TreeHouse Foods Inc (THS) 2009 Q1 法說會逐字稿

Good afternoon and welcome to the TreeHouse Foods Investor Relations conference call for the first quarter of 2009. 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 the words such as guidance, may, should, could, expects, speaks 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 Form 10-K for the period ending December 31, 2008 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 during this conference call. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement 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 would like to turn the conference over to Chairman and Chief Executive Officer of TreeHouse Foods, Mr. Sam K. Reed. Please go ahead sir.

Thank you Rebecca. Good afternoon everyone and welcome back to our TreeHouse. David Vermylen, Dennis Riordan, and I are pleased to invite you once again into our home for an early look at 2009 results to date and our prospects for the coming year.

To borrow a sports metaphor in the height of playoff season, TreeHouse scored a triple double in the first quarter just ended. Earnings per share increased more than 20% and well surpassed market expectations. Margins widened by 70 basis points, driven by pricing, portfolio strategy, productivity gains, and procurement savings.

Private label grocery revenue led by strategic growth categories close to double digit gains in both the United States and Canadian markets when denominated in local currency. By every key measure, our Q1 was indeed a triple double, marked not only by substantial improvement but also by progress across a broad front.

Additionally, our latest acquisitions, premium salsa, and pourable salad dressing generated a combined 25% sales growth in a cross border partnership of Bay Valley Foods and E.D. Smith. Although hampered by difficult market conditions, our Food Away From Home and industrial and export business units maintained their base, lost no customers, and adjusted operations to defend margins.

And finally, after a full year of rallying from behind in 2008, pricing finally caught up with input costs and contributed an incremental $32 million in revenues when compared to Q1 of last year.

Looking forward, we expect another excellent year at TreeHouse. As David and Dennis will delineate in detail, we have good reason to believe that results will exceed those first forecast in February. Q1 represents a fast start that should continue through the whole of 2009. As usual, we have tempered this outlook with a careful assessment of potential risks especially price rollbacks, national brand discounting, softness in the food service and industrial sectors, and unhedged open commitments for packaging and energy inputs. Even as we weigh these risks, we are optimistic about the year ahead. As we've demonstrated over the past three years, TreeHouse can perform consistently at the highest level. In this early juncture in the new year we are both hopeful and determined to put together another winning campaign. Early indications are that our TreeHouse team will perform well and fare better than originally thought. While it will be another long year and not one without surprises, we are off to a fast start.

David?

Thank you Sam and good afternoon everyone. As usual I will cover the top line and overall performance of the business and Dennis will drill down into the financial results.

Now that about 12% of our business is generated in Canada due to our late 2007 acquisition of E.D. Smith, I will define revenue in terms of local currency so that I'm able to provide an apples to apples comparison. Dennis will provide the appropriate currency impact that is reflected in our financial statement.

From an overall perspective, I'll characterize the first quarter as follows -- good revenue performance despite real challenges faced by the parts of our business that are dependent on the Food Away From Home market. Our retail business which makes up nearly 65% of our revenue did very well. Very good performance in terms of direct operating income margin as our mid to late '08 pricing fully rolled through, an excellent performance in terms of generating new business that will affect the second half of the year.

Let me start with revenue. Total revenue in local currency was up 2.2% with very strong performance in our retail business, offset by declines in our businesses that our influenced by Food Away From Home consumption.

North American retail revenue was up almost 12% in local currencies despite continued declines in our pickle and our branded infant feeding businesses. Excluding pickles and infant feeding, North American retail sales were up 20% with excellent growth across the portfolio. Any category that started with an "S" did very well. Salad dressing and salsa both had double digit unit and revenue growth. Our sauce business did well and although others reported soft soup sales, we had modest growth in units despite Easter being in mid April versus late March last year.

In terms of the Easter effect as measured by Nielsen, private label soup sales were up 15% in units and 25% in dollars for the four weeks ending April 18th. That period coincides with Easter. For the 12 week period which smoothes out the Easter timing, total private label soup volume was up 3.9% and dollars, 15.1%.

