TreeHouse Foods Inc (THS) 2006 Q4 法說會逐字稿

Good morning and welcome to the TreeHouse Foods fourth quarter investor relations conference call. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that do not relate solely to historical or current facts, and can generally be identified by the use of such words as may, should, could, expects, seek to, anticipates, plans, believes, estimates, intends, predicts, projects, potential or continue, or the negative of such terms and other comparable terminology. These statements are only predictions. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that may cause the Company or its industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievement expressed or implied by these forward-looking statements. Treehouse's Form 10-K for the period ending December 31, 2006 discusses some of the factors that could contribute to these differences. You are cautioned not to unduly rely on such forward-looking statements, which speak only as of the date made, when evaluating the information presented in this presentation. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in its expectations with regard thereto, or any other change in events, conditions, or circumstances on which any statement is based. This call is being recorded.

At this time I'd like to turn the call over to the CEO of TreeHouse Foods, Mr. Sam K. Reed. Please go ahead sir.

Thank you, [Hal]. Good morning, all, and welcome back to our Treehouse. We have just completed an excellent year and want to share our story of great progress with you. More importantly, we foresee even greater opportunity in the coming year and want to share those prospects with you as well.

As usual, David Vermylen, our President and Chief Operating Officer, and Dennis Riordan, Senior Vice President and Chief Financial Officer, will lead our detailed discussion of past performance, current condition and future plans. First, allow me to summarize the past year and to assess the strategic progress we have made in the last 12 months.

2006 was a year of both reconstruction and expansion of our TreeHouse. Our key strategic and financial goals were all realized as we rebuilt our operating unit, Bay Valley Foods, from the ground up, reversed a two-year decline in profit margins, and established TreeHouse as the market leader in private-label soup.

These achievements generated outstanding operating and financial results. Specifically, operating cash flow, our primary value driver, increased 43% to $109 million. Gross margins on our legacy product categories increased 150 basis points due to a combination of pricing and productivity gains. Revenues surpassed an annualized run rate of $1 billion, as the strategic expansion into canned soup succeeded on all fronts. Finally, we strung together four quarters of steady internal improvement that resulted in an earnings at the high end of our guidance.

Looking ahead, we see -- we foresee even greater promise on the horizon. We at TreeHouse have reconstructed our basic platform, stabilized our operations, and launched our first expansion into a new business. We are confident that there will be much more to come, even as we face difficult market conditions [in the] coming year.

David and Dennis will now provide you with a closer look at 2006 results and our 2007 plans. David?

Thank you, Sam. Good morning, everyone. I'll cover the operating performance for the legacy Bay Valley business, along with soup and infant feeding, and then provide a perspective on 2007.

For the fourth quarter the overall headline is that we doubled our EBITDA, had a solid soup season, and increased our legacy Bay Valley adjusted gross margin by 340 basis points. On legacy Bay Valley, while our fourth-quarter net sales were down 2.4%, all of the decline was in our refrigerated business, principally the co-pack business we have with Dean Foods, and Mocha Mix, which is a refrigerated liquid creamer marketed on the West Coast.

On our legacy pickle and powder business, combined sales were equal to a year ago. We had a very soft month of December after our combined October/November sales were up over 4.5%. That momentum quickly disappeared in December as record warm weather in late November and throughout December really affected the business. For example, our powder sales were down 12% for the month of December, yet powder sales were up close to 1% for the entire quarter. With cold weather returning in January, we have seen a good rebound in powder sales.

Our soup and infant feeding business had a solid quarter, but no doubt the late November/December warm weather also had an effect on soup sales and soup consumption. Early in the fall, the market as measured by IRI was up 5% to 6% in dollars, the market flattened in November, and then dropped almost 5% in December. The return to cold weather in January helped drive the market up over 6% versus a year ago. The continuation of cold weather in February should continue to benefit both soup and powder.

Despite the month of December taking a bite out of our sales momentum, the operating performance of the business was excellent in terms of our key measure, adjusted gross margin; that's gross margin less distribution expense and commission. Legacy Bay Valley's fourth-quarter AGM increased 23% in dollars and 340 basis points to 16.2%. Importantly, all segments showed significant year-over-year gains, especially our powder business, which was well above year-ago and above the year-to-date running rate.

