J M Smucker Co (SJM) 2014 Q3 法說會逐字稿

Good morning and welcome to The J. M. Smucker Company's third-quarter 2014 earnings conference call. At this time I would like to inform you that this conference is being recorded. (Operator Instructions)

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

Good morning, everyone, and welcome to our third-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, U.S. Retail Coffee; and Paul Smucker Wagstaff, President, U.S. Retail Consumer Foods.

Following this brief introduction, Richard will comment on highlights and the challenges we faced in the quarter. Vince will then provide an update on the dynamics occurring within our business segments, and Mark will close with additional comments on our financial results for the quarter and our updated outlook for the full year.

Before I turn the call over to Richard, let me remind you that we may make forward-looking statements during the 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 corporate website, at jmsmucker.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, do not hesitate to contact me or Mark Belgya. Let me now turn the call over to Richard.

Thank you, Sonal. Good morning, everyone, and thank you for joining us. My commentary today will focus on three key messages: first, the solid performance in the quarter; second, the change in our outlook for the year; and finally, that the fundamentals of the business remain sound and that our expectations for continued earnings growth beyond the fourth quarter are positive.

When we last spoke to you in November, we outlined our plans for the Holiday quarter, including our expectation for solid merchandising support and the significant increase in third-quarter earnings per share over the prior year. As we reported this morning, we are pleased to have delivered another quarter of record earnings per share. We had a good Fall Bake and Holiday season and we are pleased with the quality of merchandising achieved.

Non-GAAP EPS increased by 13% to $1.66. While these results were strong, they were below our expectations.

Before I discuss the key highlights for the quarter, let me also comment on our revised outlook for the year, which was included in our press release this morning. We adjusted non-GAAP earnings per share guidance for the fiscal year from the prior range of $5.72 to $5.82 to the range revised to $5.55 to $5.60, forcing a soft fourth quarter against a strong prior year, where earnings per share were up 17% over the prior year last year.

Let me comment on two factors that softened our EPS growth for the third quarter and are contributing to our adjustment of annual guidance. First, weaker than expected top-line results within our peanut butter and fruit spreads businesses.

As you may recall, we had previously indicated that peanut butter was expected to be a key growth driver for our total Company results this quarter. Vince will elaborate on why this fell short of our high expectations.

Second, profitability within the Foodservice hot beverage business that we acquired from Sara Lee was lower than expected, reflecting an unplanned adjustment of approximately $10 million in our trade spending accrual balance.

Additionally, as we enter our fourth quarter, our outlook incorporates that our U.S Retail volume is expected to fall short of a very strong fourth quarter achieved in the prior year. Additionally, competitive pricing in a number of our key categories is expected to continue.

And lastly, while our business in Canada had a very strong third quarter, we continue to face foreign currency headwinds.

We view these issues as near-term challenges; and in our 117-year history, we've faced similar challenges before. We have the ability to adjust quickly where needed, while still maintaining a long-term view of the business.

I want to emphasize that our business fundamentals remain strong and our prospects for ongoing earnings growth continues. Our confidence is supported by aggressive innovation plans, strong brand support, and a more stable raw material cost environment, and the strategic deployment of our strong cash flows. For these reasons we are confident that our Company is well positioned for growth in the coming year.

Let me now return to the third quarter and provide an overview of the highlights.

We are pleased with the volume growth in our largest business, coffee, and the performance of our Folgers and Dunkin' Donut coffee brands, which both had a very strong quarter. In addition, Crisco enjoyed a very strong Holiday merchandising season, as did our overall Canadian baking portfolio.

The Company's sales were impacted by volume, planned product rationalization, and competitive pricing. These factors, combined with our pricing actions and recent trade activities, resulted in lower net sales compared to the prior year.

Innovation remained key to our performance, behind contributions from recently launched items such as Dunkin' Donuts Bakery Coffee series, Jif Whips, and new varieties of Pillsbury baking products. Our seasonal business for Dunkin' Donuts coffee and Pillsbury baking continues to be a real strength for us. For the current fiscal year, we have achieved our target of introducing 100 new products, and we are excited about our initiatives planned for fiscal 2015, some of which Vince will preview in a few moments.

To further support our brands, we continue to maintain a consistent, ongoing advertising presence. We are actively engaged with consumers as we speak, in connection with our Olympic sponsorship of Team USA in television advertising, digital and media support, and in-store merchandising. Consumers continue to demonstrate their excitement in our involvement with Team USA, and retailers have provided exceptional merchandising support.

With the Fall Bake and Holiday season complete, we saw strong cash generated from operations during the quarter. While we anticipate full-year cash from operations to come in slightly lower than originally planned, we believe our fiscal 2014 free cash flow target of $600 million is still achievable, aided by a conscious shift in timing for certain capital spending.

As the Company continues to generate significant cash flow levels, we remain committed to utilizing this cash to enhance shareholder value. While we have achieved our target of repurchasing 2% of our shares annually each year, we are giving strong consideration to continuing repurchasing outstanding shares under the current Board authorization.

Let me close my comments by reinforcing that we are confident in our ability to navigate and address the current short-term challenges we are facing, while we remain committed to the long-term growth goals of the Company. We acknowledge the outlook for the fourth quarter is down from our previous guidance and are working diligently to minimize the impact.

We believe we have the right strategy in place and will make the tactical adjustments as we go. Our team is the best in the industry, and we are confident in their ability to drive ongoing profitable growth.

With that I will turn the call over to Vince for an update on our business segments.

Thank you and good morning, everyone. As Richard indicated, we were encouraged by our results in a number of areas during the third quarter, while other areas of our business were more challenged. Let me provide some additional commentary on this performance as I discuss our three business segments.

Beginning with U.S. Retail Coffee, the momentum experienced in the first half of the year continued into the third quarter, as volume in this segment grew 2%. Highlights for the quarter included: sound execution of our Holiday marketing and merchandising plans, including new advertisement for several brands in our portfolio; volume gains for the Folgers brand, which grew 4%, driven by roast and ground coffee, and for the Dunkin' Donuts brand, which was up 8% behind growth in the base business and contributions from innovation; share of market gains within both the mainstream and premium coffee segments for the latest 12-week IRIscan period; and finally, third-quarter Coffee segment profit grew 4% year-over-year.