Our North American retail direct operating margin performance was strong, up 330 basis points versus a year ago. The keys to our year over margin improvement were our 2008 pricing actions finally offsetting higher manufacturing costs plus productivity and mix improvements. Our manufacturing costs were well above last year as our input costs reflect key commodity coverage that we took late last year before prices softened. That coverage is now rolling off.

In terms of market data, we continue to show good private label share gains in our categories. There are no real callouts in terms of price gaps but we do expect an increase in branded merchandising efforts as we enter the summer months but our customers are enjoying the benefits of private label growth and it is in their best interest to continue that growth.

Our Food Away From Home segment's top line was challenged by industry softness in Away From Home eating and revenue was down over 4%. However, this compares favorably to an industry that is down close to 10% and I'm very encouraged by new business prospects that I will touch on later.

Our industrial and export segment also faced a very challenging top line with revenue down 18%. The largest part of this segment is our sale of bulk creamer to other food manufacturers whose primary customers are in the Food Away From Home industry. We haven't lost any customers. It's primarily a Food Away From Home consumption and inventory, customer inventory tightening problem.

In addition, the strength in dollar did negatively affect some of our exports to Mexico. Also, our low margin co-pack business, which is also part of this segment, was well below a year ago.

While we don't break out individual product segments, I am very pleased with the progress we have made on pickles which still account for about 20% of sales. Last year we closed a plant and exited a lot of unprofitable retail business. We analyzed the business by production plant, by product type, and by customer. While our units were down 17% and revenue down 11% versus the first quarter of '08, direct operating income was up 16% with margins up 360 basis points. With a better understanding of the business, we have reengaged our selling efforts by targeting customers that can play a strategic role in terms of crop balancing or line efficiencies. These selling efforts should start to pay off for us in the second half of the year. Over the next 12 months we will continue to fine tune the pickle business.

As I mentioned on the last call, I was really looking forward to the organization being able to convert all the time spent last year on fighting input costs in getting pricing to time spent on new business development and attacking the center of the P&L in terms of driving out costs. I'm very pleased with the progress we are making on both fronts.

In terms of new business, we have secured more new analyzed business for North American retail and Food Away From Home in the first four months of this year than we achieved all of last year. Revenue from these wins begins in the second quarter with most kicking in late in the third quarter and we have many more opportunities we are working on that could still affect 2009 and certainly 2010.

Second, it is a pleasure to watch our procurement team shift from delivering daily bad news on input costs to working across the organization on major packaging and raw material cost savings projects. Third, we are able to spend far more time with our customers and in our plants, to both build the business and improve operating performance. That was tough to do last year as we successfully fought input cost increases.

I'm very optimistic about the rest of the year. We are well covered in terms of input costs for the remainder of the year which will allow us to stay focused on our two key operating objectives, top line and physical volume growth and attacking the center of the P&L.

Finally, let me comment on price rollbacks due to lower input costs as I know it's always of interest to investors. So far our price rollbacks have been modest and primarily focused on our industrial creamer business where we have cost pass through contracts. As those costs change so will the price but not at the expense of profitability.

On the retail side, some modest adjustments have been made but we are pleased with what we are seeing. However, we are in a business that periodically faces bids thus we are always in a very competitive environment.

I'll now turn it over to Dennis.

Thank you David. Since David covered our revenue and local currency, I'll focus on other key aspects of our operating results including reported revenues, gross margin improvement, lower operating expenses, and a higher effective tax rate.

Reported revenue in the quarter showed a 1.5% decrease from last year. However, this decrease was due primarily to foreign currency changes. As David mentioned, we currently have approximately 12% of our revenues generated in Canada. During the first quarter of 2008, the average exchange rate for the Canadian dollar to the U.S. dollar was nearly one for one. In 2009 however, the average Canadian exchange rate was approximately $0.80 to the U.S. dollar. This change in rates means our Canadian denominated sales will experience a 20% drop when comparing the translated sales in 2009 versus 2008. Had the total sales been measured in local currency to exclude the translation difference, our consolidated sales would have increased by 2.2%. The increase in local currency revenue was driven by strong retail grocery sales offset by the weakness in the Food Away From Home market.