On soup and infant feeding, our AGM hit our plan. While the AGM percent was below what we experienced in the third quarter, this was expected given, one, higher promotion levels during the peak soup season to drive merchandising performance, and two, very high seasonal shipments of low-margin chicken broth, Del Monte, that was part of our purchase agreement.

For the year 2006, we are pleased with our total results. While legacy Bay Valley's net sales were up only 1% versus our goal of 2%, the margin and profit performance of the business was significantly better than last year. This performance took place during a period when we made and integrated an acquisition that increased the size of the business by almost 50% and we changed over the majority of the Bay Valley senior management team. Over the last four months, Bay Valley has brought on new senior vice presidents of retail sales and marketing, operations, IT and a new VP of purchasing.

While Dennis will provide guidance for 2007, I'll provide an overview as to what we see on the horizon. First, we are nearing the end of our soup and infant feeding integration. In a few weeks, our IT systems, supply chain, sales and marketing and customer service will be completely integrated. This will allow us to have a single face to the customer, allow us to begin to leverage our scale, and give us common reporting metrics across the entire business. One benefit will be our ability to fully measure soup and infant feeding customer profitability, which we cannot do today with the timeliness and accuracy we can within legacy Bay Valley.

Second, we will continue our emphasis on improving our adjusted gross margin, with emphasis on both products and customers. Our AGM strategy is very simple; price increases to cover input cost increases, and productivity in AGM customer management to drive overall AGM increases.

Third, like many food companies, we are concerned with and are dealing with incredibly volatile commodity markets brought on by the biofuels phenomenon. This has a specific impact for us on soybean oil and corn sweeteners, key ingredients in our powder business, a good portion of which has cost pass-through agreements.

Fourth, we are more optimistic now than we were six months ago on the retail pickle and powder markets. 12-week trends in both markets show reasonable improvement over the latest 12 months. In addition, I am very confident that our new integrated retail sales and marketing team is bringing both strategic marketing discipline and customer planning and accountability to bear on these categories.

And fifth, with the soup and infant feeding integration behind us and a full Bay Valley management team in place, we will be able to make major progress on key strategic initiatives, including our supply -- pickle supply chain and global sourcing, customer multi-category strategic planning, and legacy Bay Valley innovation.

I will now turn it over to Dennis.

Thank you, David. I'll now cover the fourth-quarter results, and headlines in the quarter are sales were lighter than anticipated; however, margins improved nicely. Also, we had two unusual items in the quarter -- a gain from the curtailment of certain post-retirement medical plans, and a write-down of a branded trademark to reflect current value. Lastly, our diluted share count increased in the quarter, affecting both the quarterly and annual EPS calculations.

Now I will walk you through the P&L to describe the results of our fourth quarter. First, net sales were 282.9 million in the quarter, which were up substantially from last year due to the addition of the soup and infant feeding business.

Gross margins continued our full-year trend of margin improvement, making four straight quarters of year-over-year improvement. Total gross margins in the quarter improved to 20.3% from 19% last year. As David indicated, all of the product categories showed improvement over last year, as pricing rationalization of low-margin sales and cost controls all contributed to the improvement.

Selling and distribution expense increased from 15.9 million in 2005 to 21.8 million in 2006, due to the increase in sales resulting from the soup and infant feeding acquisition. As a percent of sales, selling expenses decreased to 7.7% of net sales in 2006, from 8.6% last year, due to lower fuel costs and improved efficiencies in our legacy business.

G&A costs increased by 2.6 million versus last year. The increase is due to the additional expenses associated with the new soup and infant feeding business. As a percent of sales, G&A improved to 5.2% in the quarter, compared to 6.6% last year. Please note that the G&A expense includes 4.8 million of stock option expense in the fourth quarters of both 2006 and 2005.

Other operating income expense for the quarter was income of 21.1 million in 2006, compared to expense of 14.5 million in 2005. The items affecting comparability of each year are as follows.

