and new products provided a great start to the fall bake and should carry us through the remainder of the season.

Once again our special markets segment contributed significantly to topline growth; the majority of the increase came in Canada where the Carnation and Europe's Best acquisitions and pricing more than offset the negative impact of foreign exchange rates. While we did feel the impact of the economy on the traditional portion control business, pricing and the addition of Knott's Berry Farm helped deliver overall dollar growth in our food service business. Our beverage business also exhibited healthy topline growth.

In summary, we delivered a strong quarter continuing the success we experienced in the first quarter. With some relief in the commodity markets and a solid fall bake program we are optimistic about the prospects for the remainder of the fiscal year and, of course, we look forward to opportunities Folgers provides going forward. I would now like to turn the call back to Mark to have him review the financial results.

Thank you, Tim. Our 19% sales growth during the quarter is broken down as follows -- pricing accounted for approximately 12%; acquisitions contributed $36 million or 5%; volume and mix contributed 3%; and foreign currency was a negative 1%. We expect a negative impact on Canadian sales of approximately $35 million over the back half of the fiscal year. Our exposure to other currencies is immaterial. It should be noted that we have now lapped the Carnation acquisition in Canada.

GAAP earnings per share were $0.94 this quarter and $0.87 in the second quarter of last year including restructuring and merger and integration costs. Excluding these charges in both years' earnings per share were $1.02 this quarter and $0.91 in last year's quarter, an increase of 12%.

Gross profit increased $25 million in the quarter; pricing actions taken over the last year helped offset higher costs, primarily soybean oil, peanuts, wheat and fruit. Compared to last year we were better positioned in terms of matching price with commodity costs. Acquisitions, particularly in Canada, and operating efficiencies at certain manufacturing facilities resulting from favorable spending and volume contributed to the increase in gross profit.

As you are aware, key commodities, notably soybean oil and wheat, realized sharp declines during the quarter. This decline in costs during the quarter impacted our hedging activity and caused the recognition of mark to market charges of approximately $24 million on nonqualifying commodity hedges. These charges reduced gross profit; as a result gross margins declined from 30.9% to 28.9%.

The trend of SG&A declining as a percent of sales continued this quarter, decreasing from 18.6% to 17.9%. This helped to mitigate the gross margin impact. We have now seen our SG&A decrease from 20.8% in the third quarter of fiscal 2007 to 17.9% this quarter.

In line with our brand building efforts, marketing spend increased 26% compared to last year with most of the increase supporting our national rollout of Crisco Olive Oil. We launched the first-ever TV advertising for Olive Oil in early November, we expect marketing on our base Smucker business to increase at levels above sales growth during the remainder of the year. Distribution costs were also up for the quarter, but in line with the overall sales growth.

Corporate overhead expenses increased only 2% over last year as discretionary activity and spending were significantly reduced from planned levels due to our focus on the Folgers transaction and integration. Finally, selling expenses, although up, increased at levels less than one half of the sales increase.

Looking forward, while SG&A costs will increase with the addition of Folgers, we expect SG&A as a percent of sales to continue to decline. Including the mark to market impact operating income decreased almost $6 million for the quarter excluding charges, but declined as a percent of sales from 12.3% to 11% -- I should say operating income increased $6 million in the quarter.

Turning to segment results, sales in our US retail segment were up 19% in the second quarter. Both the consumer and oils and baking areas realized significant quarter-over-quarter increases. While pricing led volume was up 3% in tonnage and 5% in cases shipped for the quarter. In the consumer area sales were up 16% with every category up in dollars. In the oils and baking business area sales increased 21% compared to last year due to price increases taken over the course of fiscal 2008 and volume gains in most categories including Crisco oils and shortening.

US retail segment profit margin was 15.6% this quarter compared to 18.4% last quarter as segment profit increased 1% in the quarter. The mark to market adjustment primarily impacted this segment, partially offsetting the contribution from sales growth. Excluding the mark to market adjustment segment margin would have been on par with last year.

