Campbell Soup Company (CPB) Q4 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Campbell Soup's Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jennifer Driscoll, Vice President, Investor Relations. Please begin.

Thank you, Mary. Good morning, everyone. Welcome to the Campbell Soup Co.'s fourth quarter earnings call and webcast. With me here in New Jersey today are Denise Morrison, President and CEO; Craig Owen, Senior Vice President, Chief Financial Officer and Chief Administrative Officer; and Anthony DiSilvestro, Senior Vice President of Finance. Today, Denise will give an overview of our strategies and comment on our performance for the fourth quarter, followed by a detailed discussion from Craig that also includes our expectations for fiscal 2012. Following the wrap-up from Denise, all of us will take questions from analysts and investors. As usual, we've created slides to accompany our presentation. You will find the slides posted on our website this morning at investor.campbellsoupcompany.com. Please keep in mind that this call is open to members of the media who are participating in listen-only mode. As a reminder, our presentation today includes certain forward-looking statements that reflect the company's current expectations about future plans and performance. These forward-looking statements rely on a number of assumptions and estimates, which could be inaccurate and which inherently are subject to risks. Please refer to Slide 4 in our presentation or to the company's most recent Form 10-K and subsequent SEC filings for a list of the factors that could cause our actual results to vary materially from those anticipated in any forward-looking statement. The results presented today have been adjusted for items impacting comparability, including those that the company announced in June, comprised of a series of initiatives to improve supply chain efficiency and to reduce overhead costs across the organization, as well as the charges related to the decision to close the company's Moscow office and exit the Russian market. As a result of these initiatives in the fourth quarter, we recorded pretax restructuring costs of $63 million or $41 million after tax, which equals about $0.12 per share. Since our presentation includes non-GAAP measures as defined by SEC rules, we have provided a reconciliation of the measures to the most directly comparable GAAP measures as an appendix to the slides accompanying the presentation. These slides, as well as our earnings release and selected quarterly financial data, can be found on the website. We've also made a change in our reportable segments, you can see it on Slide 6. Consistent with our strategy and recent management changes effective this quarter, we are reporting the businesses that formally constituted the U.S. Soup, Sauces and Beverages segment as 2 separate reporting segments. First is the U.S. Simple Meals, which includes our U.S. Soup and Sauce portfolio; and the second is U.S. Beverages. We also now have geographic designations on all of our segments, so Baking and Snacking becomes Global Baking and Snacking with no change to the elements that comprise it. International Soup, Sauces and Beverages becomes International Simple Meals and Beverages to match our U.S. naming convention. North America Foodservice doesn't change a name, yet beginning with the fourth quarter of 2011, costs associated with restructuring activities are not included in segment results, and this change affected Foodservice comparisons for the fiscal year. All of our segments results for prior periods have been modified to conform to the current presentation. Further information on historical beverages performances by quarter will be disclosed, along with our first quarter earnings in November 22nd -- it's the 22nd. We'll give you first through third quarters at the time. And with that, I'll turn it over to Denise Morrison.