For 2006, we had $29.4 million gain associated with the transfer of certain post-retirement medical benefit obligations from a company-administered plan to a multi-employer union-sponsored plan. Although the benefits to employees covered under the plan remain substantially the same, these benefits will be funded as the benefits are actually paid. This eliminates the need to reflect the unfunded benefit obligations on our balance sheet and resulted in the non-cash gain in the quarter.

We also add had 8.2 million of charges to write-down the value of our Mocha Mix trademark to reflect the estimated fair value of that mark. In 2005, we had a $9.9 million charge associated with the closure of the Company's La Junta, Colorado pickle manufacturing plant, and a $4.6 million charge to write down certain trademarks.

Reported operating income for the quarter was 40.9 million, compared to a loss of 8 million last year. Adjusting EBITDA after considering the curtailment gain and trademark write down comes to 31.5 million in 2006. This compares to an adjusted EBITDA of 15.7 million last year. The over 100% increase in quarter-over-quarter adjusted EBITDA was due to both the growth in the business from the soup and infant feeding acquisition, and the strong improvement in margins compared to last year.

Reported income from continuing operations was 22.4 million, or $0.70 per fully diluted share. After tax-affecting the unusual items, the earnings per share for the quarter comes to $0.30 per share. The EPS of $0.30 for the quarter is based on fully diluted shares outstanding of 31.9 million, compared to about 31.2 million fully diluted shares in the prior three quarters. The increase in shares in the fully diluted calculation is due to an increase in in-the-money but unvested restricted stock, and had a negative effect of about $0.01 compared to our EPS calculations in the prior three quarters.

For the full year 2006, net sales came in at 939.4 million, a 32.7% increase over 2005 due to the addition of the soup and infant feeding business. Excluding soup and infant feeding, sales would have increased 1.1%. Pickles increased 1.9% and powder increased 1.4% over last year. We did have sales decreases in our other categories, primarily in lower-margin co-pack revenues.

Full year gross margins finished at 21.4% compared to 20.9% last year, despite adding the soup and infant feeding business that has a lower gross margin than our other product categories. Our legacy product categories of pickle, powder and other products had improved AGM of 150 basis points to 16.4%.

Selling, general and administrative expenses increased from 95.9 million in 2005 to 132.8 million in 2006, due to the addition of the soup and infant feeding business and a full year of stand-alone operating costs, including public company-related expenses and Sarbanes-Oxley compliance costs. The first six months of 2005 reflected only the pro forma expenses of operating as a division of Dean Foods, and did not include these types of public company expenses.

Interest expense in 2006 rose significantly to $12.3 million, compared to only 1.2 million in 2005, as we took on debt to purchase the soup and infant feeding business. Last year's interest expense was primarily from capitalized leases.

The full year tax -- effective tax rate was 37.9% in 2006, which was consistent with each of our quarters this year. Last year we had an unusually high effective tax rate of 55.3% because the [spending-related] costs of 9.7 million were not deductible for tax purposes.

Continuing earnings per diluted share are reported as $1.42, compared to $0.39 last year. Excluding the unusual items and other operating expense that I discussed earlier, adjusted earnings per share would have been $1.06 this year. This EPS is calculated based on fully diluted shares outstanding of 31,396,000. These shares outstanding represent the average for the year, including the additional diluted shares in the fourth quarter. The $1.06 is in line with the guidance we gave on last quarter's call, even considering the reduction in adjusted EPS caused by the higher share count.

I will now cover our outlook for 2007. We expect that 2007 will continue to be a challenging year due to the higher input costs we have been seeing recently. Overall we expect net sales to grow between 12 and 13%, due primarily to the addition of the soup and infant feeding business.

We successfully managed our internal cost structures in 2006 and were able to achieve and maintain strategic price increases. We expect to continue our growth in margins, but see the first half of the year as particularly challenging, as the shift in corn products to fuel-related products has driven up many of our key input costs.

We will also have a full year of the lower-margin soup and infant feeding products in our sales mix, which will have a negative effect on our total margins. This will be most evident in the first quarter and partially in the second quarter, as soup and infant feeding will not be in the prior-year comparative figures.