Performance for our K-Cup business continued to be mixed, as sales growth for the Folgers Gourmet Selection was offset by anticipated sharp declines with Millstone, reflecting the continuation of the competitive dynamics discussed last quarter. As a result, we now anticipate full-year take-up sales to be up slightly for 2014.

Looking forward, we remain optimistic about the business over the long term, with a number of initiatives expected to provide growth in fiscal 2015. These include: first, commencing distribution of our K-Cup offerings in new channels including the dollar class of trade and the e-commerce channel; secondly, introducing three new K-Cup varieties, while continuing to provide marketing support to the platform and to our brands; and thirdly, continuing to expand our relationship with Green Mountain.

This includes participating in their latest innovation, the next-generation brewer platform expected to launch later in the calendar year. In addition, during the quarter, Green Mountain began marketing and selling Folgers Gourmet Selection K-Cups in the Foodservice channel under a distribution agreement, further extending the brand's footprint.

Looking to the fourth quarter, we anticipate the favorable benefit of green coffee cost year-over-year to continue, albeit at a lower amount. While costs are expected to decrease, we anticipate segment profit will be down from the record level in the prior year, due to the timing of our net price realization to costs that occurs from quarter to quarter and a softer volume outlook.

We continue to manage the business on an annual basis, and these price-to-cost timing impacts are expected. For the full fiscal year, we expect to deliver a solid year and record Coffee segment profit.

Let me conclude my Coffee remarks with a brief update on the recent news in the commodity market. As you are likely aware, arabica futures have climbed over 20% since the beginning of the calendar year. While we do not comment on our specific hedge position, we feel confident in our ability to adjust pricing when warranted.

Let me shift to Consumer Foods, where overall volume for the third quarter was flat and below our expectations, driven by shortfalls in peanut butter and fruit spreads. This was partially offset by the strong performance of our Crisco oils business, along with volume gains for Pillsbury frostings.

Expanding on peanut butter, although we faced a difficult comp of 17% growth for the Jif brand in last year's third quarter, we were optimistic entering the period as a result of strong merchandising programs and better pricing versus the prior year. Although we executed as planned, we believe our competitors in the category maintain a temporary cost advantage, and their depth and frequency of merchandising was significantly greater than anticipated, resulting in the number-two brand regaining share they had lost in the prior year.

Ultimately this dynamic impacted our volume performance in the quarter. We anticipate this heightened level of competitive activity will continue through the fourth quarter. Yet, given our expectation that we will no longer have a peanut cost disadvantage versus our competitors as we enter the new fiscal year, we expect to be well positioned to compete responsibly in fiscal 2015.

Additionally, we remain optimistic about our brand-building efforts behind Jif. Innovation in particular continues to be a key contributor. Jif Whips continued to perform well, with 12-week ACV of 80% and strong repeat purchase rates.

Additionally during the quarter, Jif Hazelnut was relaunched, showcasing new packaging and formulations along with a new variety. Both the Whips and Hazelnut product lines are being supported by a robust marketing campaign including TV advertising.

Turning now to fruit spreads, there are two key issues affecting our business and share trends. First, we faced a competitor that was dealing extensively on grape to levels that were unprofitable for us, and we chose not to meet them.

Secondly, there is a segment of consumers who are shifting away from artificially sweetened product that is impacting what we refer to as our better-for-you line of fruit spreads. Reflecting this trend, we are focused on ensuring we have the right product offerings to meet the needs of our consumers. This is evidenced by our recent launch of Smucker's Natural Fruit Spreads, and we are encouraged with early results of this offering.

Our innovation efforts include the opportunity to expand the Smucker's brand into categories beyond fruit spreads. To that end, we are excited to announce the launch of Smucker's [Fruitfulls], a new line of fruit pouches providing consumers a convenient and great-tasting on-the-go snack option. This all-natural offering will be available in four blended fruit flavors, with shipments beginning early next fiscal year.

I will conclude with a few comments on the International, Foodservice, and Natural Foods segment, where the integration of the Foodservice beverage business acquired from Sara Lee continued to have a significant impact on the segment results for the third quarter. Let me address three key points related to this business.

First, expanding on the $10 million adjustment that Richard spoke to, during the last several months we transitioned the trade-spending management activities and other back-office operations to our teams at Orrville. The complexities inherent in the Foodservice channel contracts and the transition in processes and systems acquired from Sara Lee all contributed to an underaccrual of certain trade liabilities. Going forward, we have addressed the underlying issues and do not expect further significant adjustments.

Secondly, we finalized the planned exit of the private-label coffee foodservice business during the quarter. We are encouraged to have completed this transition, allowing us to move forward with a focus on growing the branded roast and ground and the liquid coffee concentrate business.

Lastly, we recognize that the profitability of this acquired business to date has fallen short of original expectations. However, with the integration and the rationalization activities now complete, our teams are focused on ensuring this business meets its full potential. As a result, we anticipate profitability within the business will improve as we enter the new fiscal year.

Turning briefly to the rest of the segment, a key highlight for the quarter was the strong sales and profit performance of our Canadian business, with volume and market share gains achieved across nearly all categories in the portfolio.

Lastly, within Natural Foods we remain pleased with the performance of the recently acquired Enray business, including the truRoots brand, and we look forward to completing the integration activities by the end of the fiscal year.

In summary, we continue to navigate through a challenging operating environment and remain confident in our ability to do so, all the while we remain committed to our strategy and the key initiatives we have spoken to previously. These include: building our brands through investments in innovation and marketing, including support behind our Olympic sponsorship; improving our supply chain; capitalizing on acquisitions; and ultimately positioning the Company for long-term growth.

I will now turn the call over to Mark to discuss our consolidated results.

Thank you, Vince, and good morning, everyone. Net sales decreased 6% in the quarter, reflecting lower net price realization. Excluding the impact of planned rationalization in our Foodservice business, volume was slightly up in the quarter.

Acquisitions added 2 percentage points of growth, while exchange rate and mix each reduced sales by 1%. The weaker Canadian dollar will continue to negatively impact results in the fourth quarter and next fiscal year.

GAAP earnings per share were $1.59 this quarter, and $1.42 in the third quarter of last year. Excluding special project costs, earnings per share were $1.66 this quarter and $1.47 last year, an increase of 13%.

The growth in EPS was partially driven by gross profit which, excluding special project costs, increased $11 million or 2%. And lower commodity costs were only partially offset by pricing. This resulted in gross margin improving to 37.4%, an increase of nearly 300 basis points over the prior year.

