J M Smucker Co (SJM) 2011 Q4 法說會逐字稿

Good morning and welcome to the J.M. Smucker Company's fourth-quarter 2011 earnings conference call. At this time I'd like to inform you that this conference is being recorded and that all participants are in listen-only mode.

At the request of the Company we will open the conference up for questions and answers after the presentation. Please limit yourself to two initial questions during the Q&A session and re-queue if you then have additional questions. I will now turn the conference over to Chief Financial officer Mr. Mark Belgya. Please go ahead, sir.

Good morning, everyone, and welcome to our fourth-quarter earnings conference call; thank you for joining us. On the call from the Company are Tim Smucker, Chairman of the Board and Co-CEO, and Richard Smucker, Executive Chairman and co-CEO.

Also joining us and reflecting their new titles that became effective on May 1 are -- Vince Byrd, President and Chief Operating Officer; Steve Oakland, President International, Foodservice and Natural Foods; Mark Smucker, President US Retail Coffee; and Paul Smucker Wagstaff, President US Retail Consumer Foods.

After this brief introduction I will turn the call over to Tim for an overview of the year. I will then review the financial results for the quarter and Richard will provide our outlook for 2012 and closing remarks. At the conclusion of these comments we will be available to answer your questions. Questions specific to one of the business segments will generally be addressed by the President responsible for managing that business in 2011.

If you've not seen our press release is available on our website at Smuckers.com. A replay of this call is available on the website. If you have any follow-up questions or comments after today's call, please feel free to contact me or Sonal Robinson, Vice President of Investor Relations.

During the call today our team may make forward-looking statements that reflect the Company's current expectations about future plans and performance. These forward-looking statements rely on a number of assumptions and estimates and actual results may differ materially due to risk and uncertainties. I advise you to read the full disclosure statement in the press release concerning such forward-looking statements.

I also want to remind you 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 located on our website. I will now turn the call over to Tim.

Thank you, Mark, and good morning, everyone, and it's great to have you join us this morning. Let me begin by summarizing some of the key highlights of this past fiscal year. As we continue our purpose of bringing families together to share memorable meals and moments, we delivered another year of record sales and earnings. These results were achieved against the backdrop of a challenging economic environment.

Sales grew 5% to $4.8 billion while non-GAAP earnings per share increased 7% to $4.69. Our total coffee business continued its strong performance with sales growth of 14% for the year. Innovation contributed significantly to the Company's growth, including new products such as Folgers Gourmet Selections and Millstone Brand K-Cups, Jif Natural, Dunkin' Donuts seasonal varieties and Pillsbury sugar-free baking products.

We successfully managed through a volatile commodity cost environment demonstrating the strength of our brands and our ability to implement. Significant progress was made on the supply-chain restructuring project as key milestones and cost savings targeted for 2011 were achieved. Demonstrating our commitment to enhancing shareholder value, we repurchased 5.7 million common shares representing over 4% of shares outstanding.

Also benefiting from two increases in the quarterly dividend rates, dividends paid per share increased by a total of 17% for the fiscal year. In March we announced changes to our executive management structure that are consistent with our long-term succession plans and the further development of leadership.

And lastly, in May we acquired the coffee brands and business operations of Rowland Coffee Roasters including its leading brands, Cafe Bustelo and Cafe Pilon. With that let me provide a few comments on each of our business segments starting with the coffee segment which realized another strong year.

Sales and segment profit for 2011 grew 14% and 11% respectively driven by the Folgers and Dunkin' Donuts brands along with the K-Cups product launch. Dunkin' Donuts' packaged coffee continued to gain marketshare, volume was up 6% for the year and sales reached nearly $300 million. We expect volume growth for the brand to continue in 2012.

Our investments in the coffee brands remain robust, supported by a full mix of marketing programs including several new commercials which aired during the year. New product launches contributed significantly to coffee's organic growth in 2011 including the rollout of K-Cups. The K-Cups product line contributed 3% to coffee sales for the year despite a September launch and we remain excited about future growth opportunities.

Lastly, we successfully navigated through a year where green coffee costs reached a new 34-year high. While significant price increases were executed during the year to offset these higher costs, we were encouraged coffee volume was down only slightly for the year reflecting our belief of the category's ability to withstand elevated prices.

Before I turn to the other segments let me briefly comment on the Rowland Coffee acquisition and why this addition is a good strategic fit for our Company.

Cafe Bustelo and Cafe Pilon are both leading Hispanic brands with distribution concentrated in the northeastern US and Southern Florida. The addition of these brands provides an exciting opportunity to establish a strong presence in coffee with Hispanic consumers in the US, allowing us to meet the needs of the fastest growing demographic in the country.

While preserving the rich heritage of the Cafe Bustelo and Cafe Pilon brands, we believe they will benefit from our go-to-market strategy, strong national presence and increased marketing support as we look to expand distribution into other key Hispanic markets. Overall we anticipate these brands will be a great complement to our existing portfolio.

Turning to the consumer segment, the business continued its steady growth during the year gaining market share in all key categories. Volume, sales and segment profit were all up and excluding the impact of divestitures. Volume gains in the fruit spreads category were supported by investments in advertising and product innovation including our Smucker's Orchard's Finest offering.

Our volume in the peanut butter category grew by 5% in 2011 adding to the growth we have achieved since acquiring the Jif business in June of 2002. The increase was led by the strong performance of Jif Natural which more than doubled its volume from the prior year and continues to drive category growth.

Looking forward, a price increase on peanut butter was passed through last month to cover incremental cost associated with the short peanut crop of 2010. We remain well positioned to support the continued growth of both core and new products as we enter into fiscal 2012.

In the oils and baking segment, Crisco realized a 5% volume gain for the year following our efforts to narrow the price gap on shelves. In baking, although the aggressive promotional environment presented a number of challenges throughout the year, the Pillsbury brand concluded 2011 with a strong fourth quarter.

