J M Smucker Co (SJM) 2013 Q4 法說會逐字稿

Good morning and welcome to the J. M. Smucker Company's fourth-quarter 2013 earnings conference call. At this time, I would like to inform you that the conference is being recorded and that all participants are in a listen-only mode. At the request of the Company, we'll open the conference up for question and answers after the presentation. Please limit yourself to two initial questions during the Q&A session and requeue if you then have additional questions.

I will now turn the conference over to Sonal Robinson, Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to our fourth-quarter earnings conference call. Thank you for joining us today. On the call with me are Richard Smucker, Chief Executive Officer; Vince Byrd, President and Chief Operating Officer; Mark Belgya, Chief Financial Officer; Steve Oakland, President International Foodservice and Natural Foods; Mark Smucker, President US Retail Coffee; and Paul Smucker Wagstaff, President US Retail Consumer Foods. Following this introduction, Richard will provide an update of fiscal 2013 and initial thoughts as we head into 2014. Vince will then provide an update on our business segments and Mark will close with additional comments on our financial results for the quarter and our outlook for 2014.

Before I turn the call over to Richard let me remind you that we may make forward-looking statements during this call 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 encourage you to read the full disclosure statement in the press release concerning forward-looking statements.

Additionally, please note the Company uses non-GAAP results for the purpose of evaluating performance internally. Discussion on non-GAAP information is detailed in our press release located on our website at smuckers.com. A replay of this call will also be available on the website. If you have any follow-up questions or comments after today's call, please contact me or Mark Belgya. I will now turn the call over to Richard.

Thank you, Sonal. Good morning, everyone and thank you for joining us. This morning we reported strong fourth-quarter results that capped off another year of growth. We are pleased with our fiscal 2013 performance as we delivered record sales, earnings and cash flow while continuing to return cash to our shareholders. Vince and Mark will cover specifics of the quarter, so let me highlight a few of our many accomplishments during the past fiscal year.

Net sales increased 7% to nearly $5.9 billion for the year reflecting solid growth across our key categories and brands. In the Coffee segment, volume for the Folgers and Dunkin' Donuts brands were up 3% and 11% respectively, while Cafe Bustelo and the Rowland brands both achieved mid teen percentage growth. In addition, K-Cups continued their strong performance, contributing nearly $290 million of the segment's net sales. Within Consumer Foods, volume for the Jif brand grew 8% while Smuckers Uncrustables increased 23%. Innovation from Pillsbury continued to strengthen that brands overall positioning.

Finally, our fiscal 2012 Foodservice acquisition accounted for a significant portion of the sales growth within the International, Foodservice and Natural Food segment. Our Canadian and Natural Foods businesses also posted solid results for the year. Non-GAAP earnings per share were $5.37, an increase of 14% with profit growth coming from all three segments. We also achieved another year of strong cash performance. Cash from operations increased 17% to over $850 million for the year with free cash flow increasing over 40% to approximately $650 million.

Other key initiatives in fiscal 2013 included the launch of 70 new items including new varieties of K-Cups in both the US and Canadian businesses and our Hazelnut Jif brand. Also Smuckers natural food spreads and several new flavors of Pillsbury mixes and frostings. In addition, we increased marketing by 10%, including the production of 25 new television commercials and the expansion of our digital marketing activities which now represent over 15% of US retail marketing spend. This, along with ongoing support of our customers through our category leadership programs, also contributed to the strong 2013 results.

Operationally, we completed the $70 million expansion of our two coffee facilities in New Orleans and we commenced the fruit spreads operation at our new manufacturing plant in Orrville, Ohio. With 80% of the anticipated volume currently being produced at the new facility, the transition is expected to be completed by the end of the calendar year. Finally, while investing in the long-term growth of our business, we also demonstrated our commitment to enhancing shareholder value by repurchasing nearly 4% of our shares utilizing approximately $360 million in cash. This includes 2 million shares repurchased during the fourth quarter. And we increased our annual dividend by approximately 9%, continuing our steady history of dividend growth.

We are proud of our teams accomplishments over this past year. With these results, our five-year compounded annual growth rates of 18% for sales and 11% for earnings per share exceeded our long-term growth targets of 6% and 8% plus respectively. This performance is a testament to our long-term focus as well as the hard work of our dedicated employees and we thank them for their continued efforts.

As we turn our attention to the new fiscal year, we are excited about our initiatives and plans, many of which are built on recent investments that we have made to grow the business. These 2014 initiatives include the launch of approximately 100 new items crossing all key brands and categories. At the same time, we project another increase in marketing support, including new advertising and digital investments. Recently, we announced our sponsorship of the 2014 and 2016 US Olympics and Paralympic teams, and we are proud to play a part in supporting these talented athletes. Related initiatives will span TV advertising, retailer and consumer promotions, product packaging and digital support behind our participating brands of Folgers, Jif, Smuckers and Uncrustables. At CAGNY, we discussed our ongoing focus on growing these same key brands.

With the coffee supply chain project complete and the fruit spreads activities concluding in the coming months, we have initiated capital projects to provide capacity necessary to support the additional growth opportunities of our Jif and Uncrustable brands. This includes expanding our nut butter supply chain footprint including converting our Memphis fruit spreads plant into a peanut butter facility. In addition, we are progressing on capacity expansion initiatives at our Uncrustable facility. In 2014, we expect to complete the installation of an additional sandwich line. This comes on the heals of recently doubling our bread baking capacity.

And finally, our expectations for continued growth and the ability to generate significant free cash flow provides flexibility to support our cash deployment strategy, be it acquisitions or returning cash to shareholders through dividends and share repurchases. In a few minutes, Mark will share the details on our outlook for fiscal 2014. As we look ahead, we're excited about the new year and remain confident in our long-term strategy, the strength of our leading brands and our employees ability to execute with the operational excellence that the marketplace and our customers have continued to expect from Smuckers. With that, I'll turn the call over to Vince for an update on our business segments.

Thank you, Richard, good morning, everyone. As we began fiscal 2013, we outlined several key areas of focus in response to a challenging economy, volatility in the commodity markets and increased competition. These included furthering our brand building efforts, demonstrating price leadership, continuing to optimize our supply chain and acquisition integration. The results we achieved for the year, including a strong fourth quarter, validate our commitment to these priorities. Of particular note is our ongoing focus on innovation as products launched during the past three years represented $530 million of fiscal 2013 net sales. In addition, share of market remains strong across our businesses with increased dollars shared in most of our key categories for the latest 12-week IRI scan period.