In the special markets segment sales increased 21%; Canada contributed nearly two thirds of the increase, primarily due to the impact of the acquired Carnation and Europe's Best businesses and pricing which more than offset the negative impact of unfavorable exchange rates. Food service sales were up 12% led by pricing and the addition of the Knott's Berry Farm business. Sales in our beverage business were up 14% and, finally, sales in international were up 22% led by export sales in Latin America.

Profits in the special markets segment increased 27% for the quarter primarily due to the impact of recent acquisitions. Segment profit margin increased from 12% to 12.7%.

Looking at other key EPS components, interest income decreased approximately $1.9 million reflecting last year's use of cash to finance acquisitions and fund company stock repurchase program. As a result of the repurchases made in fiscal 2008 the weighted average outstanding shares for the quarter decreased from 57.5 million to 54.8 million. The tax rate for the quarter was 33.4% compared to 33.9% and in line with our expectations.

During the quarter we issued $400 million in senior notes, a portion of which was used to fund the special dividend paid on October 31st. There was little impact on interest expense for the quarter since the financing closed on October 23rd.

Let me now speak to our outlook for the remainder of the year. In terms of our base Smucker business momentum remains strong and we expect the year to be better than we originally anticipated with higher sales and margins. We expect total cost to increase approximately $140 million for the year, down slightly from previous guidance. For categories such as soybean oil and wheat, despite cost decline from their highs, they are still up over last year's level. In addition, costs for certain raw materials including peanuts, red raspberries, sweeteners and packaging such as glass and steel cans are all up over last year.

Although it is difficult to forecast movement in the commodity markets, certain commodity costs have declined and we currently expect to realize the benefit of these lower commodity costs over the next several quarters. At the same time we would expect to address pricing in certain categories during the last four months of the year reflecting a decline in cost. As an example, yesterday we announced a significant price decline on flour and Crisco oil and shortening.

As mentioned earlier, the weakening Canadian dollar is expected to negatively impact sales and margins in Canada over the second half of the year. And finally, we expect marketing spending to be up in the second half of the year over last year and particularly in the fourth quarter and primarily in support of Crisco Olive Oil.

Turning to our Folgers business, we have seen no surprises and we remain enthusiastic about our opportunity. I'd want to point out a few key items. The transaction closed somewhat later than planned in our original forecast; the increase in our overall debt related to the Folgers transaction was $750 million, $100 million more than originally anticipated. In addition, the interest rate on this debt is slightly higher than our original forecast. As a result we expect interest expense specific to this debt of approximately $21 million for the second half of our fiscal year.

Purchase accounting will also result in higher cost of sales during the third quarter as Folger inventories are adjusted to fair value. Taking into account all of these factors related to the combined Smucker and Folgers businesses we confirm our original outlook. We expect fiscal 2009 sales of approximately $3.8 billion to $4 billion and earnings per share of approximately $3.45 to $3.50 excluding restructuring and merger and integration costs.

I'd also like to update several other items for your calculation purposes. The effective tax rate for the full year is expected to be slightly above our current rate of 33.4%. There are now approximately 118 million shares outstanding; this is the approximate share count that will be used for calculating third- and fourth-quarter earnings per share. I would recommend a weighted average number of approximately 85.5 million shares for EPS calculations for the fiscal year to compute our full-year guidance. As a result of changes in the number of shares during the year earnings per share for the third and fourth quarter will not add to the full year's EPS.

Capital expenditures for fiscal 2009, including Folgers' requirements, are expected to range between $115 million and $120 million. We are estimating depreciation and amortization to range between $100 million and $115 million for fiscal 2009, although final amounts will not be known until the allocation of the purchase price is completed toward the end of the fiscal year. And finally, dividends paid during the remainder of the year are expected to reflect at the current $0.32 per share. We typically review our dividend rate in the spring. I would now like to turn the call over to Richard.

Thank you, Mark, and good morning, everyone. As Tim mentioned, we had a strong second quarter with solid sales and earnings growth. Fall bake is also strong with good momentum going into the second half of the year. Now that we have closed the Folgers transaction we are enthusiastic about our opportunities. Not only do we have the number one retail packaged coffee brand with Folgers, but Dunkin' Donuts has been a big winner in the gourmet coffee category with sales in excess of $150 million for the first full year.