Finally, the special market segment completed a strong year with sales and segment profit up across all business areas. In Canada we gained marketshare in most key categories with sales growth that was led by the strong performance of Folgers coffee. Our US food service business grew sales and volume during the year despite a continuing decline in the overall industry reflecting gains in Folgers coffee and Smucker's Uncrustables. Lastly, our natural foods and international businesses performed well for the year with both achieving mid-single-digit volume growth.

In summary, the Company achieved another year of strong sales and earnings. Our ongoing success would not be possible without the dedication of our talented employees and their commitment to our strategy. We thank each and every one of them for their continuing efforts.

Before turning the call back to Mark, I would like to make a few comments about the leadership announcements we made early in March. As you may know, we announced several executive appointments that are consistent with the Company's history of long-term succession planning and the development of leadership to meet the current and future needs of our business and the constituents that we serve.

Effective May 1, Vince Byrd assumed the role of President and Chief Operating Officer with responsibility for the Company's US retail businesses. Mark Smucker assumed the role of President US Retail Coffee; Paul Smucker Wagstaff is the President of US Retail Consumer Foods, which represents the combination of the previous consumer and oils and baking businesses areas. Both Mark and Paul report to Vince.

Steve Oakland has assumed responsibility for International Foodservice and Natural Foods. This leadership team clearly embodies the values that have contributed to our success, allowing us to deliver consistent long-term results.

In addition to these changes effective August 16, the day prior to our annual shareholders meeting, Richard Smucker will become the sole Chief Executive Officer of the Company. I will continue to serve the Company as its Chairman of the Board and my efforts will be focused on the Board of Directors, corporate strategy, succession planning, providing support as we pursue growth in China, and continuing as an ambassador to our culture with all of our constituents.

As this will be my last earnings call serving as the role of Co-CEO, please accept my sincere thanks and appreciation for your interest and support of our Company. While I'm sure you think maybe I'm a little biased, I believe that we have a special organization with an exceptionally talented team that I am privileged to serve with and have been for the last 43 years.

It's been a particular honor to serve in this role with Richard, my brother, and I am confident, as Richard always says, the best is yet to come. Now I'd like to turn the call over to Mark.

Thank you, Tim. Let me begin by summarizing a few highlights from the fourth quarter. Sales and volume were up with contributions from many of our key brands. Operating income, excluding charges, grew 4%. While comparability between years has been impacted by a member of one-off items, including a gain on divestiture in 2010 and income taxes, we are pleased with our fourth-quarter results.

Net sales increased $118 million, or 11%, primarily reflecting the impact of pricing taken during the year. Volume contributed 2% of the sales growth with gains realized by the majority of our brands including Pillsbury, Jif and Folgers. The impact of sales mix and foreign exchange was also favorable.

GAAP earnings per share were $0.82 this quarter and $1.01 in the fourth quarter of last year, including restructuring and merger and integration costs which I will refer to as special project costs. Excluding these charges, earnings per share were $1 this quarter and $1.07 in last year's fourth quarter.

Operating income, excluding special project costs, increased $7 million for the quarter reflecting an increase in gross profit and a decline in SD&A expenses due to lower marketing. Higher raw material costs were primarily driven by green coffee and soybean oil. Price increases taken earlier in the year offset higher costs but did not result in gross margin gain. Unrealized mark to market adjustments on commodity instruments were not material for the quarter.

The effective income tax rate for the quarter was 36.7% compared to a low 27.9% in the prior year. The effective tax rate for the full year increased from 32.4% in 2010 to 33.1%. The increase in both the fourth-quarter and full-year rates reflect higher current and deferred state income taxes and reduce tax benefits associated with our Canadian operations, partially offset by an increased benefit related to the domestic manufacturing deductions.

Let me now provide a few more details on our reportable segment starting with US retail coffee. Net sales increased 21% in the quarter reflecting price increases taken during the fiscal year, partially offset by higher spending in support of the Easter promotional period. Volume increased 3% for Folgers and offset a low double-digit decline in the Dunkin' Donuts brand.

While Dunkin' Donuts was down, this compares to a strong 2010 fourth quarter where volume was up over 20%. Dunkin' Donuts sales for the year were up 18%. K-Cups products contributed approximately 5% to segment sales for the quarter.

Coffee segment profit increased 8% with pricing taken during the year more than offsetting higher green coffee costs. Additionally, marketing expense decreased for the quarter as advertising was at more typical levels in the current year while record incremental investments were made in the prior year. Although down from the prior year, fourth-quarter 2011 marketing spend was comparable to each of the first three quarters of this fiscal year.

In the US retail consumer segment net sales were flat to the prior year excluding the impact of divestitures. Volume was up 2% offset by a 5% price decrease on peanut butter taken in the first quarter. Our peanut butter category was up 8% in volume for the quarter. Jif benefited from incremental volume in the club channel along with the continued growth of Jif Natural. The strong peanut butter performance in the quarter comes on top of a 13% volume increase in last year's fourth quarter.

Segment profit decreased 7% as the prior-year included a $13 million gain on a divestiture of potato products. Marketing expense and supply-chain costs were lower in the quarter. Segment margin declined from 30.5% in last year's fourth quarter to 28.9% this year, but was up after excluding a 480 basis point impact on the prior year's gain.

Turning to the US retail oils and baking segment, net sales and volume for the quarter increased 11% and 6% respectively. Increased volume was driven by Pillsbury baking mixes and frostings, reversing the trend of the last several quarters, along with gains in Crisco oils and milk. Net pricing and a favorable sales mix also contributed to the higher sales.

Segment profit increased 3% as higher costs for certain commodities and freight were more than offset by pricing and lower marketing in the current quarter. The prior year quarter also includes the impact of asset write-offs. Segment margins decreased 80 basis points to 12%.

And finally, net sales and special market segment grew 8% with pricing, sales mix and foreign exchange all contributing favorably. Volume for the quarter decreased 4% as double-digit increases in Bick's pickles and Folgers coffee in Canada were more than offset by declines in the Canadian baking brands and the natural foods business.