Let me now provide some color on each segments results and highlight upcoming initiatives as we look to carry this momentum into 2014. Starting with US Retail Coffee segment, our fourth-quarter performance was very strong with volume up 6% and profit growth of 18%. Moderating green coffee costs provided the opportunity to lower prices during the year. These pricing actions, along with our brand building initiatives, contributed to the segment achieving year over year volume growth in each quarter of 2013 resulting in a 4% volume increase for the full year. Alternately volume growth, along with the continued benefits of profitable mix and restructuring savings, helped deliver 12% segment profit growth in 2013. Keep in mind, because we took pricing down earlier in the fiscal year before recognizing lower costs, our profit was back half loaded. Despite the timing impacts this may have quarter to quarter, we continue to manage the price to cost relationship over a longer period. And on a full-year basis, the net impact did not significantly contribute to segment profit growth.

Looking at the key Coffee categories, we are pleased with the ongoing growth of our K-Cup business. Sales increased 18% in the fourth quarter resulting in full year sales of nearly $290 million. While as expected the growth rate has slowed, we remain bullish on K-Cups. New users continue to enter the category and our relationship with Green Mountain Coffee remains strong.

This year, we will launch two new varieties and we project net sales for our K-Cups to grow approximately 15% in 2014. Our premium coffee business also delivered a strong fourth quarter with volume of Dunkin' Donuts up 29% reflecting a softer comp in the prior year, our emphasis on better managing price gaps and our marketing support. In addition, our relaunch Folgers Gourmet Selection bag coffee performed well with 10% volume growth in the quarter. In 2014, we'll expand our offerings in the premium coffee by launching Dunkin' Donuts bakery series along with our new 100% UTZ certified line under the Life Is Good brand.

Consumer preference in the premium coffee continues to shift away from the bulk segment. Accordingly we have decided to exit our bulk coffee business by the end of the fiscal year. In 2013, this business, which is primarily sold under the Millstone brand, provided $25 million in sales and did not significantly impact segment profit. However, we remain committed to the Millstone brand and will continue to support the Millstone K-Cups and bag coffee business.

In mainstream coffee, we're encouraged by the results for the quarter. Volume for Folgers roasting ground brew 4% benefiting from recent pricing actions and brand support. We are also pleased to note that Folgers has been named Coffee Brand of the Year in the 2013 Harris Poll rankings. This award speaks to the ongoing strength and relevance of the iconic Folgers brand.

Similar to coffee, the Consumer Foods segment achieved solid volume growth in the quarter up 4% over the prior year. Although segment profit declined in the fourth quarter, it was up 6% for the full year. Looking at our key categories, volume performance was lead by peanut butter, reflecting 17% volume growth for the Jif brand. As noted in our release, the prior year volume was challenged due to a 30% price increase earlier in fiscal 2012. As previously discussed, a 10% price decline was taken in January in advance of lower recognized peanut costs. While our costs decreased somewhat in the quarter the net impact of price to cost was unfavorable to segment profit growth and more than offset the favorable amount realized earlier in the year. We expect peanut costs will show a more pronounced decline as we proceed through the back half of this fiscal year.

Also within peanut butter, last month we began to down size our core 18-ounce Jif item to 16 ounces, consistent with the other offerings in this space. In addition, we passed through our price decline that reflects the downside, anticipating an improvement in the competitive positioning of the brand. Continuing our efforts to extend the Jif brand we'll also look forward to the upcoming launch of several new and exciting products including Jif whips along with Jiff almond and cashew butter.

Fruit spreads achieved a second consecutive quarter of solid volume growth, including the contribution from our recently announced Smuckers natural fruit spreads offering. Our actions taken earlier in the year to narrow price gaps contributed to these results. Supported by the expected incremental restructuring savings related to the new Orrville facility, we took additional price declines on selected fruit spreads effective late April averaging approximately 11%. Our Smuckers Uncrustable offering in this segment also achieved another strong quarter with volume up 22%, and we look for this momentum to carry into 2014. Combined with spreads, our overall PB&J business is well positioned for the upcoming back-to-school promotional period.

In the baking aisle, the launch of six new summer seasonal items contributed to strong fourth-quarter performance of our Pillsbury business. Volume was up 5% despite the effect of the previously discussed cake mix downsizing as well as a change in our promotional strategy on cake. While both impacted year over year volume, these actions continue to improve the profitability of the Pillsbury business. Let me conclude my remarks for the overall US Retail business by reinforcing we were pleased with the fourth-quarter performance. Combined, Coffee and Consumer Foods segment delivered the highest year over year volume growth in the last 15 quarters.

Let me now turn to International, Foodservice and Natural Foods segment where net sales decreased 9% in the fourth quarter. This decline was due in part to the initial impacts of exiting both the private label roasting ground coffee business acquired in last years' Foodservice transaction as well as a portion of the school foodservice business. Expanding on the coffee rationalization, volume has been impacted by the loss of the business for other related beverages due to the bundled nature of certain contracts and relationships. While we anticipate losing a portion of the more profitable business in the transaction, the extent is somewhat greater than initially projected and we now estimate a modestly higher impact on sales and profit from this exit. We expect to complete the rationalization of the private label coffee and Uncrustables by the third quarter of fiscal 2014.

Recognizing these changes, we remain pleased with the performance of our core liquid coffee component of the acquisition. This summer we'll be launching Folgers liquid coffee in the Foodservice channel. As a brand that consumers know and trust, we look forward to the growth opportunities this provides. The scale this acquisition created for our Foodservice business provided an opportunity to enter a new, multi-year licensing and distribution agreement with Cumberland Packing Corporation. Next month, we will begin marketing and distributing Cumberland's branded table top sweeteners including Sweet'N Low and Sugar in the Raw. In the Foodservice channel in the US and in the Retail and Foodservice channels in Canada, these products will serve as a complement to our Foodservice beverage business while also expanding our table top presence.

The remaining portions of the segment delivered a solid 2013. On a full-year basis, the majority of our categories in Canada achieved volume, sales and market share growth with particularly strong contributions from the coffee business including our K-Cup offerings. Finally, our Natural Foods category realized a strong fourth quarter. This caps off another year of solid growth as consumer interest in the natural and organic food space remain strong. Overall for this segment, with the expected contributions from the new products and increased marketing support in 2014, the businesses remained well positioned.

Looking back over the past year we are pleased with the progress on the key focus areas I outlined earlier. Building on this momentum, we are excited about the investments, innovation and other brand building initiatives planned for 2014, especially our sponsorship of the US Olympic teams. I will now turn the call over to Mark to discuss our consolidated results for the fourth quarter and to provide details on our outlook for 2014.