The positive impact of a lower tax rate, a decrease in interest expense reflecting the Company's interest rate swap, and a reduction in average shares outstanding from a year ago all contributed to the year-over-year EPS growth for the quarter.

Turning to cash flow, cash provided by operations was a strong $421 million in the quarter, compared to $324 million last year. The increase primarily reflects a greater reduction in our overall inventory dollars during the quarter, as it compared to the same period last year.

We are adjusting our 2014 CapEx estimate to $240 million, from the previous range of $250 million to $270 million. This lower CapEx guidance reflects actual spending to date and the decision to defer spending on certain projects until next fiscal year.

Reflecting this shift in timing, our initial projection for fiscal 2015 is to maintain CapEx at around the $240 million level. We will confirm this estimate in June during our year-end call.

While the current-year projection is lower than the guidance we provided at the beginning of the year, total CapEx spend over the two fiscal years is in line with our original expectations. This CapEx guidance includes a revised estimate relating to expanding our Memphis facility to support peanut butter production. The initial $70 million estimate increased to $90 million, reflecting scope changes to this significant supply chain project.

Free cash flow was $355 million for the third quarter, bringing the total to $440 million for the first nine months of 2014. As Richard indicated, our full-year free cash flow target remains at $600 million. As of January 31, we had no borrowings outstanding against our revolving credit agreement.

Let me conclude our prepared comments by updating the full year sales and EPS outlook. We anticipate 2014 net sales will decrease approximately 5% from the prior year, which equates to approximately 7% decline in the fourth quarter.

This revised sales outlook reflects: the impact of list price changes and other pricing levers to primarily reflect lower costs recognized throughout the year, including coffee. Note, we took an 8% list price decrease in oils earlier this month. U.S. Retail volume declines of approximately 2% to 3% for the quarter due to strong prior-year comps and expected competitive pricing in certain key categories. Continued headwinds from foreign exchange in Canada, and these offset somewhat by the sales contribution from acquisitions.

From an SD&A perspective, we are actively managing our costs and now expect full-year SD&A to increase slightly less than the 4% increase realized through the first nine months of 2014.

Given our fourth-quarter outlook and third-quarter actual results, we are adjusting our annual non-GAAP income per share guidance to a range of $5.55 to $5.60. This range is based on approximately 105 million shares outstanding for the purpose of calculating annual EPS.

The range forces the fourth-quarter EPS estimate (technical difficulty) below the prior year. As a reminder, the prior-year fourth quarter benefited from a number of factors including stronger than expected volume performance across our U.S. Retail business, favorable absorption of manufacturing overhead, and a lower tax rate.

Let me conclude by reiterating the key points that Richard made at the beginning of our call. We had a solid third-quarter performance, resulting in significant year-over-year EPS growth. Yet recognizing these results were below our aggressive expectations and anticipate soft fourth quarter, we have lowered our full-year outlook.

However, our business fundamentals remain sound. We are optimistic as we look forward to fiscal 2015.

Specifically to this last point, while we provide our 2015 guidance when we release our year-end results in June, I would like to preview some of the key reasons for optimism as we head into the new year. Recognizing the competitive environment and foreign exchange will remain in headwinds, we expect to benefit from the following: our robust innovation pipeline, along with ongoing brand support; additional supply chain cost savings, particularly related to our fruit spreads operations; further reductions in our recognized peanut cost that will improve our competitive positioning; the lapping of the product rationalizations that have significantly impacted our International, Foodservice, and Natural Foods segment; and the full-year impact from any 2014 share repurchase activities.

As a reminder, Richard mentioned we will be looking at share repurchase opportunities. We currently have approximately 2.8 million shares still outstanding under Board authorization.

We look forward to sharing more on these items during our year-end call as we will discuss our plans for delivering another year of earnings growth. With that, we will open up the call to your questions. So, operator, would you please queue up the first question?

(Operator Instructions) Eric Katzman, Deutsche Bank.

Good morning, everybody. I guess a first question has to do with the jam and jelly spread business. It sounds kind of similar -- I don't know if you listened to the McCormick call, but they dominate their category in spice and seasonings, and yet they have seen the consumer change where they're buying, maybe buying some alternative products in different parts of the store.

So is it a somewhat similar situation for you, that you have got aggressive competitors on the low end and then maybe the consumer changing a little bit on the higher end?

Hi, Eric. Paul Wagstaff here. Yes, from the spreads perspective, really there's a couple things that are going on.

First off, I would point out that our strawberry and variety products actually have had a very good year overall, and so we have been pleased with their performance so far. The grape business, which is really due to a competitive situation, has not done as well; we have seen some impact there through competition.

It is really our Better-for-you segment, which include some of the sugar-free options that we have struggled with the most -- and that goes to your comments on the consumer taste and the consumer trends are going away from artificially sweetened products. So we are looking at ways to address that.

Some of the things we are doing towards that, to that end, are the Uncrustables business, which is a way for moms to give their kids a PB&J sandwich; that continues to do very well. That was up double digit, and we expect that to continue.

Then also we have launched this -- well, in process of launching a Smucker's Fruitfull pouch product, which is like an applesauce fruit-based product that we are seeing some nice trending upward with the consumers and that category is growing. So I think we are looking at ways, how do we expand the Smucker brand to meet some of the other consumer needs.

Thanks for that. Then just as a follow-up and I will pass it on. I guess in Coffee, you said, Vince, I think you said that your market share over the last 12 weeks, IRI was up. And obviously with your volume, numbers were pretty decent in the business.

We use Nielsen; but can you explain why like Nielsen would show your share down? Is that -- is the difference the singleserve K-Cup share losses I guess you experienced year-over-year?

Yes, Eric, my comments were that we gained share in roast and ground and premium. And actually we gained share in the instant segment as well.

When you roll it all up, though, with K-Cups, we did not gain share. That is just a matter of the math, if you think about our share in the K-Cup and as that becomes a bigger piece of the pie; we obviously don't have the same 33% share that we have on the rest of the business.

So it becomes a math exercise, to some degree. But we did gain share in all other segments.

I will respect the two questions. I will pass it on. Thanks.

Andrew Lazar, Barclays.