On a full-year basis, however, we do plan to increase margins through pricing and operating efficiencies, and we'll continue to improve our operating expenses as a percent of total revenue. As a result, we expect to see earnings per share on fully diluted basis finish between $1.29 and $1.34 in 2007. This estimate is based on fully diluted shares outstanding of 31,900,000 shares, and reflects about a $0.02 reduction compared to the 2006 EPS due to using the higher shares in our 2007 estimate.

Now let me cover a few items that are inherent in our estimate. First, interest expense will be higher on a year-over-year basis in 2007 due to the full-year impact of holding debt associated with the soup and infant feeding acquisition. We expect interest expense to be about 13 million next year. Our effective tax rate should stay in the range of 39% in 2007.

In terms of investments, we are planning to increase our capital spending levels in 2007 to roughly 30 million. The large increase in spending is related to productivity improvements in our soup and infant feeding business that we delayed in 2006 in order to concentrate on business integration activities. Our overall capital spending emphasis will continue to be on cost savings and productivity improvements.

Non-cash items for next year include depreciation and amortization, which will increase from 24.7 million to 29 million, due to a full year of soup and infant feeding depreciation, and the increase in capital spending. Stock option expense will decrease from 18.8 million to about 16 million, with the decrease occurring in the second half of the year based on vesting schedules.

In conclusion, we are confident in our abilities to manage through the normal nuances of business issues, but are a bit guarded regarding the effect that the ethanol market will have on corn-related food products in 2007. We believe our estimates reflect a realistic view of our prospects.

Now I will turn it back to Sam.

Thanks, Dennis. Before we open the phone lines for your Q&A, I'll summarize our strategic outlook and plans for the coming year.

Our agenda at TreeHouse is one of performance, capability and expansion. Regarding performance, we will increase operating earnings in the range of 25%. We will leverage modest revenue growth with improved margins and SG&A economies of scale. Operating cash flow, EBITDA, the key determinant of TreeHouse shareholder value, will continue to show steady improvement as this leverage is fully realized. Growth of TreeHouse earnings should outperform food -- the food industry average by a factor of more than 2 to 1.

Regarding capability, we will improve both our go-to-market strategies and supply chain operation. Productivity, pricing and customer mix should neutralize cost inflation. We will sell more product to more customers and at higher margins.

Regarding expansion, we will pursue every strategic opportunity to broaden our private-label and food service portfolio. Our expansion into canned soup in a complex carve-out transaction once again demonstrated our acquisition and integration skills. We have the available capital, management resources and deal-making experience to pursue strategically attractive openings, no matter their size or complexity. We cannot comment on whom, what or when, but you can all be sure that opportunity will knock on the TreeHouse door, and that we will answer.

Hal, you may now open the Q&A session.

(OPERATOR INSTRUCTIONS). John McMillin, Prudential Equity Group.

Congratulations on a good year, even if it was weather impacted late in the quarter. If you want to just build out stock option expense and go out to '08, because a lot of us kind of do two-year estimates, would you expect that 16 million of option expense to drop again in '08, and by how much?

I don't have a calculation in detail, John. But as you know from the registration statement, some of the options are vested on a three-year schedule that started back in 2005. So you can expect some more decrease, but I'm not prepared to talk about what that amount of decrease would be.

Sam, I know you're not going to give a specific which deals you're working on and so forth, but could you just talk or give us some idea about the pipeline of deals you're looking at, and to the extent is it higher than normal, and just what we might expect in terms of that this year?

As we look at the coming year, we see early indications that there is going to be a steady flow of small to medium-size properties. And in fact, there are, I believe, right now a half-dozen where there are clear indications that they will come to market sometime during the year. And all six of those in one way or another are a potential fit with our potential existing business.

When I look back over the past several years, what we see is that there has been an improvement off of kind of the low in 2005 of food deals. 2006 showed a nice pickup, and the early indications here are that the auction market for the small and medium-size properties should be a good one in the coming year.

Having said that, I'll go back and remind all of you that our primary focus is on propositions that we develop internally. And while we will participate in the public auction market fully, our real focus is on identifying those one-off situations that make for both an excellent strategic fit, as well as great financial and operational opportunity.

Andrew Lazar, Lehman Brothers.