Thank you, Vince, and good morning, everyone. Let me begin with a few comments on fourth-quarter results. Net sales decreased $16 million, or 1%, reflecting a 5% impact of lower net price realization, primarily driven by price declines taken in coffee and peanut butter. A 2% increase in volume and a favorable sales mix helped to mostly offset the price impact. Non-GAAP earnings per share exceeded the high end of our implied fourth-quarter guidance range by 13%. This out-performance is attributable to several factors, notably stronger than expected volume across our US Retail business, favorable absorption of manufacturing overhead, a lower than projected tax rate and the purchase of shares under our buyback program.

GAAP earnings per share were $1.22 this quarter and $0.93 in the fourth quarter of last year. Special project costs, as defined in our press release, continued to decline on a year over year basis as the underlying activities wind down. Also, last years' fourth quarter included a significant portion of the merger integration costs associated with the Foodservice acquisition. Excluding special project costs, earnings per share were $1.29 this quarter and $1.10 last year, an increase of 17%. Operating income, excluding special project costs, was up 5% reflecting a mix and volume-driven increase in gross profit. The favorable impact of lower manufacturing overhead caused by decreased cost and higher production volume also contribute to the higher gross profit.

SD&A expenses increased 9% for the quarter resulting from a 17% increase in marketing along with higher G&A expenses that reflect incentive compensation cost adjusting up. The income tax rate was 32.1% in the quarter, which was below our expectations with lower state income taxes being the largest contributor to the decline. This compares to a 36.5% rate in the prior years' fourth quarter. For the full year, the tax rate decreased from 34.4% in 2012 to 33.4%. Cash provided by operations was $172 million in the quarter and this brings the full year total to $856 million compared to $731 million last year. The increase primarily reflects the higher current year income and a net decrease in cash used for working capital. Capital expenditures were $60 million in the quarter and $207 million for the full year. This resulted in 2013 free cash flow of $649 million.

Let me conclude our formal comments by providing sales, earnings and cash flow guidance for 2014. As noted in this mornings' release, we expect non-GAAP income per share in the range of $5.65 to $5.75 compared to $5.37 this past year. This range assumes weighted average shares of 106.5 million. Excluding amortization expense of nearly $100 million or $0.62 per share, the corresponding guidance would be $6.27 to $6.37. Much of the year over year EPS increase is expected to come in the back half of 2014.

Net sales are anticipated to be comparable to this past year. On the plus side, mix should remain favorable driven by coffee and peanut butter in the US Retail segments. In addition, the new Cumberlands distribution agreement is expected to add $35 million in sales all in International, Foodservice and Natural Foods segment. Offsetting these factors is the full-year impact of price declines taken in 2013.

We anticipate overall volume to be flat. US Retail segments are expected to increase approximately 2% but the International, Foodservice and Natural Foods segment will be down reflecting the incremental impact of the business rationalization. Combined, these reductions are expected to have a high single-digit percent impact on net sales for the International, Foodservice and Natural Foods segment. Excluding these restrictions, the segments volume would be up modestly.

The net impact of lower commodity costs within our basket of goods will be favorable to COGS in 2014. Lower costs are expected for coffee, peanuts and sweeteners, with flour and milk costs projected to be slightly higher. Favorable mix is also expected to contribute to gross profit growth. Including the effect of pricing actions taken to date, we expect an increase of approximately 200 basis points in gross margin excluding special project cost with contributions coming from all three segments.

Incremental supply chain savings approximately $15 million are anticipated as the projects are expected to deliver nearly $60 million in run rate savings for 2014. This is slightly ahead of our previous projections, reflecting higher than estimated savings realized in 2013. A majority of this years' incremental savings are being generated from our new Orrville facility. As Vince noted, we plan to reinvest these savings in our Smuckers fruit spread business in part through the April price reductions and increased marketing.

Overall SD&A expenses are expected to increase approximately 8% over 2013. This includes an increase in marketing of 10% along with costs associated with a significant information systems upgrade and other corporate initiatives. We expect much of the gross profit gains will lead to year over year increases in the Coffee and International, Foodservice and Natural Foods segments. We expect Consumer Foods segment profit to be comparable to fiscal 2013 due mostly to increased marketing and distribution costs. Further it should be noted that while peanut costs will be lower versus the prior year, the cost/price relationships will negatively impact margins in the first half of the year. Below operating income, net interest expense of nearly $93 million is projected including interest associated with anticipated borrowings on our revolver. Tax rate, 33.5% comparable to this past year is our current assumption.

Turning to cash flow, capital expenditures of $270 million are planned with $45 million related to restructuring projects including our peanut butter footprint expansion. The increase in CapEx over 2013 reflects these investments to support the future growth of peanut butter as well as our Uncrustables business. Also this year, construction will commence on a new innovation center located on our Orrville campus. That will enhance our ability to collaborate with customers once completed in fiscal 2015. Special project costs of just over $30 million, or $0.20 per share, are expected with most having a cash impact. The remaining non-cash charges primarily represent accelerated depreciation.

Excluding special project costs, depreciation and amortization expenses should approximate $245 million. Factoring all this in, free cash flow of $600 million is expected assuming a slight reduction in the use of cash for working capital. While Free Cash Flow is expected to be down from the prior year, we remain on track to achieve our $850 million free cash flow target in fiscal 2017.

And finally, we felt it's important to point out a couple of key factors related to the first quarter. Last years' results included $20 million in favorable unrealized mark-to-market adjustments and significant timing related effects from the price to cost relationships which negatively impacted Coffee and favorably impacted Consumer Foods. Taking these into consideration, and also factoring in our commentary for this year, the current estimate for our first quarter 2014 reported non-GAAP EPS is expected to be comparable with the prior years' first quarter. As I stated earlier, we expect much of our reported non-GAAP EPS growth will occur in the back half of the year.

In closing, let me reiterate how pleased we are with this past years' performance, with record level sales, earnings and cash flow. We would like to thank our constituents for their continued support and we look forward to another successful year. With that, we will open the call up to your questions. Operator, could you please queue up the first question?

Thank you. The question-and-answer session will begin at this time.

(Operator Instructions)

Andrew Lazar, Barclays.

You mentioned in the press release that for the year prices were down more than the benefit from lower input costs. I'm assuming this is primarily because of a mismatch between price and cost in peanut butter and that pricing costs were more aligned or even maybe a net positive specifically for coffee in the year, is that a fair statement?

Yes, it is Mark Belgya. That's exactly correct.