Good morning, everyone. Thank you for joining us for Campbell's fourth quarter earnings conference call for fiscal 2011. This is my first call as Campbell's CEO, and it's an honor and a privilege for me to represent Campbell's here today. I look forward to having an ongoing candid dialogue with all of you about our company, our performance and our progress on the growth strategies we outlined in July at our Analyst Day. In fiscal 2011, after a very weak first half, our focus was on improving our bottom line performance in the back half, while developing a strategic framework for Campbell's future growth. I'll share my observations on our performance in a moment. As I stated in our Analyst Day in July, our primary goal is to create value by driving sustainable, profitable net sales growth. To achieve that goal, we are pursuing 3 growth strategies. First, we will stabilize then profitably grow North America Soup and Simple Meals. Second, we will invest to expand our international presence. And third, we will continue to drive growth in healthy beverages and baked snacks. We are confident in and committed to these new growth strategies. We're heartened by the constructive feedback we've received from many of you regarding our plans, yet we also recognize, as you do, that the key to success is our ability to execute these strategies. We enter fiscal 2012 energized with a renewed focus on the consumer. While the economies in our primary markets have generally improved since the lows of the economic crisis, many consumers remained cautious. The recovery has not progressed at the pace or intensity consumers had hoped for. As a result, consumers remain careful about their purchases and feel the need for resourcefulness and vigilance. In this environment, it is critical for us to deliver meaningful innovation focused on consumer needs, and to differentiate our brands through effective marketing that emphasizes our products' tangible benefits and value relative to the competition. Turning to our results. I said earlier that one area of focus for the past few months was on improving our financial performance in the back half. After an improvement in the third quarter, this morning we reported that adjusted EBIT increased 24% in the fourth quarter to $232 million. On a per share basis, adjusted net earnings grew 30% to $0.43 a share in the current quarter. Global Baking and Snacking, which has been strong all year, led the way in the fourth quarter. This business, which is an area targeted for accelerated growth in our strategy, posted a strong quarterly gain in sales and operating earnings. We have a solid track record of innovation in both Arnott's and Pepperidge Farm. We intend to accelerate innovation with our investment in the new Pepperidge Farm Innovation Center, which we will break ground on later this month. Turning to U.S. Simple Meals. As you recall in the first half of fiscal 2011, our Simple Meals performance suffered. These increases in promotional spending behind U.S. Soup did not deliver the expected volume lift. Mid-year, we changed our marketing strategy and pulled back on heavy promotions. As a result, we began to improve the profitability of the Simple Meals business in the third quarter. Subsequently, we took a list price increase in U.S. Soup due to inflationary pressures. In the fourth quarter, we continue to see further profit improvement in our Simple Meals business despite anticipated volume declines. Emphasis on brand building combined with more consistent innovation is the right approach to stabilize and then profitably grow our Simple Meals business. To that end, customer reception to our new products in Simple Meals, Slow Kettle soups, Swanson flavor boost and new Prego and Wolfgang Puck sauces is positive, and the sell-in is progressing as planned. We also have begun the important longer-term process of reinvigorating our Simple Meals innovation pipeline. As we told you, we intend to rebalance our consumer marketing support in U.S. Soup and are on track to stabilize and profitably grow the broader Simple Meals business over the long term. Soup volumes and consumption were softer this quarter as we expected because price realization is coming through. We have 2 more quarters ahead where we will be cycling the heavy discounting activity. While we expect further volume declines, we will be competitive and we believe elasticity will normalize over time. As you've seen in our news release this morning, we've broken out our U.S. Beverages results. This new reporting segment is aligned with our strategic framework and increased emphasis on accelerating growth in beverages. It also provides a greater degree of granularity on our performance. U.S. beverage sales declined slightly against very strong prior-year performance, while operating earnings declined amid significant cost inflation and discounting in a highly competitive environment. Craig will comment further on our new beverages segment. In July, we provided updated guidance for the year. We finished the year slightly better than that. However, we are by no means satisfied with where we are. Changing our growth trajectory will take time as we fully implement the strategies we laid out for you in July. Now I'd like to turn the call over to Craig for his analysis of our financial results and an elaboration of our expectations for fiscal 2012. Craig?