Last quarter we talked about our key milestones and priorities and I would like to provide an update on these. First, consistent with our basic belief of people, we have made all the employee-related matters our first priority. Prior to the close we identified the organization that would be in place on day one. As a result the teams have hit the ground running. The majority of the previous Folgers organization has joined the Smucker Company including green coffee procurement and supply chain, R&D, operations, finance and information systems.

Second, on day one of the merger we were selling products and going to market as one company through our sales team which includes Advantage Sales and Marketing, our national sales agent. This was a major accomplishment and one that will greatly benefit the integration process.

Third, our primary objective is a seamless integration with our customers and consumers. Our integration teams have been working to accomplish this goal and we expect Folgers products to be ordered, shipped and invoiced alongside other Smucker products during the first quarter of 2009.

Fourth, we have been meeting with our top 25 customers to share our vision for the broader portfolio of brands and to better understand their unique needs and expectations from the coffee category.

Fifth, achieving the $80 million synergy level over the next 18 months is a key objective and we will be tracking success against this synergy target.

And finally, we will continue to take advantage of opportunities to leverage the equity of the Folgers brand.

In summary, we are pleased to have closed the Folgers transaction and welcome the Folgers brand and employees into the Smucker Company. Second, the integration process is off to a great start with the full support and focus of the organization. And finally, we delivered solid sales and earnings in the quarter with the strong back-to-school and fall bake programs.

In closing, it seems appropriate to comment on the current economic crisis and its potential impact on our company. As evident by the numbers that we have just posted, and the outlook that we shared, we strongly believe that we are weathering the storm very well. This is not just the result of consumers tending to focus on the home and the value of preparing their own meals, continuing to perform in these difficult times is dependent on our long-held belief of focusing on the needs of the consumer and providing them with quality products that offer a real value.

It is also the result of taking measured risk and at the same time maintaining a very strong balance sheet. These are fundamentals that have and will continue to allow us to achieve long-term performance for our shareholders. We truly believe that the best is yet to come. We thank you for your time today and now we'll be happy to answer your questions.

(Operator Instructions). Eric Katzman, Deutsche Bank.

I guess I've talked to a few investors already this morning and, Mark, I was wondering if you could just kind of walk through the mark to market charge, kind of what that means for the P&L going forward and how we should think about that for those who may be investing in the food industry for the first time given everything that's going on in the world?

Absolutely. Well certainly it was a large number and let me just kind of walk through and I'll go into some things, assuming that you know a little bit around the accounting treatment. But the biggest point is, as we've talked to all our investors, is that Smucker's uses a hedging philosophy to basically align cost with our pricing and that's the underlying point.

But in terms to what happened this quarter, as we entered into the quarter we saw a decline primarily in soybean oil and wheat in terms of the cost, a pretty significant decline, and based on that and our positions we were required to write down to fair value the impact of that decline in those two specific commodities. Now the accounting rules require us to take that as a period charge in the second quarter. That's different than what we would have done at certain times with other hedges where it's matched in the future.

So what will happen is that we took this negative charge as a hedging charge this period, but would expect that to reverse going forward. That will reverse, however, not as a gain from hedging, but rather from the lower cost as we take physical delivery and use of those inventories. So it will still affect cost of goods sold, but you will not see us turn around with a favorable $24 million gain for example.

But over a given period of time the loss this quarter will reverse itself even though it won't be as evident as a period item, it will just be flowing through cost of goods, is that what we should take away?

That is correct.

All right. And then on another subject, I guess you kind of talked about the movement from out of home to in-home, those of us who are focused on the food industry are kind of aware of that, but a lot of the questions I get also are kind of the growth in private label in terms of at home consumption. And so maybe, Richard or Tim, you could kind of discuss across some of your categories kind of the tailwind you saw from out of home to in-home verses maybe share losses from in-home branded to in-home private label?

A couple of things. Private label is growing, we've seen that. That's one of the reasons that we have our strategy of owning number one brands. Number one brands still perform very well in the market. Most of the gain from private label growth has come from the three and four brand. And so, as you saw in the numbers, that our actual volume growth is up for the three months. Steve, do you want to add to that?

