TreeHouse Foods Inc (THS) 2012 Q3 法說會逐字稿

Welcome to the TreeHouse Foods Conference Call. This call is being recorded.

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 words such as guidance, may, should, could, expect, seek to, anticipate, plans, believes, estimates, approximately, nearly, intends, predicts, projects, potential, or continue or the negative of such terms and other considerable terminology. These statements are only predictions. The outcome of the events described in these forward-looking statements is subject to known and unknown risks and 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 activities, performance or achievements expressed or implied by these forward-looking statements.

TreeHouse Form 10-K for the period ending December 31, 2011 and subsequent Form 10-Q discuss some of the risk 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 statements made 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 made.

At this time I would like to turn the call over to the Chairman, President and Chief Executive Officer of TreeHouse Foods, Mr. Sam K. Reed. Please go ahead, sir.

Good morning, all, and welcome back to our TreeHouse. Dennis and I will provide you with a full report on the third quarter, our outlook for the entire year and an early look at the strategic issues our private label industry must address in the years ahead. Before we go further, I am relieved that none of our production or distribution operations was more than inconvenienced by Hurricane Sandy. We are up and running, determined to do our part in assisting the Northeast to return to normal as soon as possible. Also, remember that it's Election Day. When the market opens, whether you're blue, red, or purple, write in our favorite son, TreeHouse Foods.

In summary our third quarter was one of substantial progress in that we achieved what we set out to do for the quarter; however, these accomplishments were negated in part by end of the quarter volatility in shipments to grocery and food service customers. As was the case in the fourth quarter of 2011, shipment volume trends were quite solid until the quarter's end, in this instance, September, when private label orders again dropped without warning. However, just as the third quarter ended with a September whimper, the fourth quarter was opened with an October roar of all-time record shipments and revenues. Our forecasts indicate this positive trend should continue, and, as a result, we've issued full year guidance in the range of $2.75 to $2.85 in EPS despite this timing anomaly. In my view our concerns about the quality of earnings issue should be focused -- should be as focused on this timing oddity as much as non-operating expenses and similar accounting matters.

While Dennis will address the particulars of the quarters just past and just ahead, I'd like to first offer an operators perspective on the second half as a prelude to the coming New Year. Statistically, market conditions are much the same for private label as they have been in the last several quarters; however, that observation belies the substantial progress we have made on our strategic and operational agendas.

For the retail grocery market as a whole, aggregate private label and beverage volume in the third quarter declined 2%, closely in line with first half metrics. TreeHouse private label categories were caught up in this continued slide as the broader private label category indicators of soup, hot cereal, dry dinners and powdered drink beverages all seeded ground to heavily promoted brands.

Having suffered volume losses in the channel shift to value-oriented alternative formats, traditional grocers have sought to stem that tide with national brand marketing funds that drive down price to regain lost foot traffic. Our response to this turn of events has been to focus on an integrated program of innovation, merchandising, alternate channels and cost controls as the means by which we can generate greater volume at better margins.

Highlights of this program include the following. Single serve coffee has been successfully launched. While the initial pipeline fill will only have a minor effect this year, we expect to establish TreeHouse as the private label industry leader in yet another category in 2013.

Those of who -- who plan to attend the Private Label Manufacturers' convention and trade show in Chicago next week should stop by for a cup of this much anticipated brew. Distribution gains in salad dressing, pasta sauce and salsa, all growth categories for TreeHouse, are broadly based as new formulations, packaging and sizes have been developed that meet customer needs at both the value and premium ends of the private label spectrum. Refrigerated salad dressings, the latest addition to our grocery portfolio, thanks to the Naturally Fresh acquisition, will be fully integrated by year's end. Although volume will be initially limited to legacy NFI customers, I expect steady volume and margin growth as we venture out beyond our traditional center of the store domain.

Gross margins increased sequentially as productivity and procurement programs reduced operating costs. This improvement also benefited from the introduction of single serve roast coffee as well as double digit growth in shipments of value-added products to retailers offering a premium range of private label brands.

Soup rationalization is well under way with accelerated plans to close the Mendota, Illinois plant in January as a first step in consolidating our soup assets in response to long-term secular category decline. As this year ends, our strategic aims for the 2013 soup season are to simplify the business and increase asset utilization. In doing so, we will improve soup and broth margins as we become an efficient focused number two in a declining category.

With that summary of our current initiatives, let's now turn to Dennis for a more detailed discussion of the third quarter performance and full year outlook. Dennis?

Thank you, Sam. Before I get into the numbers I want to comment on our overall impression on the third quarter. From an operations standpoint, we accomplished nearly everything we set out to do. We stabilized our margins, we made good improvements in productivity at our soup and dry dinner plants. Importantly, we began producing and selling our single serve roast coffee products.

On the sales side, we also did very well in terms of meeting our internal goals of distribution gains and customer programs. Our challenge once again came in the form of inconsistent order patterns from some of our key customers. As a result we saw a lot of variability in our shipments in the quarter. For example, our retail unit sales for the first two months of the quarter posted low single digit growth and were actually tracking ahead of our expectations; however, towards the end of the quarter, order patterns changed abruptly, resulting in a mid single digit volume decline in the month of September. Combined, we finished the quarter with a unit sales decrease of about 1% despite the strong start.

The frustrating part is that we have now completed the month of October, and our retail unit shipments are up in the low double digits, more than offsetting the lackluster shipments in September. This clearly leads us to believe the September slowdown that caused the top line miss to our estimates was timing only.

Despite the top line coming in lower than expected, we did have two bright spots. First, our retail pickle business continues to perform well despite the challenges in this category. Unit sales in the quarter were essentially flat despite the weak September shipments. Recently a branded manufacturer of pickles announced they were exiting private label, and we've been successful in picking up incremental business. This exit is similar to what many other branded companies have done when they realized the complexities of executing true, private label programs while managing their brand equities.

Speaking of coffee, as Sam indicated, we have launched our new single serve roast coffee, and the product is getting good reviews. The shipment did not start until very late in the third quarter, so they had virtually no effect on our third quarter earnings.

As we look closer at our North American Retail Grocery segment, we did have other positives despite the drop in September shipments. For instance our soup business posted gains of nearly 1% in unit shipments despite measured data showing category declines. In addition, we've been able to extend our soup shipments to a key customer which will result in better Q4 soup volumes, so we had expected, when we discussed the soup restructuring program in August.

Most of our retail categories performed well with the exception of the non-dairy creamer business. Unit sales here were down 10.5%, but this appears to be timing in nature due to the very strong shipments we had in October. Helping to offset this decline was a 3.7% increase in hot cereal, and, as I indicated earlier, a stable unit sales of pickles.