Thanks, Denise. Good morning. I'll spend the next few minutes stepping through our fourth quarter results and segment highlights, followed by a recap of fiscal year results. I'll conclude with a brief discussion of our fiscal 2012 guidance. For the quarter, we reported net sales of $1.6 billion, a 6% increase versus the prior year. Organic net sales increased by 1%. Excluding items impacting comparability, EBIT increased 24% in the quarter to $232 million. Earnings per share was $0.43 this quarter, up 30% compared with EPS in the fourth quarter of 2010. The net sales increase of 6% reflected a 5-point increase due to the currency translation, as the Australian dollar, Canadian dollar and euro have all strengthened. Excluding the favorable impact of currency, organic net sales increased by 1%. Pricing added 2 points, reduced promotional spending added one point and volume and mix subtracted 2 points. The price increase is primarily in our Pepperidge Farm and Arnott's businesses in reaction to a significant inflation in grain-based commodities. The variance in promotional spending reflects our strategy to reduce promotional spending in U.S. Soup in the back half of the year. And as expected, this has had a negative impact on volume. Our gross margin declined by 60 basis points from 40.4% to 39.8%. This decline was primarily due to cost inflation, the rate of which increased in the quarter, partly offset by productivity improvements, higher selling prices and reduced promotional spending. In the fourth quarter, marketing and selling expenses decreased by 11% to $196 million compared to $221 million in the prior year, primarily due to lower out-of-season advertising spending in U.S. Soup; reductions in Australia to reallocate more spending to trade in a very competitive retailer environment; and lower spending in Russia, given our decision to exit the market. Administrative expenses increased $3 million to $170 million this quarter, driven by the impact of currency. Below the line, interest expense was comparable to the prior year. Tax rate increased 2.7 points to 32.5%, reflecting taxes associated with a higher level of cash repatriations compared to the prior year. Due to the impact of our ongoing share repurchase program, diluted shares outstanding declined 5% in the quarter, contributing the earnings per share growth of 30%. In our segment results for the quarter, organic sales within the Global Baking and Snacking segment increased 7%, as both Pepperidge Farm and Arnott's benefited from higher selling prices and strong volume gains. And Pepperidge Farm sales increased primarily due to gains in Goldfish snack crackers, while sales at Arnott's rose due to gains in savory crackers led by Shapes, and the growth in Tim Tam chocolate biscuits. U.S. Simple Meals sales declined 8%, reflecting lower sales for both U.S. Soup and U.S Sauce. U.S. Soup sales fell 9% in the quarter. Soup volume performance was weak, impacted by our strategy in the second half to reduce promotional spending, our list price action to help offset that inflation and also unfavorable movements in customer inventories compared to the year-ago quarter. Sales of both Prego and Pace declined for the quarter. The decrease in Prego sales reflects continued competitive merchandising and new items in the Italian sauce category. The decline of Pace sales reflect share losses to private label. Within the International Simple Meals and Beverages segment, organic sales were comparable to prior year. Gains in Europe and Canada were offset by declines in the Asia Pacific region and in Latin America. U.S. Beverage sales declined 1% versus prior year, lasting strong growth of 12% in the prior year quarter. Sales of V8 vegetable juice declined, reflecting increased competitive activity while sales of V8 V-Fusion and V8 Splash both increased. The launch of new items including V8 Fusion, V8 V-Fusion + Tea, new flavor varieties and the 8-ounce slim cans contributed to V8 V-Fusion sales gains. Organic sales of North American Foodservice increased by 8%, primarily due to decreased promotional spending. Operating earnings in the U.S. Simple Meals segment increased 4% to $101 million this quarter. The increase in operating earnings was primarily due to lower marketing and selling expenses, and an increase in gross margin percentage, reflecting our price realization efforts. Earnings within Global Baking and Snacking increased 26% due to growth at Arnott's and the favorable impact of currency, partly offset by a decline in Pepperidge Farm. The mark-to-market impact of open commodity hedges had a negative impact on Pepperidge Farm earnings in the quarter. Operating earnings for U.S. Beverages declined 29% versus very strong results a year ago. The decline was due to significant cost inflation and increased promotional spending, partly offset by productivity improvements. We experienced significant inflation in fruit and vegetable concentrates, as well as packaging materials. This quarter, we saw strong earnings growth within our International Simple Meals and Beverages segment and in North American Foodservice. In the International Simple Meals and Beverages segment, operating earnings increased by 300%, primarily due to gains in Canada, reduced spending in Russia and the favorable impact to currency. Operating earnings within North American Foodservice increased by $13 million, primarily driven by reduced promotional spending and productivity improvements. U.S. Soup sales for the quarter declined 9%. Within Soup, condensed sales decreased 10% with declines in both eating and cooking varieties. Ready-to-serve was down 5%, reflecting declines in Select Harvest canned soups and in microwaveable varieties. Broth sales fell 11%. Soup sales, especially condensed varieties, were negatively impacted by unfavorable movements in customer inventory levels. As I mentioned earlier, our reduced trade spending and list price actions are also pressuring volumes. For the full year now. Reported net sales increased 1%. Organic net sales were down 1%. On a segment basis, the organic sales decline is primarily due to the decline in U.S. Simple Meals, partly offset by growth in Global Baking and Snacking. Excluding items impacting comparability in both periods, EBIT of $1.3 billion was down 1% versus a year ago. This decrease was primarily due to the decline in gross margin percentage and lower sales volume, partly offset by lower marketing expenses and favorable currency. Earnings per share for the year increased 3% to $2.54, benefiting from fewer outstanding shares. For the fiscal year, our reported net sales increased 1% and included a gain from currency translation of 2 points. Excluding the impact of currency, organic sales were down by 1%. As you can see on Chart 27, the negative impact of our increased promotional spending and our decrease in sales volume was only partly offset by higher selling prices. For the full year, our gross margin percentage declined from 41% to 40.2%, an 80 basis point reduction that was primarily due to cost inflation of approximately 2% and higher plant costs and increased promotional spending, partly offset by productivity improvements and higher selling prices. Marketing and selling expenses decreased, reflecting lower advertising and lower selling expenses, partly offset by the impact of currency. Administrative expense increased $7 million, primarily due to the impact of currency. Excluding the currency impact, higher pension and benefit cost and costs associated with the new headquarters facility were offset by cost savings and lower incentive compensation costs. Below the operating line, net interest expense increased 5% to $111 million for the year, reflecting a higher percentage of long-term debt in the portfolio and a slightly higher average net debt balance. The tax rate at 31.5% was comparable to the year-ago rate. For the fiscal year, net earnings declined 2% and, benefiting from a 4% reduction in diluted shares outstanding, EPS increased 3% to $2.54 versus $2.47 per share in 2010. In segment results for the full year, the most significant movements were in U.S. Simple Meals and Global Baking and Snacking. U.S. Simple Meals sales declined 6%, reflecting a 6% decrease in U.S. Soup sales, as well as lower sales of Prego pasta sauce and Pace Mexican sauce, both of which had been negatively impacted by increased competitive activity. Sales for Global Baking and Snacking increased 4% versus prior year, as both Pepperidge Farm and Arnott's achieved volume gains and also benefited from higher selling prices. In U.S. Simple Meals, operating earnings declined 11% to $657 million. The decrease in operating earnings was primarily due to lower sales and a reduced gross margin percentage, partly offset by lower marketing and selling expenses. Global Baking and Snacking operating earnings increased by 10%, primarily due to the impact of currency and volume-driven gains at both Pepperidge Farm and Arnott's. Within the International Simple Meals and Beverages segment, operating earnings increased by 15%, primarily driven by growth in the Asia Pacific region, the impact of currency and the benefit of reduced investment spending in Russia. Operating earnings of U.S. Beverages declined 12% due to the increased promotional spending. North American Foodservice operating earnings increased 49%, driven by reduced promotional spending, productivity improvements in excess of inflation and lower administrative expenses. U.S. Soup sales for the fiscal year fell by 6%. Within Soup, condensed sales declined 4%, ready-to-Serve soup decreased 9% and broth sales decreased 5%. Category performance in the United States during the last 52 weeks based on IRI Panel Data and Campbell internal estimates as shown on Slide 33. The overall U.S. wet soup category declined in dollars by 1.6% in the last 52 weeks. Our soup sales in dollars declined 4.2%, underperforming the category. Our soup sales performance this year reflected our heavy promotions in the first half, which did not generate the expected lifts, followed by a rebalancing of the marketing mix and a list price increase in the back half. All other branded players saw an increase in U.S. Soup sales of 3.4% this year, while private label soup sales grew by 2.6%. While it's not shown on the chart, total volume in the soup category was essentially steady with prior year. Campbell's dollar share at wet soup for the past 52 weeks was 61.8%, down 170 basis points. Our market share for condensed soup and broth was essentially unchanged. As has been the trend, the decline in our soup dollar share came from ready-to-serve soup. Of our share decline, 2/3 was picked up by other branded players while 1/3 moved to private label, reflecting the relative size of these players in the market. Higher price realization in the second half contributed to our market share losses, but as Denise said, this move in conjunction with our efforts and innovation in brand building, is an important part of the transition to a more profitable growth in our U.S. Soup and Simple Meal business. Cash flow from operations increased by $85 million to $1.1 billion. Cash flow benefited from lower pension contributions and higher cash earnings. Working capital requirements were also higher. Capital expenditures of $272 million were down from $315 million a year ago. Looking ahead, we forecast capital spending in fiscal 2012 of approximately $325 million. For the year, we repurchased 21 million shares at a cost of $728 million. We completed our strategic share repurchase program announced in June 2008, authorizing repurchases of $1.2 billion over the 3-year period. In June 2011, we announced that the board of directors authorized a new share repurchase program with no expiration date, to purchase up to $1 billion of our outstanding shares. Net debt was $2.6 billion, an increase of $74 million. With respect to 2012 guidance, there is no change to our fiscal 2012 expectations on an absolute dollar basis. However, given that we finished fiscal 2011 slightly ahead of the guidance we provided in July, we have adjusted our 2012 growth rates to reflect this and to maintain our commitment to support brand building and innovation in 2012. In fiscal 2012, we expect net sales growth to be between 0% and 2%, with the assumption that currency will not have a significant impact. We expect a decline in adjusted EBIT of between 9% and 7% negative, which includes an incremental investment of $100 million in innovation and brand building, input cost inflation up between 8% and 10%, a $60 million benefit from our recent restructuring program and a negative impact related to restoring incentive compensation to targeted levels. Finally, we expect a decline in adjusted earnings per share of between 7% and 5%, with interest expense comparable to the prior year and a tax rate in the 32% to 33% range. Thank you. With that, Denise will now conclude our presentation.