With regard to gross margins, we managed to buck the trend of many of our peer companies in the packaged foods industry and show year over year improvements to our overall gross margins. We did this despite a very challenging environment especially in the Food Away From Home segment. Our retail direct operating margin improved from 11.6% to 14.9% as we were able to offset average unit cost increases of about 11% with pricing and productivity improvements. This was especially evident in our retail pickle business where unit volumes were off 27% but direct operating income improved by over 30%.

The rationalization program we initiated last year with the closing of our Portland, Oregon pickle plant is now in full effect. In fact, the first quarter of 2009 was our highest quarterly pickle margin since the Company went public in 2005. Overall we saw margin improvement in our key retail product categories of soup, salsa, and salad dressings.

In the Food Away From Home and bulk and industrial segments, the margins were challenged due to increased unit costs and not enough pricing to fully offset these increases. In addition, with consumer eating habits shifting towards at home meals, unit sales decreased and that caused additional margin pressures.

The one area of Food Away From Home that has held up well was our pickle business with National Quick Serve Restaurant chains. Despite the revenue pressures, we finished the quarter with direct operating income of 10.5% Food Away From Home compared to 10.7% last year.

Direct operating income in bulk and the industrial segment decreased from 13.7% to 11.5% of sales as the combination of lower sales to industrial customers and a drop in cold-pack volume led to unfavorable manufacturing costs.

Total selling, distribution, general, and administrative expenses in the quarter were $41.6 million compared to $43.9 million last year, a decrease of 5.4%. Excluding currency effects, expenses would have been down 2%. The decrease in spending is primarily due to lower freight costs on shipments to customers. Our G&A costs increased slightly as we made investments in new staff combined with normal annual payroll increases.

Other operating expenses decreased significantly from last year because in 2008 we recorded the initial costs related to the closure of the Portland pickle plant. In 2009 we had only minor costs in the quarter associated with ongoing maintenance at that closed facility.

Interest expense in the quarter totaled $4.5 million compared to $7.7 million last year. The large decrease was due to a combination of lower average debt outstanding and lower interest rates.

Our effective tax rate for the quarter was 37% compared to 26.3% last year. Last year's rate was very low due to the reduced U.S. based income as a result of the plant closure combined with a significant deduction for intercompany interest expense. In 2009 we had much higher U.S. based income and the amount of the deductible interest expense was reduced by a weaker Canadian dollar. We now expect our full year tax rates in 2009 to be in the range of 36% to 37%.

In total, our earnings for the quarter were $12.7 million compared to $2.1 million last year. This represents fully diluted earnings of $0.39 per share in 2009 compared to $0.07 per share in the first quarter last year. After considering the one time items associated with the plant shutdown costs and intercompany loan revaluations in 2009 and 2008, our adjusted earnings per share increased by 20.6% to $0.41 a share in 2009 compared to $0.34 a share in 2008.

So to recap the first quarter, our revenue growth was good after taking into account the decreases due to pickle rationalization and the 20% reduction in average Canadian exchange rates compared to last year. We saw the benefits of our focus on improving margins and a continued diligence in controlling operating costs. We experienced higher income tax rates but this was caused by increased U.S. based income and the negative effect of the Canadian exchange rates. All in all we overcame these challenges and managed to improve adjusted earnings per share by over 20%.

In regard to the outlook for the year, we are very pleased that we have gotten off to such a fine start. We have seen very good results in our retail grocery business and we believe our productivity and sales initiatives will continue to drive margin improvements. As such, we are raising our full year guidance from our original estimate of $1.80 to $1.85 a share to $1.82 to $1.87 per share despite our expectation of a higher than planned tax rate for the year.

Sam, I'll now turn it back to you.

Thanks Dennis. Before we open the call to your questions and comments I'd like to comment on three underlying aspects of our strategic agenda for TreeHouse. Although not as exhilarating as a triple double, they are the underpinnings that make such quarterly performances possible.

