TreeHouse Foods Inc (THS) 2012 Q4 法說會逐字稿

Welcome to the TreeHouse Foods conference call. Today's call is being recorded. At this time, I would like to turn the call over to TreeHouse Foods for the reading of the Safe Harbor Statement.

Good morning. 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, expects, seeks to, anticipates, plans, believes, estimates, approximately, nearly, 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 achievements expressed or implied by these forward-looking statements.

TreeHouse's Form 10-K for the period ending December 31, 2011, and subsequent Forms 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 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.

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.

Good morning, all, and welcome back to our TreeHouse. Dennis and I have much to share with you regarding our accomplishments of the past year, our prospects for the new year; and, lastly, our outlook for the M&A market in the food sector.

First, let's return to 2012, with particular emphasis on our recent progress and year-end condition. While Dennis will provide the financial and operational details, I'll summarize our headlines as follows. Fourth-quarter shipments approached $600 million, an all-time high on the strength of hot beverages, including the introduction of single-serve filtered coffee and the acquisition of Naturally Fresh, which has opened new refrigerated markets in both grocery and food service.

Our core Retail Grocery business grew almost 9% in the quarter in spite of year-end shipment volatility as double-digit growth in salsa, salad dressing, and Grove Square, a company that filtered coffee rollout, more than offsetting losses in soup. Our Food Away From Home and Industrial business units closed the year on an upbeat note, generating approximately $3.5 million more in quarterly direct operating income than last year, as they leveraged the competitive advantages of our go-to-market scale and operational infrastructure.

Hot beverages first launched two years ago with the Grove Square control label are now a major organic growth platform, thanks to last fall's introduction of single-serve filtered coffee. Following the usual learning curve and mastering a new technology, this home brew has become the hallmark of TreeHouse innovation and entrepreneurial spirit. Having established ourselves as the private label leader, we now have the grocery base upon which to expand coffee capacity, further in pursuit of food service and nontraditional outlets.

Free cash flow increased to $132 million, thus reducing our net leverage to a trailing 2.8 times, a ratio that will only improve further in anticipation of future acquisitions -- whether strategic or bolt-on, in grocery or food service -- that add new products and markets to our private label portfolio. Taken in their entirety, we believe these end-of-year developments are the harbinger of better times to come for private label and our TreeHouse.

Next, in turning to the year ahead, we anticipate volatile external conditions in the marketplace, coupled with a full agenda of internal improvements and expansion opportunities that will drive both topline and margin growth. Specifically, market conditions for aggregate food and beverage categories, which showed volume declines of 0.6% across all measured channels and outlets in 2012, will favor the value without compromise strategic proposition of private label, as economic uncertainty continues to weigh heavily on the consumer sector.

Input inflation is to be relatively -- is expected to be relatively benign, with risk concentrated in Midwest grains and oilseeds, as the global demand for commodities and energy slowly recovers. Our agenda of internal improvements will bode well for our revenue growth and margin expansion programs.

On the revenue front, we generated 2012 sales growth in nine of 10 of our largest private label categories, and achieved similar revenue gains with nine of 10 of our best grocery customers. Once structural issues and soup are segregated, we expect our core retail grocery business to perform well, driven by innovation and merchandising in growth categories. In parallel to the top line, our margin should expand approximately 100 basis points, as a favorable product mix is combined with productivity gains, capital investment, and hedging programs across our operations and supply chain.

Through the last six quarters of fits and starts, we have re-examined our old ways and found new ways to succeed in a private label marketplace that has rapidly evolved from the traditional supermarket model to the dynamic of alternate store formats. In doing so, we have reaffirmed the basic premise of our private label strategy and found both new strength in our TreeHouse and new opportunities to grow it.

2013 will mark the emergence of a TreeHouse rededicated to our private label strategy and its manifest go-to-market opportunities.

In concluding this introductory overview, I'll briefly touch upon the M&A markets and our prospects for external expansion in the new year. After two years of prolonged inactivity, we anticipate that 2013 will usher in another era in food and beverage consolidation, affecting both the glamorous global brands and their more homely private-label counterparts. No one can be better prepared or more capable in this circumstance as it relates to private-label than our TreeHouse. We have de-leveraged during the deal market doldrums; unified our go-to-market teams; invested capital and R&D in our growth categories; improved our manufacturing and distribution capabilities; and, most recently, bolted on two small-scale, accretive acquisitions. We can all expect TreeHouse Foods to be in the front echelon of strategic acquirors, as the next wave of M&A transactions generates further industry consolidation and expansion opportunity for those with strategy, capital, and resources. You can count us in.

Dennis?

Thanks, Sam. Clearly, the fourth quarter was a pleasant change from the experience of the first three quarters of 2012. We saw retail volume improvement in most of our categories, leading to growth in our volume mix of over 8%. Although the comparison was to a weak fourth quarter last year, we achieved the growth, even with the lower soup volumes we had warned about on our last call. Despite the very good topline growth, we are still seeing a lot of volatility in month-to-month sales. Some of this is driven by the number of shipping days in the month, and some by the timing of holidays. We are also seeing more active management of retailer inventories as they push more and more for just-in-time deliveries and very quick turnaround on the orders they place.

We are fortunate that we've made the right investments in systems and distribution centers over the last two years. We find that the topline movements are challenging, but our success with the operational aspects of meeting retailer demands are a key differentiator to doing business with TreeHouse.

As we look more closely at our North American Retail Grocery segment, our total sales increased 12.9% to $431.7 million. This increase was driven by volume mix of 8.7%, and 2.4% from the acquisition of Naturally Fresh in April of last year. In looking at the product categories, we had sales gains in nearly every category, paced by double-digit increases in Mexican sauces, dressings, hot cereals, single-serve beverages, and pie fillings. We even had a 9% increase in pickle sales over last year's admittedly soft fourth quarter. The only really weak area was soup, where we had a decline in sales due to the previously announced loss of business at a key customer of ours.

Partially driving our retail sales increase was the addition of our new filtered coffee products. We began shipments of this product at the very end of the third quarter, and have been very happy with the sales of this new product. As we've said from the beginning, this is an important category for us. And it has the potential to be a very good long-term driver of both sales and profits. However, we believe that our measured approach is the best way to ensure the category remains a strong place for private label. Due to the early successes, we are already adding additional capacity to our coffee lines, and using the current consumer resale trends to assess even more capacity in the back half of the year.

We are staying with our measured approach of building up to demand rather than trying to sell new capacity. And just to be clear, we also sell a variety of single-serve hot beverages besides the filtered coffee. These include hot cocoas, cappuccinos, cider, and tea products. These unfiltered products are also doing extremely well, and have increased approximately 92% compared to last year's fourth quarter. This speaks to both the quality of the products and also the continuously increasing population of single-serve brewers.