Thanks, Craig. Before taking your questions, I want to make some closing remarks. We improved our EBIT performance in the back half and began to make the transition in U.S. Soup towards rebalanced marketing mix. We continue to believe that improved innovation and brand building is the right thing to do for all of our businesses. We're confident in our strategies and plans. It's early and we're just beginning to implement these plans, but the company is energized by the new course we've chartered. We also recognize that changing our growth trajectory will take time and solid execution. Fiscal 2012 will be a transition year, as we work to create a different company at Campbell. Our primary goal is to create value by driving sustainable, profitable net sales growth, and that is our focus going forward. With that, we'll open up the call to your questions.

[Operator Instructions] Our first question comes from Terry Bivens from JPMorgan. Jessica Schmidt - JP Morgan Chase & Co: This is Jessica Schmidt on for Terry. So we understand that there's not been a significant change to the overall soup category shelf space at Wal-Mart. And our question is, have you either gained or lost any portion of that shelf space at Wal-Mart or any other retailers?

We don't really comment on particular situations with retailers, so we...

I would say overall that our shelf space is about flat versus prior year in the total grocery and discount channel.

Right.

Our next question comes from Chris Growe from Stifel, Nicolaus. Christopher Growe - Stifel, Nicolaus & Co., Inc.: I just wanted to ask you in relation to the guidance for next year, just on the percentage rate being down a little more, the percentage point less than we thought, what is that driven by? Are you trying to do more in the form of marketing? Or I heard you say about $100 million increase to marketing, I thought that was pretty consistent with what you said before. So what is it that led the growth rate down a little bit more for next year?