Okay, thank you. And then you talked about over the last couple of quarters some of the pricing actions that you were taking for various different reasons in some of the businesses and it certainly seems like the volume response anyway that you're getting would be one that bears out the reason for having done some of that. So as you go into '14, what's the thinking around some of those activities around either promotional price points and things where you made some tactical decisions, do you keep going with those? Do you expand maybe the scope of some of that given you've got more reasonable input cost flexibility just because you're seeing certainly the positive impact on volume?

Hi, Andrew, this is Vince. I think overall as a category -- or categorically we would say yes, we'll continue to emphasize managing our price gaps. It obviously takes into account our position on the commodity and question, but yes we will continue that activity.

And Andrew this is Richard. And that being said, as you know we don't just sell in price and so we're very price sensitive to not give promotions that are unreasonable.

Thanks, everybody.

Yes, I think it's more, let me just expand, I think it's more about applying the learnings that we had on our pricing gaps and our elasticities that we were doing a better job of managing.

Great, thank you.

Eric Katzman, Deutsche Bank.

I guess the first question on the Pillsbury business, is it something in the competitive set that's making you I guess as you put it materially change your promotional strategy there?

Hi, Eric, Paul Wagstaff. Actually when we look at the overall Pillsbury business in the baking aisle, we felt that the change in promotional strategy was driven by not so much competitive but what we felt would be an opportunity to improve margins overall and still take some of those margins and reinvest in innovation, which we've been able to do, and grow that business pretty significantly. But we think it's a right strategy and so far its been working.

Okay, and then on the Foodservice coffee, the liquid part of it, can you -- you've had the business for a little over a year I guess or close to it and you're finally going to be scaling back to that core business, maybe you could give a bit of detail on how big the business is today and how big you think it can be and what -- how far you're willing to go in terms of being a let's say a distributer, which I guess is what this Cumberland business, what that is for you?

Hi, Eric, Steve Oakland.

Hi, Steve.

Let me take you through a couple pieces of that. As you know, when we finally closed the Sara Lee deal we ended up with a lot of noise in that business in this private label volume and the customer relationships. And so yes that's been frustrating to get that all right and get through that. But behind that, the liquid coffee business, the core liquid coffee business both in the United States, Canada and Mexico has grown during that period and its grown with the Douwe Egberts brand on it. And although well recognized and a great brand in much of Europe and other parts of the world, it is unrecognized in North America. ¶ So we're very excited about putting the Folgers brand on it. And that allows us to take that product, the high volume coffee outlets where it'll be front of house, where the consumer will see the piece of equipment. So we think that opens up a whole new realm of opportunities for us. So that will happen in the next month or so but we'll start shipping that product and the response to date has been great, so we're excited about that.

Number two, the Cumberland arrangement. And I think if we step back and look at what we did to Foodservice. We did to Foodservice what we did to the Smucker Company years ago with the Jif and Crisco opportunity, we really increased our scale and our relevance to the customer. So being in the coffee business, it's a key category to every foodservice operator. And so you take out all of the noise we've done, we've created a direct sales opportunity, we have national sales and service, so we've got much deeper coverage. So things like the Cumberland quite frankly is the first benefit you'll see of that new scale. Cumberland came to us, they're a wonderful family company. It's probably more of a sales and marketing agreement. We think it'll have good margins long term for both parties. And what's more closely aligned to us than tabletop Sugar in the Raw, tabletop Sweet'N Low and they've got a great new product line that we think we can take to market over time. So we're excited about that and that's a first look at the benefit of Sara Lee on the Foodservice business.

Steve, let me add, this is Mark Belgya. When we announced the deal, and I know over the last couple quarters we've talked about the dollar impact on the sales side (inaudible) the portions of the business that we did not want to keep and that number has been between $75 million and $100 million, it's probably closer to $110 million. And most of that will come through this year primarily through the first three quarters, it's probably about $75 million to $80 million would be the current year impact.

Okay, and then if I could--

Eric?

Go ahead.

Eric, this is Vince. Let me just expand on Paul's answer relative to the Pillsbury, it's a great example of what Richard was speaking to in the first question. We actually reduced our trade spend because of learnings that we had relative to our frequency and debt. And even though it affected some of our share, it was a conscience decision because it improved our bottom line and allowed us to invest back in the brand.

Okay. And on the -- last question on the guidance and the weighting. How much of it, Mark, would you say is due to the timing in peanut butter and costs and the roll off what -- of the inventory versus the exiting of the rest of this Sara Lee stuff and ramping up of Cumberland, et cetera. How do we bucket wise the guidance, the weighting and the difference between $5.65 versus $5.75 on the earnings?

Yes, I guess what I would say Eric, is that clearly is heavily impacted by the cost of the peanuts. We will certainly move into lower cost peanuts as we progress through the year that compares to the price decline we took, so that is going to be a heavy back end. In terms of the exited business in Foodservice that's a little bit more ratable over Q2 and Q3.

Okay, thank you. I'll pass it on.

Farha Aslam, Stephens Incorporated.

First question is on volume. It clearly outperformed your expectations during the current quarter. If you had to parse out the reasons for that outperformance versus your expectations, do you think it was easy comps, do you think it's your marketing programs and promotional programs or do you think it's the consumer getting more comfortable with the prices on the shelf now?

Farha, this is Paul, I'll start, Mark and then you can go. On some of the categories like peanut butter for example, we got pricing back in line to what made sense with the consumer and clearly we saw a significant increase, Jif was up 17% for the quarter so that was good. We look at our frosting business, we were up 17%, that was also driven by a couple factors, new product launches that have done very well and been very pleased with that and some of the promotional dialogue that we talked about earlier. Fruit spreads was also up 4% and we had taken some pricing action on that as well as launching new items. So I think it's a combination of pricing, new products and getting back in line from a price point perspective on shelf.

And Farha, this is Mark Smucker. Just on coffee, I think it's basically everything that Paul just said. We did of course have a bit of a soft comp coming off of the prior Q4, but given all of our consumer and customer support, given the excellent pricing management that we had and getting our absolute price as well as those gaps right, we really saw good momentum. And I would dare say that that momentum in the latest four looks to be continuing. So not only were our shipments good but also the consumer pull through seems to be good as well.

I'll just add, this is Paul again. I'd say same thing on momentum, our momentum looks like it's continuing through this next quarter so we're in really good shape.

Yes, Farha if I had -- this is Richard, if I had to put a percentage on it I'd say that probably 80% of the actions that we've taken internally and 20% result of consumers feeling a little more confident. But it was more I think what we're doing, we do see the consumer being a little more confident, but that's the smaller portion of the two.

That's very helpful. And then my second question is on your cost savings efforts, could you -- you saved $90 million this year, could you share with us what your run rate is for next year? Any new initiatives? And more particularly, your thoughts in how much you longer term think you'll reinvest back into your business versus allow to fall to the bottom line? Your thinking on how you think about those cost savings.