In terms of customer mix we continued to see our sales mix shifting from traditional retailers to those at either end of the quality spectrum. Our sales to traditional grocers declined 3%, while our value-focused customers increased by 1% and our premium-focused customers increased by 12%. The sales mix was slightly better than our last quarter when our traditional business declined 5%. This helped gross margins improve sequentially to 22.1% compared to 21.6% in the second quarter. Plant operating efficiencies and the improved mix of product sales combined for the 50 basis point improvement.

Last year's margins of 24.6% reflected a higher mix of sales towards traditional customers but also had the positive effects of LIFO adjustments in pickles and more favorable exchange rates that helped the margins of our Canadian sales. In our Food Away From Home segment, total sales increased by 13.1% as a result of having a full quarter of sales from the Naturally Fresh acquisition. Excluding the acquisition, sales would have been down 1.1% as pricing did not fully offset volume declines resulting from lower sales of aseptic cheese sauces. Direct operating income in the segment decreased to 14% from 17.1% last year due to higher input costs that affected both packaging and ingredients and the effect of the lower than average margin contribution from Naturally Fresh.

The Industrial and Export segments showed a large sales decrease of nearly 20% from last year, but this was due to unusually large Export sales last year. If you'll recall last year we were in a favorable position with exchange rates, and, as a result, we were able to secure some large incremental Export orders for bulk sales of non-dairy creamer. Those sales were opportunistic business that we knew would be one-time in nature, and, in fact, it did not repeat this year, because the exchange rates no longer made this a viable sales opportunity. The best way to look at the Industrial and Export segment is in terms of direct operating income percentage, because this segment also includes co-pack business that can be transitory in nature.

Overall direct operating income margins in this segment were 17.6% compared to 17.1% last year due to a better mix of product sales. Sequentially the margins improved significantly from last quarter's unusually low 12.2%.

On a consolidated basis our total sales increased 1.9% driven by higher pricing of 2.3%, the addition of Naturally Fresh sales of 4%, and lower volume mix of 4.2%. Keep in mind that the bulk of a total volume decrease came from the Industrial business. Gross profit finished at 21% compared to 23.8% last year as the combination of mix shifts within our retail and Industrial businesses caused the overall gross margins to decline. Sequentially, however, we are seeing progress on our margins as this quarter saw an 80 basis point improvement from the second quarter.

As I turn to operating expenses, selling and distribution expenses totaled $32.5 million this quarter compared to $34.9 million last year, a decrease of $2.4 million. This decrease continues the trend of realizing savings on our network consolidation and new system software. Our spend as a percent of sales is now down to 6% this quarter compared to 6.4% last quarter and 6.6% last year.

General and Administrative expenses were $27.9 million compared to $27.4 million last year. As a percent of sales we were at 5.2%, the same as last year. This quarter represented a more normal operating expense level as there were no significant incentive compensation adjustments in the quarter. We made those adjustments last quarter after we lowered full year earnings from our previous guidance. We are not expecting to make further adjustments this year.

As you compare the quarter-to-quarter impact of incentive compensation on our G&A line, keep in mind that in 2011, we adjusted our compensation-- incentive compensation downward in the fourth quarter. This year, although we started the year off at a high level in Q1, we revised our second quarter earnings outlook and, therefore, our incentive compensation as well. So as you look ahead, keep in mind that both 2011 and 2012 G&A are below our normal run rates for compensation, and I'd point to 2009 and 2010 as more normalized trends for G&A.

Interest expense for the quarter was $12.8 million compared to $12.6 million last year as our borrowings have increased slightly. Average interest rates on our revolver remain steady at 1.7% during the quarter. Total debt at September 30 was $955.5 million compared to $942.2 million at the end of the second quarter. The increase in borrowings was due to the normal seasonal inventory load we make for cucumbers and fresh fruit and inventory builds in soup and non-dairy creamer at the beginning of the winter shipping season.

With regard to taxes our effective tax rate for the quarter was down to 25.6%. This is well below last year's rate of 32.6%. In the quarter we had positive adjustments due to the favorable tax savings associated with inter-Company loan agreements to our Canadian subsidiary along with non-recurring state income tax credits. I expect that our fourth quarter rate will be in the 30% range as the benefits from our Canadian tax structure will continue, but the one-time credits will not.

Total net income came to $21.6 million compared to $30.4 million last year. This decrease is due to the mix shift that has affected us since the fourth quarter of last year combined with an unusually low level of sales at the very end of this quarter. On a more positive note, our results were an improvement over the second quarter, and our fourth quarter earnings should continue the sequential improvement. Our reported third quarter results for 2012 and 2011 include unusual non-operating items that should be considered when analyzing our reported results.

In 2012 we had non-operating expenses of $0.12 this quarter resulting from the previously announced restructuring of our soup business and the closing of our Seaforth, Ontario salad dressing plant. In addition we had offsetting costs related to the Naturally Fresh integration and non-cash gains on mark-to-market positions. After considering these items and comparing them to the earnings reconciliation for 2011 that is in our Press Release, our adjusted earnings per fully diluted share decreased 17.6% to $0.70 in 2012 compared to adjusted earnings per share of $0.85 in 2011.

Now I want to talk about the outlook for the rest of the year. Clearly our timing of sales and earnings have changed quite a bit from prior years. The frustrating part is that the pattern of shipments to our customers continues to be difficult to predict, but we are private label, and it's about service and reacting to customer needs. Over time we expect that the shipping patterns will stabilize and will be in a better position to predict the quarterly sales, but for now we have to assume that month-to-month sales will be a bit more guesswork than science. While our sales in the third quarter were less than expected, we do have the October sales results completed, and those results are very good. In fact, October was the strongest single sales month in our history with double digit growth. Those sales more than offset the weak September, and, if our quarter had ended on October 31, we would have reported retail volume increases of just over 4% for the three months then ended.

Obviously a very different story compared to the 1% decrease we just reported. My point is that we're still very much committed to achieving the full year results we discussed in our last earnings call. At that time we said that our margins for the back half of the year would be consistent with the first half. In fact we showed a small increase. We also said that we expected our earnings to finish in the range of $2.75 to $2.90. That range of $0.15 from high to low is not customary for us, but, given the volatility of sales, we felt it was prudent to have a wider than normal range. This volatility has been proven out by our third quarter sales results and our recently completed October sales.

So, as we look to the full year results, we're still confident that we will finish the year much better than we finished last year. We also believe that all of the assumptions we used to determine the results for the full year are still in place and still valid. As such we believe we'll finish the year with adjusted earnings per share in the range of $2.75 to $2.85. This range is generally consistent with our previous guidance, but we are tightening the top end of the range down from $2.90.

Now I'll turn it back to Sam.