Good morning, everyone. Richard, I think it was maybe about two years ago where you had expressed your belief that there would not be a race to the bottom with respect to promotional activity. I know you've got some specific challenges in businesses that you are addressing. But would you say any of the recent competitive environment or some of the broader view that you see maybe has changed that view at all, or not so much?

I wouldn't say in general it's changed our view that much. In certain categories, specifically peanut butter -- peanut costs came down significantly the last year or so. And we had gained -- when Skippy was sold we had gained a lot of market share during that transition. And because we had a higher peanut cost than some of our competitors during that time, they took advantage of getting that back during the past couple quarters.

And even though actually our peanut butter sales are up this year in terms of units, they weren't up as much as we thought they were going to be, and we lost some share to our competitor.

But in general, it's competitive out there. I can't say that it is not competitive, and we are running a lot of promotions.

But if you look at all of our margins in the industry, everybody's margin is up over the prior year because commodity costs have come down. I think all -- most manufacturers have dealt some of that back in trade spending, but not all of it.

So, you will see a higher trade spending because of that; but margins are better overall.

Okay. Thanks for that. Then it sounds to me -- but tell me if I have got this wrong -- that with respect to share repurchase potential, it is more a matter of clearing it with the Board and powers-that-be more than anything else, I guess, structural that would perhaps keep you from being more active in the marketplace, given where the stock is, has come down to. Is that a fair assessment?

Andrew, this is Mark Belgya. Just to clarify, the 2.8 million shares that I referenced actually have been approved by the Board. So it is just a function of putting a program into place if we so choose. But there is no further authorization.

Now once we exhaust that, we would obviously have to go back to the Board. But there is no limitations from that existing 2.8 million.

Thanks for the clarification.

Alexia Howard, Sanford Bernstein.

Good morning, everyone. Okay. So the first question, I think, coming back to the peanut butter profitability, you mentioned the temporary cost disadvantage versus another player. Can you just give us a little bit of a better idea about what that is, or why that situation has arisen? And how confident are you that that resolves early in fiscal 2015? Thank you.

Yes, hi, Alexia. This is Paul Wagstaff. Going back a little bit in history on the peanut costs and the peanut market, we saw peanut costs go up significantly. And one of the things that we do with being the largest peanut buyer in the market is we went out and helped the farmers, the sellers, to make sure that they knew that they had a supplier, which was us, buying peanuts.

As we do that -- again, we don't give the details on how long our purchases go out. But we went out pretty long in that process.

And as peanut costs came down, we were typically -- we are longer than most of our competitors. So as you look at trying to go in the marketplace and price your product based on where your cost is, we were just longer, frankly, than our competitors.

So that is what we are seeing right now in the third quarter. We saw it in the third quarter and we will see that continue a little bit in the fourth quarter.

We also know our peanut purchases going forward. And while I'm not going to give you details on what those are, how long, we do feel very confident that by first quarter we will be getting into our lower-cost peanuts that are very similar to where we believe our competitors are.

Okay, great. Then on the Foodservice side of the business or for that whole segment, it sounded last quarter as though you expected a rebound in profitability in that segment in the second half. Clearly that has not come through this quarter.

Do you have any better visibility as to when that business should start to rebound year-on-year in terms of profitability? Thank you.

Alexia, hi. Steve Oakland. Yes, we did expect that to be better. As both Richard and Vince detailed on the call, we are disappointed in the transition difficulties we have had with the Sara Lee business; but we are not disappointed in the strategic value of that business.

That business gave us a couple things. It gave us scale in Foodservice and it gave us a proprietary technology based away from the home coffee business.

So we are convinced those things can deliver what we thought. We are frustrated that we are not there now.

I would say we will have some of that impact in the fourth quarter, and we think that the next fiscal year we should see that business start to improve its margins and profits.

Great. Thank you very much. I will pass it on.

David Driscoll, Citi.

Great. Thank you and good morning. Richard, you cited in the release that in the third quarter lower commodity costs were a net benefit to gross profits. Overall, given all your comments, do you see this continuing on balance across the Company?

In general, yes, although we think they are pretty stable at this point in time. We don't expect them to drop much more. Coffee is actually starting to inch up, as you know.

So I think we have hit the low point, and now they are -- I would call them stable, with the exception of Coffee, which is in step. But we are in a pretty good market position on our coffee purchases.

The reason why I ask -- go ahead.

I'm sorry, David. This is Mark Belgya. Just to add a couple other comments, we mentioned as part of the fourth-quarter results that's obviously affecting our full-year guidance, we have accumulated favorable green cost throughout the year. And we constantly talk about the timing of this recognition of cost versus price.

So year to date we continue to recognize overall favorable cost-to-pricing. That will flip particularly in Coffee in the fourth quarter. And that is a key factor in what is driving the fourth-quarter results.

Okay, my second and final question, would just be -- you made I think a relatively key statement here in saying that your guidance reduction in the fourth quarter doesn't overly negatively influence your thoughts for the next fiscal year, etc. But you make this statement in print in the release that -- lower fourth-quarter volumes and a more competitive pricing environment in key categories.

I think the big challenge today for all of us on the outside is going to be to understand why those comments would be isolated to the fourth quarter and not something that would percolate into subsequent quarters. Can you give us some thoughts on that?

Yes, sure, David. I guess I would go back to Mark Belgya's concluding remarks. As we look at our innovation pipeline, we have further supply chain savings. We are lapping; a lot of the Sara Lee integration is behind us. We will have the full-year impact of the stock buyback.

And I will go back to costs, because our cost structure as we go into the new fiscal year, with the exception of coffee, virtually across-the-board we will have reductions in our overall mix of costs. So we feel very good about what that will allow us to do and maybe be more competitive in certain areas.

But again, we will never be the lowest. We have very strong brands. We never feel that we need to be the lowest in the marketplace.

And we will selectively make decisions about where we spend those funds, but we are very optimistic as we move into the new year.

Really appreciate that. Thank you.

Jonathan Feeney, Janney.

Good morning. Thanks very much. My first question would be -- if you give us a sense maybe. Look at the guidance reduction, and really in the context of the full year, how much of this -- if you can put it into buckets for us, like how much of the -- you gave us some factors. But how much of it is the peanut butter shortfall? How much of it is incremental K-Cup profitability?

Just give us a sense of just where you were beginning of Q3; and then the change in guidance, where are the -- what segments of the business are the heaviest down, and by what approximate magnitude?