A couple of quick things. One, in terms of your sales outlook for '07, in terms of the organic growth metric, is that -- what does that basically infer around the organic growth side? Do you have 2%, kind of in line with what you hoped to do or, in the case of '07, a little bit lower than that?

I think the 2% is about right. That's about right, John. I mean Andrew; sorry.

No problem. I can only hope to be John someday. That's a good thing, by the way. In terms of pricing, you had mentioned in the prepared remarks that you were able to take some strategic pricing during the course of '06, and it does seem like you were able to kind of manage through that on the volume side as well. It seems like [you're] committed, obviously, to making sure you cover what costs you can through additional pricing if you need to. Any sense -- on kind of going back to the well, if you will -- in some other businesses, might it be harder this time around? Might the volume implications be maybe more severe? And are you planning on doing that, do you think, across the broadness of your product line?

The biggest area of input cost increases is really in -- it's really going to affect the powder business. And in both -- and again, our powder business, we have -- it's a large business. A large component of it is retail; large component is ingredient. And on the ingredient portion, a significant percent of that, we have pass-through cost agreements with our customer base. And what we have seen on the retail side is that this year the customer base is more accepting, receptive to increases because of the rapid escalation in corn and soybean costs. So, they're not surprised by the increases.

In terms of our timing on increases, our timing is -- as we move through our price increases, they'll really start taking hold late in the first quarter and through the second quarter, because on the powder business you really -- on the retail side, you really want to be -- you don't want to be taking a price increase in your peak season because of the merchandising programming commitments that you've made with your retailers.

Got it. And then, the very last thing is -- because we don't have quite as much history around the margin structure of the soup business, I'm trying to get a sense of what the opportunity is like there, sort of over the next couple of years, from a margin standpoint. Is sort of 13 to 14% sort of about right where that business has been historically and where it should be? Or as part of your entity and your infrastructure, are there some clear opportunities as you go forward to raise that? And is there a benchmark of where you're going?

The 13 to 14 range is where we have been, and that's what we had originally talked about early on. As you noted, we're going to be focused on that for next year. We're looking at increases in our capital spending in that area for both cost improvement. Some of those projects will not be in full fruition next year, but we view that as an opportunity. But the current run rate, using that 13 to 14 range, I think, is appropriate right now.

I assume those projects on the productivity side are, I guess, relative to other things, relatively quick payback, given they're more focused on the productivity side?

They are relatively quicker. They're big projects, though. So they will take a little time to complete.

The other area, on soup and infant feeding, is as we make the IT conversion and have the common reporting metrics, we are quite confident there will be an opportunity in looking at our customer profitability and where we focus our efforts, as we've done with Bay Valley.

Jonathan Feeney, Wachovia.

This is John Baumgartner on behalf of John Feeney. I just have two quick questions for you related to procurement. First, with the recent freezing weather throughout the Midwest and, I guess, the West Coast and California, too, over the last month or so, do you see any impact on the pickle or cucumber crop in 2007? Secondly, regarding soybeans and soybean oil, with prices really running here, can you just walk through any hedging or forward arrangements you may have in place for 2007?

In terms of the pickle crop, the seed really doesn't go into the ground -- is not yet in the ground, and it really starts down in Florida and Georgia in about four to six weeks. So at this point, the weather that we are seeing really doesn't appear to have any effect on pickles. And in terms of soybean, we are covered for about a third of the year at this point in time. But you're right; soybeans is quite volatile.

Robert Moskow, Credit Suisse.

Congratulations. David Vermylen, I think, in your comments you said that had seen some improvement over the past 12 weeks in pickle and non-dairy creamer. I guess you were talking about the categories. Why are you seeing that at the retail level or the food service level? What's driving it? Because then you also said, in December, that the creamer sales fell 12%.

The creamer sales fell 12% for our total creamer business. And again, that really is -- more of the issue there was on the industrial side, where you're really getting into people looking -- going through that very warm weather, backing down on their inventories.