Thank you, Dennis. I'd now like to turn to a strategic overview of the private label industry over the next several years with particular emphasis on 2013. Please note that our Senior Management Team will also address this subject at length during our Investor Day next Monday in Chicago at the annual PLMA convention and trade show. In short, our long term view over the next three years is that, while we must adopt -- adapt to consumer and customer changes, only TreeHouse Foods is uniquely positioned to fully leverage these to great advantage.

The principal theme of our Investor Day is private label and a changing retail landscape. Two years of post great recession recovery have brought only tumult to the usually steady as she goes nature of the food and beverage industry. As budget constrained consumers put value first above all else and as our retail grocery customers have abandoned tried and true practices of the past, we at TreeHouse have reassessed and updated the basic assumptions that underlie our go to market strategies. In doing so, we have determined that, while the fundamentals are immutable, that our application of these principles must be adjusted to macro changes in the marketplace.

The key tenants of this update in our strategic thinking about the pursuit of growth and profits in private label are as follows. First, private label will continue to gain market share as its volume growth will exceed better brands. Accordingly our strategic vision of TreeHouse as a consolidator of a portfolio of categories and provider of value-added services in support of customer brands still points the way to organic growth, superior returns, and accretive acquisitions. Our opportunity to garner that growth and profitability still rests upon individual product category dynamics and individual customer brand strategies. Even as all else changes, the great constants are still the specific category, individual customer, and their respective places than an integrated portfolio strategy.

Next, changes in consumer behavior and customer structure, while initially thought to be temporary by-products of the recession, are now recognized as the forerunners of a new order affecting virtually all of the food and beverage universe. As a new frugality becomes ingrained and retail channels shift to alternate formats, our traditional sweet spot, national brand equivalent clones; good, better, best variety; family sized packages; supermarket distribution; and stable brand private label price spreads is no longer sufficient to drive organic growth and profit margins. As a private label manufacturer, we must rationalize our business systems and retool our Industrial brace, not only to pursue new and different markets but also to do effectively -- do so effectively and efficiently.

The economic demands of this new order mandate that we reconfigure our products and customer/channel portfolio strategies as well as cost to serve structures in order to pursue growth, not where it once was, but where it now is and will be. The operational implications of this response to a rapidly evolving marketplace are that we must make clear, hard choices in the strategic pursuit of big ideas and opportunities rather than attempt to be all things to all comers. Investments must be made in innovation and differentiation to drive organic growth in star categories. Retrenchments must be undertaken in other non-growth venues, and bolt-on acquisitions must provide access to growth markets beyond our legacy core competencies.

All in all, this train of strategic thought leads me to the conclusion that we at TreeHouse must devote ourselves first and foremost to internal improvement in the new year. In doing so we not only seed the ground for organic growth but also prepare our organization for another round of external expansion. As my long time partner, David, would say, follow the portfolio strategy, keep it simple, and stick to the middle of the P&L. These guidelines will direct our strategic, operational and financial agendas for the year ahead as we retrofit our TreeHouse to succeed in the brave new world of private label.

On a closing note, we should also keep our powder dry in anticipation and preparation for another large scale strategic acquisition. Financial market conditions, marked by abundant cheap capital, pent-up demand, and a recent uptick in M&A activity portend a return to an active mergers and acquisition market in the foreseeable future. All that is needed to unleash this potential is a quarter of two -- a quarter or two of positive sustained news of gains in the consumer sector. It is imperative that we at TreeHouse are at the ready and well armed with capital, resources and resolve to execute the next deal when time and events present the next strategic expansion opportunity.

Yolanda, you may now open the phone lines for Q&A.

Thank you, sir.

(Operator Instructions).

Ken Goldman, JPMorgan.

I'm just curious. You have a lot of moving pieces in the next year. I know you haven't provided guidance, and you won't, but you have K-Cups. You have some co-packing soup sales that you're giving up. You have G&A going up, and you've got these efficiency benefits, so is it possible maybe to lay out in more of a qualitative way what you think some of the key tail- and headwinds might be? It might be helpful just given some of the moving pieces to get a bit of comfort about that, if possible.

Well, good morning, Ken. This is Sam. A number of these things would be the specifics that come from my observations about the trends that the industry itself faces. I think that firstly, we would expect that, within our portfolio, to see in those categories as we've designated as stars with high growth opportunity and generally better than margins that there would be substantial growth. You obviously will see that in single serve coffee. You will see it on a smaller scale and an important strategic scale basis on the refrigerated salad dressings. And then within each of the growth categories that I mentioned, pasta sauce, salsa, and salad dressings, there will be substantial distribution gains as we gain share of those markets.

At the far end of the spectrum, I think you can expect that there will be, we will carefully consider further rationalization of the portfolio as we have done in soup. And, when one looks at those categories where we currently have investments that offer little for growth, I would expect that we will -- there may well be more to come with regard to rationalizing the portfolio as we make those analyses.

And then I think thirdly, while there will be volatility and input costs that will require us to get pricing, that we will be better at the internal improvements that are driven by productivity, procurement, innovation, and R&D.

Then I think lastly, and hard to build into any model, is that I really do expect the M&A market to open up substantially. I think when it does, there will be -- prices will initially be pretty hefty, but when the right acquisition opportunity comes along, for strategic purposes, then I think we'll be first in line to pay a full and fair price to put a new business into TreeHouse and further expand the portfolio and rekindle organic growth. So, I know to a certain extent that's a repeat of the points, but I think if you go back and look at each of those, they address a specific in one matter or the other. Dennis, would you offer other comments?

Just maybe just slightly more -- a bit more granular. I think, Ken, you bring up some good points. We normally don't do guidance at this point, because we're entering the biggest quarter, and it's winter season. So the items we'll be talking about for next year will be the soup business which we said will be smaller and -- because of the restructuring. We will have coffee coming into the mix. We'll continue to work internally on driving incremental margin improvement through looking at the shift that's been taking place and trying to drive a more profitable business with those value customers. And you mentioned G&A, and I think you'll have that headwind there where we'll be resetting certain of the incentive comps.

So, I think all in all there are some nuances that we will go through in far more detail in our February earnings call and maybe expand just a little bit in terms generalities at our Investor Day next week.

And then one more quick one if I can. Sam, this is the most optimistic you have sounded in a long time on acquisitions, especially when you mentioned keeping your powder dry for a large scale strategic acquisition. Are you seeing anything in particular that makes you that much more optimistic as related to what TreeHouse might do, or is it more just that you're seeing a general affinity for M&A among food companies right now?