Hey, Jon, it's Mark Belgya. Be glad to. If you look at -- and this is one of the things when you adjust guidance going into the fourth quarter, obviously everything forces through the fourth quarter. But I think it is important to step back and look at where our expectations were at the beginning of the third quarter.

So big picture, I would say roughly -- whatever number you are working with -- roughly call it $0.20 of guidance adjustment, about half of that you can attribute to third quarter and half to fourth quarter. When we spoke to you in the last quarter we were specific that we thought Consumer Foods and International, Foodservice, and Natural Foods segments would drive a very strong third quarter.

As you have heard this morning, primarily between peanut butter and the trade spend adjustment in our Sarah Lee business, that really took away the earnings. Obviously if you add those back, we would beat the Street and would have been well on our way.

Now if you look into the fourth quarter, then, the key drivers -- we have talked about coffee somewhat, this shift of cost-to-price. That is having a significant negative impact.

Volume declined, and I had mentioned earlier, again, for the quarter a little bit more heavily skewed in Coffee.

We are continuing to be affected by FX. The Canadian dollar weakened significantly more than we had built into our plans back in the October time frame.

So those are probably, if you think, sort of 50-50 between the two quarters; and the key drivers (technical difficulty) the two respective quarters. It is the big buckets that I think was the genesis behind your question.

Okay. That's helpful. Just one more question. You are getting down to levels of debt-to-EBITDA here which are low by Smucker's historical standards. You have had a lot of success making acquisitions. Can you comment about the acquisition environment and your priorities?

And maybe failing that, do you borrow and become more aggressive on the share repurchase side, given low interest rates? Thanks very much.

Well, those are both things that we look at, Jonathan. Obviously, on the acquisition side, we have said this before, but we have a number brands out there that we would love to acquire if they become available for sale.

We have been aggressive in pursuing those. But those are like fishing; they don't always hit.

As far as stock repurchase, I think Mark mentioned the fact that we have some authorization available right now, and we can utilize that if we so desire. And we can go back to our Board, and I think our Board would be supportive of making more investments in Smucker's. So both of theirs we can pursue.

Okay, great. Thank you very much.

Akshay Jagdale, KeyBanc.

First question is on Coffee, just -- I know you are not ready to comment about 2015. But you did make some comments on R&D innovation, etc. Coffee has had a really strong year this year, and it's a big piece of the pie.

So can you just talk a little bit about the expanded relationship with Green Mountain and the new channels that you are entering in dollar and e-commerce? What has changed? When did it change? And what do you think the opportunity is there?

And if you could just talk a little bit about what you think about the 2.0 benefit that was revealed, that would be helpful. Thanks.

Sure, Akshay. This is Mark Smucker. First of all, we do have a fair amount of innovation. We actually have three new items coming into the market in this next fiscal year. And that, two of those are the Hispanic initiative, so we are helping support Green Mountain's Hispanic initiative in that sense.

So we are optimistic about that. That is good.

And as you mentioned, dollar and online channels, we are very optimistic. I wouldn't give specific numbers about those channels, but essentially we are just now beginning to ship those channels.

And we are in the dollar channel a significant player, and in the online channel we are a rapidly growing player. As you know, K-Cups in the online channel are a big piece of their pie, and so that would be clearly good for us.

As it relates to 2.0, obviously, we are very excited to be involved in the new system. As you can imagine and as we said last call, we will participate in that system, including all of the different pods or cups that it will offer.

And clearly, I think the way we think about it is it validates our partnership with Green Mountain, that we are with the right partner, and we are optimistic about that. I think it is going to take some time -- and this is a question more for them, is: how long might the machine conversion take? It is going to take some time, but clearly it validates that we are with the right partner.

The distribution in Foodservice that started this quarter, and also the timing of when these changes were triggered and why?

Akshay, hi, it's Steve Oakland. The Foodservice, in the Foodservice market K-Cups do really well in a couple of segments: in lodging and in office coffee. And as you can imagine, Green Mountain has a large installed base and an organization to support that.

So the opportunity to work with them to access that installed base and to get our brands in front of those consumers, in those venues where it makes sense, we just thought was a great opportunity. It is just starting. So I believe it is just starting in the United States; it will start this summer in Canada.

And we are excited about the opportunity, but I would expect that to take a year or two to build.

Akshay, this is Vince. I wanted to make sure we answered your first question. In terms of innovation in Coffee and coffee in general, Mark and team have probably over 30 new items that will be launched next year. He was specific to the K-Cup when talking about the two or three.

Then I think secondly, I would just reinforce, when you ask about the timing of these things, we have a very sound relationship with Green Mountain. And that agreement has continued to evolve since the day we signed it three or four years ago. It only continues to get stronger as we evaluate opportunities to add value to their company, our Company, and to consumers.

So I think our parting words are we still feel very comfortable with that relationship, and it is getting better and stronger every day.

Okay, thank you. I will get back in queue.

Chris Growe, Stifel.

Hi, good morning. Yes, just had two questions for you. The first one is just to maybe get a little more color around -- I think there was an earlier question about promotional spending. I am just trying to understand, maybe to you, Richard, about just the view on the consumer and how they are reacting to some of this more aggressive promotional spending.

Is it truly lifting volumes? Is it something you may have to go down that road a little more heavily to try and fight against competitors?

This is Richard. Obviously, we want to make sure that we are priced properly and that we don't lose market share. So when we need to, we will meet competition.

And it's been a little more aggressive this Fall Bake, but we haven't given up margin too much for doing that. So overall, we feel pretty good where we are.

If you looked at our margins, our margins are better than they were the prior year. But I think you find that true with most consumer food companies.

But, it really varies by category. I think peanut butter is probably one of the most competitive right now, and that is because we have got some good competition in that area. That being said, our peanut butter volume is still up for the year.

So we think that it's going to be competitive out there, but it is not that much different than it has been historically. We do go through these cycles, so this is not that unusual.

Okay, thank you for that. Just a quick second question on retail inventory levels. Kraft had noted last time they thought inventory levels were high for them at retail, maybe even across the industry. Are you seeing any change in retail inventory levels maybe in the quarter, or something you anticipate?

This is Vince. No, I can't say that we have seen a significant increase in our customers' inventory levels.

Okay, thank you.

Robert Moskow, Credit Suisse.

Hi, thank you. I guess I wanted to drill down a little bit on roast and ground. You said you had some market share gains ex-K-Cup. Where do you think you got those gains from?