Segment profit grew 11% in the quarter with segment margin increasing 70 basis points to 17.9%. The impact of price increases, sales mix and improved profitability of Smucker's Uncrustables following the consolidation of manufacturing operations more than offset higher raw material costs and an increase in marketing expenses in Canada. The prior year quarter also included the impact of asset write-offs.

Lastly regarding segments, let me briefly comment on the reporting impact of the management change that Tim spoke to. Effective in the first quarter of 2012 we will have three reportable segments reflecting our new management structure -- US Retail Coffee, US Retail Consumer Foods and Special Markets which has been renamed International Foodservices and Natural Foods.

I will conclude with a few comments on cash and cash flow. We ended the year with $320 million in cash on hand, including approximately $110 million in Canada that currently cannot be repatriated in a tax efficient manner. Subsequent to year end, the acquisition of the Rowland Coffee Roasters business was financed with available cash on hand and $180 million in borrowings under our $600 million revolving credit facility.

Anticipating additional working capital needs, our current borrowings on the revolver total $240 million at an average rate of 1.5%. With the normal build in inventory during the first half of the fiscal year, we expect to draw additional funds on the revolver, but anticipate paying down all revolver borrowings by the end of the fiscal year.

Cash provided by operations for the full year was $392 million reflecting a slight net use of cash in the fourth quarter. This represented a decrease in cash from operations from the prior-year resulting primarily from significantly higher working capital needs compared to last year.

Specific to the fourth quarter, the impact of commodity cost increases, notably green coffee, on higher inventory levels and increased trade receivable balances due to the timing of the Easter holiday which occurred in late April contributed to the increase in working capital requirements.

2011 capital expenditures were $180 million, slightly ahead of our third-quarter estimates. Included in CapEx was approximately $40 million related to the restructuring project. Free cash flow for the year of $211 million was lower than anticipated -- than estimated at the end of the third quarter due to the significant working capital requirements in the fourth quarter. As expected, cash collections in May related to the year-end trade receivable balances have been strong.

During the fourth quarter 2 million common shares were repurchased utilizing approximately $142 million of cash on hand. Year to date we repurchased 5.7 million shares using over $380 million in cash. Share repurchase activity contributed approximately $0.03 to fourth-quarter earnings per share. At April 30 approximately 500,000 shares remained available for repurchase under the current 10b5-1 plan while an additional 2.5 million shares remained available under previous Board authorization.

Additional components affecting cash flow in 2012 include -- capital expenditures of approximately $250 million to $275 million of which approximately $150 million relates to the restructuring project; depreciation and amortization of approximately $195 million excluding special project costs -- share-based compensation expense is not reflected in this amount; dividends of approximately $200 million based on current rates and shares outstanding; and finally, total special project cost of approximately $100 million of which $60 million to $65 million are cash related. The remaining non-cash charges primarily represent accelerated depreciation. I would now like to turn the call over to Richard.

Thank you, Mark, and good morning, everyone. After achieving another year of strong financial results we remain confident in our ability to execute our long-term strategy while focusing on key initiatives that are critical to continuing our momentum into 2012. Before providing our financial outlook for 2012 let me highlight some of the priorities as we enter the new year.

First, we remain committed to growing the business with contributions from all three of our growth drivers, new products, market share gains and acquisitions. We continue to invest in our brands and are encouraged by our product launches and marketing initiatives planned for the year.

Second, while managing through the volatility and commodity cost environment we remain -- the primary focused areas are as follows. We are incurring significantly higher cost in 2012 for nearly all of our key commodities, with the largest increases in coffee, soybean oil, flour and peanuts. As a result, we currently estimate year-over-year increases in cost of goods sold of approximately 25%, excluding the addition of Rowland Coffee.

To offset higher cost, we have utilized a combination of price increases and cost-saving initiatives to protect profit dollars, recognizing that margin percentages will decline.

Third, we expect to make significant progress on the supply-chain restructuring initiatives. During 2011, the Sherman, Texas coffee facility was closed, while the remaining operations at the Kansas City coffee facility and the Canadian condiments facility are scheduled to conclude over the next year.

In addition, the construction of our new fruit spreads manufacturing facility in Orrville, Ohio is well underway, with initial production in the new plant scheduled for the summer of 2012. We recognize the impact on the affected employees and we thank them for their support.

Looking ahead, all key milestones and targeted cost savings remain on track. And finally, achieving a seamless integration of the recently acquired Rowland coffee business will be a key priority. We expect to integrate all customer-facing activities, including ordering, invoicing and distribution, by the end of our second quarter.

Turning now to our guidance for 2012. Net sales are expected to increase approximately 20% over the prior year. Price increases and the recently-acquired Rowland Coffee brand will be the primary drivers. In response to higher raw material cost, effective in May we took pricing in a number of key categories including coffee, peanut butter, fruit spreads, oils, and various baking products.

The full-year impact of the price increases taken last year will also be realized in 2012. While consumers will ultimately determine their response to our pricing actions, their past acceptance gives us confidence that volume levels will be similar to last year. We expect non-GAAP income per diluted share in the range of $5 to $5.15, resulting in growth that is in line with our 8% plus long-term strategic growth objective.

Our guidance includes the addition of the Rowland Coffee acquisition, and assumes weighted average shares outstanding of approximately 114 million. Excluding amortization of expense of approximately $0.50 a share, our 2012 forecast would be $5.50 to $5.65 per share.

Free cash flow is expected to be approximately $450 million, reflecting a record level of capital expenditures. Additional assumptions for 2012 estimates include the following -- an increase in SD&A of approximately 10% including the addition of Rowland Coffee; interest expense of approximately $60 million; and finally, the effective tax rate is anticipated to be 33% to 33.5%.

Although we provide annual guidance, the Company remains focused on our long-term strategic growth objectives. With our 2011 results we are pleased to report that our 10-year compounded annual growth rates are 23% for sales and 14% for earnings per share, clearly exceeding the 6% sales and 8% plus earnings long-term growth rate targets. Over the same period our total shareholder return, assuming dividends reinvested, has averaged 14% per year.