Direct operating income in the Retail segment was stable in the quarter, finishing at 15.6%. This is the same as the full-year run rate. These margins are down about 30 basis points from last year, but that is due almost entirely to the addition of the Naturally Fresh acquisition. That business has lower average margins than the legacy business. Excluding Naturally Fresh, margins would have been in line with last year.

In regard to the Food Away From Home segment, the new Naturally Fresh business was the reason for the 13.9% increase in total sales. Approximately 50% of Naturally Fresh's annualized sales of $80 million are in the Food Away From Home channel. Excluding these sales, our volume mix decreased 7.4%, due to lower sales of aseptic cheese and pickles. Direct operating income increased to $11.1 million, due to the sales from the acquisition of Naturally Fresh. However, direct operating income margins decreased to 13%, primarily due to unfavorable sales mix.

Our Industrial and Export business had a sales decline of 3.6%, due to exiting some very low-margin co-pack business. But strength in our industrial powder business more than offset the profitability associated with those lost co-pack sales. Direct operating income finished at $14.4 million, representing a margin of 19.1% compared to 14.2% last year.

On a consolidated basis, our sales in the quarter were a record of $592.8 million as acquisitions, pricing, and a very strong volume mix drove the 10.6% increase compared to last year. Our gross margins in the quarter were 20.1% compared to 21.9%. On a comparable basis, and adjusted for certain restructuring charges that flow through cost of sales and acquisitions, gross margins in the business would have been flat to last year.

As I move down the income statement, selling and distribution expenses in the quarter increased to $36.1 million, compared to $35.6 million in 2011, due primarily to the growth in total sales. As a percent of sales, these expenses decreased to 6.1% of net revenues, compared to 6.6% last year. We continue to realize efficiencies from our distribution network consolidation program that we started two years ago.

General and administrative expenses increased significantly from last year, because last year's results included the reversal of a substantial portion of annual incentive compensation, as the results did not meet minimum hurdle levels. The 2012 G&A includes incentive compensation expenses, although not at the targeted level. Although our G&A expense increased to a rate of 4.3% of net sales, this was still well below the historic levels of about 5.5% to 6% of net sales, because our operating results fell short this past year.

Interest expense for the quarter was effectively flat to last year, as borrowing rates have remained consistent, but excess cash flow was invested in our Canadian subsidiary to preserve preferential tax treatments. On the other hand, we recorded $300,000 in interest income this quarter that was generated from the invested cash in Canada.

Our total debt is now $900 million, a decrease of $55 million since the third quarter. The strong cash flow in the fourth quarter is normal for us, as we reduce inventories of fresh crop and fruits that were harvested and bought during the summer and fall.

Foreign currency gains or losses were fairly minimal this year, as we are only exposed to the Canadian dollar. The combination of a very moderate Canadian exchange rate to the US dollar, combined with offsetting effect of excess cash being invested in Canada, helped to keep this line immaterial the entire year.

With regard to taxes, our effective tax rate for the quarter was 30.0%, up slightly from the full-year run rate of 28.9%, as our third-quarter rate was unusually low.

Net income in the fourth quarter was $25.2 million compared to $29.9 million in last year's fourth quarter. This equates to fully diluted earnings per share of $0.68 in the quarter compared to $0.81 last year, before considering unusual items. However, after adjusting for the unusual items highlighted in our press release this morning, our adjusted earnings per fully diluted share for the quarter increased to $0.86 compared to $0.85 last year.

Although the adjusted earnings were only marginally better than last year, I do believe the quality of the earnings was much better, due to the year-over-year change in incentive compensation adjustments. As I said earlier, last year we had to reverse incentive expenses resulting in an extremely low level of G&A expense in last year's fourth quarter. And even though we recorded the lower-than-normal amount of incentive expenses in this year's fourth quarter, the swing from last year to this year was about $10 million, or about $0.20 in EPS.

Now I'll cover the outlook for 2013. While we are very encouraged by the nice growth we experienced in the fourth quarter of 2012, we also know that the economy is still relatively stagnant. Both our customers and their consumers are likely to remain conservative with their purchases, and continue to manage both how and where they purchase.

We do expect to see volumes grow in 2013, but the growth rate will be small. We think retailers will continue to manage their inventory levels aggressively, and that we will again see swings in month-to-month orders as they react to consumer purchases. On the consumer front, we believe the pantries have been pruned, waste has been normalized, and consumption and purchases will come back in alignment. However, that means volumes will generally match with population growth. And we will not see pantry loads to match the levels that existed pre-recession.

The other key assumption we are making is that we are likely to see pockets of input cost inflation, but predicting where and how much will continue to be challenging. We do not see turbulence in the energy markets; and expect that the agricultural markets, weather included, will revert to more historic norms. Despite these assumptions, we will make sure our internal processes are constantly at the ready to adjust to changes in market conditions.

And finally, we will continue to focus on internal efficiencies in order to manage our product assortment and operating activities in response to changing consumer needs. This means driving costs out of the value products we produce while investing resources in the smaller, but growing, premium segments, such as organic and natural foods.

With that in mind, we expect our revenues to grow approximately 3.5% to 4.5% in 2013, with volumes growing at about 1.5% to 2%. The remaining increase relates primarily to a full year of the AMPI and Naturally Fresh acquisitions we made in 2012.

As most of you know, we have tried to target approximately 100 basis points of gross margin improvement on an annual basis. This did not occur last year, as the combination of higher price points that have a negative effect on the actual margin percentage, and consumer trends towards lower margin value products, caused our overall margins to decrease. In 2013, we do not expect pricing to cause the math issue again. And we believe the mix shift has now stabilized. Finally, our investments in premium products will help with the better mix, also contributing to margin improvement.

As a result of these items, we do expect to see a return to margin growth, and are targeting about 100 basis points of improvement. In regard to our operating expenses, you can expect that our SG&A spending as a percent of net sales will revert to normalized levels. Part of the increase will come in selling expenses, as we invest in R&D and selling programs to drive higher sales of our premium products, especially our single-serve filtered coffee.

In addition, we will be resetting our annual and long-term incentive programs, as we do each year, based on the 2013 operating targets. And finally, we will be continuing our investments in systems with more plants being converted to SAP and more investments being made in demand planning, product lifecycle management, and analytic tools such as data warehouse and business intelligence. These factors mean our SG&A expenses will be about 13.1% to 13.5% of net sales in 2013.

In regard to interest, we expect that short-term rates will likely rise in 2013, but at a relatively slow pace. We finished 2012 with an average interest rate on our revolving debt of 1.7%. And though we expect the average rate for 2013 will increase, it should average just below 2% for the entire year. For the full year, we expect net interest expense to be in a range of $49 million to $50 million.