Farha, this is Mark Belgya. Maybe if you wouldn't mind for clarification, I think you said $90 million. I'm not quite sure where that --

I'm sorry was that your cost savings actions, did I get the $90 million wrong? But what did you say in terms of cost savings for 2013 and what do you expect for 2014 from your price saving actions?

Okay, thank you. Yes, around our supply chain initiatives?

Yes.

Yes, what we've said is that on a full-year run rate basis we're now up to $60 million. You'll recall when we announced this a few years ago we said that that total would be $70 million. So we'll hit that $70 million fully in fiscal '15 and that really comes once the Orrville plant is all online and everything's been transitioned. And this year we did take the opportunity, or will be taking the opportunity, to take those incremental savings, that first batch of savings if you will from Orrville, and putting that back into the fruit spreads. That was part of our intention all along.

I think we said that some of that savings overall from our projects would flow through the bottom line, but we would also take the opportunity to reinvest. And specifically related to fruit spreads on price shelving particularly with private label had widened a bit more than we'd like. So we see this as a great opportunity to take this first batch of savings and put that back against the pricing. There will be more next year, if all goes well hopefully that will be more directed towards the bottom line, but we'll wait to see how that plays out.

Okay, thank you very much.

This is Richard. I want to compliment our team in case any of them were listening, they did a wonderful job of building this $150 million plant to give us even better quality than we've ever had and started up on a very rapid basis, and we've been able to produce product at a better quality at lower cost. So it was a great combination, the team did a wonderful job on that.

Thank you.

Chris Growe with Stifel Nicolaus.

I want to ask you first of all on the Coffee division, you've had two really solid quarters, I know in part it's comparison to the prior year. But we've had a persistent decline in the underlying input, the green coffee costs. So my question is as you go into early fiscal '14 it would seem like that benefit should continue to accrue to the Company. I know you've taken a pricing decline, but the decline in input costs looks like it's even more dramatic than that. Would you expect that pricing versus cost deflation benefit to continue into the first quarter? I know you called for overall flat EPS, but that division in particular will that see a benefit?

Hi, this is Mark Smucker, Chris. Yes, I think a couple comments. First of all if you'll recall obviously we buy both robust and arabica. And so robust the prices have been firm, arabica has seen what I would call a consistently gradual decline. And as you know when we price for that in February, we did reflect some of that and so it is -- there are a combination of factors and as we go forward and look into the next couple quarters, we will take a pricing action when our costs and position dictate that we do that. So we keep an eye on it but again, I would emphasize that it's not just arabica, there are other factors in the price of the instruments that we trade.

Chris, it's Mark Belgya. Just to add into I think to underscore a comment that I had in my scripted remarks is that last years' first quarter in coffee too, we led with price that'll advance the decline in coffee. So last years' profitability was I'll call it a bit of a softer comp as well, so the combination of two will affect Q1 of '14.

But it also reiterates -- it goes back a bit to the question that I think Eric asked earlier about basically trying to keep the pressure on -- to get pricing to match cost deflation in this case and trying to keep that volume momentum, that seems to be the underlying theme here though, is that correct in the Coffee division?

Yes.

Okay and one quick follow up and that would be that you call out another pretty solid increase in marketing for the year. I know it was -- the increase was pretty strong in fiscal '13, a little less than you initially anticipated because some shift of promotion, so I want to understand that -- how you look at promotion in fiscal '14 in relation to that pretty solid marketing increase, is there any kind of reversal there or how do those two inner play in fiscal '14?

Hi Chris, Paul Wagstaff here. Couple things we're doing on the marketing side, obviously it's the Olympics is impacting our increase in spending. Again we're very excited about the opportunity and I know in the Consumer side it's the Jif, it's the Uncrustable and the Smucker brand and it's in Folgers in coffee. And then also we have -- we're launching 58 new items, I know on the Consumer Foods side and so our marketing is increasing because of that investment spending.

Chris, this is Vince Byrd. Let me say that the trade spend is one area that we obviously compose a lever versus our other marketing elements and so we clearly are pleased that we increased the marketing. In '13 our plan is to increase marketing in '14. Trade spend will ebb and flow a little bit depending upon again our pricing position of our commodities and where we need to be competitive in the marketplace. So it will increase or decrease depending upon where we are in our position of our raw materials as well as competitive activity.

Okay, thank you for the time.

Alexia Howard, Sanford Bernstein.

Can I follow up on Chris' question about marketing spending? Couple of questions linked to that, can you quantify roughly how much marketing expenditure is expected to increase in fiscal '14? And then on the quarter, how much is marketing spending in coffee up? Thank you.

Hi, Alexia, this is Mark Belgya. For the fiscal '14, round numbers is that that 10% increase will equate to about $0.20 of EPS. And then I think again this is broad brushed, probably about 50% of that would be more Olympics related. In terms of the Coffee, we don't really give increases other than I can say it's significant increase in marketing in Q4.

Great and then a quick follow up. Your share repurchases have obviously driven a nice bump to the EPS growth in fiscal '14. Your cash flow is moderating slightly this year but would you expect uses of cash to be broadly the same in fiscal '14 as you've seen this year?

Yes, I don't see a significant change in our assumptions around cash deployment. Now of course the question will be if that's the case then why are the shares right now basically unchanged for the year. That's pretty much the approach we take when we plan is we don't assume buybacks because you buy it on day one of the year and it's completely different impact if you buy it on the last day of the year. But from an actual use of cash, it still plays a very big part in our deployment.

Great, thank you very much. I'll pass it on.

Ken Goldman, JPMorgan.

You're guiding to, if my math is right, 5% to 7% EPS growth next year. That's below your long-term guidance and the only time you've been that low since you bought Coffee was 2012 when coffee costs were spiking pretty hard, right? So now you have coffee going the other way. I know you mentioned robust not being down as much, but I'm looking at the futures in Bloomberg. It looks like robust is pretty straight line down over the last few months. So I'm curious if you can highlight some of the strongest headwinds you see into '14 that are going to offset the benefits of those lower bean costs? And I realize you've outlined some of these, right, I'm hoping to pick your brain about how we may weigh some of them more heavily than others if we can.

I think -- Ken, this is Mark Belgya again, to talk to some of the major drivers I would say just mention the marketing impact which 10% is although we did it last year wouldn't say it's a normal amount of marketing support. So you can pick whatever you think the right number is and take that EPS impact. I think also on some of the exited businesses between the Uncrustables, the out of school that we're exiting consciously as well as the private label coffee and the affiliated items around that, that also had if you total altogether it's probably another $0.05 to $0.10 which I'm guessing you may not have factored in. So those are really two key drivers of maybe where the expectations were versus where our guidance range is directing.