Well, it's actually both, Ken. Our teams, our M&A teams which have largely been relegated to working on only bolt-ons and things that we had to create ourselves and where there was not an auction or a sale process, have recently been involved in looking quite closely at several much larger businesses. And I think that what we've seen is kind of a precursor is that there are respective sellers who have begun to come off the sideline and floated the prospects that they would sell their businesses, some with the view that if they could get a price now, they would do it and not wait. And others, clearly in testing the market, now wanting to be on the leading edge when this thing does turn in a very positive way.

And then, secondly, when I look at the financial markets that we would be dependent upon for financing a large scale deal, something that went beyond our bank lines, the various markets that we would access look to be quite robust and available, and the fundamentals underlying them indicate that that would continue to be the case. And then the last thing and it is -- the only thing harder to predict than customer shipments is consumer behavior and attitude, but after 14 straight quarters of reductions in total household debt, we have now begun, it's begun to tick back up as consumers have gotten their household finances back in order. And I think just as I said, a quarter or two of positive although small changes in consumer data, you'll find the selling memoranda coming in over the transom again.

Thanks very much.

Jonathan Feeney, Janney Capital Markets.

This is Mark Williams on for John. You talked about receiving good consumer feedback with your initial discussions on K-Cups with the retailers. Can you talk about those discussions? You noted it wouldn't be much of an impact next year, but just would you mind qualifying how those discussions are going, if you are seeing other capacity out there and how you feel about your ability to capture that nascent opportunity in private label K-Cups.

Well, Mark, this is Sam. I'll give you a general impression of the marketplace we see. I won't comment on specific research. Again, I will note that one of the topics at PLMA will be having an entire section devoted to coffee. But, as a general matter, we have found that, with consumers, that they find our coffee to be both have very good taste and excellent aroma. And we apparently have achieved what we set out to do, and that was to emulate the Top 10 coffees at the premium end of the marketplace.

With regard to customers, start with a proposition that approximately 10% to 12%, depending on the account, of ground coffee and whole bean coffee is now private label. And these customers have until now been denied the opportunity to expand the single serve roast coffee business to their own labels. And that segment of the market, single serve, continues to be quite dynamic with still posting a year-over-year triple digit growth. And our grocery customers are determined to have their piece of that.

And then, thirdly, I think that the entry of more leading brands actually will serve us quite well in that this proposition is really dependent upon the placement of coffee machines and then of the daily usage of those. And I think that more national brand advertising and more single serve coffee offerings made available by baristas at premium coffee stores will do nothing but enlarge the appetite for private label which consumers are telling us is comparable to the premium roast of the leading brands. Those are the fundamental factors. Again, I'll have more details I think a week from yesterday, Dennis, if I'm right?

Yes. Next question?

Bill Chappell, SunTrust.

Just kind of looking at your fourth quarter guidance, want to kind of understand what you're kind of expecting month to month in terms of trends, obviously it sounds like double digit growth in October. And you're going to have very easy comps with the issue that happened in December last year. So trying to kind of understand what you're expecting, are we getting back to mid single digits for the rest of the year? And then also what gives you confidence that what happened last December doesn't happen again, and I know some of it was weather related, but just what gives you visibility?

Yes, Bill, Dennis here. I wish I had a perfect answer for that question. The reality is last year's October was weak and we had an extremely good one this year. Last year's November was very good. It was up mid single digits, even strong mid single digits. The expectation is that will be a challenge, and, as we all said last year and we were very clear, last year's December was down 8%, and our expectation is that will not repeat.

So our confidence is based on what I said in terms of if you looked at the roll on the quarters. If we had finished in October, it was 3% as opposed to negative 1%. And I'm not expecting strong mid single digits, but we are expecting to give reasonably albeit lower single digit increase in the quarter. And it is predicated somewhat on the soup business that we thought was going away fully by September 30, but we'll have it October, November. So that's our confidence, and, unfortunately, we have to almost wait until the middle of the month before we understand how exactly it's going to come out.

Okay, well that leads into the soup question. I don't know if it was put in these terms but last quarter, it sounded like the rationalization -- the cutting of the soup business was going to take in $0.20 to $0.25 out of the full year along with the other plant shutdown. Can you -- is that now $0.15 to $0.20? Are we kind of adding back $0.05 or $0.10 for the soup being in for an extra two months?

Bill, this is Sam. With regard to soup and also the closure of Seaforth salad dressing plant, what we had indicated --we gave you the one-time costs that would bridge over this calendar year and next year, and then described to you that, in their aggregate, the sum of the two, once the benefits were fully realized, would yield, I believe -- was it 30?

$30 million annually.

$30 million in annualized pretax savings. We haven't made any changes with regard to the ultimate benefit of the program and with regard to the acceleration. Those benefits really can't start until the next soup season starts, and you'll see them start to flow through the P&L as soup volume builds in the third quarter. There will be some timing differences with regard to the one-time costs, but those would not affect our estimates on adjusted EPS.

With regard to fourth quarter volume, I would expect that as much as anything else, Hurricane Sandy will have a positive effect and/or a cold winter, but trying to predict it beyond that, particularly as we're downsizing, is kind of beyond our -- beyond my capability.

I do want you to all understand what we are doing here, and it is that we've come to the conclusion that in a category that is suffering from secular decline, and in a category where two global companies with national brands have elected to compete on the basis of price rather than innovation, we've come to the conclusion that what we ought to try to do is make more money on a smaller footprint, even if it requires us to sacrifice top line volume for margin. And that --, there's been no deviation to that, nor will there be. That will be our intention, and we plan to see that fully through, and our TreeHouse will be a better one for it, although you've got to wait until next soup season to understand the full ramifications.

Okay, so just to make sure, so the extension of the soup doesn't have that much of an impact on your full year guidance?

You know, it helps a bit, Bill. But if you recall when I was talking about the results, our aseptic business was down. So, as always there's these puts and calls, so it is a bit more positive, but it isn't the game changer for the quarter.

Okay. Thanks for the color.

David Driscoll, Citi.

Couple of questions on K-Cups, Sam. The first one I'd like to ask is you mentioned positive retailer acceptance on K-Cups. I know you can't comment on specifically what customers you have, but I was thinking that maybe you could tell us how the acceptance is going from say your Top 50 customers, which, from time to time you guys discuss Top 50, so I thought that would be a nice way for you to discuss the positive momentum here.

Thank you, David. First of all, we don't market or distribute K-Cups. We market and distribute private label single serve roast coffee.

With regard to our customers, I think I was quite clear in my statement that I expect that in 2013 that we will emerge as the private label leader in this category. And I would suggest to you that you go look at market shares and our businesses that we've determined are growth businesses, I think those are pretty clear, and look at the trajectory of that share, and I think you will see coffee kind of closely follow a pattern of other categories where we have invested for growth and developed through formulations, packaging and knowledge of our customers and consumer for a better value and a value that is greatly appealing across the whole of that universe.