One item to keep in mind is that we have accumulated cash, most of which is invested at our Canadian subsidiary. We expect cash to grow slightly unless we make significant investments in capital or acquisitions in Canada. For planning purposes, we never include the effect of possible acquisitions. So for guidance purposes, we assume that our cash balances will rise slightly this year, and those funds will be reinvested.

In the fourth quarter of 2012, we had interest income of just under $300,000 and believe that interest income will be at a similar rate of return in 2013.

In regard to taxes, we enjoyed a very low effective tax rate in 2012, due to a combination of good and not-so-good factors. Starting with the bad news, we had lower US-based taxable income. This is taxed at a higher rate than our Canadian-based income, so this drives the overall rate down. On the plus side, we were able to take advantage of certain state-based income incentive credits, as we invested in new capacity at some of our plants. These credits had a positive effect on our overall income tax rate. In 2013, we expect to see a very good rate of 31% to 32%, but obviously this will be higher than the 28.9% rate we had in 2012.

In terms of capital spending, we are again targeting approximately $90 million in spending, with an emphasis on capacity expansion of our coffee business and investments in efficiency in our lines that produce value products. We expect our capital spending to revert to our historical spending allocations of about one-third capacity; one-third maintenance; and one-third cost savings.

Our depreciation and amortization will see an increase of 3% due to the spending levels of the last few years, including our capacity in new system investments. In total, depreciation and amortization will be about $101 million next year.

On our significant non-cash -- our one significant non-cash expense is stock-based compensation costs, which we expect will increase to $18 million to $19 million as our equity incentive programs are reset after a weak 2012 performance. This is pretty close to the levels we originally expected in 2012.

After considering the above items, we expect our fully diluted earnings per share to increase by a range of 8% to 11%. Using our results for 2012 as a base, we expect an earnings range of $3.00 to $3.10 a share in 2013. In arriving at these estimates, we used an average of about 37.8 million fully diluted shares outstanding.

Although the earnings growth of 8% to 11% is higher than most of our peers, I think it's important to understand the impact of certain items in 2013. First, the higher tax rate in 2013 is a headwind of about $0.07. Plus, the reset of long-term incentive compensation plans represents another $0.10 in higher cost. And finally, the higher number of average shares outstanding in 2013 will be another $0.05 in relative earnings drag.

After considering these non-operating earnings headwinds, our underlying results should grow by about $0.43 to $0.53 per share off the baseline results of 2012. This includes about $0.03 in incremental earnings from the Naturally Fresh acquisition. In terms of earnings growth, the quality of our operating earnings actually improves by 15% to 19% in 2013. I think this gives a better understanding of the operational improvements we expect to make this year.

I'll turn it now back to Sam.

Thanks, Dennis. Before opening the lines for Q&A, I'd like to offer some additional color commentary on the year ahead, its place in the evolution of our TreeHouse, and our expectations of further consolidation opportunities in the realm of private label.

First, we have calibrated our 2013 operating plans to address present market conditions and select growth opportunities in private-label. Our portfolio strategy will guide us to the specific categories, channels, and customers that offer the best opportunity for strategic progress and financial gain. Our much-improved internal proficiency will enable us to take full advantage of our economic scale and distribution infrastructure. Having re-examined the fundamentals of our investment premise, we remain resolutely committed to private label and custom products as the means to generate superior strategic advantage in shareholder value in the food and beverage sector.

Next, there is a certain irony to contrasting our present industry position to that of our upstart status of only seven years ago. We have since become an industry leader, and now represent one of the few pure plays in private label food. Our strategy and resources are dedicated principally to the proposition that customer brands and custom products offer unparalleled opportunity for our customers, their consumers, and our shareholders alike. We provide an unmatched suite of value-added services to customers seeking to differentiate and upgrade their house brands. Our operations and supply chain are structured to deliver consistent quality at the lowest [landed] cost. We are positioned squarely in the path of progress with the means to fully exploit it.

Lastly, as the deal market opens, we expect to lead the pack, as strategic acquirors and financial investors seek M&A-based expansion in the food sector. Midsize transactions of $100 million to $500 million, the sweet spot of private label consolidation, should be particularly active as earnings transparency improves and deal multiples return to their pre-recession norms. As a strategic acquiror, our competitive advantages lie in our portfolio strategy, distribution infrastructure, management talent, and access to capital.

Our strategy is the guide to those acquisitions which lead us to the product categories, channels of distribution, and grocery or food service customers focused on growth and differentiation in private label. Our infrastructure provides the critical mass and economies of scale necessary to generate synergies while simultaneously serving a broad array of markets effectively.

Our teams are well-versed in the integration of acquired businesses and their subsequent expansion across the TreeHouse network. Our cash generation and capital structure enables TreeHouse to access the debt and equity markets efficiently for funding that fits both the immediate M&A opportunity as well as our long-term expansion strategy.

In summary, then, I expect that we will see a revitalized and reconstructed TreeHouse emerge in the new year, one that, to borrow a phrase from our annual meeting, will be growing strong, standing tall.

Dana, you may open the lines for Q&A now. Thank you.

(Operator Instructions). Chris Growe, Stifel.

Hi. Good morning, Sam and Dennis. I just had a couple of questions for you, if I could. I want to be clear -- maybe a question for Dennis on the -- this year you're going to have obviously soup volumes being a little soft. But you've got the benefit of the cost savings coming through. So does that say that you had a little slower start to the year overall? And especially North American Retail, with cost savings coming through later in the year; and can you give us some help with the net effect of those two factors?

Good point. The soup will be down. The cost savings are going to help to offset volume. So there will be a bit more of an impact early on. But it's not as if, Chris, the cost savings are going to suddenly turn the total soup business into a higher profit. So I think you've got to be relatively cautious, even in the back half, because that is the key soup season.

Okay. Sure. And then, just a question for you on the gross margin. You had mentioned that, if you took out the acquisition and some of the one-time costs, your gross margin was flat in the quarter. If you took out just -- could you state how much of the cost from the restructuring items were in the cost of goods sold? And I'd just be curious if you could talk about the degree of hedging for your input costs in the coming year.

Yes, the cost of sales took the bulk of the impact from our restructuring. We had, out of the $0.18 -- which is pretty close to about $19.5 billion for us -- just over $1 million would be in the SG&A, and the rest would be in cost of sales. And that's that accelerated depreciation we have to take when you write down assets. So, again, a bulk of it was in the cost of sales as reported.

And as far as the hedging goes, we continue to maintain our general policy of trying to be fully hedged, six months out on what we can hedge. With the markets as volatile as they are, we do look at some opportunities and go a little bit longer in some cases. But for the most part, we stay pretty static. And, as we've said in the past, the idea here is not to try to beat the market by trying to be smarter; but really to lock in prices as we -- on our inputs, as we negotiate prices with our customers.