Sure. Eric, I think there are a couple key things. As you know, we're in the jam business, the peanut butter business. We're in pancake mix and mashed potatoes, so all core comfort foods. The categories are up substantially; the pancake mix category is up 27% in the last four-week period. You've got categories like peanut up 10%. So when you've got core categories where we have these kinds of positions growing that much there's room for a little private label growth this period and there's room, frankly, for us to grow.

Okay. The last question and then I'll pass it on. In terms of the outlook and your giving back on price, it sounds like those are in some of the product lines that traditionally are more kind of a cost-plus business. Is that a fair description of your decision to lower pricing on oils? And I think you recently did the same thing in -- or Folgers did the same thing in coffee.

Eric, this is Paul Wagstaff and we did, in fact yesterday, just announce a price decline in our oil business, shortening business and flour and that's more from a transparent perspective. So that is going into effect in January.

Does transparent mean cost-plus? I don't know what that means.

No, not exactly. It's basically trying to match up our cost that we are having, that we get with the raw ingredients.

Okay. And then -- sorry, last thing. Mark, did you say actually what the dollar amount of cost headwind was in this quarter?

No, what I said, Eric, is that our overall cost outlook for the full year -- we had originally said $150 million, we've lowered that down a little bit to $140 million, but that's for the full year.

Okay. Can you give me a number as to how much you got hit in this quarter?

What I would say is that we have taken probably about two thirds of the total during the first half of the year (multiple speakers) physically break it down by quarters, but roughly two thirds of that $140 million.

Got you, okay. All right, I'll pass it on. Thank you.

Farha Aslam, Stephens.

Congratulations on a great quarter. Could you share with us your thoughts on Folgers' volume pricing and sales going into the next six months of your fiscal '09?

This is Vince. A couple of things. First of all, as you know, we've only owned the business for two weeks. I'll address the pricing situation first and I was going to pick up on Eric's comment. As I think you know, historically P&G has been -- basically has conditioned the trade that if the green coffee commodity reaches certain thresholds that basically will trigger an automatic price increase or decrease to the market place.

And as Eric pointed out, there was in fact a price decline taken about two or three weeks right before we closed the transaction. Where the coffee sits today, they have not hit an additional threshold, but it may be trending in that same way and we're obviously tracking that on a day-to-day basis.

Secondly, as it relates to volume and projections, at this point we do not know really anything different than what was -- the information used in Form 10 and that's what we're sticking to at this particular point.

Okay.

I will say there has been maybe a little bit of a shift. I think it's fair to say that the Dunkin' Donuts brand has probably exceeded expectations, but that's been offset by some of the Millstone and even some of the red can core volume.

Okay. And then could you just share with us the price declines affective in January, how much they are for oils, wheat and Folgers?

Sure. This is Paul Wagstaff. On oils we're going down 13.6%; shortening at 6.9%; and flour is 17.5%.

Okay, and my final question is now that -- I understand that you're in about the first two weeks of really key fall bake, but could you share with us your retail volumes in oils and flour for the period.

Can you repeat the question? Sorry.

For the second quarter, is that what you're talking about?

No, not the second quarter. Kind of into the third quarter, because we're just now right now starting fall bake, how are your shipments looking and volume take away going into Thanksgiving?

They're good.

Yes, exactly.

They're very solid. We can't give you specific numbers, but we're right on track. In fact, we're doing better (multiple speakers) than track.

We're pleased with where we're going.

I think just to reiterate something I said in the scripted comments is I think just going into the fall back across the board, we were very well positioned. A year ago we had just bought Eagle, we obviously had another year of folding that in. So we're very well going into it and as a result we're seeing great performance.

Okay, thank you very much.

Jon Andersen, William Blair.

Good morning, congratulations on a nice quarter. I just wanted to come back for a minute to the price reductions that you recently announced. Did I hear you correctly that those are effective in January? And then second -- was that something that retailers came to you for or how did you arrive at the decision to take those decreases? And was it more of a decision that -- your major retailers coming to you and saying look, this is -- we're looking at what's happening in the commodity markets and looking for some type of relief at a consumer level?