So in summary, we delivered another year of strong sales and earnings. Second, over $570 million was used for dividends and share repurchases demonstrating our commitment to enhance shareholder value. Third, while commodity cost volatility is expected to continue, we remain confident in the strength of our brands and our team's ability to execute. Fourth, we are pleased to provide 2012 guidance that reflects growth in sales, earnings and cash flow. Fifth, our strategy and the efforts of our dedicated employees have positioned us well for a long-term growth.

Lastly, as you know, our Company is unique in being led by four generations of family leadership and having only five CEOs in 114 years. Continuity of leadership has been a primary factor behind our Company's success and remains a key element of our succession plan activities. The organizational changes described by Tim earlier reinforce our commitment to maintain our Company's heritage and unique culture while continuing to support the long-term interest of our constituents, our consumers, customers, employees, suppliers, communities and our shareholders.

It's been an honor to serve as Co-CEO with Tim; he has been instrumental to the growth of that we have achieved and the special culture that has been nurtured. Tim has played a leadership role throughout the food industry and within the communities we serve. While our daily roles will be changing, Tim and I will continue to work together to further advance the Company, build our brands and serve our constituents.

I'm looking forward to serving as CEO with our talented leadership team and the best employees in the industry. Echoing Tim's comment, the best is yet to come. Well, thank you very much for your time today and at this point we'd be happy to answer any questions you might have.

(Operator Instructions). Eric Katzman, Deutsche Bank.

Good morning, everybody. I guess my two questions -- first one, given the amount of pricing that you have, how should we think about the -- I know you don't like to talk about the quarters, but how should we think about the quarterly flow of the year with the pricing? And I mean is that -- it sounds like it's going to be an acceleration as we progress through the year based on how you've lifted prices.

And then the second is, can you talk a little bit more about peanut butter and the -- I guess it was like a 20% or so price increase that Unilever put through and how you're positioned given such a short crop in terms of just actually producing the amount of jars that you're going to need?

Good morning, Eric, this is Vince, I'll take the first question and Steve will take the peanut butter question specifically. But I think as mentioned in the script, the majority of our pricing was taken through last fiscal year, through '11, but then we announced virtually every product category had yet another round of price increases that will take effect in the first quarter at various stages.

So from a quarterly perspective I would say that you'll see more pricing action take effect in the second through the fourth quarter than you will in the first quarter.

Yes, Eric, this is Mark Belgya. The other thing would be of course we will lap the -- one of the [cost fee] increases in February that we took, a double digit one. So there you'll start seeing some moderation in the fourth quarter.

Okay.

And hi, Eric, Steve Oakland. I'll comment on the peanut butter business and the actions that we've taken and what's going on in the industry. As you know, we are the largest peanut buyer, right, globally. And so as we work with those key suppliers and shellers it became evident to us very early on that this year's peanut crop was short frankly. And so as we worked with them we started to prepare our Lexington facility and prepare our supply chain to assure we can continue the growth of that business.

And if you look at that business grew last year by 5%; frankly it grew the year before a little more than that. So we anticipate that business growing again this year. So we've discontinued, and there's been some writing about this that maybe was a little misunderstood. But we discontinued some tiny items that were complex and that gave that facility even more capacity so that it could deal with a short crop.

So if you combine those efforts with frankly our position, we feel great about our key promotional periods of back-to-school fall bake. Our price increase that we took that went into effect this last month is about half what some of the competitors that you listed mentioned. But we think it's adequate to cover our needs and the actions that we've done are going to get us through another great year on Jif.

Remember, we also took a 5% price decline that the market didn't take a year ago. So the Jif business continues to grow and we get a lot of that business on regular everyday shelf terms. And we think that's very, very healthy. So keeping that price close, giving the consumer value every day, not just on deep deals, has been the success of that business and we intend to continue it.

Thanks. I'll pass it on.

Farha Aslam, Stephens Inc.

Hi, good morning. Tim, congratulations on a great decade, we'll miss you on the calls.

Thank you, Farha.

Pleasure. And then my two questions, first of all, could you just detail for us the level of pricing in each of the categories that you took effective for the first quarter? And my follow-up would be this is the first time we actually get to talk to you about the Rowland Coffee acquisition. You've highlighted that sales are about $110 million for that business. Could you share with us the EBITDA that business produces and roughly what that growth rate of EBITDA is?

So we'll take the pricing question first, Farha, on coffee. We announced the price increase in May of around 10% to 11%.

On the oils it was about 8%, on baking it was a range between 4% -- actually 20%, on milk 5% to 10%. On peanut butter it was 8% to 10%, fruit spreads 5%, our pancake mix and toppings businesses went up 5% as well.

Great, that's helpful. And then Rowland?

Farha, this is Mark Belgya. We have not disclosed the EBITDA members, but we did put in our release in year one, our first full year, would be $0.05 of earnings, and that number will increase in a few years as we consolidate the operations into our New Orleans facility and move closer -- much closer to the rest of the Company. But right now because of the fact that we're running the operation separately it's a little bit under the corporate average.

(Multiple speakers).

Farha, maybe we could provide a little more color on Rowland. Mark, do you want to handle that?

Sure. Hi, Farha, this is Mark Smucker. I guess we would say that the Rowland acquisition obviously is very complementary to the business. And one of the key points is that it's a very unique consumer and it is typically a consumer or a set of consumers that does not consume our mainstream products across a number of different Hispanic demographics.

And so, as you may know, the this business is focused predominantly in the Northeastern Florida and because of that unique consumer base we think it's critical that we maintain the product integrity and ensure that that brand and that product taste profile doesn't change as we integrate the business.

So we do think, however, there's going to be significant opportunity for growth across a number of Hispanic demographics nationally. And remember too, we've only owned the business for about three weeks and so we're right now very focused on learning the business and integrating that business and we only closed on May 16. So again, we remain very confident that we can grow that business and it fits a very unique niche in the consumer base.

Thanks for the additional comments.

Chuck Cerankosky, Northcoast Research.

Good morning, everyone. Mark, could you talk a little bit where the depreciation restructuring line came from in the operating activities? Is that mainly tied to the Sherman, Texas plant?