Maxwell House has been marketing more aggressively, and I think that that was a concern that a lot of people had. Do you feel like you are fending them off in your bigger roast and ground?

Sure, this is Mark Smucker. Thanks for the question. Really, we grew share across, as Vince said, all of our key segments from mainstream, premium, and instant. And as it relates specifically to roast and ground, we have actually been outpacing the category.

So the largest share gain from both us and our number-one competitor would clearly have come from private label. And I think that is largely a function of just the price compression in the market, that all of our prices are closer together and consumers can afford to trade up.

Okay. Then the last question I had. The Foodservice business that you bought from Sara Lee, it doesn't sound like you have any plans to have an asset write-down or anything like that. You think it can come back.

Can you talk a little bit from the top-line perspective, like what your customers are telling you about this technology that you have that is proprietary, about the benefits of scale? From a customer standpoint, are you getting positive feedback? Do you have any new business wins you can talk about in Foodservice?

Sure. Hi, Robert. It's Steve Oakland. If you remember, this summer we started to brand the Douwe Egberts brand Folgers. That momentum is just picking up, and in fact, we had the best quarter that we have had since we have owned the liquid coffee business in the third quarter.

Unfortunately, liquid coffee is only half of that business. For roast and ground, the private label, all the things that came with the DE, the Douwe Egberts Sara Lee business, had been a difficult transition.

So it is really two different businesses. Roast and ground has been a very difficult transition.

Yes, there has been systems and processes and things that came from Sara Lee that we have had to put onto Smucker systems that led to the accrual-type things. But the core liquid coffee business has been up since we have owned it; it is growing a little faster now.

And we think that the Folgers brand -- now that there is a front-of-house brand in that, we have an opportunity. And we believe we are going to bring a new piece of equipment to market this summer. In fact, we will have a prototype here, a working prototype in the next couple weeks.

So we will have our first new piece of news equipment-wise this summer. So all of those things together make us feel pretty good about it.

Okay. So that is what is driving your optimism for fiscal 2015 to get back to growth?

Yes, that's correct. And some of the charge that you saw today, a little bit of that charge is on the business that was discontinued. We have our Smucker trade spend system and our Smucker trade spend policies in place, and that has been a help as well.

Okay. Thank you very much.

Chuck Cerankosky, Northcoast Research.

Good morning. If you could, could you comment a little more broadly on private label? You talked about it a few seconds ago in the ground business, but across the rest of your categories including specifically K-Cup. And then I have another question.

Okay, Chuck. This is Mark Smucker again. I guess when you think about the K-Cup segment, let me talk more in terms of the unlicensed players. As we talked last quarter, we had seen growth there; we expected to see it. That noise has continued in the category.

Again, I think it is important to point out that we do have some data that would indicate that licensed players actually get higher repeat purchase rates. So that bodes well.

But clearly as we look at K-Cup, we have seen pretty consistent that private label as a -- whether it's licensed or unlicensed, could still get into that 10% to 15% range of the category, which is typically for most of our categories.

Hey, Chuck, Paul here on some of the other categories. In the spreads area, really private label hasn't been much of a factor. Obviously, they are still a decent player; but more of a branded competition that we have been seeing there.

On the oils side of the business, again I think we have done very well there. And private label is still very large in that category; but it's been, I think, very manageable, I would say.

Then on the baking side, private label really doesn't have much of a presence there. So overall, it has been more focusing on brand competition than on private label.

Okay, thank you. I would guess it remains small in peanut butter, as it has been.

When you look at it, Mark, a question for you in that trade accrual adjustment. Was that all in -- did we see all of it flow through the Foodservice segment or International and Foodservice segment? Was it a cash or non-cash item? I want to -- how do you think about it that way?

It was all through Foodservice; but obviously all through International, Foodservice, and Natural Foods. And it would be because these are promotional programs that are offered to our customer base that affect the ultimate selling price.

Yes, cash.

You said it is cash? Okay.

It is cash.

Thank you.

Farha Aslam, Stephens Incorporated.

Hi, good morning. Two questions, the first regarding innovation. One of your reasons for confidence for next year is your innovation pipeline. Could you share with us how much innovation contributes annually, in general? And in particular next year, how incremental and how much can we expect from innovation?

Farha, this is Mark Belgya. I will start and then you guys jump in as needed. Just big picture as we've said, that when you look at our organic growth rate of which innovation is a key driver, our target for a long time was 1%, and we exceeded that. Even last year, I believe, if I remember the numbers, the way we define new products -- which are products that came out over a three-year window -- it made up 10% of our total sales last year.

So that percentage of contribution continued to grow and we feel that will continue. I believe it was in the scripted comments, we have hit our 100 new products for this year. That was on top of 80 or so the prior year.

And that is across the brand portfolio. So that is going to continue.

So although we are not here really yet to dollarize what that is, that is the kind of metric that you can think about as we move forward. And I think you will see key contributions coming next year, which we have touched on a few already this morning.

Then in terms of supply chain, the other reason for your confidence was you were not going to have some of the supply chain integration issues. How much -- or what is the total cost, do you think, that will flow through the supply chain integration issues, that are not extraordinary but are impacting earnings?

Again, Mark here. I would say, Farha, that from what we call the Heritage Project which is the new Orrville facility, that has come online; so we will get the full-year benefit of that. And I think what we have said publicly that is probably about a $10 million contribution.

Then as Steve discussed, some of the costs that we have incurred in terms of the Sara Lee transition will go away. I don't think we are really in a position to dollarize that; but you can get a sense just going through three quarters of numbers we have talked about. There is some opportunity there.

But -- and then there is just the ongoing focus on our cost structure. We realize the importance of that in today's food space. And although we don't have any major projects to talk about, it is just ongoing efforts to look at that. Then anything else?

Yes, Farha, this is Vince. The other announcement that we have made, of course, is the acquisition of the Cafe Bustelo and Pilon. Later in fiscal 2015 we will be rationalizing that facility. And although the benefit will probably be minimal in 2015 it will provide some benefit going forward.

And just -- did you have at the Scottsville facility any incremental costs there that flow through the P&L with Scottsville?

Hi, Farha; Steve Oakland. We have invested heavily in Scottsville. For the first time we hope this summer we will have capacity ahead of demand, significantly.