But in terms of the retail trends specifically -- and this is as measured by IRI, so it, obviously, excludes Wal-Mart -- but what we saw on pickles, where the dollar declined for 52 weeks was 2.5%, the decline the last 12 weeks was about 0.5%, and on non-dairy creamer, the market in dollars increased about 3.5% in the fourth quarter. And a lot of that, again, was October/November, and versus a 12-month rate of just over 1%. So as I said, we saw some reasonable improvement; certainly not robust growth rates, but quite a bit better than if you were to look at, say, the first quarter of last year. So, we are encouraged, but we still have a long way to go.

And is private-label holding share during those trends, or --?

For the 12 weeks, I believe, private-label held its dollar share in pickles. And I can't exactly recall in powder, but I would say we were very close in terms of private-label share year-over-year.

(OPERATOR INSTRUCTIONS). Ken Goldman, Bear Stearns.

A question about the soup category in December. In the past, as we all know, there has been some irrational, perhaps, pricing activity, extra promotion by some of the branded leaders. Given the warm weather in December, is that something you saw? How would you describe the level of pricing and promotion? And if it was higher than you thought in terms of promotion, what was your reaction to it?

I don't have the December data, because the market can't react to warm weather in terms of pricing with that kind of response. But for the quarter, the total soup market in terms of unit pricing was up about 1.8% for the entire soup -- wet soup category, and private-label was up about 2%, so that the price [gaps] of private-label versus the market. Condensed pricing was up year-over-year higher than RTS. But I think the relationships between branded and private-label for the quarter were relatively smooth.

Sam, a general question. You've been with TreeHouse and, before that, Dean for about two years now, I guess. And when you first started, private-label store brands as a whole, not just your category, you were obviously very bullish on. I'm curious if you're still as bullish or maybe even more bullish than you were when you started, and what you've -- maybe at the end of the year this is a good time to ask this question -- what specific lessons maybe you have learned in the last two years that you didn't know coming in, and that you plan to apply to TreeHouse going forward.

I think that the key issues are that from a strategic perspective, TreeHouse is in exactly the right place. We said from the very beginning that there would be greater growth in both private-label and food service than in branded foods or at home consumption. And we have a business that is strategically aligned to take full advantage of those trends. And we're seeing that in manifest ways.

I think that in the year to -- in the year in front of us, the big change you'll see in our business is not one of strategic consequence, but in terms of its execution. And we have, I think, as David may have indicated, completed our operating team, and have a full contingent of skilled and determined managers in all functions for the first time since we've run the business. And I think that we will see the execution of our strategies markedly improve in terms of its consistency and its result.

With regard to kind of the lessons learned, I think there are two that are most significant. The first is that there is a much wider distribution of customer margins and the degree to which our business has penetrated different channels of distribution. When one has a branded proposition, what you find is that there is widespread distribution, and that margins, with the exception of the amount of marketing monies that it takes to move through an account or in a channel, tend to be quite narrowly dispersed. And we have here a situation where there is a wide distribution of margins, and there are large-scale -- large opportunities because of gaps in distribution. And our organization is focused on really filling those.

And I think, secondly, what we have found is that you can focus a private-label and food service organization more on improvement of margins and getting leverage than simply on topline growth. And one of the manifestations of that here is that of the 200 salaried employees that are in one bonus plan or another, all 200 of us -- from the shift supervisor of a plant, an individual sales manager, up to the CEO -- are all incented on adjusted gross margin improvements. And it creates a sense of unity in the organization that, I think, will have manifest consequences.

Pablo Zuanic, J.P. Morgan.

A couple of questions. (indiscernible) the scale of the potential acquisition that you can make. Obviously, we know what your (indiscernible) available are. But, from your perspective, how far can you leverage the balance sheet? Should we (indiscernible) net debt (indiscernible) capital targets? Just give us a sense of how you judge that, how much space you have before you have to issue equity.

As we said before, one of our objectives and one of the ways we priced out our current debt agreements was to maintain an investment-grade level. And in our world, that says a leverage ratio of roughly 3.5. And we have the capability to go to 4 times leverage within the current agreements. I think that if the acquisition was right and the deal asked for it, and based on the liquidity in the marketplaces today, we would not have a problem moving that number up, based on all my experiences with our banks. But our current goal is to maintain that investment-grade rating. But as I said, clearly, we've got an opportunity to raise that under the right circumstances.