I will say we're going to stay focused on the premium end, and there may be others who kind of move to kind of the value end. And there will probably be an opening price point by the time the year is out, of all things, but let me be very clear. We will be number one in the category.

Second question on the private label K-Cups is can you just discuss or confirm that both gross and operating margins are accretive to the overall Company?

Yes, David, Dennis here. They would be accretive. As we said, we took a measured approach and you mentioned Top 50 customers, but we are not targeting all Top 50 customers out of the gate. So the good news is the product has done well and it's in a variety of channels from traditional to specialty, so we're very pleased with that, and it will be a positive impact on next year's results.

Just one more. When will the full range of your product line actually be available at retail?

There's a range out, but it's less about the range of product as much as it is the distribution. So it's a slower rollout in distribution by really I think you'll see we'll be pretty well distributed by the end of the first and into second quarter next year.

Dennis, off that K-Cup topic, if I could just ask one question, I'll pass it along. A number of times in the Press Release you talked about pricing continuing to lag costs. Can you address this topic? Over the years you've done a lot of work with the SAP introduction in order to give the Management Team insight as to the cost structure so that you can do that fact based selling.

I would -- I think you made some comments about improvement here, but I don't really think investors will be satisfied until you say that your pricing has fully covered the increase in cost. Can you talk about that a bit?

Yes. That's a good point, and, when we talk about that, I don't want to give the impression that we are lagging in our ability or desire to price, relative to commodities. But what happens is you get into competitive situations where you have to make a decision some time that you are not going to be able to fully recover that. And we've talked about that, especially as we look at some of the value channels where we are working on productivity, packaging, and other options that Sam mentioned in his call to drive that productivity that, frankly, the pricing for commodity is just not going to be the solution.

So we still have a little lag there. The encouraging part is we continue to see sequential margin improvement, and we'll be working on that through the fourth quarter and next year as well.

Thank you very much.

Andrew Lazar, Barclays.

Andrew, how are you?

I had a hot shower this morning for the first time in a while, so that's not bad. (laughter.) The little things, the little things.

First thing, just in terms of the third quarter sales shift you talked about into the fourth quarter, do you think that was Company-specific or do you think there's a broader read-through? I remember, but I may have it wrong that in December of last year, the -- that kind of turn down in December proved to be a pretty widespread industry issue when all things kind of were considered. And I'm just trying to get a sense if you have a better perspective on that as well this time?

Andrew, I think it continues to be a broad-based phenomenon. I do say that you're going to find more of this in traditional grocery than any other sector, and, as Dennis indicated, the way we define premium is proprietary definition here of retailers that operate at the high end. And those shipments for the quarter were up 12% and do not waiver.

By the way, there's always talk about, why can't you forecast this stuff better? I found out last week that our internal forecasts at the SKU level under SAP are 12 full points better than what we were before we installed SAP. So our crystal ball -- we may not be able to see the big picture but it's kind of those little things. We're able to get it and then that enables our supply chain to do better than we did a year ago with regard to dealing with the anomalies and the start stop nature of that order flow.

And then I think I know the answer to this, but your commentary around soup trends for you being better, you're -- just to be clear, you're not saying that you have seen some shift in overall sort of category performance at this stage, more I guess a specific customer as it relates to you. Is that correct?

That's correct. The measured general broader data for private label is still not as encouraging. But we've done a little better than we thought.

And then, Dennis, in terms of bringing the top end of the range down, I'm just curious if it's primarily timing, and obviously the fourth quarter at least has started out pretty well. I know there's still two months to go. I'm just trying to make sure I'm clear on the rationale for the $0.05 coming down on the top end of the range.

Yes, to be honest, once bitten, twice shy. We've been bitten a bunch, and these quarter ends are getting more difficult to predict. And I wasn't comfortable and we, as a team, weren't comfortable maintaining that $0.15 gap going into Q4, and we felt it was more prudent to narrow it and narrow it at the top end as opposed to cutting it down the middle, let's say.

And then in terms of, Sam, the thawing, as you term it in the M&A environment, we have certainly seen a bunch of news reports over the last couple of weeks of large branded players maybe thinking harder about divesting some of the branded assets that they may have been less willing to part with in years past. I'm assuming you're talking about something beyond that and also from potential private label asset sellers as well. Is that fair?

Yes, it is. We're really focused, Andrew, on customer brands. And when I talked about going back and reassessing the portfolio from a product category and a customer standpoint, our strategy team did look at different hypotheses, one of which was concerning a branded adjunct to the business, and we came away with a resounding no. We have a strategy with regard to following the superior growth in customer brands, being a consolidator through acquisitions and now adding organic growth, and that's where the sweet spot is. That's where our sweet spot is, and we'll stay.

And last one for me, Sam, and it's a bit broader, but I'm curious on how you would answer this. If we think about some of the comments you talked about a little bit earlier on the strategic shift that the TreeHouse is trying to make that adjustment to this new operating order and such. As you go ahead as a company and make those shifts, if we keep deals out of the equation for a moment, and I know that is a big part of the strategy too but, deals aside, I guess can someone successfully sort of own TreeHouse shares while you go through this what sounds like a fairly -- and you've talked about it earlier, but a fairly significant shift in the way you operate, the way you have got to deal with your key retail customers and partners and such. There's, during this time of transition, can some of the organic growth things like single serve coffee and whatnot make up enough of a difference to kind of get you through this transition period? Or do we really have to hope that some of these bigger scale deals come through to kind of bridge you as a Company to this new kind of operating order? Hope I'm being clear about that.

Yeas, it's clear to me that the hot water and the soap inspired you this morning. (laughter.) No, I would think that our underlying rate of what I call internal improvements and organic growth, we're going to see an acceleration there on those factors that will be better than our past track record and better than the food industry as a whole. And for someone investing in this space, we will, on an organic basis, continue -- return to being a superior investment.

I did say it takes hard and clear choices, and we have been a bit much, Andrew, of trying to be all things to all comers. At heart, we are salesmen who became deal guys, and, to me, the lesson of single serve coffee for every aspect of our private label business is that organic growth and differentiation and innovation are not beyond our means. And that we can, if we stay true to the strategy, and we will, and we do things like rationalize soup, then, I think we're going to create a far better business here than we have had to date, independent of acquisitions.

And, parenthetically, there may be a certain irony to this, but boy, if you stick to your knitting with regard to productivity, procurement, innovation, all of those matters, and you keep your balance sheet in order, then when the good things come along, you can look at them in a different prism than someone who is quick only calculating whether they can get the seven times leverage or not, and then if things don't work out, recapiltalize. You can look at these things through a strategic lens and see where you can go in the future, and, if that is the case, then you can bet -- you make your investments with added confidence when those opportunities come around.