Okay. Thanks for the color.

Bill Chappell, SunTrust.

Good morning. First, let's go back to the North American grocery volume trends in the fourth quarter. And, as you talked, there were some different puts and takes. Can you maybe give us an idea of what consumer takeaway was? Because, obviously, you had an easier comparison with the falloff in December of last year. You had the sell-in of coffee, which certainly helped it. Just trying to understand what kind of underlying trends are, as we look at it going forward.

Bill, it's Sam. I think that the headline here -- before we get into the particular numbers -- is that in the 10 largest product categories that we have, that we showed solid growth in nine of those 10 categories, with soup being the single exception. And then when we look at our strategic customers, those that are really dedicated to private-label, again, we generated positive revenues in nine of the 10. And that set the stage for a strong end of the year, and we believe something that can carry into 2013.

When you get into the particulars, when we said that the whole of the portfolio, over 102 categories and all outlets, was down 0.6% of a point versus the prior year -- when we looked at the aggregate market quarter by quarter, the improvement was steady from the first, second, third, fourth quarter over the prior year. And we see a little bit of pickup there as well.

I think the last key factor is that the combination of the hot beverages -- both the unfiltered coffee, Grove Square, and the filtered roast coffee -- gave a lot of -- a real burst of, if you will, enthusiasm to us and our customers at year-end. And we have there established now a base that clearly indicates that we are first in the marketplace, and that we are now committed to further investment in the new year to expand beyond that grocery base itself. Those are the big headlines, and I think the lessons to take out of this.

Okay. And so, I mean, the low- to mid-single digits that you are forecasting this year is kind of the normal run rate. It's not, all of a sudden, we are seeing a deceleration from fourth quarter to first quarter.

No, that's exactly right. And it takes into account some of the lost soup business. So there are some puts and calls. But I think in general it's reverting to a new norm.

Okay. And then just switching to the single-serve coffee, there had been various reports throughout the quarter that some of the store brand products had some shipment issues, quality control issues. And since we don't know exactly which ones are your customers versus others, maybe you can give us a little bit of how the whole process went. And then, when you talk about increasing capacity this year, is that for new distribution? Or are you running into capacity constraints now, because the demand has been bigger than you expected? Then maybe more color on what you are seeing, and why you are spending more money behind that.

Sure. First of all, the summary is this, that we are extraordinarily pleased with our single-serve coffee business. And, secondly, that the distribution -- the further investment will be to ensure that we have sufficient capacity to expand not only across all of grocery, but also the virtual markets represented by Internet sellers and nonfood retailers. And then, lastly, to move into food service as well.

With regard to the startup, if you go back, I think in PLMA of 2010, we took out full-page ads saying, in two years from now we will be on the market with a premium quality single-serve roast coffee. That required us to develop, on our own, new technology, and to enter a new product category. And along the way, we had some of the usual startup kind of a learning curve. And I was reflecting that, going back to when I first got into this business, 40 years ago, that this was a technological challenge like few that we had faced; and a startup that has been exemplary in every aspect.

And the key, to me, was to make sure that we had the highest quality product. And, for those retailers who were committed to being market leaders, that we provided them with the quality, the consistency, the variety that they would have to have to put their brands in the forefront of this category. And we have done that in every respect.

To grow further in retail, we'll take advantage of the distribution network we have. And to remind everybody, we ship 1000 truck loads -- full truck loads -- every week across of groceries North America, with the highest service rates and the lowest costs of anyone in our industry. And that competitive advantage will allow us to move beyond those customers that we start with.

Lastly, with regard to the capacity expansion, it's really focused on being able to move beyond that core set of grocery customers to the other channels I mentioned. And, secondly, we've got Grove Square that virtually doubled in the fourth quarter, far beyond our original plans. And we've got a very fine offering in those single-serve beverages as well.

Great. Thanks for the color.

Ken Goldman, JPMorgan.

Hi. Good morning. Question on the margin -- obviously, you guys had a very impressive topline this morning. I might have expected the operating margin to rebound a little bit better, though, especially with the mix improvement. Can you maybe walk us through -- and I know you've done a little bit of this already -- but maybe rank order some of the biggest factors that are holding the margin back a little bit? And maybe give us some color of, you know, on the EBIT line, where you think some of those are more temporary versus permanent.

Yes, Ken, as I said, the big factor that, on the reported numbers that held back were the restructuring charges, and having to run close to $8.5 million through the cost of sales line because of the -- how you have to account for certain restructure charges. That was a holdback. We're also in the process, with our Naturally Fresh business, of working on lines and margin improvement. But that represents a weaker mix for us as well.

As we looked at the rest of the business and look at the dynamics from Q3 to Q4, there were very consistent margins. So the efforts we are putting in to drive margin improvements have started, but most of the manifestation of that will come through in 2013. And it's even a longer-term play. And that's one of the reasons why we have the 100 basis points improvement coming back into play this year, coming up. And, frankly, we are going to start to see those even in the first quarter of this year.

And then, Sam, normally I wouldn't ask this question, but it's something you've raised in the past publicly. So I guess it's fair game. Two years ago, when Dave partially retired, you mentioned that you had at least three years left at TreeHouse. I'm curious if you could update us on your thoughts and plans in this regard. And I guess, no, I'm not trying to kick you out. I'm just interested, since you are the only CEO the Company has ever had.

Well, Ken, going back to our long relationship, you are fine to ask me personal questions. What I had said when David moved to a senior consulting status is that I would commit at least another three years to the business. And it has been two years since. And there is a certain -- what I did not expect when David left, is that I would get so engrossed again in the operations of the Company. And that has been a tonic for me and really a sense of great involvement and joy.

And so, with regard to the three-year commitment, I think it will be longer than that. And, as I indicated in my remarks, I'm really committed to seeing through a reconstructed, revitalized TreeHouse. We've created extraordinary internal capabilities now, and are currently developing the next generation of senior management. And with the deal market opening up, as we believe it is, I just couldn't possibly, in good conscience, leave and allow Dennis and others to get the credit for the next big growth spurt.

Especially Dennis. Don't give him any credit.

You know us so well.

All right. Thank you very much, guys. I appreciate it.

Jonathan Feeney, Janney.

Good morning. Thank you very much. A couple of questions -- couple of detail questions on that burst of enthusiasm we call the single-serve filtered coffee business. The mix -- I assume that's a significantly higher-than-average margin product. Correct me if I'm wrong about that. And can you give me an order of magnitude on how much that affects mix at the gross and operating margin line?

John, it's a positive. As we've always said, any time you're in a category where you have a dominant brand with very good margins, private label will be able to participate and have better margins. So we have a few categories that work like that, and single-serve coffee is one of those. But I can't give you orders of magnitude. But, as I said, we consider that a premium category, and those are the ones we want to play in.