Okay and then second question, I realize you previously guided to a decline at some point but your prior guidance implied around $300 million in K-Cup sales for the year. You came in about $10 million below that, so can you help us understand what happened this quarter that maybe you didn't anticipate? And as a corollary to that, your K-Cup growth was lower this quarter than what Nielsen might have forecast as well so I'm hoping to get some color from you whether this was an issue of measured versus non-measured channels or more about the timing of shipments? Thanks.

Hi Ken, this is Mark Smucker. I think generally, K-Cups ended up pretty much where we thought they were going to end up. I think the guidance that we gave we were almost spot on and it does go back to what we talked about the law of large numbers, and as things grow you're going to see this percent decline decrease. Having said that, if we're talking about a 15% growth for the coming year, it's still double digits, we still feel very good about that and it actually is generally in line with what our number one partner has guided to as well I think in their most recent call. So we still feel optimistic, we've got some new products coming out in K-Cups this year and so we still feel good about our opportunities there.

But for six straight quarters your incremental sales from K-Cups were at least $30 million and they suddenly dropped to $11 million. I'm curious that's not a law of large numbers, that's a pretty sudden drop. What really did you see this quarter, was it competitive activity, was it the category decline, and what did you see that drove the quickness of that drop is what I'm going for?

Well Ken, this is Vince. Again I would go back to Mark's initial comment is it was still on a pretty significant steep ramp up. The other thing of course is we have a number of unlicensed participants that are getting trialed over the last three to six months and so that obviously has an impact on the category. If you look at the Nielsen or IRI data you will see how much those unlicensed participants have affected the category. So again, I would go back to what Mark said, to build a $290 million business in a short period of time, we are very very pleased with.

Okay, thanks very much.

Jonathan Feeney, Janney.

I wanted to ask about the cash flow, both the timing over the course of the year, and I apologize if I've missed this but you talked about $600 million for next year, this year you got some $40 million it seemed out of working capital and you made a $40 million pension contribution. Could you talk about working capital and pension for next year in the context of your $600 million guidance?

Sure. In terms of the pension we would not have that kind of a contribution this year. That was to help support some of the things that we had done around some lump sum pay outs, so we'll return to a much lower amount in '14. I guess my primary comment, John would be around working capital. We still feel, and this is not just a '14 comment, this is probably a more longer term comment, that we still can drive that number down. So we've assumed -- we look at that as a percent of revenue, so we think we can take it down another 1 point which would be about a $50 million reduction. So we've got that roughly built into our '14 estimate.

Now and you may have missed this, so I apologize if you've heard this, but in terms of the year over year decline from the $650 million to the $600 million, that is really driven by the capital expenditure increase. We're going from $207 million this year to $270 million next year. And as we said, as we move out towards 2017 we've got a couple of years of high amounts and then we really think that at least most of the major capital expenditures will be behind us and we'll see that taper down a bit, and that should help us deliver that $850 million that we've been talking about.

So if you hit your target on working capital reduction I should do this math, but about roughly how much money would that be?

Well it'd be 1% of sales, so roughly $50 million to $60 million.

Okay, and D&A somewhere around $260 million, it was $260 million last year?

Yes, $250 million to $260 million, that would include special project. I think without it, I think I said was $245 million.

Okay, so I guess if I put all those things together I would get to a number a little higher than $600 million exit of the pension piece. So is it that you're being conservative there?

Yes, I mean obviously it's early yet. The key about working capital, as you know, it's all contingent on where you sit April 30. So our best guess would put it there and hopefully we're a little conservative.

Right, okay thank you. And one other question is both the peanut butter and the coffee category have necessarily due to some commodity price corrections are going through some price reductions and these things do tend to take on a life of their own sometimes. Sometimes it works and price stabilizes, other times it really changes the competitive dynamic quite a bit. Have -- what -- in both of those categories, have declines in price been stimulative to volume? Have they brought volume back to the category you think that specifically? And I know there's a lot other things going on. And is it playing out competitively the way that you would have thought it would, the way you were planning for as far as being measured with price reductions and managing gross profit? Thank you.

Jonathan, this is Mark Smucker. I think generally the answer to your question is yes. We have seen it played out more or less as expected. In terms of coffee declines and the pricing actions we've taken, in some cases we've actually seen some of the competitors lag in taking a price decline. So we are seeing a bit of compression there. But overall yes, I think it has helped volume and as you know, there continues to be some speculation in the marketplace that messes with the fundamentals but overall I think you're generally correct.

Jonathan, Paul. On the peanut butter side I agree with Mark, it's a similar situation. We feel that obviously the pricing action has definitely stimulated the volume growth not only for us but for the category and we would anticipate that continuing.

Jonathan, this is Richard. I want to -- an overall comment on pricing and how we look at it. And we -- our strategy is own the number one brands and because of that we do have some pricing flexibility both up and down and -- but the key is responsible pricing. We want the pricing again, we don't just compete upon pricing, so we want responsible pricing we don't want to be in a position where we're driving the market down and we're very sensitive to that. We don't see that happening and all the categories that we currently are in have been pretty stable categories in terms of not getting into pricing wars. And so that's always been our leadership position.

And I guess one more thing, Richard, just to add is in coffee, what we did see if you'll recall when prices were really high, consumers started to trade down to more opening price point. And so now we're actually seeing that like we'd always say the smoothing of the hour glass and consumers coming back to the core brands and the important stuff.

Right. Okay, thank you very much.

David Driscoll, Citi.

Congratulations on a nice quarter and a good finish to the year. Wanted to ask a few coffee questions, Mark. First, was the positive sales mix in coffee also positive to coffee margins?

Yes, it was.

Okay. And then second question here, can you guys discuss a little bit more the full year coffee profit growth? I guess what I'm trying to do is to break away from some of this quarterly volatility that we see. I think profits in coffee were up about 12%. I think volumes on the year were up something like 4%, 4.5%. But if you could bridge this, what are the main factors that are driving the profit growth and noting I did hear your comment that green coffee costs were favorable but hoping you can rank this stuff for us and get me a little bit of a better understanding on the full year coffee profit algorithm.

Yes, I'd be glad to Dave, this is Mark Belgya. Really it falls in three primary buckets. It would be mix, volume and then the cost savings from the restructuring projects as well as ongoing projects around cost initiatives. But they're fairly well distributed between the three buckets.