Thanks for your perspective.

Farha Aslam, Stephens.

Starting with single serve coffee, Sam, how quickly do you think that private label can take share going into next year? What percentage of the category do you anticipate being private label?

Farha, I don't know what that might be. As I've said, our customers -- and we're not going after all of them -- tend to be in the 10% to 12% for private label share in bagged coffee and in premium -- ground coffee as well, and it will be up to them to decide that. They will have, on the branded side, greater opportunity to kind of choose among branded companies. And those in the industry now are some of the best marketers and developers of product in our industry, and we'll benefit from all of that activity in bringing people into the category.

I'm far more interested in watching the trend lines on the placement of coffee machines, frankly, than I am what share we get on the shelf, because it's those machines that's going to drive the consumption. And I think you'll see that right now what you're seeing is new machines coming out at the high end. I think you're going to see more machines come out at the low end as well. And you'll have a private label offering that at least covers good, better, best plus premium and organic. Long way of saying that we'll have to wait to see what that is, but I don't -- I won't record that as a primary indicator of how the business is doing.

As a follow-up to Andrew's question, you'd talked about retooling your business and making hard choices. Will you make choices where EPS goes down similar to the soup business, or were you trying to keep those choices EPS neutral?

I think that, and I'll ask Dennis to comment on the EPS impact. Let me talk only about the fundamental economics. We have a business that is built on acquisition, and what one finds out in doing these acquisitions, is that, while you can use the portfolio strategy models to really predict now what categories will do well, we've also found out over time that those categories can morph into something different. There's no better example of that than the liquid beverage enhancer's that have done great things for the distribution of sugar free beverages and their usage, but have, in a certain way, made the kind of the old style way of doing this not quite obsolete. But it is becoming less and less of a factor over time. And it's those dynamics in the marketplace that one cannot fully anticipate, but when they do come along, from my perspective, the decision has to be what is it that we regard as the better course going forward? And what does that do to the return on capital that we expect to get out of that? And then it clearly has implications for EPS, and I'll allow Dennis to comment on that particular matter.

You know, it's hard to say, Farha. I'm not -- at this point what we're really talking about is making the choices in terms of the right products to the right customers with the right formulations. And I'm not sure how we could say it's EPS impacting, but clearly, our goal is to be a more profitable Company and we'll make all those decisions within that light.

Okay, thank you very much.

Chris Growe, Stifel Nicolaus.

I just had a question for you first of all on the gross margin. Just to understand, you had a sequential improvement there, but just trying to get a better feel for it maybe in this quarter or just in broad strokes, the input costs versus pricing factor and the mix factor, and just how you see fourth quarter shaping up from the gross margin standpoint.

The -- we had a roughly 50 basis improvement, Chris, and the positive there is we're doing a better job I think internally in terms of our operating efficiencies. And that's the part I'm hoping we will continue to have. Historically we've always tried to add that hundred basis points of margins. Its been much more difficult in the last year. I think what's changed a little bit from the prior sequence of quarters is I think we've kind of leveled ourselves out. You saw that the value customer sales increased by 1%, traditional was down 3%. The quarter before we were up mid single digits in value and down 5% in traditional. so the mix is starting to level out, and that is helping the margin profile, and our operating team internally is really focused on internal efficiency. So I expect we will continue to see improvement, although, I think it will be steps at a time, not leaps in our margin.

Okay, and I also want to ask a second question if I could regarding -- we used to talk a lot about big wins, and maybe that's not the right term to use. We never talk about those any more. But -- and I'm sure you can't quantify, but I just want to be clear that throughout this year, this quarter or whatever that you're still seeing distribution gains. And I guess I was referring or looking at one of the figures you gave us which was the premium channel growing 12% for you this quarter. Is that a reflection of that program?

Chris, this is Sam. It absolutely is, and that reference and then when I talked about specifically three growth categories, salsa, pasta sauce, and salad dressings, our big wins program is alive and well. One ancillary comment about that program is I don't recall a time when grocers were more prone to RFPs than now, other than occasionally when one commodity or part of the petroleum complex would go crazy and you'd see it focused in a particular category. But its become a way of life now, and, as a result, we've really had to in addition to defending our business where it can remain -- stay profitable, we have really had to combine our marketing and research and development teams and sales teams to really make choices about where do we want to try to develop business? And instead of coming back with 10 varieties of soup that in their aggregate will fill up one production run on a periodic basis, we now have people coming back with two, four, six, SKUs for a specific customer that really will change not only our volume with that but the entire merchandising of that category. So of all of the things that we've got going now and all of the difficulties, I have to tell you I'm quite pleased with what we're doing at the premium end of the business. And it's all about new distribution based on innovation.

Can I ask in your example there, Sam, like coming back with less SKUs, is the intention then be more meaningful to the business is that what you're saying?

Well, I think what we have to recognize here is that there is a point in private label where that 80/20 rule, when it comes into effect, the penalties of trying to get all of that remaining volume at low volumes are kind of those penalties are you end up bearing that cost for a long, long time because you -- what you build in is extra capacity, not in so much in machinery, but in people and staffing and systems. And we're far better off having a not so much focused on share but really focused on individual customers and then the segmentation that goes now -- the good, better, best now there's six segments in this thing now. And we have to pick the customer and the segment where we believe is good for us in the long term and then concentrate our energies there as opposed to yes, we'll do it for you. If it pencils out, we'll make it for you. Those days they are not over yet, but they are coming to an end here.

Okay, thank you for your time.

Robert Moscow, Credit Suisse

I was wondering if you could just give us an order of magnitude on restructuring charges. I would imagine that there will be some as you head into '13 and '14 as you resize the business. And then also, maybe you can give me a little more color, Sam, on how much customers are open to innovation and fragmenting their line for private label. I've always thought that was what TreeHouse did more aggressively than its peer set. It was much more innovative already, so are they coming to you and asking for things that you don't think are profitable to do or have they -- have the customers taken a different route?

Let's let Dennis take restructuring, and then I'll take the second matter.

Just a quick update on the restructuring and this will be in our 10-Q which is out tomorrow, Rob. The soup restructuring total expected costs there will be in the range of $22 million and for the Seaforth the expected costs will be $13.6 million. So those will be recognized almost on, I don't want to say as you go basis, but the accounting requires it to be kind of rolled out as opposed to a big charge up front but all of the details are -- will be in the 10-Q.

Is that it, though? Will there be more closures to come next year?

We don't -- at the moment we don't have any other planned closures. I think, as Sam said, we'll always continue to assess capacity and capacity utilization but at this point this is what we have today.

Okay, thanks.