So there may be a little bit of overhead weighing on that, but it is going to allow us to promote aggressively in both Foodservice and Retail, something we have not ever really been able to do in that business. So we are excited to see if we can't fill that capacity quickly.

But we have expanded the bakery this last year. We are putting new production lines in, in the next several months.

That overhead may weigh on that business a little bit in the first three quarters of the year. But I would hope we fill it up by the end of the year.

Great. That's helpful. Thank you.

Jason English, Goldman Sachs.

Morning, folks. Thanks for the questions. I have got a couple of questions for Mark Smucker on Coffee. First, in terms of pricing, as you mentioned we have seen coffee bounce off the lows a little bit. As we flash forward and think about the price environment, clearly K-Cups are a much bigger proportion of the category today, running up close to 40% of ground coffee.

The competitive dynamics within that set would suggest that price growth in that category is unlikely even in a rising commodity environment. What does this mean for implications on pricing in roast and ground and the potential of cross-price elasticity between the two segments?

Good question. This is Mark Smucker, Jason. First of all, I would just remind you that the K-Cups segment, if you think about it versus roast and ground, the cost component that is coffee is very small. Now clearly it has an impact, so it is not -- you can't discount it. But there's a number of other packaging components and what have you.

I think you are correct that pricing in that segment moving up is less likely. But I also think if you go back to what our friends at Green Mountain said on their call, the pricing still seems to be rational.

And even though there has been a little more promotional activity, more frequent, and so forth, that segment obviously continues to grow. And we should see the tiering that exists there -- we have some data that would suggest our brands do not support us tiering, and we can maintain our price levels at where they are at. So we feel very good about where we are.

And then as you know in roast and ground, clearly we always try to be transparent with our customers, and we will move on pricing when we need to. That said, the environment in the roast and ground, I don't know that we are ready to commit to saying that the current levels that arabicas are at are sustained.

There have been some fundamentals driven with the dryness in Brazil; but there has also been a fair amount of speculation in that market. So I think we need to wait and see what the coffee markets are going to do.

Thank you for that. One last question, still on Coffee. It has been difficult to get a good bead onto the underlying growth rate for your Coffee business, given all the price volatility in recent years, elasticity effect, etc. But if I step back and look at the full five-year cycle, it looks like your volume CAGR has been around negative 1%.

This quarter we saw an end to [mix] for you. So is the negative 1% the right run rate growth figure to think about for your Coffee business as the category shifts away from you? And if not, then why?

Jason, are you saying minus 1% for our business or minus 1% for the category?

Minus 1% for your compound volume growth rate over five years.

No, I would say that minus 1% for the roast and ground business and the total category is probably fair. On our business, though, there have been some fluctuations; but of late we have been growing it. And I would say that I don't think our numbers would match what you are showing.

I think we can continue to grow it. We have continued to actually grow our volume in the past few quarters, given all of the support we have put behind it, outpacing that category. But overall, I think we are positioned well to continue to grow in total on Coffee.

I would add that obviously our premium segment has grown fairly significantly with our relationship with Dunkin' Donuts. When we acquired it, it was under a $50 million business; and I think it is $350 million or something north of that now.

So again, our strategy of participating in all segments has proven to be a good one.

Thanks a lot, guys. I will follow up with Sonal offline on some of the numbers and meanwhile pass it on.

Thilo Wrede, Jefferies.

Good morning, everybody. I had two questions for you, and I apologize for making the first one a multipart question. But I think the last time you talked about SG&A spending you gave us 8% growth guidance. Now you talked that down to 4%.

In my math, that is about a $0.25 benefit to EPS. So the question is, is that correct? And what does it mean for your marketing spending in the fourth quarter, especially with the Olympics?

Yes, this is Mark Belgya. Just to clarify, I think the 4% was representing an increase, not a percent of sales.

Yes. No, that is what I meant, 8% growth versus now 4% growth. Or did I get my numbers wrong there?

The 4% is what we said. I think at the beginning of the year we did say 8%; and part of that reduction is marketing driven. We did have much higher expectations from the total marketing spend; and I will ask after this comment for Paul and Mark to comment on our -- what we have been able to do for marketing, even though we have reduced it.

So a lot of that reduction is probably due to that. We have also focused on the last six months, obviously with a restated guidance, to focus on controllable spending, to bring that down as well. So we can get off-line with specifics of the breakdown between going from 8% to 4%, but I would suspect margin is at least a key driver in that.

But that said, guys, if you would just comment on the quality of what we put on.

Sure, sure. This is Paul. I think from a marketing overall perspective we feel very good that we actually had very good execution in our marketing plans. The TV advertising that hopefully you've seen on the Olympics so far with Jif, Smucker, Uncrustable, and the Folgers brand. Again we feel very pleased with the positioning and where we have seen that.

We have seen some -- heard some very good mother-in-law research from consumers, that they really enjoyed the spot. So we think it is doing its job, and we are pleased with how we have been able to get those in the marketplace and the timing.

I think on Coffee as well, same thing. We have been able to do everything that we felt we needed to do this year and support our brands.

It is true that some of the marketing dollars, not a lot, have transitioned to more targeted in-store marketing activities that would count as trade.

Just to tie that off then, our total marketing spend was still up 6% over the prior year, which is (technical difficulty) a good increase for us, considering where sales were.

Okay, that's great. Thank you. Then the other question I had was on the Smucker fruit roll product. I think that is an interesting line extension for Smucker, given that Smucker stands for fruit.

But my question is, think Smucker's jams by definition also stand for highly sweetened fruit product. So if this product presumably is supposed to be sold to mothers who feed it to their children, does the image of highly sweetened fruit product, does that create an obstacle for a pouch product like this to be successful when you consider what the other applesauce products that are out there, how they look in terms of added sugar and so on?

Yes, Hi, this is Paul. Again, with the Fruitfulls product, actually the Smucker brand, we have done some really good research on what the -- how the consumers see the Smucker brand, and they do see it as a fruit product. We do have, obviously, with our jam and jellies a sweetened product; some is with sugar, some is corn syrup, and some is artificial sweeteners.

But again, we feel that this product that we are launching is -- the only ingredient on the label is just fruit. So for example, on the apple version of that, it is apples. There is nothing else that is included. We don't have any other sweetener that is included.

So we feel that that actually does tie in with where we see the consumers, at least from a research perspective, seeing and giving the Smucker brand credibility. So we are actually confident that the product is going to do well and the consumers see it in the right way.