First, investments in infrastructure, while it is short term growth and performance measures that dominate the financial market's interest in TreeHouse, it is our continued investment in our marketing and operational capabilities that drives shareholder value in the long term. We must continuously advance our strategic thinking, invest in innovation and productivity, as well as upgrade systems in management in order to create a competitive advantage for TreeHouse both as an operating company and as an investment worthy of your capital.

To this end, we have made the following significant investments in infrastructure that will show benefits in early 2009 -- in salad dressing, expansion of one legacy E.D. Smith facility and closure of another thereby improving our access to our fastest growing market, pourable dressings and marinades in the U.S. market.

In nondairy creamer, reopening of our New Hampton, Iowa plant thus restoring 70 million pounds of highly efficient, low cost manufacturing capacity.

Soup and gravy, conversion of the Pittsburgh power generation facility to cheaper, more efficient fuel thereby reducing input costs while addressing environmental issues.

And lastly, in logistics, commissioning our Midwest distribution center which will consolidate products from eight plants thus extending our one order, one invoice, one truckload promise to the ranks of our LTL, Less Than Truckload customers.

While none of these projects will command headlines, all will dictate the back story that drives bottom line profits and top line growth. Our capital expenditure program of $30 million plus is truly focused on furthering our go to market and supply chain strategies.

Second, acquisition prospects in a quiet M&A market -- despite the pall cast over the M&A sector, we continue to see a steady stream of acquisition prospects. These are mostly opportunities of our own making, largely due to our strategic presence rather than to investment bankers' deal acumen. Note that I've characterized the flow as neither a torrent nor a trickle but a steady stream.

At this juncture in the recession, most candidates are either depressed operations or strategic orphans. Some are private equity holdings in search of an exit. Many face working capital and other financing needs when none is available. Although the opportunities are more limited I will reiterate our plan to expand via large scale acquisition in the near future. We have the capital, resources and wherewithal necessary to expand the TreeHouse portfolio into attractive adjacent product categories. Our focus will remain primarily strategic rather than principally financial in nature. Its critical elements are strategic fit with our go to market plans, future growth prospects within the product category, and supply chain synergies. As our E.D. Smith and San Antonio Farms experiences have demonstrated, this alignment of strategic opportunity and purpose is the surest route to superior financial performance. We will keep you posted as events unfold.

Third, our TreeHouse provides a room with a strategic view. This earnings season, the packaged foods industry is atwitter with blogs of national brand woes, trade down phenomena, consumer flight to value meals whether consumed at home or brown bagged, and demands for national brand price rollbacks. Monthly scan date have become our Delphic oracle as all of the food industry seek an omen portending economic recovery or at the very least, a return to grocery prosperity.

Like everyone else, we at TreeHouse are searching for the small, telltale signs of immediate tactical advantage or imminent short term danger. However, unlike many, we have also maintained a strategic perspective of long term trends on the industry horizon. Perhaps our vision is aided by a lofty perch in our TreeHouse far above those at ground level.

We see fundamental change in consumer and customer behavior that while it may have been brought on by recent economic recession and consumer uncertainty, will direct the course of our industry well beyond economic recovery and well into the next decade. While we may see trading down as a temporary phenomena, we know that trading smart is here to stay.

These changes and their implications for our industry in general and TreeHouse specifically include the following five developments -- consumers will demand not only value from private label but also quality and selection. Grocers will primarily compete through proprietary customer brands rather than through heavily promoted national brands. Private label customers will demand greater strategic insight, product innovation, customer service, and logistics economies of scale from their suppliers. Private label manufacturer will both consolidate and evolve away from a purely cost based competition as customer brands achieve parody with national brands in terms of imagery, quality, selection, convenience, and price value.