Sam -- with regard to the customers, their brands and demands for customization, we have made this a corner stone of TreeHouse from the very beginning, and I think there are two changes. One, we're devoting a lot more resources to this now, and, two, as consumers become -- as Frugality gets built in and customer brands become an even more important way to differentiate one grocery store from other, and then lastly, as the internet becomes effectively a commodity in every home. And those factors, when you put them together, if their effect on the strategy that it's customer brands that are the way to build business, they only reinforce that notion in spades. And then when you couple that now with the fact that we've made commitments to private label marketing by replacing David Vermillon with approximately a score of trained marketers from branded CPG companies. And when you go from a one food scientist to seven different laboratories across our Company, you get a sense of what our commitment to this is. And I mentioned to you that we realized quite some time ago that single serve roast coffee was an opportunity and really had to marshall all of those resources and found customers to be quite responsive. With regard to liquid beverage enhancer's, there's a big void in that market as well and that -- we found that those who have ventured into it haven't done very well because their product doesn't perform well. And so we've had to create our own version of that, so I hope that answers the question.

Okay, thank you very much, Sam.

Thilo Wrede, Jeffries & Company.

Good morning. You talked on the call about predictability having declined for your own business, but you sounded hopeful that predictability would come back. Given that you mentioned a more or less permanently changed customer and consumer behavior, what gives you the confidence that the predictability will actually improve again.

One of the things that seems to have happened at least in my mind, Thilo, is the unpredictability kind of happened with the big run up last year in input costs, the pricing activities that took place and the very big challenge all of us had from producers to retailers in managing the input cost, the pricing, the margins, and the consumer shopping patterns. And it seems like based on the last two to four-week periods we're starting to see consumer spending rebounding at the food level. We've moved in the right direction, I think most of us have most of our pricing in place. I think the input cost environmental, although it was a little wild this year, seems to be stabilizing for next year. And I think once all of that kind of comes back to a more normative level that everybody in the chain can have a better idea of predicting where they are going to be. I think that's going to bode well for the retailer purchases so you'll see less of this end of the month, end of the quarter really moving with rapid promotions in pricing and inventory management.

So even if there's a new consumer frugality, you think that retailers have already been able to build that into their own models and already -- retailers are already able to model the new consumer behavior?

Thilo, this is Sam. I think the better ones have been able to. Clearly, there are a whole number of them and I say they're mostly in the traditional sector that have gone back to whatever brand money is available for merchandising and promotion. They are very happy to take simply to try to get people back into their stores, and those are the ones that are suffering from a lack of real understanding here. But our customers, and in particularly those that regard their customer brands as a strategic matter, not just simply a financial tool, I think they're really quite receptive to this. And don't forget what the American consumer wants is the lowest possible price, provided that there's no other compromise. And that's what creates the opportunity not just for every private labeled company but a differentiated one such as TreeHouse.

Okay. And then last question I had, you compared the dynamics during the quarter to the fourth quarter last year. In the first quarter, you didn't have the rebound that I would have expected given the volume drop in December last year. Why would the recovery at this time be better than it was between fourth quarter and first quarter?

I think the difference was last year, we did have a very good January, but it kind of settled back in February and March. So we are still kind of doing a lot of that up and down. Last year's fourth quarter had two significant negative volumes in both the October and December. So, you took that last years volatility, last years weather, you were still smarting from -- most of the big pricing that took place in the food industry was last Summer. And so you had a lot of sticker shock on the shelves. You just had a lot of stuff going on in Q4, and it carried over into Q1 a bit, and our confidence is that we're starting to see less fluctuation in the pricing, and that is what we're expecting to go back to normal. We're expecting a more normalized winter pattern, so, if that winter pattern doesn't play, if something unusual happens that's really speaking prices, then I guess bets are off. But at this point it doesn't look like that will be happening.

Okay, great. Thank you.

John Baumgartner, Wells Fargo.

Thanks, good morning. Sam, just in terms of what you're seeing from traditional grocery customers, how would you characterize their focus in managing their store brand business and maybe in terms of two areas? First what point do we see traditional grocers begin to push private label harder as opposed to just discounting these branded items in hopes of spending the channel shift? And second, what are you seeing in terms of interest levels on the part of grocer? Are you seeing solid interest in premium price point products? It would seem that way from your earlier comments in how you're thinking about your business going forward. But I just wanted to share thoughts about how grocers are thinking about their business in 2013 and beyond.

Well, I would say that there are as wide a spectrum of views on private label among the traditional customers as there are approaches to other parts of their business. But the ones who are -- I think there's a very high degree of correlation with those who are going to continue to do well despite the channel shift and their approach to customer brands. And one has to look no farther than the Kroger stores and see their earnings reports and walk through those stores to see that what has been defined for the traditional supermarket has kind of what is possible, it's not a theoretical concept. It's out there across all of this country in non-foods as well as food and beverage. There are some where this is still strictly a transactional undertaking, and strategic value is simply defined as what money can I get through the cash register during this event, and how much more can I get out of the brands because I've got a private label? And while even -- the most strategic will never set aside economics. Those who have only that view I think will find that consumers over a period of time will go leave their stores and go to others and take a look at how these companies are performing and walk through those stores and see how they've treated their customer brands. And, as I said, I think the correlation between a strategic value and overall store performance is very, very close.

Great, thanks. Just one follow-up if I could. In terms of category performance, salad dressings they are among the focus categories, volumes were down in the third quarter. Was it more of a timing issue with the move into October and November just if you could touch more fundamental there I'd appreciate it.

Yes. I think it really was more of a timing issue for us. The overall salad dressing category did well for us when you add in Naturally Fresh. But really that was just driven by timing. We've had an excellent year so far with salad dressings. Its been one of our best performers, so there's nothing inherent in that category that causes us concern.

Great. Thank you.

Amit Sharma, BMO Capital Markets.

Sam, just wanted to focus on the value oriented channel. Clearly, it would appear you have more exposure to that channel than the overall packaged food industry or even your peers, right? Now we know that margin structure in that channel at this time is not as good as in traditional but are there any other advantages, do you have more visibility in sales? Do you have more control or more influence over those customers in terms of what categories they want to focus on, or are you able to plan a little bit longer term? Just wanted to get your view on that.

Well, first of all, with regard to the customers and the value channels, these are the fastest growing number of -- in terms of outlets and in terms of share of market of any venue that we see. And it is the same for dollar stores, limited assortments, and deep discounter's. In fact, you can see others now as well, and with regard to their profitability, the issue isn't the value store. The issue is the opening price point, and, as I'd indicated, we've constructed an Industrial base here that where assets have been deployed and investments made to pursue a particular market. And that works the best in what was always the mainstay of the traditional supermarket, that is family sized packages of national brand equivalent products that were sold at a pretty steady discount to the national brands. And that part of our market is steadily declining in share as these value and premium outlets open.