Sure, Jon, this is Paul. To answer your first question yes, you heard that correct, they are effective in January and the middle of January. We actually look at the market and watch it very closely and we made the decision to take the prices down primarily based on the market conditions. Obviously we do hear from our retailers and listen to what they have to say, but we did do this based on market conditions.

Based on what you're seeing right now are there other categories or other businesses where there may be similar types of moves, maybe not in magnitude but in terms of timeframes in other businesses?

I think coffee is one that, as I mentioned earlier, we're going to monitor, Jon.

And Jon, in the consumer businesses we really don't face the same commodity fluctuations -- fruit, glass, sweeteners -- those things are on longer-term contracts or bought annually.

Terrific, thanks. And then on hedging, obviously with the mark to market in the current quarter related to flour and soybean oil, with Folgers coming over are now do you kind of inherit a similar hedging strategy on green coffee beans and is that something the capability came over and the approach would be similar on that piece of the business?

The answer is, yes. First of all, as I think Richard made in his comments, we're very fortunate we got the entire green coffee buying group as part of the merger, so that entire organization is in place. Probably the one difference in terms of the strategy is that we tend to be a little shorter positioned on coffee, again given the amount of time that it takes just to react and how the trade has been conditioned with pricing movements within the industry.

Terrific. And last question. It sounds like you're making nice progress with Crisco Olive Oil. Can you just provide a little more color on your level of distribution there or ACV and some of your plans? It sounds like you have a new marketing campaign you're getting ready to launch?

The Olive Oil business is going very well right now, it's on track with where we're trending, where we want to trend. The ACV I would say is mostly 100% US, it's not 100%, but we're pretty much every market, a few markets in the Northeast we're not in at this point.

(multiple speakers) overall. We're nationwide, but we're about 30%, 35% ACV.

That is correct.

So we have some opportunity.

Absolutely, that is correct. But we are very pleased with where we're headed.

Terrific. Thank you very much.

Chuck Cerankosky, FTN Midwest.

Good morning, everyone. Good quarter. If we look at Folgers for a bit, is there any unfilled private-label production capacity you'd like to utilize there since I think you lost some Safeway business a while ago?

No. Are you asking would we like to do private label?

Yes, given that Folgers has been in that business?

Not really. I think you know our primary business is brand. And our number one charge is focused on growing the Folgers and the Dunkin' Donuts and Millstone brands and that's where we'll focus the effort.

Okay. Mark, could you give us some idea as to how integration charges related to the Folgers business will track over the next few quarters?

Yes. I think that you're going to see it, as we said, spread over the next 18 months to two years. We'll see charges here in the third quarter -- obviously closing the transaction there will be people-related charges and as we start relocating things and training and the like. And then I think it will be just sort of spread out over the rest of the next four to eight quarters, but you will see little bit of a flip here in the third quarter.

So just to put on like an index number of 100, there would be a bulge in the third quarter and then over the next maybe eight quarters it would be pretty level?

Yes, there will be some spikes, Chuck, as we go along. The way we're managing the integration is we're using the term milestones. And for example, we talked about what we call customer facing that will occur in the first calendar quarter of '09, so that would be a milestone. For example, when we convert to Smucker's systems for our plant and finances later next year that would be a spike. So there will be some spikes, but I think generally your comment is correct.

Okay. And how about the synergies, will they track in any type of pattern against those?

I know think there's a real correlation there. There will be some, but I would say that we'll see it spread out probably a little more into next year than this year.

Next year being fiscal '10?

Yes, I'm sorry.

All right. And then finally, with the volume decline in industrial oils, was that mainly related to food service customers?

No, that was primarily a timing situation.

Timing, all right. Thank you very much.

Eric Serotta, Merrill Lynch.

Good morning. Very nice numbers in the quarter. I just wanted to clarify something in terms of the $3.45 to $3.50 guidance for the year, Mark. Does that include the charge or the additional expense from the write-up of acquired Folgers inventory? And what sort of order of magnitude is that? Some companies call that out as a special item, do you plan to?