Chris, the only thing that changed is the base year. The base year was a little bit higher. Part of that, over-delivery was a little bit lower spend on marketing, and we're just hanging on to the absolute guidance, if you will. I know we gave it in percentages, but if you look at the absolute numbers, we'd come back to what we said in July.

We just thought it was really important to maintain the integrity of that spending plan as we make 2012 a year of investment. Christopher Growe - Stifel, Nicolaus & Co., Inc.: Okay. And then I just want to ask about in ready-to-serve soup, first of all you've got a new product launch with Slow Kettle. Is a lot of that baked in -- is a lot of those shipments in this quarter?

No. No, most of the shipments will happen in the first quarter. It just started shipping.

Our next question comes from Andrew Lazar from Barclays Capital.

I think in your recent meeting in Camden, you talked about being able to hope to hold gross margins roughly flat year-over-year, given some of the incremental pricing to help with the productivity for the inflation rates. Is that still generally what you're thinking about?

Yes.

Okay. And then just on the way we should think about earnings, that sort of -- the trajectory, if you will, through the year, obviously the EPS sort of results last year in your fiscal first half were lower year-over-year. So those comps a bit easier, but I know you'd be ramping up spending, I would assume, in the first half as well. But I'm just trying to get a sense of how some of things play out, and if there's any dramatic difference in the way earnings flow throughout the year even if it's just directional.

Yes. Well, Andrew, we don't give quarterly guidance, and we intend to start spending against the $100 million investment starting in quarter one. But the pacing will, of course, vary by business. That said, we're not expecting the first half to be easy. We've had a list price increase and competitors have delayed following suit. So we expect that competitive pressures will continue. So we have to watch this very carefully.

Our next question comes from Judy Hong from Goldman Sachs.

Denise, just on the competitive environment heading into the soup season, you've talked about the competitors slowing -- slow to reacting to pricing actions. But just in terms of some of the promotional activity that you're expecting from your competitors in the soup season going forward, and then how that could potentially affect some of the merchandise and support that you could be getting that relates to some of your innovation and your product launches?

We have not seen our branded competition move up base price in the marketplace. And we believe that with the latest round of pricing, we have the opportunity to offer the best price value across the category while still covering our inflation in our marketing investments. Our intention is to be competitive. And I don't know if you have anything to add to that, Craig?

No, I think -- I don't want to get into the business of trying to project what the competitor's going to do. As Denise says, we're going to be competitive. We're going to manage our way through the year. But directionally and strategically, what we've done in the second half is the way that we're going to approach the business coming into 2012, which is with more emphasis on brand building and less emphasis on trade discount.

Yes. I think it's important to recognize that even though we're pulling back a little bit on trade, we are still spending a significant amount of funds on both promotional spending as well as advertising.

Absolutely. But we're applying a whole new level of discipline to that spending.

Okay. And then, Craig, is there a way to quantify in the fourth quarter how much the Russian closure lowered your marketing and selling expenses?

Russia was worth about $0.01 in terms of savings from the closures and reduction in marketing spend.

Our next question comes from David Palmer from UBS.

Just a question on that competitive pricing and price gaps. I'm sure you look at the effective price gaps for soup categories in detail, and not just versus private label for the condensed category but maybe even versus ready-to-serve soup, which has become more promotional. And maybe effectively, their prices have been coming down to condensed. Do you feel comfortable with the price gaps, where they are today? Do you think that, that is a problem for condensed, or is that more or less where you think is a sustainable gap?

Actually, with the price discounting we did last year on ready-to-serve soup, David, we actually saw a compression in the retail prices of ready-to-serve and condensed. So we believe that by focusing on the pricing and promotion strategy we have going forward with the discipline we're exercising, the consumer will continue to see a good array of value from Campbell's with condensed and ready-to-serve soup.

And effectively, you think that, that price gap will widen a little bit this year with some of the pricing actions that are being taken? Is that the thought?

It's early to tell. The price realization is just coming through on shelf. So we'll see where that ends up.

And basically you think that the price gap, if there's any sort of price gap widening that might be helpful, might be that those 2 categories versus some sort of private label problem for condensed?

I think there'll be consumers that will continue to shop the category for price. And then there'll be consumers that continue to shop the category for the benefits offered for the price paid. And we intend, through our marketing, to communicate our value proposition to the consumer in a much bigger way. We believe that's a healthier way to drive the usage of our brands.

Our next question comes from Ed Aaron from RBC Capital Markets.

I actually want to ask about the Snack business. You had a pretty good quarter there, and that business has a fair amount of Australia exposure. And we've just heard some pretty awful things recently about that market in particular. I was just hoping you could maybe give us a little bit of context on what you're seeing over there.

The Australian market, from an economic standpoint, is starting to become more under pressure. However, we believe that with the size of the business we have over there in the categories that we play and the customer relationships that we have, we'll continue to be responsive and continue the momentum that we've built in that marketplace. We're very bullish on Australia.