What we have to do is be able to move,. A good example is non-dairy creamer powder. We have over a 90% share of that retail business, and our dryers are I believe the most efficient and effective in North America. And our profitability is inversely related to the size of the container, because what we haven't done is focus on high speed packaging. And we now know that where someone else will buy a kilo that these stores need packages that are 6, 8t, 10, 12, 14 ounces. Now, here is the good news. They also have a great appetite for varieties in different flavors so that when one can go into a value oriented retailer and say, not only can you get brand X generic stuff from us if that's what you want, but we know we can help you bring customers into your stores and do that through product differentiation. I read recently that 65% of all households now shop in dollar stores. And, if you go to the most often named of those dollar stores, what you will see is an extraordinary display and array of branded household cleaning products and branded pet products. And so there's big opportunity there but one has got to one, deal with the opening price point issues and secondly, build ones business beyond that.

Great, and Dennis one for you. When you were earlier referring to G&A expense to the fourth quarter and look back to 2009 & 2010, were you referring to the cadence of G&A throughout the year, were you looking at dollar number?

The cadence in terms of the percent, what we've gotten -- I've had a few questions because over the last few quarters and the end of last year, the G&A as a percent of net sales has bounced around a lot. And that was all driven by incentive compensation numbers, and so I just wanted to make clear that the rate for this quarter matched up fairly nicely with last year's quarter. And those were about the only two quarters this year that really matched up because of the way incentives were adjusted both last year and earlier this year.

Great, thank you very much.

Bryan Spillane, Bank of America Merill Lynch.

Hi, just two quick housekeeping questions, and I'll save the rest for next week. Sam you've really set the table for a good meeting next week. Tax rate for the year, Dennis? Did I miss -- did you talk about what you were expecting the tax rate to be for this year?

I said the next quarter I was expecting to be back in the 30% range.

Okay.

One-times will go away.

But that's the 30% is for the fourth quarter not for the full year?

That's right.

Okay, and then capital spending for this year, did you provide that as well?

Well we had disclosed it was $90 million, and we haven't deviated from that.

Okay, great. Okay guys thanks and look forward to seeing you next week.

Akshay Jagdale, KeyBanc.

Just wanted to ask a couple questions on single serve coffee. Sam, your comments regarding brewer penetration were interesting and intriguing for me. I have spent a lot of time analyzing sort of capacity in the market. There's I think a consensus view out there that on the private label side there's over capacity right now, some numbers out there saying there's about 3 billion cups of capacity out there already and that a year from now private label in single serve coffee could be 50%, let's say, share of the category. And if that happens obviously you'll see a price war and margins shrink. So, I know you've made comments in the past where you've said it's going to be a more gradual sort of build up, and at least you're not going to lead sort of the margin shrinkage or pricing war.

Can you talk about how you see the category evolving generally? Is it going to be gradual? Will it be -- will we see a price war? If not, why not and, are you hearing similar things from retailers?

Akshay, I think you're describing either the cell phone or the tablet market, not private label food. If there's a consensus out there about any aspect of what you've mentioned, I'm afraid I'm a very far outlier. And what is clear is that there's great interest here, and there is substantial new entry and not only those whose entry was predicated upon the expiration of Keurig or Green Mountain patents, but there are other formats as well. And, from my view, I'm pleased to see others enter into this thing, especially the branded companies. With regard to others getting into private label, what customers will find out very quickly is that there is only one of us who ships a thousand truck loads of grocery every week to every major chain in North America and that they can get whatever the requisite number of or quantities or variety of single serve coffee, they can have it their way. And when one starts -- looks at that advantage of our logistics system and our network, I'm convinced that we will be the leader in the premium segment of this thing. And, with regard to share, we can't predict the numbers in that regard but this is the 50 United States and not Western Europe, and customer brands will continue to grow. But it's going to be a long time before someone thinks about 50% share, and I hope I've covered your points.

Yes, you did, and just to be clear, I'm of the view that brands do matter, and we will see a gradual sort of build up in private label, so it's good to hear that. Now just one other thing you touched upon is your ability to deliver something that your competitors can't, so can you talk a little bit more about that in light of the fact that TreeHouse's core competency is not to roast coffee. You're buying it from someone else so clearly the core competency in the single serve side seems to be product delivery and customer service. But can you just talk a little bit more about that because again, there's a view out there that anyone can deliver a quality single serve private label coffee product pretty easily. And I don't think that's the case but if you could elaborate on that, I'd greatly appreciate it.

Well, first of all with regard to core competencies of TreeHouse, clearly we've identified that logistics network and distribution system is one, and it affects all aspects of our business. I'd say, secondly, with regard to being able to produce single serve coffee, that I expect that they are going to be elements within the industry particularly at the what we call the good as opposed to better or best or premium end where there will be a proliferation that with companies that with very little capital and very little intellectual property and commitment to research and marketing will have an entry. I mean that's America, right? And that's why we stayed on the premium end of the business, and, at the premium end, although we are not a coffee roaster and we don't own coffee plantations, what we did do is emulate the best practices of big, branded CPG companies. One, we developed a strategy and two, we researched and listened to consumers and customers.

Three, we recognized that there were restrictions under patent laws that we had to deal with. And so we, on our own, developed technology and production methodologies that would allow us to provide a delivery system that met the expectations of consumers who were going to focus on premium end of the business. And I would say to you, at least in the premium end, that if one aligns one self with partners, customers, and their brewers, that what you get is that you get the benefits of their core competencies. Our customers know their consumers better than what we ever will. Those people that supply whole bean coffee for our customers, their specification and have a leg up on developing blends of instant coffee and roasting methods that others do not. And one core competency that we don't talk a lot about is we're willing to do the hard work to make the investments before -- in anticipation of developing products and markets. And, lastly, we're willing to invest the risk capital and that I would argue whether it's about coffee or simply an Investor conference about private label or convention next week. Walk around that floor and look at the offerings of the thousands of companies there and see if you can see patterns that differentiate TreeHouse's from the others. And, what I just talked about, we regard that as our core competency.

That's very helpful. I'll pass it on. Thanks a lot.

That will conclude our question and answer session for today. Mr. Reed, I'll turn the conference back over to you for any additional or closing remarks.

Thanks very much, Yolanda. We appreciate everybody joining us. We had an extra ordinary turn out on a day like this, and we hope to see all of you who have access to hot water and showers and other things at PLMA. It is on Monday, November 12 at the Rosemont Convention Center. And you can get there in just a few minutes from either O'Hare or Midway. So thanks again, and see you then.

That will conclude today's conference. Thank you all once again for your participation.