The range is probably I'm guessing $10 million to $15 million right now. And I will say it's a little bit higher than we thought it would be when we first announced the transaction. As you probably know, Eric, that is driven by inventory levels and since we acquired the business at the peak of the coffee inventory that number is higher. That will run through our cost of goods sold and our earnings. We probably will at a minimum speak to it and call it out. We're evaluating the actual treatment though for accounting during the quarter.

Okay, but is that in your $3.45 to $3.50 guidance?

Yes.

Okay, good. So you could argue that the -- well, certainly if it's in the guidance if you pull it out the number would be above the guidance. But moving on, could you guys speak to the month-to-month trends that you saw as the quarter unfolded if you strip out some of the seasonal factors? As the economy and financial markets got worse from August to September and September to October did you see a pickup in your business, did you see a slowdown, what were the overall trends there?

It is true that I think in the last 60 days or so we have seen more cocooning, more people staying at home, more meals prepared at home. And so there's no doubt about it that the economy is affecting that trend.

And more people cocooning at home, are you talking about purchasing meals, purchasing food at the grocery store and eating at home or are you talking about pantry deloading?

We saw some nice trends in October I would say. October trends were nice. It's hard to project; quite frankly you've got retailers cautious with their inventories, you've got an awful lot of variables here. But we did see, and the category numbers I talked to you about earlier that I quoted earlier are the latest four weeks, so October looked pretty solid.

Okay, great. I'll pass it on.

(Operator Instructions). Michael Prober, Clovis.

I just have a couple of Folgers questions. How big is the red can business to Folgers?

It's the majority of it to be honest with you. I mean, it's 80% to 90% depending on whether you're measuring it on volume or dollars.

So if you look at the last six months or so you commented that you may have seen a slight decline in the red can. Can you just talk a little bit about what's happening in the category first between the red can and your competitor and then within private label and talk a little bit about what's happening there?

We can. Obviously those are results that were provided by Procter & Gamble previously. But basically you have a category that's pretty much flat in volume over that time period. There clearly has been some incremental competitive activity by the main competitor during that period.

But thirdly, you have a major product innovation that was introduced during that time frame by Procter & Gamble on a volume weight conversion and a higher quality consistent offering during that period. So there's I'll say a lot of noise going on during that time frame. So again, it's our charge to invest in this brand in the long term and grow the red can for the future.

So you lost share because the competitor was more aggressive, you lost share because the new product?

I would say it's price competitiveness during that timeframe.

And then the affect of private label on the category, has private label been taking share from the category?

It has been growing, yes.

Can you just discuss two or three of your plants or even Folgers plans by itself to grow the brand? I know promoting coffee with my biscuits in the morning was -- clearly you put that in your slideshow. But could you just be a little bit more specific what you're going to do to grow the brand?

Yes, absolutely. First of all we're going to continue to leverage the growth of the Dunkin' brand and that's being supported with a significant amount of consumer support including advertising. So we'll want to continue to leverage that.

Secondly, as we've talked many times before, we are a food company and believe that we'll be able to bring maybe a greater focus to it than the previous owners.

Thirdly, as evidenced by what Paul has indicated with our multi-brand and merchandising events that we do around the fall bake period, we clearly believe that Folgers fits very, very nicely into those same themes, whether it be around a breakfast theme or whether it be around an evening dinner or dessert type theme.

And then fourthly, I would say it is about leveraging our go-to-market strategy and our sales and distribution network. I believe Richard commented that literally on day one we've hit the ground running. Our sales team, including Advantage, is selling that product as we speak and we believe that will provide incremental focus to the business as well. So again we're very, very excited but we've only owned it for two weeks.

Thank you.

Gentlemen, I will now turn the conference call back to you to conclude.

We thank you very much and we certainly, again, thank our new investors and welcome the new Folgers employees to the Smucker team. Thank you very much and have a wonderful Thanksgiving.

Ladies and gentlemen, if you wish to access the rebroadcast after this live call you may do so by calling 1-888-203-1112 or 1-719-457-0820 with a pass code of 422-1422 or by accessing the website for a downloadable MP3 format. This concludes our conference call for today. Thank you all for participating and have a nice day. All parties may now disconnect.