And then one follow-up, if I could, on the U.S. Soup side. You had an inventory drawdown at the retail level this quarter, which I think is kind of the second fourth quarter in a row where you've talked about that. As we think about kind of the first and second quarters of the year, should we expect an add-back there? In other words, should your shipment growth exceed your consumption growth in the first quarter, for example, just to replenish what you didn't get in the fourth quarter?

It's actually a bit hard to predict, Ed, because heavy discounting was so severe last year that inventory didn't necessarily fall where consumption occurred. And so we are watching that relationship very closely as we go into the season. But suffice it to say that it was really the discounting we did last year that made the inventory situation course correct in the fourth quarter for us this year.

And just to add to that point, because of the fourth quarter, the small quarter for soup, this small change in inventory does have a meaningful impact on fourth quarter volumes. But when you look at the first and second quarters, it won't be material.

Our next question comes from Akshay Jagdale from KeyBanc.

This is Adam Josephson in for Akshay. At your Analyst Day, Sean mentioned 3 factors that have negatively affected your soup business: fewer stock-up trips by heavy users, sodium reductions and an overemphasis on promotions. Obviously, the latter 2 factors are within your control. And you stated your intention to add back sodium to your soups and to focus more on branding. But if stock-up trips remain low or even declined from where they are today given the state of the economy, how would that affect your ability to return to growth in your soup business?

I think that the fact that stock-up trips are down are not an excuse. They're just a different dynamic that we have to deal with. And the way we promote the product, the fact that we're funneling more investment into advertising of the product to generate usage, will work more with the consumer's pattern for buying. We believe that's the right way to proceed at this point.

Okay, and just one other one. Sean also pointed out that over the past few decades, the number of items in grocery stores has skyrocketed, and the number of options available to consumers for lunch and dinner is much higher than it ever has been. How does that situation change the way you approach marketing soup to the extent it does so at all? In other words, do you market it differently than you did 5, 10 years ago? And if so, how?

We're still in the throes of developing our advertising campaign for next year. But I do believe that everything we do now will be in the lens of a broader competitive set within Simple Meals, and recognizing that the consumer does make those choices and we want to compel them to choose Campbell.

Our next question comes from David Driscoll from Citi.

So 2 questions, but they're just related to one another. It's on the quarter and then on fiscal '12 guidance. So on July 13, it seems that you had the guidance for $2 -- sorry, you've exceeded the guidance by about $0.05 and that's all from the fourth quarter beat from lower marketing investments. When you say that marketing is going to be up $100 million in fiscal '12, that's been on slightly lower base than what you were talking about on July 13. So the first question is, do I have this right? And then I think that translates on an adjusted EPS basis, when I plug my numbers in the percentages that you've given, guidance for '12 was about $0.02 better on both ends than it was on Analyst Day. Is that -- Craig, do I have these numbers right?

Well, first of all, David, the $100 million number that you have is not all going to appear in the selling and marketing line. We talked about $100 million as incremental investment in innovation and marketing. So some of it, yes, will appear in marketing, some of it will appear in R&D and some of it will actually appear in other SG&A lines to support the infrastructure that we put in against innovation. I think the best way to think about the guidance change is really that we over-delivered the quarter, part of that was because we had lower marketing spend. But we also delivered at the gross margin line a little bit more strongly in a couple of the divisions. And as Denise said earlier, we've just made sure that we've taken the approach that for 2012, we're going to hold the plan that we have in place, which implies a little bit lower lift at EBIT and EPS on a percentage basis. But it's the same plan.

Okay. But sometimes the percentages get confusing. The EPS numbers, by my calculation, are up $0.02 on the low end and high end for the 2012 number. And then I suppose if that absolute calculation is correct, I just -- since Analyst Day, basically, the economic situation in the U.S. has worsened, and it just gets interesting -- and maybe these are slightly minor numbers in the margin. I mean, if that's the answer that's fine. I'm just curious that at this early juncture in the year, you'd even make any changes to the absolute EPS guidance.

Yes, I would have $0.01 instead of $0.02, but I think we're slicing it pretty thin here for a forecast for the full year when we're talking about the difference in $0.01. And again, the approach was not so much to agonize over the pennies as to just say were going to hold our plan for 2012 and how does that work out in terms of percentages.

Our next question comes from Robert Moskow from Crédit Suisse. Robert Moskow - Crédit Suisse AG: I just had a question about the transition away from trade spending. You said you're walking away from some unprofitable spending that you did in the first half of '11. One of your competitors has actually made a lot of progress on their margins by reducing trade spending. And I'm just wondering in your guidance here, you're guiding margins down about 200 basis points despite shifting away from these unprofitable programs. I'm just wondering if you could help me understand how that is, maybe it's just inflation or being put in another bucket. And maybe a follow-up.