And lastly, growth in the private label sector will be driven by industry consolidation rather than the development of new markets while value will be determined by strategic advantage rather than financial engineering. Although much of this strategic perspective dates back to the founding of TreeHouse, we now believe that these fundamentals deserve a second look in these uncertain and difficult times. In each instance we see these developments as both supportive of our strategy and long lasting in nature. TreeHouse will be a primary beneficiary of the confluence of these trends. While these factors have accelerated due to these hard and uncertain times, they are inexorable forces that will continue to drive change in our industry for many years to come. Upon strategic reflection our conclusion is that not only are the times ripe for TreeHouse but also that TreeHouse is ripe for the times.

Rebecca, we'll now open the call for Q&A.

Certainly. Ladies and gentlemen, the question and answer session will be conducted electronically. (OPERATOR INSTRUCTIONS).

And your first question will come from Ken Goldman with JP Morgan.

Good afternoon guys.

Hi Ken.

Hi Ken.

I had a question on second quarter. I'm looking at last year. You have some fairly easy comps. It's possible that Easter could benefit you in that quarter. You're lapping infant feeding and the things you've done there. Is there any reason to think that the second quarter won't be a particularly strong one as we look at the last nine months of the year?

We started off well Ken and we aren't giving second quarter guidance. I just want to remind you that as move out of the soup and powder season which tends to be a higher margin category, we start to enter pickles which as we said has done quite well but it has historically been in the lower end of our margins and that's where the weight is so typically you wouldn't see a big improvement in margins but as I said, we're off to a nice start.

I don't mean so much sequentially as year on year, Dennis. I think if I'm looking at my model right, your earnings growth last year, the weakest quarter was Q2 so the comps should be easier and am I correct in thinking that the infant feeding lapping should help you in that quarter as well?

Yes, as we said the infant feeding lapping for the most part was over in the first quarter of this year.

Okay and then just a more broad question, as you guys think about acquisitions and whether to make particular ones or not, I'm sure you're looking at ways of getting into new categories via other methods and what I'm thinking there is is it possible to go into new categories if you're working with a retailer, doing a good job with them, that are adjacent to the ones you work with now? So for example if you're making salsa, can you get into other tomato based products and if not, why not?

Ken, this is David. That's a very good question and is a big opportunity area for us. One of the things that we do with our retailers and one of the benefits of having more time for me to go out and meet with customers, for Harry Walsh to go out and meet with customers, is that we can talk about how do we leverage the manufacturing assets that we have into other categories and we principally focus that activity on very large customers that can help us jumpstart our way. We will present to them here are the assets that we have. We can share with them our R&D capabilities. I mean, as you pointed out, the difference between salsa and pasta is primarily marketing and what we are really able to do is talk to them about this and so we think it's a very attractive area for us. In addition, given our supply chain efficiencies, we are also talking to customers about adjacent categories where we may not have the manufacturing capabilities but we have relationships with other manufacturers who do not have the supply chain capabilities that we have to move it into the customer where we can move forward with the customer as well. So again, one of the really good benefits about being able to spend more time at a senior level with customers is our ability to talk about and pursue those opportunities.

Okay, thanks very much.

Next question will come from Jon Feeney with Janney.

Good afternoon.

Hi Jon.

Hi Jon.

Thanks very much. I wanted to dig into David, you talked about the industry pricing outlook, your pricing outlook looking pretty good, that there's only been pockets of many of these price rollbacks and I guess I'm wondering, on a spot basis, how much year over year would you say you're feeling relief from the commodities standpoint and if you're able to hold pricing over the course of the year, how positive could commodities be say, versus year over year levels?

Well, I don't want to go into specific detail but I think that as we are seeing our pricing holding in general and commodities coming down that one of the reasons for our being quite optimistic about the last three quarters of the year is just that. I think that we will be in a better position at the end of the second quarter to really know where we are in terms of the pricing because at that point in a number of our key categories we'll really understand what's on the marketing horizon during the summer especially as it relates to categories, very competitive categories such as salad dressing.

Thanks and just one other thing, you specifically called out trade deloading, your U.S. retail discussion, and I guess one of the surprising positive aspects for maybe some of the branding companies so far has been deload sort of faded to the background as a headline. Now I remember last quarter you didn't see the deload that a lot of other people saw. Can you tell me where we stand in terms of retail inventories and with talks still of retailers taking down levels, is this something we're going to see throughout the year?