Well, the charges -- yes, Chuck, most of the charges we've had during the year, it's acceleration on all the plants that are closing. But clearly with Sherman having the shortest time period the majority or at least a large percentage of the non-cash charge would be affiliated with that. But the other plants are also -- we're accelerating depreciation on those as well.

All right, and then a bigger picture question. Somebody mentioned that you felt the higher prices of coffee that you've gone to on the shelf are being reasonably well accepted by the consumer. I would imagine oils are at the other extreme when you're raising prices. Can you talk about what's sort of in the middle, how consumers are reacting to these price increases? And are you trying to price to maintain a certain level of volume growth or are you trying to simply pass through costs?

Chuck, this is Vince. Well first of all, as you know, it's unprecedented times across all commodities and I think, as Tim or Richard mentioned in their formal remarks, we're trying to do everything we can to delay or have other cost offsets to ultimately pricing decisions. Also as mentioned, we are though passing on pretty much a penny-per-penny type pricing as opposed to increasing margin percentages.

They have been accepted pretty much from the trade. They have not all been reflected of course on shelf, so the consumer has not seen the full impact of our pricing actions most -- and particularly those that we just announced over the last month or so. But again, for the most part we feel our products and brands will be able to withstand the pricing actions we've taken.

This is Paul Wagstaff. The only thing I would like to add to that is when we think about the oil pricing -- our competitors have also taken the price up to similar amounts, so we feel that on shelf we're going to be in a pretty good position and so far we haven't seen a significant drop-off in volume.

This is Richard. I might just add two comments. One is, as Paul mentioned, our competitors have all taken these price increases also. So we are on a level playing field, we just believe that we have to play harder. And second is that the consumer -- for example, on coffee, still a cost per serving on coffee is very low, it's still only $0.05 or $0.06 a serving. So even if it goes up to $0.07 a serving it's still going to be a pretty good bargain. And that's true on most of the products that we are involved in.

That's a great point, thank you.

Ken Goldman, JPMorgan.

Good morning, and, Tim, best wishes in your new role.

Thanks, Ken, really appreciate it.

Has the tone of the conversation changed much with retailers about pricing? It sounds from what you're saying like it hasn't. But in the last week a couple of retailers -- Wal-Mart, Dollar General, Fresh Market -- have really come out and said they're pushing back or they're not taking pricing. And it seems like there's been a shift in their tone. I'm wondering if in your conversations with them they've pushed back any harder than usual or whether anything has really changed there that maybe we could be aware about.

Ken, I think the answer is yes. Clearly they're very concerned about their customers and concerned about price points. And so, yes, I think those conversations are probably harder than maybe what they had been. And also we have to provide more data or justification sometimes to ensure that we're not passing on more than maybe what's clearly justified.

But again, for the -- we're able to get our price increases through. But I think it goes back to our credibility and our transparency of our pricing that we have with our customers whether we move up or down. And so we've earned that over years and I think we're well regarded in the industry.

And then separately, the Rowland amortization or total amortization next year, if we're trying to figure out cash earnings can you remind me again what the guidance is for amortization next year versus this year? I think you touched on it but I wanted to make it clear.

Ken, this is Mark. I think it was in the scripted comments; it's $0.50 a share roughly. Before it was around $0.45. So it's about $7 million or $8 million specific to Rowland.

Okay, thank you.

Jon Anderson, William Blair.

Good morning, everybody, and congratulations on the new roles and responsibilities.

Thank you.

I just had a question on -- first question on marketing versus promotional spending. It sounds like maybe reallocated somewhat towards promotional spending in the fourth quarter. At this point are you happy kind of with the mix of marketing versus promo? And do you expect that to change next year?

I think we'll do that by segment. We'll start with coffee. This year's fourth quarter was different from last year. I think you may recall that we almost doubled our marketing budget in last year's fourth quarter and we actually reduced our trade spend last year.

This year was more to normal on a going-forward basis and that's what you'll see I think going forward into fiscal '12. Although marketing was lower this year in our fourth quarter versus last year, it was actually higher than the two previous fourth quarters. So we continue to invest in the brands. We did increase a little of the trade this year versus last year because we wanted to ensure that we delivered a very strong Easter promotional period.

Yes, this is Paul. Regarding the oils and banking side of the business, we did want to make sure that we did have a strong Easter time period. And we did take some of our marketing and really put it towards the promotion, the price promotion and felt that we did have a very good time period, a good fourth quarter.

And Steve Oakland with the consumer numbers. As we reported, we had very strong volumes in the fourth quarter, peanut butter up 8%, fruit spreads up. So our year-to-date marketing was flat; we did postpone a few activities because we knew what was happening in the peanut butter category.

We knew we had very strong bookings on that business and we didn't want that to be any stronger, frankly, put any more pressure on that business. So some of the Jif Natural things, some of those Jif-To-Go things went into the next year. So marketing for the year was flat, but the fourth quarter it was prudent to maybe postpone a few activities.

Thanks, that's helpful. Just one last one on the Rowland acquisition. Is there any more color you might be able to provide on both the timing of top-line opportunities such as distribution expansion or -- and also on the cost side, kind of consolidation into New Orleans? Thank you.

Hi, this is Mark Smucker. As you know, we're still integrating the business and learning it. And as I think in the scripted comments we mentioned that we would be integrating the customer facing activities in the next several months. But we do expect that in the second and third quarters we'll really be putting some efforts against increasing that distribution. So realistically, flowing through our P&L you would probably start to see some growth I would say in the third quarter.

David Driscoll, Citi Investment Research.

Thank you. Good morning, everyone. I wanted to start off in coffee. Can you just talk a little bit about the implications of current green coffee prices? So you mentioned in your prepared comments the 34-year highs. Of course we've come off of those highs now and the curve -- it's different than anything that we've seen for many months now where it only did basically go straight up. I don't know who wants to answer this one, but would love to hear your thoughts on how this evolves going forward?