We do have, as we talked about in July, Rob, a pretty significant inflationary pressure in the numbers and then the assumption for next year. I mean, of course, we haven't given guidance on the gross margin line per se. So I think we also talked about, in operating expenses, that we've got a headwind related to the incentive pay that we hope to get back to pay out at targeted levels. So I think there's some combination of maybe inflation, above gross profit and SG&A pressure related to benefit costs and incentive costs below the gross profit line. Robert Moskow - Crédit Suisse AG: I guess another way of asking it, Craig, is if those programs were really unprofitable programs, would eliminating them provide any kind of a benefit in your margin outlook, or you don't think of it that way?

This is Anthony. That would certainly be true for U.S. Soup. But you were talking about a fraction of the entire portfolio. And as Craig mentioned earlier, we do expect gross margins to be about flat in F12. But it's not flat for each of the businesses underneath that. Robert Moskow - Crédit Suisse AG: And then just a quick follow-up. You're switching to a brokerage sales model in some of your channels. Can you give a little more specifics about where you're making those switches? And maybe Denise, tell us how that's going so far?

Yes, we have shifted our retail coverage to a broker sales model. And in doing so, first of all, we already had a fairly large portion of our business in the broker sales model, so this is not a new relationship. And what we did was add it on the retail store coverage. Because what we found in our evaluation of our own direct retail force versus the broker is that they've made significant advances in technology, and the ability to cover many more stores at a lower cost with quality. And so we thought that this was a good time for us to advance that relationship, and we're very excited about the early days.

Our next question comes from Bryan Spillane from Bank of America Merrill Lynch.

Just a couple of follow-up questions. Just the guidance, Craig, I guess in terms of -- just to be clear, does not include any effect of foreign exchange on either the top line or the EPS line, is that right?

That's correct.

Okay. And that's because you're just not going to forecast it at this point or at least for us? Or because there's some EPS, or there is some FX benefit in the base year and -- I don't understand that.

Yes. I hate to get in the business of forecasting foreign exchange for obvious reasons. The planning assumption is that it should be approximately neutral to the current year.

Okay. And just looking at it the way it helped last year, it might help the first half but be a drag in the second half, I guess that's a way of looking at it.

That's a reasonable -- yes, that's a reasonable assumption.

Okay. Okay, and then just on the trade inventories, to the extent that they were -- it was a little bit of a drag in the fourth quarter, is it normal now? Is there anything unusual that we should be thinking about in terms of trade inventories in the first quarter or the first half?

The unusual activity is all in the prior year. That's true for this fourth quarter, it would be, to certain extent, true as we cycle the first half of next year. But I think Anthony made a good point earlier of the impact, as a percentage of total sales, is much more significant in the fourth quarter than it is in the heavier sales seasons in the first and second quarter.

In particular on U.S. Soup, and quarter 4 is the smallest quarter of the year.

Okay. Okay, and then finally, I guess, Denise, at this point, is it fair to say that you've sold in -- and this is probably more specific to your soup and sauces business. But just you've gotten a new plan in terms of how you're approaching promotions and how you're approaching stimulating the consumer. And basically you've sold those pricing plans with some volume expectation attached to them into the trade, and so it's not so much going to be a matter -- we won't be surprised by what the trial of the trade reacts to it. Now it's just really a matter of how the consumer reacts to it, is that right?

That's correct. The sell-in of this new plan has gone well. And again, we continue to be competitive in the marketplace. But the consumer will ultimately be the decision-maker in the first half.

And just when will we start to see more of the advertising or the -- I guess, the pull begin to show up in the marketplace? I'm assuming it'll be like now. Is that right?

Yes. The marketing actually will start a little bit later in the season to hit the high peak volume part of the season.

One of the reasons that you saw our marketing spend down so much in the fourth quarter is that we were cycling some fairly heavy out-of-season advertising last year. And our analysis would say that, that just didn't have very good payback. So while we're lifting marketing spend for 2012, we're also concentrating it more to the season.

Okay. So as we're watching and we're trying to make -- just kind of monitor progress, and again, I know it's very early. Early on in this season, you're going to have the effect of higher price, but not all of the marketing, the full effect of the marketing poll in the market yet. So it might like look worse before it gets better. Is that the right way to think about it?

I think it will build steam as the half unfolds.

[Operator Instructions] Our next question comes from Robert Dickerson from Consumer Edge.

First question is just more strategic. I know you went over a lot of your international growth plans at your Analyst Day in July. But just in general, I was curious, we could see in the fourth quarter that sales or overall sales from your new global snacking business is obviously a higher percentage of your total company sales. And if we just think that, that category over the next 5 years should continue to outpace what we're seeing in soup, and the second pillar of your 3-category or your 3-tier growth process is international growth, could it be fair to assume that kind of over the longer term that growth internationally may assume some non-organic growth in global snacking? I mean, would you potentially look to enter new markets to find that growth that we've seen out of a number of other snacking businesses?