Jon, I think when I was referring in my opening comments to inventories it was principally in the Food Away From Home and our ingredient and export channel. In our retail business I didn't call that out and it just didn't seem to be an issue for us this quarter. I am sure that some customers did it but it's not something that we would say had a measurable effect on our business.

Actually, I was just referring to the release. I see where you are probably talking about the foodservice stuff. I get it. Thank you very much.

Thanks Jon.

Moving on we'll hear from Bill Chappell with SunTrust.

Good afternoon.

Hi Bill.

Just to follow up a little bit on pricing, I guess first on the industrial side, were there additional pricing decreases or rollbacks during the quarter from which you had thought in January or did that kind of come in line with your internal expectations? And then on the retail business as you look to the rest of the year are you baking in certain rollbacks already or are you seeing any pressure right now for anything imminent?

On the -- this is David. Bill, on the industrial side it really came in very much as we expected. On the retail side, maybe modestly less than we expected and it tends to be isolated. Where we really expected the majority of the declines would have been on the industrial side and as we are, I think it is safe to say that as we have been moving through month by month, we're not seeing the level of conversation discussion about price rollbacks that I expected but what we will see though may have to deal with what happens with the national brands in terms of their merchandising activities as we hit the summer months and then how do we have to respond to that but as I mentioned in my comments, the retailers, they're seeing their growth in the private label, how profitable private label is for them, and we have a very good partnership with our retailers in continuing to build the private label business. We have a very important ally out there in terms of both keeping our pricing forward and not letting the brands just turn into a free willing spending level.

Got it, and then you may have broken this out but when you look at the kind of core North American growth of 12%, I mean core retail growth of 12% in the first quarter, how much of that was new business versus just growth of your existing customers?

There would be some new business in there but only I would think a modest level. Some of -- we have outstanding growth on salsa. We had some significant new business on salsa that started the second half or the fourth quarter of last year that has carried over into this year. It's mostly, not the term "organic food" but organic growth that we are seeing and just gaining share customer by customer.

That's great. So as you're going out competing for new business, would that really affect the second half of this year or are you now really fighting for business for 2010?

We are doing both. The majority of the new sales initiatives that I highlighted in my comments are sales initiatives that the decisions were made between January 1st and now and the sales for those initiatives will really start in the second and third quarters and then continue to roll through the year. At the same time we are working on new initiatives for the rest of the year and for 2010. One thing about the private label as well as the food service world is that the selling process is a long time. It can be six, nine, to 12 months with retailers to make things happen. It's a lot longer in the private label and food service arena than it is in the branded arena.

Thanks, and nice quarter.

Thank you.

Thanks.

Next question will come from Andrew Lazar with Barclays.

Good evening.

Hi Andrew.

Hey Andrew.

Just a couple things. First, I guess the upside to I guess where street views were in the quarter were about a nickel or so and you're rolling through about $0.02 for the full year, I'm assuming that's just it's the first quarter and there's a lot of moving parts but I want to make sure there's nothing out there that specifically you see that suggests hey, we're not comfortable flowing the whole thing through.

Andrew, this is David. You're right. I think Dennis pointed out that we're taking it up from $1.80 to $1.85 to $1.82 to $1.87 and that's despite our taking up our guidance on our tax rate so from a -- I always go to apples to apples. We're probably flowing through on an apples to apples basis the majority of what we saw in the first quarter and as you pointed out, it's early in the year and you've known us for quite a long time and we're pretty cautious.

Yes, absolutely, thanks. If I look at North American retail grocery, in the quarter with volumes down too and excluding FX sales up 12, I guess that's pricing up 14 and I realize this was the full flow through type of quarter. I guess going forward, how do I want to think about that? When do you start to lap the significant pricing you started taking there last year and then I think in the second quarter you'll start to lap some of the pruning so is it -- obviously vines maybe start to look a little bit better because there's not as much of a drag on it but when do you start to lap a significant amount of that pricing because I want to get a sense of how to better model that going forward.