And if the opportunity is attractive enough would you issue equity also, or you are going to try to prevent that as much as you can?

We're not necessarily preventing it as much as we can, but at the moment that is not one of our objectives. But again, depending on what the circumstances are, we certainly have that as an opportunity. And depending on the circumstance with the acquisition, especially if it's a company that's private and might desire a stock-based transaction, we do have that capability and we wouldn't walk just because of possibly using stock. But as I said, it's not the stated objective.

Thank you. Sam, just when I think of food service, what percentage of sales of TreeHouse these days is food service, and how would you see that ratio evolving over time?

As a general matter, I think, we've got 50% or more in grocery private-label. And then, the combination of kind of classic food service and industrial, I believe, is around 30% of the total. And I'll make a few comments about the aggregate, and then ask David to talk about some of the particulars.

One of our strategic objectives in the acquisitions is to find businesses that have food service as a primary business, as opposed to those where it is secondary. And we will -- we have a capability in-house now to look over a broader range of both product categories and channels of distribution for prospective deals. And one of the criteria that we will keep in mind is to establish a larger presence in food service, rather than that being a secondary factor in the deal. David, comments about the sector?

We are very interested in the sector. Right now it's, I think, somewhere between 25 and 30% of our business. And we are very attracted to acquisitions that have both a retail and a food service component. And we think that the platform that we have gives us an advantage over many others who are either singularly focused on retail or singularly focused on food service. And again, we continue to see growth in food away from home. Different sectors are growing faster than others. The mid-priced quick restaurant area is struggling a bit right now. But the higher end, as well as the fast food, is doing quite well, and I think we're very well positioned for both.

[So are you] trying to say that in the case of food service, because of your smaller scale, (indiscernible) dealing with the [Syscos] of the world -- you have little business with the QSRs on a direct basis, or even in terms of small mom-and-pop shops (indiscernible) type of business, that you will have to depend mostly on the Sysco-type of companies? Is that a fresh assessment?

We have a large business with the major distributors such as Sysco. But starting about a year and a half to two years ago, our food service organization really started putting a great focus on the national account business, where Bay Valley was underdeveloped. And we're having some good successes there.

That's great. Just one last one, if I may. In the case of soup, when I think of soup, I know that condensed (indiscernible) of soup -- very different competitive dynamics. The way I think of the Campbell strategy these days, they are taking quite a bit of price in condensed, which is good for you guys, and the (indiscernible) have seemed to be more aggressive, and (indiscernible) has always been more promotional. First, what's your mix in terms of condensed and (indiscernible) soup? And am I right in describing the market that way, that (indiscernible) remains tough from a price standpoint, and condensed is a little more favorable?

Yes. The condensed market is -- there are more pricing opportunities. I think I mentioned that as we looked at pricing for the quarter, that condensed pricing was up more than ready-to-serve. The good thing is that the condensed market, which a few years ago was really struggling, is doing quite well, led by a lot of the very good initiatives from Campbells, in terms of both advertising and innovation. Our business is more -- relative to the market in total, we are more developed in the condensed segment than we are in RTS.

Can you give us a mix, if it's 75% condensed, 25% ready-to-serve (indiscernible)?

We don't break out and report our data that way, with that specificity.

It appears we have no further questions at this time. Mr. Reed, I'd like to turn it back to you for any additional or closing remarks.

Thanks again, everyone. We very much appreciate your interest in TreeHouse and look forward to quarter by quarter describing to you the continued strategic and financial progress of the Company.

As I indicated, there will be three consistent themes -- that of performance, where you can expect that we will outperform the market by a factor of more than 2 to 1; secondly, capability, where we will behind the scenes build our strategic prowess and the operation of our supply chain; and lastly, with regard to expansion, while we cannot be specific, we are fully prepared and capable of adding large-scale strategic businesses to our core, much as we have done in the past year, and expected to do so in the coming year.

Thanks again, and we'll talk to you at the end of the first quarter.

Ladies and gentlemen, that does conclude today's call. Thank you for your participation. You may now disconnect.