Thanks, Dennis. And following up on Sam's comment about serving multiple channels for private label coffee offerings, I'm interested in the actual -- how happy are your existing customers, both in terms of takeaway and in terms of long-term planning, with their single-serve coffee offerings that are really only two or three months old?

Yes, this is Sam. Initial indications -- and again, we restricted this to a baker's dozen, if you will, of those leading grocers who have the deepest commitments to their private label programs and their house brands. And the initial indications have been quite positive. It's hard to read the syndicated data yet because I think at our last look, fewer than 25% of all the retail outlets were reporting on coffee across the whole of the business.

But the two indicators that we are watching very carefully are, one, velocity at the individual store level. And we have customers that range from one or two varieties, up to certain customers who have authorized eight different varieties. And the second thing we are watching is price differentials between brands, and, in particular, branded promotional activity. And, while it's early, I'd say, based on the preliminary indicators, it shows us that there is a real place here for private label products in the category; and that it should fare quite well with regard to our expectations, not only for the customer improvement volumes, but also in terms of its share of the aggregate margin.

Great. Thank you, Sam. Just one last one, please. Have you noticed yet -- and you've talked about a better M&A environment broadly, and certainly that sounds great. But I'm specifically -- have you noticed a changed dynamic in any way as with now you being really the only strategic center-store food consolidator of store brands, for the moment at least. There's another consolidator out there who has explicitly committed to debt paydown for a long time. Have you noticed a changed dynamic with maybe that change in the marketplace yet? Thank you.

Well, two parts to this. First of all, with regard to the general market and its reopening, those -- the observations we have there really come from time before the last two big deals were announced; one, the private label merger, and the other, the going private of a big public company. And we had -- I think I'd indicated at one point, in 2011 that we had met privately with, I believe, approximately -- the owners and senior management of approximately 75 businesses. And the relevance of that is that late in the prior year -- again, before these two deals were announced -- as we were making rounds, we began to get clear indications, particularly those that are held by private equity, that they saw 2013 and, in particular, the first half, as a time that was coming to bring properties to market.

The second -- then with regard to the big announcement, I think that what we've heard to date is primarily an anticipation that, as the market opens up, that there will be at least for some period of time perhaps a strategic player on the sideline. But on the other hand, I'm -- firmly believe that this market, the pricing, and terms are going to be largely a function of private equity money that is abundant and with cheap financing.

So whether there is one party off to the sidelines or not, I think this is going to be a highly competitive market, and one that will require of strategic buyers that they apply their strategic advantages to the full --not only in the bid process, but more importantly, once the businesses are acquired. And as I tried to indicate, that's where we specialize.

Thank you very much.

Akshay Jagdale, KeyBanc Capital Markets.

Good morning. Thanks for taking the question. I've been thinking about this for a while. But in terms of the coffee questions -- I mean, there's a lot more to TreeHouse than coffee. But it seems like there's a lot of focus on it, so I'm going to continue with that line of questioning. I find it curious that you mentioned only 25% of the private label single-serve coffee volumes may be reported into IRI and Nielsen. Am I understanding that correctly? So, in other words, the private label share is showing up as 2%. It could be actually 8% or 10% -- is that how we should think about it? I'm not sure I understood that.

Yes, Akshay, let me clarify that. A recent IRI report -- and I don't have the date, but it was in 2012 -- indicated that of all the -- of the universe of outlets and channels, stores that report through IRI, in that one report that 22% of the outlets that they tracked were reporting movement of single-serve coffee and private label. And there are lag times and lead times to this because they have to make sure that, as these products are authorized and distributed, that the administration of the system is up to date.

With regard to what that says about the aggregate share, I can't hazard a specific numerical guess. I think we indicated from the very beginning here that we believe that the category would be a fine one for private label; especially for those who committed themselves to not just the national brand equivalent, but to the highest quality -- the coffee, the beans, the roasting, the blending. And that's where we have differentiated ourselves, as well as being able to emulate the packaging and the delivery systems of, again, the industry standard.

Let me ask Dennis. Do you have more specific information you'd like to comment on there?

Well, actually, maybe just a technical one. Because this product really just started shipping in the fourth quarter, and some of the retailers didn't really -- that we are dealing with, as Sam said, the baker's dozen didn't get their products really starting to ship until December. What you're going to have is a lag in some of the reporting data as well. So not all retailers will have their products coded and set up in the system that quickly. So I think we'll have to wait a little bit in order to get a good handle on exactly what the private label share is.

But even with all those caveats, remember, we said we were taking a measured approach, and we are very happy with our program. And I'm not sure we want to start jumping out and talking about things like ground coffee -- private label is 10%; therefore, this will be 10%. That could be an unknown. But at least, at this point, I think you have to assume the data is not quite complete yet, in terms of measured reporting.

Okay. And just two more questions on the same topic. First, everything we are hearing with our coverage of this space, which includes talking to your private label competitors on coffee -- on single-serve coffee -- as well as some customer reviews, keep telling us that there is some quality issues related to single-serve private label capsules. That's what we are hearing. We are hearing that consistently.

What could we be missing there? Because, clearly, what you are saying is your business is doing great. You are very happy with everything regarding that business. But I'm sure you've seen the customer reviews. And some of those customers are presumed to be yours. But we don't know that for a fact. So what's going on there? I mean, is it just over-exaggerated? I'm just trying to understand. Because that's the general consensus, not only -- just in the industry right now.

Akshay, it's Sam. We had a Board of Directors meeting, I think, last week -- two weeks ago; and at that meeting, presented the full array of all single-serve filtered coffees on the market in both the United States and Canada. And what struck me about -- and we had product samples; and we had comparisons done of the delivery systems as well as the coffee across several suppliers. And two things struck me. One, there are more entrants into this business than I would have expected. And some of the smaller ones have done this stuff on a shoestring. They didn't invest in the strategy, the marketing, the science, the technology that TreeHouse has. And a number of them have -- I won't call them deficiencies -- but I'd say extraordinary variances between what is the leading brand, or the gold standard in this category, versus their private label entries.

And I was struck, one, at -- I said, the large number of those; and, two, the opportunity that it offers to us over a period of time. And to use our distribution infrastructure to make inroads, and gain some of those positions where others who have kind of come up short, to my view, in the standard of -- currently have distribution, they are just vulnerable to us, particularly when we continue to add capacity. So that's the view from someone who, two weeks ago, looked at every entrant in the marketplace and did it in the context of a highly objective analysis by others in the industry.

And just one last one. This is regarding your ability to maintain or even improve your margin structure on that product, in light of a competitive entry. Because, again, most people assume that with new entrants, margins will come down. What we are hearing is, because this category continues to grow very solidly, and has not been established because of a low price point, per se, that there is no incentive on the part of the retailer to really lower price points to the consumer.