This is Richard. The consumers -- really the main thing that they look at the Smucker brand is trust more than anything else. And they trust the Smucker brand. So that far outweighs the fact that they may see it also in sweetened product; but trust is the most important attribute.

Okay, great. Thank you.

John Baumgartner, Wells Fargo.

Thanks. Good morning. Thanks for the question. First off, just turning to the peanut butter business, just to clarify. Have you increased price promotion or reduced prices since you spoke to us last quarter? Or are you just content to continue absorbing volume declines until you believe that this cost disadvantage improves?

Hey, John. Paul here. No, we have not taken any other price decline since the last time we talked. In fact, we felt very good that our price is better than it was last year. Our promotions and our merchandising actually was better than last year.

Again, it was really just driven by the competitive nature that took place in the third quarter, and we see that going into the fourth quarter. But overall we feel good with where our pricing is for the time being.

And again our volume has actually increased overall. So it just hasn't increased as much as we would like to see it.

Okay. Then just a follow-up for Mark if I could. In terms of the Coffee, I think you have expressed your view that part of your K-Cups recovery from here is predicated on shakeout of those unlicensed brands. But I think we are now hearing a pretty large private-label player is bringing new capacity online. Kraft is clearly aggressive with Gevalia; their points of distribution are building.

So I guess my question is: do you still feel this unlicensed shakeout is going to occur? And if it doesn't, how might that impact with your view on your own K-Cup acceleration into fiscal 2015? Thank you.

Thanks. Yes, there will be some shakeout. I think clearly some of the customers have acknowledged they probably put too much space in the stores for K-Cup, so there is clearly going to be some rationalization. And the branded players -- the licensed players, rather, could feel some impact of that.

That said, I think our confidence goes back to the strength of the Folgers brand. Vince mentioned in the script that Millstone has been impacted; we are working actively to restage that brand.

Again, we've got a new brand in Bustelo coming into the system. And then just overall, our Folgers-branded K-Cup business continues to grow.

Thank you.

David Driscoll, Citi.

Great. Thanks for taking the follow-up. Mark, this is also for you on Coffee. The first question is just -- it's an observation, honestly.

When you look at the traditional ground and roast in the red can, the darn thing is just incredibly iconic. You see it from the moment you walk into the aisle.

When you look at the K-Cup boxes, the Folgers K-Cup box, it is not actually red. It is red, yellow, it's got purple on it. It doesn't have the same iconic nature that the red can has. I am just curious about your thoughts on shoppability and what your customers will tell you.

Then just second question, just a follow-up on Millstone. Could you just be a little bit more specific as to what you are going to do to revitalize Millstone? Thank you.

Great. Thanks for the question, David. You are right. The red can is iconic.

Our core red can business this quarter has been fantastic. I think some of the growth has been tempered by opening price points.

But as you point out, the packaging is a little different on K-Cups. So two responses.

One is, that is technically our Folgers Gourmet Selections brand, and so the graphics are a little different. They are supposed to be a little more upscale.

That said, we are going through another packaging iteration with K-Cups right now, and I think you're going to see several SKUs are going to convert to core Folgers; and you're going to see the other SKUs are going to have a stronger Folgers presence on shelf.

Then as it relates to your Millstone question, we are restaging and repackaging the entire line. As you know, we have gotten out of the bulk business or are just about out of the bulk business, and so that will be primarily a bagged coffee and K-Cup offering, much more premium packaging. So it is the packaging, but it is also the support that we are going to be providing to that brand going into the next fiscal year that gives us confidence.

Thank you.

Akshay Jagdale, KeyBanc.

Thanks for taking the follow-up. I just wanted to ask on Coffee as well. Have you seen the 2.0 machine? And why are you excited about the 2.0? What do you think it does to the market opportunity in singles? That is the first question.

Akshay, our first -- clearly our teams are very engaged with Green Mountain, and they are already working on formulating the products that will go into that 2.0 machine.

So they talk about brewing a small pot; we are going to participate in that, which we are very pleased about. And then some of the interactive technology and the ability for that machine to only brew licensed cups is obviously very exciting.

I would go back to my prior comment. I think it is going to take some time for that system to come onstream in a significant way.

But for all the reasons I mentioned, we are very, very excited about it. And again the partnership with Green Mountain is better than ever and continues to expand.

This is Mark Belgya. I would just like to go back, Akshay, before -- just to confirm one number that was on an earlier question about the SD&A. It has gone from 8% to 4%, and that is a year-over-year increase.

And again, as I suggested, most of it is driven by the marketing and also the favorable spending in our G&A areas.

Just a follow-up, Mark, on Coffee. You mentioned a little bit about retailer reaction. Can you talk specifically about what retailers are telling you in the coffee aisle? There has been -- obviously it is a dynamic category; a lot has happened, and more recently a lot more is happening with the lawsuit from TreeHouse.

Can you just summarize the reaction you are seeing and maybe comment a little further on what you said before about the shelf space? Looks like you are saying some larger guys are going to reduce the shelf space and it might impact licensed. I am curious why licensed more than nonlicensed. But if you could just talk a little about the reaction from retailers given that you're the category captain in most cases.

Okay, Akshay; it's Mark Smucker again. I don't think, first of all, that it's going to impact licensed more than unlicensed. I don't think that is true. I think clearly the quality and cost advantages that the licensed players enjoy are a benefit to them.

I can't give you specific customers that are talking about this. But as you in your travels are visiting stores, I think you will notice that there is a difference from one grocery store to the next in terms of how much space they have allocated to the K-Cup section.

So, I just think that as there's a lot of brands out there, some of them and some of the specific items may not be there in a year. So I think we just need to wait that out and continue to support our brands and trust that our brands hold weight.

Okay, great. Thank you. I will pass it on.

That concludes our question-and-answer session. I will now turn the conference call back to management to conclude.

I would like to thank everybody for being on the call today. We think that we obviously gave different guidance for the quarter, but feel very strong about where we are going to start the new fiscal year and look forward to answering your questions as the quarter goes on. Thank you very much.

That concludes today's conference call. Ladies and gentlemen, if you wish to access the rebroadcast after this live call you may do so by dialing 888-203-1112 or 719-457-0820 with a passcode of 897-5321.

This concludes our conference call for today. Thank you all for participating and have a nice day. All parties may now disconnect.