Okay, and that's true for the full year basis. And then I thought you said to Andrew Lazar's question that green coffee costs were a positive in 2013. I thought he was asking the difference between the peanuts and coffee and I thought you said the coffee was a net favorability.

Not on a full year basis. It was pretty -- it might have been up slightly but it was basically attributed to the other factors that Mark Belgya articulated.

Yes, it was -- it did contribute with one of probably five or six components, volume mix including a couple others.

Final quick question back to the cash flow, so I understand it's something like $600 million of net income for '14. D&A, what was your guidance for D&A for next year?

It's around $250 million, plus it depends on how you take into account the amortization of the restricted stock which is about $20 million a year.

Okay and you said that next year, you do expect $50 million of working capital benefits, is that right?

That's what our targeting is, that's correct.

Okay, and than $270 million of CapEx and all these numbers are supposed to come together for something around $600 million.

Thereabouts, yes.

Okay, yes I would agree with Feeney, my math is a little bit higher than that but that's just fine. Understand and thank you.

Akshay Jagdale, KeyBanc.

First question on Coffee and the overall category dynamics, I think you guys are consistently hitting the $6.99 or $7 price point on your core offering on ground coffee and part of that I guess is being funded by lower coffee costs, right? So can you talk about the movement in the consumer a little bit more in the coffee aisle? On the one hand, clearly you're doing a lot more on the premium side with K-Cups during clearly well again and you're launching new products there, but it looks like the base business is also starting to come back a little bit. Can you help bridge that a little bit, give us more color on what's happening, what's sustainable, and how much of that movement back to the mainstream is really related to coffee prices being where they are?

Hi, Akshay, it's Mark Smucker. Thanks for the question. First of all, on your first point about promoted pricing, we are not at a $6.99 level. I think the lowest you'd probably see us in market on deal is about $7.99. And then secondly to your other questions, you're absolutely right. I mean the migration back to core has been fantastic. If you look at what we're looking at on our share trends through IRI, we are seeing despite a very modest decline in the mainstream segment, we are growing our business as well as obviously share in that segment. And then on premium, it's again what you said we are focusing on premium, we've done good things on Dunkin' from a support perspective as well as getting the pricing right. FGS is doing well and then of course as you know, we continue to support our K-Cups. And then of course even our Hispanic brands are also doing extremely well. Right now we're feeling very good about all of the segments.

Okay and then on K-Cups and your guidance for '14, I understand the 15% guidance and we appreciate you being specific but when you started this year, I think you said strong double digits and then you ended up being up over 60%. So can you help us with the moving parts there, market growth versus market share and perhaps give us your view on competition? And you talked about what I thought was interesting is you said new entrants are getting trial, but my guess is that what you think or what you're seeing is they're getting trial but the repeat rates might not be as strong, so any color there would be great. I'm trying to understand if you're being conservative with your growth assumption for K-Cups or -- and if that's the case, whether it's share related or category related. Thank you.

Okay, sure. Akshay, you're generally -- again I think you're correct in a lot of the assumptions that you voiced. Frankly, the category is going to continue to grow, and there are as Vince mentioned, there's a lot of unlicensed entrants and they are generating trial. I think it remains to be seen whether or not they continue to generate repeat purchase. I think we feel very confident that we over the longer time, the consumer will recognize the relative quality that the licensed entrants provide in that cup of coffee and may migrate back there. But you're going to see a lot of noise in the category over the next couple quarters. I don't believe necessarily -- I think the 15% is accurate, I think that we're pretty comfortable with that number. And so again although there's been -- although there's been a lot of noise, there have been some quality issues with some of the unlicensed entrants and then a recall here and there so I think that noise will continue but longer term our goal is to grow the business even if we may see some slight share erosion in the coming couple quarters.

Okay, great and one last one on, this may be for Mark, but you're increasing marketing support which is great to see, you're launching more new products and you're having more success with new product launches as well. At one point -- where are you in that journey of solidifying the organic growth of the Company or accelerating, rather, the organic growth rate of the Company? And when might we actually see you guys have the confidence to maybe increase your organic growth targets on operating margin -- operating income?

Akshay, this is Mark Belgya. Let me start and if anyone else wants to jump in, please do. I think that we do hear you in terms of organic growth. We've been pretty consistent over the last several years in terms of our particular top line growth expectations being split between organic/new products and acquisition. And we've made a lot of investments. We clearly have exceeded our 1% new product target and I think that the emphasis we've put on particularly CAGNY when we're talking about Jif and Smuckers growth opportunities, hand held right now being Uncrustables, the nature of what we're talking about and where we're investing our dollars would drive more organic based growth. So as that top line grows, clearly the contribution at a profit level should follow. So I think we've been pretty clear that if everything plays out as we hope over the next couple years I think you'll see that.

Great, thank you. I'll pass it on.

Thilo Wrede, Jefferies & Co.

Had a question on the Sara Lee business and the Cumberland acquisition. I think you said in your remarks that the negative impact from the discontinuation was higher than you initially expected because there was some bundling effects, but then you also said that Cumberland is really the first benefit from the Sara Lee acquisition. How far along are you on the learning curve of understanding or getting the Sara Lee business to say that you can already get incremental business because of Cumberland? Trying to understand what incremental opportunities could be from Cumberland. Thank you.

Hi, Thilo, it's Steve Oakland. Couple things. The contracts that we're exiting, I think what you're seeing in the financial statements I guess does not reflect the quality of the work that's gone on in the business. The teams are in place, the direct sales forces are in place, we're working through these contracts. They're coming off the financials when the contracts end. And quite frankly some of those contracts were so good for the customer they haven't been able to replace them, so that's why they're running them to the very end, and so that's working its way through.

In the interim, our team has been able to add the Cumberland business and if you think about a table top sweetener business, there's very few branded table top items let alone those that tie in directly with our coffee business. So we think there's an opportunity with our current business but also to launch their line of In The Raw and natural sweeteners over time. So that's the first one. We think there are a number, and we don't usually talk about specific opportunities, but we think there are a number of away from home branded businesses that we now have the capacity and the organization to support. We're working hard on those, and like every other business unit, acquisition is a key part of our growth and we'll work those as they come available.

Would you make any comments when we should expect to see the first updates what these incremental opportunities could be?

In the future.

That's hard to do. As you know those things are lumpy, right, and you fish and you fish and then eventually one comes about, so they're lumpy. But we're excited about Cumberland. I think it's a great -- I think we all know Sugar in the Raw, we all know Sweet'N Low and being in the hot beverage business having that complement us, we think right on strategy.