Yes, sure, Dave, this is Vince. Basically for the fourth quarter our costs were up nearly 50% if you compare to the prior year. There's been tremendous volatility and in fact it's traded in the last three weeks about $0.60 or over 25% change. I would just say from where our current position is, and we're public that we're typically 18 to 22 weeks, and based on where the market is today, we're in a range that we're comfortable with our pricing.

It's very difficult for us to predict what the market will do going forward, but I think a lot just depends upon the world events and the flow of money. You've heard us say before that we don't think it's driven by the fundamentals; there are some issues going on in Brazil and Colombia we've discussed. But it's not driven necessarily by supply and demand as much as it is financial markets. But we feel we're in a good position as we sit today.

That's very helpful. You made comments just a moment ago, I think, on marketing spend for the fourth quarter. I might have missed it, but did you say what your expectation was for fiscal '12?

Dave, this is Mark Belgya. We did not. But I think, again it was in our stated scripted comments that our SD&A is going to be up next year and we're going to -- although clearly marketing won't be up to match the top-line growth, it will be low-double-digits as a company.

So marketing spend up low-double-digits?

Yes.

And then final question, just productivity savings. Can you guys quantify that for F'12?

Yes. Just to refresh everyone's memory, our restructuring project, including everything as discussed previously including Canada, will ultimately be about $70 million in fiscal 2015; that will be the first year that we have full year of benefits. And we've tried to direct everyone that it's kind of a stair step approach that ties into the construction projects and the closing of the plant. So in fiscal 2012 we would expect about $25 million in total savings to be reflected in the P&L.

Thank you very much.

Scott Mushkin, Jefferies & Co.

Good morning, everybody, this is Mike Otway in for Scott. Thank you for taking the questions. I was wondering if you could just delve into the baking business a little bit? Volumes improved quite nicely relative to last quarter on a sequential basis. Maybe could you comment on what's changed outside of Easter including Easter? And then more broadly speaking, could you give us an update on where you see the trends competitively with that business heading into fiscal '12? Thank you.

Yes, hi, Mike, this is Paul Wagstaff. And just stepping back on the baking business, we started out the year -- it's been a tough year overall, competitive pressures on the disruptive pricing have been significant. We started out the last year with one of our key retailers really eliminating us from part of a key promotional time period.

And so as we moved into the fourth quarter we were able to gain some of that promotional business back from a couple of the retailers. And we really were able to match some of the pricings, we took some of our marketing and pushed into some pricing and key promotions. And really we grew the business by about 15% fourth quarter. So we felt very good about that.

Going into this upcoming year we are still seeing the competitive pressure exist in the marketplace. That being said we've already locked in a few key retailers for the fall bake time period and I would say we feel optimistic that should be a good year. All things being considered we still know there's going to be some disruptive pricing out there. But we feel pretty good.

Great, thank you. And then maybe this one is for Mark. Just kind of following up on some of the other questions on the supply chain. Could you give us a sense for the cadence of costs on the cost side -- this year spread more evenly or weighted to any one quarter in particular?

No, I think that -- I don't think I would give any specific quarter any weighting. Obviously the costs that we've priced to have all occurred. So it would be pretty even across the four quarters.

I don't know if this -- this is Richard, but I'm not sure of the question. But if the question relates to pricing versus where the costs are associated with -- if commodity costs remain where they are today we've taken all the pricing we need to take. No one knows what's going to happen on commodity costs, but we're in pretty good shape going into the year.

I think also -- maybe I misunderstood the question, I'm sorry. You're talking about the cadence of the restructuring cost or benefit?

The supply chain project costs and if there was a -- if they are more evenly weighted throughout this year on a quarterly basis.

Yes, they're fairly evenly weighted particularly on the non-cash side because the depreciation is monthly. The only times you'll see a little bit of cash spike is when we do get around to incurring some of the cash charges. But I think for your modeling purposes an even cadence across the quarters is probably reasonably fair.

Okay, thank you.

Jane Gelfand, Barclays Capital.

Hi, good morning, everyone. A quick question for you. Just regarding Dunkin' Donuts. I realize there's a really tough comp in the year ago period, and so some of that decline makes sense. But we all know that there are lots of kind of moving parts to just the premium coffee sub segment in general.

So you've got the Starbucks brand being taken back at retail by Starbucks and Kraft is pushing a different premium coffee strategy. So I'm just curious more about broader observations, how is that competitive environment? I know that there have been flare ups over the past year and how do you feel going into fiscal '12?

Hi, Jane, this is Mark Smucker. I'll start. Basically, although the Dunkin' brand was down in the quarter, we still feel very good about its growth potential. Essentially in the quarter there was some promotional activity in the prior fourth quarter that did not reoccur this past fourth quarter. And so that was the primary driver for Duncan being down.

But as we go forward, we think the brand has great legs and that there is still some opportunity in distribution and also some opportunity in new products to continue to grow that brand. So overall I think over the course of this next fiscal year we would continue to see growth on that brand.

And then in terms of just kind of the dynamics in general, are you seeing any disruption as the brands [shift] hands or anything like that?

No, there's been no fundamental change. If you're speaking specifically to the specialty coffees, obviously we have very high regard for Starbucks and taking over the ownership of their brand at retail. Again, though, there's been no fundamental shift other than of course the price points that we're all now facing versus where we were a year ago.

Perfect, thank you. And then just -- maybe just a question on the EPS range for fiscal '12. It's a little bit wider than I think you've usually gone. I realize it's a tough environment, but as I kind of listen to some of the moving parts for next year it seems like pricing has more or less caught up to where it should be given the cost situation.

You've got a decent read on elasticity being maybe even a little bit better than you anticipated. So as I think about getting from $5 to $5.15, I know that there was a $0.10 charge last year, you've got some buybacks working to your advantage and of course the accretion from the deal. So what's the swing factor that can help us bridge why $5 might even be in question versus the higher end of the range?