Andrew, it really starts in the third quarter is when the majority of -- third and fourth quarter is when the majority of our pricing kicked in last year so that'll continue to obviously flow through the first and second quarters of this year and to a certain extent even to the third and I think what we will see is with the sales initiatives that we have underway that the quality of the revenue growth I am optimistic will get better as we're really driving on physical volume and less on pricing in terms of driving the total top line.

And then just from -- I'd love your perspective just on the overall soup category. There's been a lot of discussion lately and a lot of the data sort of suggests the category as a whole, not specifically private label, has been kind of weaker than I guess most would think in an environment like that and it's not consistent with what we've seen from category growth for other simple meals that would compete and interact with soup. So I don't know if it's just some of the pricing from Campbell's starts to flow through and therefore consumers are adjusting. I don't know whether it's soup isn't center of the plate and so people just start kind of leaving it off, the whole meal simplification thing. At the crux of it, it just seems like soup really is a pretty good value at the end of the day and I just don't get why it's not doing better as a category.

Well Andrew, I agree with you. Soup is a simple meal and a very good value and at the end of the day, I think there's an old expression about tired categories and what can cause that and I think this is a category, this is not a category that you're going to see double digit growth in but this is the category that year in and year out should be consistently in terms of units, growing at least with population and I think it has more to do with marketing and innovation and advertising than it does with any fundamental changes in consumer behavior and we operate in the non-branded world and from the products that we're offering our customers and how they are positioning our products to their consumers, we're seeing a very good response and we're seeing very good returns for us from the kind of growth that we're getting.

One last one and then I'll pass it on. A lot of talk obviously about the rollout of sort of Great Value Wal-Mart and I'm not sure how much help you can be on this but from our end, we get very limited kind of detail on sort of which categories it's a bigger effort in versus others and therefore it's also hard to get a sense of how much that either kind of really helps you or not. Is there any way you kind of help even directionally even sort of say hey, is this happening in categories where you might operate as well and is that, tend to be really meaningful, like it moves the needle for you over some period of time or are we all making more of it than maybe we should?

I think Andrew that we have, in the categories that we operate in, Wal-Mart has always had a -- private label has played an important role. In nondairy creamer, I think that private label probably has a market -- we don't get specific market share data but I think that our share in private label and in Wal-Mart is comparable to grocery. Some of our categories are probably lower and I think that's going to be lower share than relative to normal grocery and that's going to be an opportunity. I think right now more of Wal-Mart's emphasis is expanding Great Value into other categories beyond the ones that we're in but I think as they continue to build their Great Value and private label program we will continue to benefit from it, maybe not to the same extent as those categories that they're just really getting into significantly for the first time.

Great, that's very helpful. Thanks so much.

(OPERATOR INSTRUCTIONS). And your next question will come from Robert Moskow of Credit Suisse.

Hi, thank you. I want to congratulate you Sam on your preamble. If there was a Pulitzer Prize for earnings announcements, I think you would get it. It was very loquacious and well said so --

I'm heavily edited by the others in the room but thank you.

You bet. Alright well, I guess the question I get the most on private label is how high is up and we try to think about all kinds of ways to measure it. Can you give us a sense of what percentage of your customers are increasing the number of facings for private label and maybe that could help us understand how much of this is kind of a permanent shift as opposed to just consumers kind of dipping their toe here and maybe they keep doing it and maybe they don't. And then the second question is is manufacturing consistency one of the obstacles for private label just in general for some of these retailers, like they're just concerned they can't get the same consistent product throughout their chains nationally? Thank you.

Rob, on the first question in terms of private label customers, I don't think we have a customer out there who is not articulating a grow private label share strategy. How they get there, how they execute it, will be different but there's certainly no one who says that they want private label to play a lesser role. Now whether that translates into new items, moving from a one tier private label strategy to a two tier or even a three tier, it will really differ by customer but everyone is on a growth trajectory whether it's -- we talked about Wal-Mart and Great Value, Safeway, Supervalu has articulated moving from 17% to 25% over the next few years. I mean, it is across the board.