Yes, this is Richard. Just on the whole Sara Lee acquisition, that's been a -- that's really a great acquisition for us and a great fit with our Foodservice business and we feel still -- still feel 100% confident it's going the right direction. These are basically in the whole scheme of things small integration issues that you get into occasionally. And they're -- in our whole economics not that big but the strategic reason for buying the Sara Lee business is still there. The base business is still very strong, its given us great credibility in Foodservice. And so we don't want to overemphasize these small changes on a quarter basis but it's still a very solid acquisition.

Okay, great. Thank you, I appreciate it.

Jason English, Goldman Sachs.

Congratulations on a solid finish to the year.

Thank you.

We've been going on the call for awhile, this is a marathon call. So I've only got a couple small housekeeping questions left for you guys. First question for you, Paul. The peanut butter cost versus price mismatch, I thought you were pretty explicit on the last call saying listen this is a fourth quarter issue, we get into the next fiscal year and this thing is all trued up. It sounds like that's not the case that we still have a bit of a bleed over through the first half of a mismatch, is that right? Am I hearing you correctly and if so what's changed?

Hi, Jason, Paul here. Actually, I recall last quarter that we did mention that we were going to say it was impact for next fiscal year as well, so actually nothing has changed from our perspective. We knew there was going to be an impact going into the first half of fiscal '14, which it still is. I'd say that the part that we're happy about is the volume is responding, we were hoping it would and we would continue to see that momentum continue.

Okay, sounds like it was an interpretation issue on my end then, thanks for the clarification. And then turning to Mark Smucker, one other housekeeping for you. You mentioned price gaps, you felt like you were in a good place. We saw Gevalia announce a price cut in May, we saw Starbucks and Seattle's Best announce price cuts in May as well. On the premium bag end, do you still feel comfortable with your price gaps in the wake of those pricing actions for your competitors?

Hi, Jason. Yes actually we do and again, as I think we said before, we think some of those pricing actions by the competition were lagging ours. So I think we're still positioned very well.

Great, thanks a lot guys, I'll pass it on.

Chuck Cerankosky, Northcoast Research.

First question for you Mark would be what kind of tax rate are you looking at in fiscal '14? And with regard I'm just thinking about the low tax rate we saw in the fourth quarter, I'm guessing that's not indicative of next year or the current fiscal year.

Yes, that's the low. What we said Chuck is 33.5% which is pretty much in line with this year on a full-year basis.

Okay, and in looking at the growth rate of K-Cups 18% in the fourth quarter, would you be willing to say what it might be for fiscal '14? Could we see a slower rate than that?

For the fiscal year we've said 15% for the full '14.

All right, thank you. And in looking at the packaged gourmet coffee, there seems to be a lot of new brands in there, what is helping Dunkin' Donuts grow so rapidly, 29%?

Yes, Chuck, it's Mark Smucker again. Basically, it's what we've been talking in terms of making sure we've got all of the right consumer and customer support as well as getting those -- the pricing, the absolute pricing and the gaps just right. And of course we have a new product line actually that we're launching this year, Dunkin' Bakery Series which is not a seasonal item, it is actually a permanent line and so that will help us -- it's flavored coffee, it's flavored like basically Dunkin's pastries and donuts in their shops and we feel very good that that will add to the growth as well.

All right, thank you.

Rob Dickerson, Consumer Edge Research.

A couple quick questions, you said for Q1 you expect EPS to roughly be flat relative to last year, should we be expecting the volumes to now be down in the first half or at least in Q1 considering the fairly easy compares that we've seen in Q3 and Q4?

Hi, Rob, it's Mark Belgya. No I wouldn't say that because what you're going to see is the volume -- overall the volume decline is due to the exit of the businesses and that's more of a Q2 and Q3 event as opposed to the first quarter, so I would not make that statement.

Okay, perfect. And then also on the K-Cup side there's obviously a lot of questions around the K-Cup business. If we see this -- or we've seen decelerating growth obviously in the category for some time now, it's still good, it's still double-digit growth. But that said, as we think forward really in the first half or into the holiday season and with coffee costs down as much and with increased competition now in the market, should there be an expectation that maybe not just for you but that we could overall start to see a bit more price decline in K-cups because you haven't seen much but as you talk about the unlicensed competitors we think about what's happening on the craft side, et cetera, would you expect more price competition to come over the next two quarters?

Rob, this is Mark Smucker again. A little bit, I think with some of the new entrants we have seen some tiering in -- price tiering in the category. So you've got at least three if not four different pricing tiers in the category. Again I think we go back to our relative brand strength and quality to continue to drive repeat purchase in our brands as well as some of the license. So it's typical to what we would see basically in the broader category, so I think we feel pretty comfortable where we are today.

Okay, great. And then the last question, if you actually can comment on this and I'm not sure, but we heard obviously at Green Mountain and Starbucks that their contract was renewed. We're not hearing it from you, I don't mean that that implies anything, but I am curious within the given contract, are you able to add as many SKUs and as much capacity, et cetera as you want or are there restrictions, et cetera? Thank you.

Sure, two things. First of all, we don't comment on the specifics of the agreement with Green Mountain but we are adding SKUs, we're actually launching two new items this year. And as it relates to the other partners that Green Mountain has, we feel that we're on a level playing field.

Okay, perfect. Thanks so much. I'll pass it on.

John Baumgartner, Wells Fargo.

More specifically in terms of the K-Cups, there seems to be a little bifurcation here between Folgers where you're still getting some reasonably good growth but Millstone looks increasingly weak calendar year to date. Wondering if you can elaborate a little bit on the dynamics for Millstone, what can you do to stabilize that brand going forward?

Sure, again Mark Smucker here, John. Yes, we've seen a little bit of softness on Millstone. Obviously the Folgers brand is doing very well. I think two things, I would say that the softness you've seen right now is probably driven by again some of that trial that we've seen on the number of entrants in the category. But I will -- we are very confident that although we're exiting the Millstone bulk business, we are going to remain committed to that brand and continue to support it both in the bag format as well as in the K-Cup format.

Okay, great. And then a follow up in terms of the Rowland brands. Those also seem to have slowed a little bit in terms of the roast and ground. Anything there you can call out, maybe consumers trading back to the core with prices coming down, elaborating on that? And then your thoughts on distribution growth for that portfolio going forward.

Yes I think as we go forward, we're still very comfortable with that and we're going to continue to drive that. There is plenty of opportunity for both Bustelo and Pilon to grow the brands with distribution as well as with new consumers, so we're still very bullish on that.

Great, thank you.

And as we've said, we've also said we're going to double that business in five years and we're on track to do that.

Great, thanks.

Well thank you very much for your call today. We appreciate it and we have a solid plan in place for next year and look forward to executing it. So have a great weekend, thank you.

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