Jane, this is Mark Belgya. I'll start and then if anyone wants to jump in. I guess first of all in terms of the range itself, it is $0.05 wider than I think we've done in the last couple of years; obviously as the EPS amount grows just percentagewise the range will grow a little bit. But more specifically or importantly around what could drive it to the lower end of that, everything you mentioned clearly we have been hitting on.

And we've talked about the savings around the restructuring. Obviously there are savings associated on EPS -- or benefits of the EPS in the share buyback, the impairment charge is a non-recurring charge. And all that would help support the high end of the range.

As we've said several times this morning though, the consumer still has to see the on-shelf pricing. There's a lot of volatility. When you talk about the 25% increase in cost, 20% top-line growth, those are somewhat staggering numbers, we feel confident. But if you are looking for something that would point us to the lower end of that range, it's just some of the uncertainty around that.

And clearly as the year progresses we'll have a better view and add more site to that. But we felt at this point in the year it was appropriate to recognize at least some of that uncertainty in our range.

That makes sense. Thank you very much.

Alexia Howard, Sanford Bernstein.

Good morning, everyone. Hi, can I ask about what's going on in measured versus non-measured channels? It looked as though the coffee volumes were very strong -- in the data that we saw I think about 8% up in the quarter, but the reported numbers were flat. And so that suggests that non-measured channels it was down quite a bit. Can you just talk a little bit about the dynamics there?

Sure, I'll take coffee. In a macro sense, again, you have to be careful about how much is even recognized in measured versus non-measured, and we've said that many, many times. So although it's an indicator, it is not necessarily a full read of our business.

I would also say that a majority of the Dunkin' decline might have -- or was in non-measured channels. So that's the primary driver from that perspective. But overall I would say for fiscal year '11, clearly there's been some shifting of our volume to the alternative channels group whether it be club, mass, dollar channels, etc.

Great, thank you. And then just a quick follow-up or a broader strategic question. At the Cagney conference in February I think you mentioned that you were reviewing options for entering emerging markets, particularly China. I noticed in the press release this morning I think you reiterated a focus on North America. Where are you at in that decision making process at the moment? Is it still something you're exploring or are you refocusing on the North American opportunities.

Hi, Alexia, Steve Oakland. As we look forward to China, obviously you just can't ignore that market; it's got such a fast growing middle class and the demographics -- the Western retail practices and everything are just booming there.

So we have been studying that market for some period of time, we're starting to understand categories, we're starting to understand the consumer. We started to add some people to our team that are both in China and here that have spent a lot of time managing consumer product businesses in China. So I think we want to enter that market, we want to do it right and we're trying to put the building blocks in place to do that and I think we're well on our way.

I'd just mention as we were at Cagney, nothing has changed from that strategy. Our shift is the same as we're still focused on North America, but China is an area of keen interest for us.

Great, thank you very much, I'll pass it on. And Tim, all the best for the future. Thank you.

Thank you, Alexia.

Judy Hong, Goldman Sachs.

Thanks, good morning. A couple of questions, first just on the K-Cup contribution. I think you said in the quarter it was 5% contribution, in Q3 I think it was up -- it was about 4%. So you did see some improvement, but if you look at the retail data it looks like consumption is actually growing at a faster pace just on a sequential basis. So as you think about that business in fiscal '12 can you give us a little bit of color just in terms of how big the contribution can actually get based on what you're seeing in the retail data?

Sure. Again, we would expect to continue to grow. I would just start by saying that we have a great relationship with Green Mountain. And as you've heard us say before, it's our charge to grow the system or the overall pie. We're the first national brand to launch and we did roughly, as you know, about 3% of sales for the six months, I believe, the most successful new product launch in our company history.

There are some new competitors that are going to be entering into the market come fall and those are very public. So they'll provide incremental opportunities for consumers to buy K-Cups in different channels. But we remain very, very bullish about the continued growth of that business.

Okay, so are you -- just in terms of what's embedded in your guidance, are you looking at that 3% six-month number continuing in fiscal '12 just in light of some of the competition? Or as you kind of build that business that contribution actually does get greater?

Yes. I mean we hope it will continue to grow -- it'll be between 3% and 5% of our overall coffee business.

Got it, okay. And then I may have missed this and maybe I've gotten two different numbers here. But, Mark, just in terms of your SD&A guidance for next year, I think at one point you might have said 10% and then at another point low-double-digit, and then I think you said marketing might not be growing as fast. So you can just reconcile or just clarify what you've said?

Yes, Judy. We said that our SD&A would be up 10%. And then within that marketing would also be up in low-double-digits as well. So pretty comparable to the SD&A increase.

Okay. All right, thank you.

Ed Aaron, RBC Capital Management.

Thanks, good morning, everybody. I wanted to ask you about coffee more from just kind of a macro perspective. You've stated a number of times, and I think other coffee companies have as well, that you think that what's happening with the commodity is more kind of speculative than fundamental.

But as we look at it, there really hasn't been much evidence of demand destruction in the category. And so assuming you agree with that, I'm just wondering if there's really a fundamental reason for those costs to really come down?

Well again, we would hope that depending on what happens in the financial markets that they could come down. But I guess again I'll just say what I said earlier. There are some fundamental issues going on in the world when you look at the amount of demand in Brazil or the supply availability in Colombia. But again, those are not what' driving coffee to the 34-year high, it's primarily driven by financial markets.

You see that we have a $0.60 trading range in a two-week period, that is not supply or demand driven, that is financial markets driven. And so I don't think we can predict anything about what will happen, but we would hope that they will come down over time. However, whether they'll go back to the levels that we saw a year or 18 months ago most likely will not occur unless there's some major shift in financial markets.

Thanks. And then my follow up just on the coffee segment in the quarter. It was about a 500 basis point sequential margin decline. I'm just trying to bridge that a little bit. I think obviously you had some inflation catch-up, but you also had a 10% price increase that came into effect I think at the start of the quarter. So just can you help me understand how to bridge that 500 basis points of sequential change?

It's just dependent on the timing of our price increase, the promotional spend and our green coffee costs that happen to fall within that particular quarter.

Okay, thank you.

Robert Dickerson, Consumer Edge Research.