So I think I'm of the same belief as you are, that margins will continue to be pretty good in this category, at least for the foreseeable future. But I just wanted to get your updated view on that. And what is your comfort level? Has it gotten better in terms of your view on the margins that are available to a quality manufacturer like yourself? Thank you.

Akshay, we think this is a good category. We think it's going to remain a good category for quite some time. We think that, to your point, the nice thing about this for private label is that it's got a brand that's dominant and has a great R&D. They advertise; they market; they've got innovation; they've got all the right things to protect the brand and protect the category. And that will allow private label to have their niche inside that, and kind of fit under that nice umbrella. And the key for us is to continue to focus on the premium side, which we will do. And we think it's got a long runway of opportunity here. And so we're very pleased with this, as Sam said. It's been an organic growth for us, and a lot of innovation. And that's one of the hallmarks of a great long-term category.

And so pricing is very -- how would you characterize the pricing environment? I know Sam said you've been looking at those price caps carefully. How would you characterize that environment within single-serve coffee right now?

I think the category dynamics are very good right now, and they will stay very good.

Okay. Thank you. I'll pass it on.

David Driscoll, Citi.

Great. Thank you and good morning. A couple of questions. I wanted to go to the North American Retail Grocery overall segment for the fourth quarter. And can you talk a little bit about why margins were down year-on-year? I think volumes, Sam -- you said in the release, volume mix was up 8.7%. Usually when we see such strong volume growth in a quarter, we would expect some kind of volume leverage. So maybe you guys could explain the margins in the quarter, just on that segment, a little bit.

Yes, we did positively there. But one of the things that we still have, and it's been consistent with the third quarter, David, is we continue to see still a fairly strong push to the value products. So in certain categories, where we did very well -- a hot cereal for instance -- we are still seeing very strong demand for something like tube oats, which are much more of a commodity product, ahead of something like the single-serve instant oats. So that type of mix is still there. It hasn't changed significantly. And that's why the margins stay relatively steady with the third quarter.

Okay. But over the course of time, I mean, seeing the strong volume growth, you would expect to see margin improvement, not flat margins on a longer-term basis. Is that accurate?

That's accurate. And that's why next year we are targeting the 100 basis point improvement. Certainly, we would love to see more. But I think we're going to be back on the road to the margins going north again instead of south.

Well, that's a pleasant event. On soup, can you discuss specifically what sales and margins were? And then, most importantly, what I really want to understand is, explicitly, what's the dollar loss in sales in 2013 because of the soup issue?

David, it's Sam. Let me talk about the matter in general and qualitative terms first, so that the strategy is clear here. Our expectation for 2013 is that it will be the year in which we reset our strategy and investment in private label soup, gravy, and broth; with the understanding that, as we look at the whole of the category over an extended period of time, what one could see is that the whole of the business of canned soup was steadily losing its aggregate volume. And ostensibly a lot of that is related to consumer preferences and the way that the national brands have struggled for some time to be able to address those. And we concluded that the -- we needed to reduce our aggregate investment in the category, and closed one of our two plants.

And, secondly, we concluded that, given the national brand, if you will, duality, that we had created an infrastructure that was competing to provide a presence for all customers in all product categories segments that replicated the entirety of that business. And I think that -- I believe I've mentioned once that we were undertaking a strategic review. And I was very pleased to find out that we were focused on six new product formulations and entries in that year; but dismayed to find out, in that same sitting, that we had 84 reformulations going on of highly complex products that we had introduced simply to -- not only be the national brand equivalent, but be the equivalent of both national brands and segments that were only minutely differentiated.

And so what we are doing here in 2013 is not only reducing our investment in the whole of the business, but greatly simplifying our offering. And trying to find that base of grocery customers that we can most profitably serve with, in effect, a single national brand equivalent in segments where there is sufficient volume and margin to allow us to begin to improve the business.

And then, lastly, I will say that we are doing so with the explicit recognition that we would rather be a sustainable, profitable number two than hang on to a category leadership position in private label that was a no-win proposition for us. So those are the big data -- the big numbers. The proof in the pudding will come out in the 2013, 2014 soup season. And the plans that we have made -- and Dennis has had an integral part in the level of these category plans -- indicate to me that we are clearly on the right track here. Thank you.

Thank you. Dennis, can you quantify the dollar sales loss?

I can't do that, David. And, one, we never do give the category sales forecast; but I would say that, in the soup business, it's a little more open-ended right now, because the soup selling season is really in the April through June timeframe for next year. And with the SKU rationalizations of formulations we are doing to become more efficient, it's a little more difficult in that category to say exactly where we are going to be. We've done our best estimates, but that would be the one area, as we go into 2013, that has a bit more of an unknown than the other categories.

All right. Well, bottom line, where I was trying to go with this is that you gave this positive volume guidance, but you've definitely got a big negative volume hit on soup. You've got some kind of volume positive of single-serve coffee that's unusual because of the rate of growth. And then you've got what's going on in the rest of the business. It was our expectation that, looking at the year, the soup hit would be pretty significant, in such that I think your volume guidance is a little bit better than I expected.

But I'm really not -- I am unsure on how to track all this stuff, because you're just not giving us any of the pieces. Is there any -- you can't even put a range on it? Soup is a couple of points of headwinds. Single-serve is 2 points of a positive. And the base -- the rest of the business does X. Is there any way you can frame this?

Let me just give a general -- very general framing for you. You've got the components right. We will be growing our single-serve beverage business very nicely in 2013. We will be restructuring down and having lower sales in soup. And the bulk of our other categories, with the exception of the addition of the Naturally Fresh on a full-year basis, should mirror in general what the food world is going to do. So think of most of our business is going to be a moderate uptick; and we'll have two opposite dynamics in the coffee and soup, and then later in the extra four months of Naturally Fresh.

If I could be so bold as to just ask one last thing -- you didn't mention dry dinners and powdered beverages. And there was a lot going on in those two categories; a lot of competitive activity from some of the big guys in dry dinners and then powdered beverages. Sam, you told us a lot about the new product that you are launching there for the -- you don't really call it a powdered beverage anymore. But bottom line, you have a lot of efforts there. Can you just give us an update on those two areas?

Certainly. First of all, with regard to the sugar-free beverages, whether they are powdered or otherwise, we have entered with the liquid beverage enhancer that -- although we are late to market -- emulates leading national brand in that regard. And we have, in compensation for being late, focused really on two things -- one, a package that is far superior to the other private label packages out. And there have been instances here where those packages have not been leak-proof, as they should have been.

And then, secondly, we've utilized the ingenuity and the consumer marketing activities at that particular [low creation] in the Company to come up with varieties and flavors and combinations that will distinguish us there, as we are currently doing that in the powdered beverages as well.