We've applied a lot of rigor to the international expansion plan. And as I said in July, we had identified some key markets. And there is a very tailored approach to those markets, depending upon what the market conditions are. But we feel with the broader described categories of simple meals, baked snacks and healthy beverages, we have a lot to work with in terms of faster-growing categories and faster-growing markets.

External development is clearly a tool. You've seen us use it in the China market and the joint venture with Swire, and I think we're prepared to use it in other markets. But the heart of the thing is the strategy and the targeting of markets and categories that we think offer good growth opportunity.

Okay, fair enough. And then just a quick follow-up. You commented earlier that over the longer term that you should see elasticity in soup start to normalize. And I'm just curious, is that also based on the assumption that overall soup consumption, at least in the U.S., should stabilize over the next year or 2?

Yes, that was the assumption, that it would be U.S.-based.

Our next question comes from Andrew Lazar from Barclays Capital.

Just a quick one on productivity. Craig, if you could just update us on -- of the incremental productivity that you expect this coming fiscal year. I know a piece of it is obviously the $60 million from the restructuring, and then you've got the ongoing piece that's incremental as well. So you can just give us a sense of what that is, and then if you expect it to flow through in the year in any disproportionate way or fairly evenly.

Well, I guess I'll take it in 2 pieces. One is at cost of sales where, as you know, we've had a pretty long-established target of trying to offset roughly 3% of cost pressure. And while cost pressure's going to be somewhat higher than 3% this year, we still believe that we should be able to deliver at around that level. And that'll be driven by a pipeline of activity that we've got going in annual projects. But also, as we've talked about, our soup common platform work to simplify the soup-making process will contribute to that number also this year. Within expenses, the force reduction -- some of the force reduction, of course, is relevant to cost of sales. But the force reduction that we had, particularly the piece that was relevant to the administrative and headquarters expense, will be one of the factors as we are really beginning to try to pursue the same thinking in the management of expenses, i.e. in the planning period, can we offset about 3% of normalized inflation to the expense categories. And the negative headwind there would be the incentive cost and pension expense.

Got you. Okay. And then just I was curious is if you think about the logic of last year when you put out some of those trade promotions, which as you mentioned were not particularly effective in driving volume, I mean one could argue there was not a lot of elasticity to the upside from some of the trade spend. Do you think the logic works the other way around or not? Meaning, now that you pulled back on some of the less effective trade, they wouldn't necessarily be negative to the downside.

We sure hope so, but we don't know. And so we've planned pretty realistically, and we will watch that dynamic very carefully.

Our next question comes from David Driscoll from Citi.

Just make sure I understand the cost inflation guidance. So on Analyst Day, it was 3 to 3.50. And I think you gave a percentage number of 8% to 10% on today's call. Again, if I'm doing my math right, I think you're basically giving a little bit of an increase on the absolute dollar number of expected inflation. Do I have that correct?

So the 8% to 10% is input costs, materials and packaging. That's what we said in July and that's still about right. That gives us a total cost inflation expectation, before our enabler program, of around 6 to 8. And as I just said, I think we can offset around 3 of that. So our expectation for total inflation and cost of sales, same as it was at the time that we talked in July, 3% to 5%.

That would then suggest to me, given the fact that we've seen crop prices rallying here since Analyst Day, that you have most of fiscal '12 covered. Is that a [indiscernible] statement?

Yes, I think the way to think about the crop price decline -- actually rallying for us, I guess, not rallying for the market. But anyway, the commodity price decline has helped us de-risk that forecast a little bit. We've had, at the time that we were talking, of course, we had some forward buying done. We've taken advantage of the decreases to do some more forward buying. We're not completely covered for the year, but we feel like we're getting closer to being more certain of those inflation projections.

From an input costs inflation perspective, we are expecting increases in flour, diesel, edible oils and dairy.

Okay. And I think, Craig, perhaps what I'm saying differently was that the softs have been up since then, but petroleum and diesel are down since then, so I understand your points.

Our last question comes from Bryan Spillane from Bank of America.

I didn't know if you had disclosed earlier just how much foreign exchange contributed to your earnings EPS, both for the fourth quarter and for fiscal '11.

Yes, for the quarter it was about $0.03. And for the year, it's $0.05.

Okay. And then just one follow-up. I think I caught this at the beginning of the call, but the restating the quarters in terms of the new segments, we're going to have quarters for 2011 after you've reported -- when you report the first quarter? Is that ...

That's right. When we report the first quarter, we'll give you the full year of quarters for 2011.

Right.

Thanks, everyone, for your participation in our fourth quarter earnings webcast. As a reminder, a replay of the call will be available beginning in approximately 2 hours. If you are a reporter and have questions, please call Anthony Sanzio. He can be reached at (856) 968-4390. Investors and analysts should contact me, Jennifer Driscoll, at (856) 342-6081. This concludes today's program, and you may now disconnect.