Good morning, everyone. I just have a couple of easy questions. I guess the first question, I think someone may have touched on it briefly earlier, but I just want to follow up on the commodity cost side just with respect to kind of rollout quarter to quarter in fiscal '12.

So obviously coffee prices are up; you obviously hedge coffee costs some. But as some of the hedging rolls forward it would just seem intuitively like, if I'm thinking about fiscal year '12, that basically the back half of the year should be a little bit stronger than the front half of the year just because of the year-over-year changes in coffee costs. Does that sound right?

Yes, that's probably right. I mean clearly from a year ago this time cost of green in particular would have bigger disparity than later in the year. I would say the back half of the year we saw pretty high costs more comparable to what we're having in place today.

Okay, great. And then secondly, I don't think I heard anybody ask you a question on the reclassification of the statements. Did I hear you right early on when you said it would be coffee consumer and then you're basically combining oils and baking with retail -- I'm sorry, the oils and baking with special markets?

No, no. What we're going to do is we'll have three segments and we'll have US retail coffee which would be comparable to what we've had in the past. We'll have US consumer foods which, for simplicity, is the addition of what was consumer and oils and baking.

So for your purposes you could just add the profit and sales results together, we will formally reclass or restate that in the coming weeks. And then the international natural foods and foodservice business which we previously called special markets, that will just be the new name for that business.

Okay, great. All my other questions are answered. Thanks.

Thank you.

Mitch Pinheiro, Janney Capital Markets.

Good morning, everybody. Just a couple added in questions. First, back -- sales guidance 20% growth and I think you said flat volume, so if you back out Rowland, make some assumption about Rowland, it looks like pricing is in the high teens. Is that about right?

Yes, Mitch, clearly pricing is the majority. There is some mix, but pricing is by and large the bulk of that 20%.

Okay, okay. In terms of the K-Cup outlook, is their pricing in the K-Cups as well?

Yes. It was included in the price increase that we announced earlier this -- or last month.

Okay. And in terms of -- any plans for new SKUs in the K-Cup side?

Yes, this is Mark, Mitch. We are in the process of launching two new items in the K-Cup area, so we are excited about that.

Under the Folgers or Millstone?

Millstone.

Folgers Gourmet Select.

Okay. And then finally, can you talk about two more things -- one, what does your -- of your total K-Cup sales, what does the sort of growth look like outside of the food, drug and mass channel? Do you have penetration outside of that channel?

Outside of food drug and mass?

Yes, so alternative channels plus are you in any office coffee, etc.?

Oh, no, we do not have the rights to distribute the K-Cups in what we would call foodservice or office coffee channels. Our channels are primarily limited to what we would call our US retail channels.

Okay, so office --?

Canada is just launching --.

Well, Canada just launched --.

Yes, this is Steve Oakland. We are excited to launch K-Cups in Canada as well and those presentations are being made to the trade literally as we speak. So it's a relatively newer segment in Canada, but getting just as much enthusiasm from all of the classes of trade as it is in the United States.

Okay. And in terms of like the Staples, Office Depot segment, are you authorized for that channel?

No.

Okay. And then finally, in terms of coffee, are you 100% Arabica or do you use any Robusta coffee?

Oh, no, no, no. We use a very, very significant amount of Robustas. And we're not public with that exact blend, but I can tell you we buy a significant amount.

Okay. And Robusta has moved a lot less than Arabica, is that right? Am I saying that correct?

On an absolute amount that is correct. And the difference between the two has significantly increased over the past year between Arabica and Robusta. And so there have been some competitive actions of maybe revising their blends and we have resisted doing that.

This is Mark. If you look at the movement of Robusta relative to Arabicas, even though the spread is significant, as Arabicas have come down slightly in the last several weeks, Robustas have not. And in fact, in the last week or so have actually strengthened on strong demand for Vietnamese Robustas.

Okay, very helpful. Final question. Acquisitions, do you anticipate -- I mean I don't know what your pipeline looks like, but you obviously have Rowland working this year. Is anything -- I don't know how you would describe your acquisition outlook.

This is Richard, and as we always say, we have a lot of lines in the water, we just don't know when the fish are going to bite. So we're probably in the same position we were about a year ago in terms of that, but we're always looking.

Okay. Thank you very much, guys.

Eric Katzman, Deutsche Bank.

Good morning again. Thanks for allowing the follow-up and, Tim, I was neglect in not recognizing your contribution and good luck.

Thank you. Thank you very much, Eric.

I guess just kind of a -- maybe somewhat of a broader follow-up, but a question on the specialty markets area. I think in the last couple of calls, despite the economy you've highlighted the fact that your natural and organic product which sells at a premium price point has done very well. And I don't remember whether you kind of mentioned that. And are you detecting any change in the high-end or did that continue to be a (technical difficulty)?

This is Mark Smucker. Yes, it is a good channel and we do -- and from an industry perspective we are seeing continued growth. And I would say overall we would continue to see that area grow. If you look at natural -- the natural channel, which now is starting to get into some of the mainstream areas in a bigger way, organic is part of what we call natural. It is a smaller piece, of course, of the pie, but organic continues to grow very rapidly from an industry perspective and our growth continues as well.

Can you say out of the -- I guess you ended up the year with a little over $900 million in sales. How much of that is focused on the organic and natural channels?

It's in the order of about $125 million to $130 million in sales.

Okay, all right. And then just a check on -- Richard, did you say that you expect interest expense of about $60 million? So despite the addition of the debt and the working capital usage, that you're still expecting interest -- you're expecting interest expense to be down year over year?

Eric, this is Mark Belgya. The number is -- it's $60 million, that is a net interest number. And we have moved some of our fixed debt to variable through some swaps that will benefit both from a cash perspective and a P&L during '12.

Okay. All right, thank you.

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

Okay, well, this is Tim again, and I want to thank everybody for your interest today. Great questions. And again thank the team, our Smucker team, a great team. We really appreciate it. It's a great year and, again, I'm humbled to be part of this great team. So, thanks a lot. Have a great day.

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