So a quick summary, we are late to the party there, but we've got a better product than our counterparts. And we'll go to work on getting our fair share in that regard.

In dry dinners, kind of two big headlines here -- one, that we have greatly improved our business during the course of the last year. And we had invested heavily in automation in microwavable cups and also skillet dinners. And without giving -- I know you want the number, but at year's end, we were running against our production standards. Twice the share of aggregate production that was above ours are standard modeled than in comparison to the beginning of the year. So made great strides in terminally internally; and then, now, our real focus going forward is that there's been great growth in the national brand here. And Kraft has come up with a second brand that has been a real boon to their volume. And we are, as you would expect, quickly on their heels with regard to how do we come out with flavors and formulations and packages that can appeal -- give us the equivalent of that new brand out there, in terms of its appeal at its convenience. And there's always a certain lag time to those. But I think we'll see, in 2013, that our business will do quite well in that regard.

Thank you very much.

David, just one real quick thing. When you look -- and I know a lot of people look at the IRI data -- it's difficult to really pinpoint exactly what TreeHouse or other private label companies are doing. And I think you were alluding to maybe the IRI data did not look so impressive for the dry dinner category for private label. But I will say that our fourth-quarter sales were positive year-over-year. And we are finishing the full year almost 10% up year-over-year in dry dinners. So the tail of the tape isn't always what you see in the IRI number. You have to look at what business was taken, and one during the course of the year, and we had a good year in dry dinners.

That's really helpful. Thank you.

Farha Aslam, Stephens Inc.

Hi. Good morning. One quick last question. It's on the promotional cadence in your categories. Throughout last year, you said it was tough to predict when you're going to see the branded players come in and promote. But today you sound far more confident about 2013. We'd just like to understand what has changed that's giving you this added confidence.

Well, from my perspective, what we tend to see is a renewed focus on innovation. I think in the categories we've gone on, there is only always going to be promotion happening in season. When a brand is in season, that's their heavy promotion time. And that typically is when private-label shares drop. But as we look at what is starting to happen, it looks like there's been a bit of a pullback. As I look at the results of the other branded companies, I'm finding that the promotion numbers seem to be getting to a point where I don't know if they can continue to do that. We've seen some of our other competitors make significant cuts in advertising and other pieces. I think they are starting to hit the floor.

And if recent presentations from down in Del Vista, Boca -- or wherever everybody is right now -- would imply that everybody is going to be back on innovation. And that's what will differentiate; and so that, we see as a trend that should continue into 2013.

Thank you. And then my final question is, just in terms of your alternative channels and your dollar stores effort, did you -- are you now up to where you want to be with those product formulations and the margin in that channel? Is that where it needs to be for you guys?

This is Sam. I think we are far better than we were when this change first started. And what we have had to do is sort out -- not only in that class of trade, but by individual customer -- what is the right products for their individual stores, and whether it is opening price point or smaller sizes. And, thirdly, what accommodations can we make for them with regard to identifying productivity in ways that we can favorably affect, particularly in the logistics system. And we've made substantial progress in that regard, and now have an agenda that is highly focused on certain categories -- not all; and certain customers, not all; where we believe that we've got a sustainable advantage. So I'm pleased with the progress. We are not where we want to be yet, but we are on the right trajectory.

Great. Thanks very much.

Jon Andersen, William Blair.

Good morning, Sam and Dennis. Most of my questions have been asked and answered, but I guess, Sam, I think I heard you mention natural and organic in your prepared remarks on 2013. I guess I was just curious what your business consists of today in that space, and maybe what some of your efforts may consist of going forward in that area, whether it be specific products oriented around the natural and organic opportunity, or a bigger push into that channel.

I'll tell you the driver of all of this is that the premium segment of retail grocery has been our fastest-growing over the last two quarters at least. And with regard -- I think it's a fact related to the bifurcation of the consumer market where the 1% are doing pretty damn well. And it shows up in those retailers who focused on natural, organic, and premium products with their brands. And that has been a great opportunity for us across a number of categories. And, frankly, something that has materialized in a bigger and faster way than I would have expected a year ago, when we were completely preoccupied with dealing with the discount side of the business. But I welcome that market development. And we are in good position to leverage it.

Great. Maybe one for Dennis -- just on gross margin, in 2013, I know you've got a goal here of 100 basis points improvement year over year. And there are a lot of moving parts, clearly, with channel mix and pricing costs now in better alignment, and the investment and premium products ongoing. The improvement, though, as you look at it on a quarter-by-quarter basis -- should we be thinking more of kind of steady sequential improvement from the fourth-quarter level? Or do you expect year-over-year improvement right out of the gate in 2013?

Yes, I think it's something we will anticipate building up to. I'd love to see it pop, but it usually doesn't work that way, John. So I think we'll start a little low, and grow our way into the full 100 basis points.

And do you see 2013 -- is this a year of catch up after more challenging gross margin dynamic in 2012? Or is there a return now to maybe your historical multi-year goal of 100 basis points of expansion on an annual basis?

Well, I'm hoping that it could be a long-term. But every year, somehow, some way, there is a new dynamic thrown at us. But I do think, given the structural of private label, given our 18 plants, and where the significant amount of our costs are, we should continue to target that as a long-term goal. And find those improvements internally, because I think you're always going to have a challenging external market to try to price your way. I just don't believe you can price your way to margin improvement on a long-term basis. And so, it's an internally focused activity for us.

Great. Thanks, guys. Look forward to seeing you soon.

Thilo Wrede, Jefferies.

Good morning, everybody. Dennis, since you already mentioned the CAGNY presentations, I think the mixed message down here on the state of the consumer and the current environment, your press release talked about conditions in the early fiscal 2013 on moderating. Can you square that against the consumer that is facing higher taxes, higher gas prices, unchanged unemployment? How much of this moderation that you're seeing right now is just easy comps versus actually an improvement for the consumer?

Well, clearly, we had some easy comps -- and I mentioned that a few times -- with the fourth quarter. It's hard to tell exactly how the consumer can respond. There has been some discussion that there's already -- there's a very large retailer seeing some impact from that. Obviously, in food, you have to eat. One of our assumptions, though, is that the pantry de-load has happened. And it's done, and we are leveling out. I think the consumer data we saw last fourth quarter bears some of that out. We finally saw some positive movement.

One of the things we also saw for the first time, I think, in five fiscal quarters, was that some of our traditional grocery customers, actually -- our volumes were positive for a change, as opposed to seeing that negative shift in traditional in a very big positive in the pure value side. So that's what we are basing a return to the norm on, to a degree.