On your second question, that consistency of product is very, very important to them and we think that puts TreeHouse at a competitive advantage because of our breadth of manufacturing capabilities that we have and our R&D capabilities. We can meet the needs of the national retailers with consistent product quality day in and day out and for a retailer to be out sourcing product from three or four different soup companies, it's hard to get consistency when you're doing that and one of the things that we can bring is consistency of product quality and consistency of customer service, makes their lives easier.

I got it and just to sum up, if you guys really are editing Sam's speech, I'd be very interested to see what you took out.

That is a trade secret.

I'll be calling you offline. Thanks a lot.

Okay.

(OPERATOR INSTRUCTIONS). And we'll take a follow up question from Ken Goldman with JPMorgan.

Hi, just wanted to follow up on Andrew's question on soup because I think it's as perplexing for us as it is for him and maybe the rest of the investment community. I think the color you guys provided was interesting. I'm wondering if you could sort of talk a little bit about which of those areas you think is most tired, whether it's marketing, innovation, advertising, because I look at the innovation and maybe this season didn't have a lot but in the last couple years we've had sea salt, low sodium soups introduced. We've had really I think a very successful product from Progresso come out with Weight Watchers and then I think about the marketing this year and these two sort of went at it saying well, your soup is less healthy than ours. No, your soup is less healthy than ours. And I'm wondering if that latter marketing strategy really hurt the whole category more than those guys expected it to. Maybe you could add a little color there.

I have to be obviously very cautious in my comments but when I look back to two years ago there was -- what drives a category? What drives a category are brand leaders focused on attracting more consumers by marketing the positives, the innovation brought to life through great advertising and promotion and when brands get caught up in fighting for share and your point about there was a lot of early on in the season sort of creating awareness of negatives hoping that there were positives being sold I think resulted in the marketing this year not being as positive and consumer building as it was in the 2007 and 2008 year and I'm not sure how the brands have responded to the same question but as someone who is in the category, I like brands that are aggressive in selling the positives and being innovative and not fighting it out in the trenches with messages that don't stimulate the consumer to jump into the category.

That's helpful. A couple more follow ups if I can, we're starting to see the Vlasic duck or whatever species he is come back on TV more often. Have you seen any positive effects from that yet or is it too early to tell?

I think it's too early to tell because the real pickle season is just beginning now but in just looking at Nielsen data for the market, the category is doing, I think it's doing a little, not that it's positive year over year but the rate of decline is a lot less than it was a year or two ago. Private label, as we look at private label pickles as measured by either Nielsen or IRI, I think we've had at least six and probably eight four week periods of private label and our private label business showing nice unit growth let alone dollar growth so I'm hoping if the Vlasic stork can help build the category, I think that's a very, very good thing.

I didn't realize that was a stork. I just thought it was some kind of Groucho Marx bird.

I think you probably thought it was a grey goose.

Well, that's very true.

Wishful thinking.

I know, I know. The -- not to hog the call here but I know you guys can't about fiscal '10 but the tax rate, should we expect -- is there any reason to think that 37% is not a reasonable long term number or is that just this year or maybe there is some onetime effect in there bringing it higher?

I can't go out that far Ken but the issue as I indicated was we certainly had better income in the U.S. which was great and that shifted us to a little higher tax rate but the exchange rates played into it as well and not knowing and not predicting yet what Canadian exchange rates are it's kind of hard to answer that question.

Okay. Well, thanks very much.

It appears there are no further questions at this time. I would like to turn the conference back over to the speakers for any additional or closing remarks.

Thanks again everyone for joining us. To reiterate, it has been an excellent quarter and a great start to a year that we anticipate will be a very fine one. We're quite optimistic in that regard and we expect to talk with all of you again in the dog days of August, I think that first week, and between now and then I will consult with my editors and also an ornithologist and make sure we understand all the birds in the advertising world. Thanks again.

Ladies and gentlemen that does conclude today's presentation. We do thank everyone for your participation.