But we're still going to see dynamics change. And one of the things we've decided we need to do in 2013 is be prepared for the challenge, as opposed to walking into the year like we did in 2011 and 2012, where we used a lot of terms of moderation, back to normal; and 2011 and 2012 didn't come close to getting to normal. So we are hopeful we are there. But, just as you pointed out, there is a lot of things happening. So we are taking a bit more conservative view going, in terms of how we manage the back side of our businesses, the processes. But we do think the consumer is back to buying.

Okay. Can I take away from that that your EPS guidance for the year, then, is skewed more towards the cautious side rather than the optimistic side?

I think, given the fact that we ran a streak, back from about 2006 through 2010, of 16 straight quarters of beating; and now we have a 50/50 history over the last year and a half, that we aren't about to start sticking our necks out too far.

Fair enough. Thank you.

John Baumgartner, Wells Fargo.

Thanks. Good morning. Sam, can you talk a little bit about the prospects for distribution growth in retail? I guess maybe in terms of how you used to refer to the big wins -- are you seeing the distribution growth across your customer base? How would you characterize that going forward?

There are two elements to it. I think that, one, with regard to traditional supermarkets and mass merchandisers, that our efforts are becoming much more focused than they have been in the past. And I had said I think twice in the prepared remarks that it really is the portfolio strategy that guides us, not only to the categories, but to the customers and channels of distribution where there are big opportunities. And we had done an analysis in preparing for 2013. We had done an analysis where we went back and we look at our big wins program. And we were pleased with the aggregate result, but surprised to find out that a substantial proportion of items where we had invested in marketing and strategy, technology, and packaging, formulation had turned out to be rather marginal products for two reasons. One, they really weren't differentiated and deliver the full promise of the value without compromise. And, secondly, they were with customers that were far more transactional in their nature than strategic, with regard to their house brands.

And so we tried to reset this and do fewer, but larger, projects; and to concentrate those in categories where we know we can deliver. And, secondly, with customers where we know that this will be an enduring aspect. And as Dennis had indicated, we've seen some of those traditional grocers start to do better of late.

And then the other factor is that the proliferation of alternate retail outlets and non-food retailers that are now carrying some food and beverage products. And, thirdly, in the Internet, it opens an extraordinary opportunity for someone in private label that's willing to make the investment, as we have in developing systems to serve those channels of distribution.

And so my view on this thing is that we've been through the worst of it. We've had to adapt our Company to those structural changes; and understand that wherever consumers have got to go, whatever they're going to go, whether it's on the Internet or the supermarkets or these alternate channels, we've got to develop our business systems to efficiently and effectively serve them. And that's the big opportunity here.

Okay. Thanks again.

Robert Moskow, Credit Suisse.

Hi. It's Rachel Nabatian, in for Rob. Good morning. So brand companies experienced trade de-loading in Q4. Now, it did the retailers treat private label differently. And, if so, would you say that that's a positive regarding the merchandising plans?

And you said there was trade load?

De-loading. (Multiple speakers).

As I said in my -- we continue to see month-to-month fluctuations. And we had some accounts that were unusually low in December, and others that weren't. I think our view now is, at least for private label, it's going to be a month-to-month game in terms of trying to manage how we ship to our customers. Because their order patterns are not as consistent as they were. So I can't say that it was unusual anymore. I think it's now become the norm that retailers, in particular, are going to manage their month-end inventories as tight as they can.

And, historically, we had, for many years, the last week of a month was always the biggest shipment week of the month. And lately it's become the smallest -- or one of the smaller weeks, as the week-one now seems to be the big shipping time. So there is a lot of change in dynamics. I don't think we are any different than what the rest of the food companies are going through.

Okay. Makes sense. Thank you.

Amit Sharma, BMO Capital Markets.

Hi. Good morning, everyone. Sam, just a clarification -- an earlier question -- I think, Dennis, you mentioned your core business will grow largely in line with the overall food sector. So one of the key [differences in resulting] has been your scale, your ability to serve national customers. And, therefore, you would expect TreeHouse to grow faster than the overall food; takes you away from some of the smaller competitors. Is that premise changing, or is that just a dynamic of -- for 2013?

Well, I think the premise is still intact. What we want to be careful about, especially after the last two years, we've really moved in fits and starts. And some of that is clearly of our own making. And, as Dennis indicated, we wanted to look at all of these projections on a basis that was not -- we wanted to make sure that we weren't going out beyond our capability. And you have here the dynamic that, one, they are what we expected. There will be growth in the business in the coming year. And when we looked at the point I'd made about the 0.6 of a point decline in the past year -- quarter by quarter, that measure improved each of the four quarters. And it was coincident with a reduction in the rate of price increase and private label, which, in the first quarter, was more than three times that of the second quarter -- of the fourth quarter.

And with our expectation that commodity and energy inflation will be relatively modest, God help us, in 2013 we expect that those trends will continue to, quarter by quarter, get somewhat better.

The second factor, for us, is that we do have this extraordinary operational and supply chain advantage. And we will apply that, but not in a general way. It will be more toward specific customers, channels, and categories where we believe that we've got -- can invest in a sustainable business.

And then, lastly, it is a test to the complexity and the size of TreeHouse -- and we now are the North American leader in virtually a dozen shelf stable drive product private label categories, depending on how finely you divide those. And we've got a complex portfolio of products to manage. And so that the advantage of that is that we are not entirely dependent on less than a handful of categories like we were at the beginning.

But, in fact, have that baker's dozen, where we are among the leaders now; and that allows us to invest for growth in certain businesses while we are retrenching in others. And you put all of that together, I think it gets you back to the range that Dennis quoted earlier in his prepared remarks.

Got it. Thank you very much.

Bryan Spillane, Bank of America.

Hey. Good morning, guys. This is actually Ryan Oksenhendler in for Brian. Just a quick question on the outlook for inflation. Some of the branded companies have said that inflation actually could be a tailwind in the back half of the year. Is that a possibility for you guys? And, if so, would you consider lowering prices in terms of -- in order to open up some of the price gaps or to drive volume? I think some of the branded guys, I think, are looking to hold onto pricing.

Yes, as I look at the input costs, one of the differences we have from a number of the branded companies is we have a very wide portfolio of products. So we look at it as more of a basket. And our view is that the basket is going to increase, but there will be pockets. It just depends on the particular ag input. So we do soybean, corn, oats, cucumbers. So there is a variety of products. Our expectation is not that we are going to see lower costs. We expect there will be some higher costs, and we are prepared to deal with that. So I'm not so sure I'm ready to commit to price givebacks and things of that nature. Because I think we're still going to have to be very targeted in certain product category of ours in regard to pricing.

Thanks, guys.

And there are no further questions in the queue at this time.

Thanks, everyone. Dennis and I look forward to reporting to you next in early May. And we are delighted that so many of you called in, and could stay on with other activities this morning. Take care.

Again, that does include today's presentation. We thank you for your participation.