Campbell Soup Company (CPB) Q4 2012 Earnings Report, Transcript and Summary

Jennifer Driscoll - Vice President of Investor Relations Denise M. Morrison - Chief Executive Officer, President and Director B. Craig Owens - Chief Administrative Officer, Chief Financial Officer and Senior Vice President Anthony P. DiSilvestro - Senior Vice President of Finance

David Driscoll - Citigroup Inc, Research Division Thilo Wrede - Jefferies & Company, Inc., Research Division Priya Ohri-Gupta - Barclays Capital, Research Division Andrew Lazar - Barclays Capital, Research Division Jason English - Goldman Sachs Group Inc., Research Division Eric R. Katzman - Deutsche Bank AG, Research Division Christopher Growe - Stifel, Nicolaus & Co., Inc., Research Division Edward Aaron - RBC Capital Markets, LLC, Research Division Bryan D. Spillane - BofA Merrill Lynch, Research Division Jonathan P. Feeney - Janney Montgomery Scott LLC, Research Division Alexia Howard - Sanford C. Bernstein & Co., LLC., Research Division Robert Moskow - Crédit Suisse AG, Research Division Matthew C. Grainger - Morgan Stanley, Research Division David Palmer - UBS Investment Bank, Research Division Erin Swanson Lash - Morningstar Inc., Research Division Akshay S. Jagdale - KeyBanc Capital Markets Inc., Research Division

Good day, ladies and gentlemen, and welcome to the Campbell's Fourth Quarter Earnings Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the conference over to your host for today, Ms. Jennifer Driscoll, Vice President of Investor Relations. Ma'am, you may begin.

Thank you, operator. Good morning, everyone. Welcome to the Fourth Quarter Earnings Call and webcast for Campbell Soup Company. With me here in New Jersey today are Denise Morrison, President and Chief Executive Officer; Craig Owens, Senior Vice President, CFO and Chief Administrative Officer; and Anthony DiSilvestro, Senior Vice President of Finance; as well as Stephanie Varnum, new Senior Manager in IR. Denise will kick us off today with a strategic update and highlights of our results for the fourth quarter. Craig will offer his take on the quarter, the fiscal year, and our expectations for fiscal 2013. Then after we take your questions, Denise will make a few closing remarks. As usual, we have created slides to accompany our earnings presentation today. You'll find the slides posted on our website this morning at investor.campbellsoupcompany.com. Please keep in mind that our call is open to members of the media, who are participating in listen-only mode. As a reminder, our presentation today includes forward-looking statements, which 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 are subject to inherent risks. Please refer to Slide 3 in the 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 statements. Since our presentation today includes non-GAAP measures as defined by SEC rules, we've provided a reconciliation of those measures to the most directly comparable GAAP measures in an appendix to the slides accompanying our presentation. These slides, along with our earnings release and other selected quarterly financials, can be found on our website as well. And with that, now let me turn the call over to Denise.

Good morning. Thanks for joining Campbell's Fourth Quarter Earnings Call. 1 year into our strategic transition, we have planted the seeds to return Campbell to sustainable, profitable net sales growth. As we stated at our recent Analyst Day, our transition is taking us longer than we anticipated. However, we are starting to see some green shoots that indicate the direction of Campbell is changing. We declared 2012 as a year of investment. Over the last year, we've made significant investments in brand building, innovation and external development. We've also upgraded talent in key positions and changed our organization structure to build capabilities in innovation, marketing excellence, digital and external development. We are working diligently to evolve our culture and to leverage our high employee engagement for higher performance. This takes time, and we will not rest until we have hit our stride. This morning, I'll offer my perspective about our progress as we execute our 3 growth strategies: first, stabilize and profitably grow North America Soup and Simple Meals; second, expand our international presence; and third, continue to drive growth in healthy beverages and baked snacks. Finally, we are folding Bolthouse Farms into Campbell. As we said, we will operate it as a separate business unit within the company. A year ago, we expected that in fiscal 2013, we would return to growth levels consistent with our long-term targets on our core business. As we said at our analyst meeting in July, we expect the core business to return to growth this year but will not get all the way there due to a tougher environment than originally expected. The 2013 guidance we issued this morning reflects improvement of our core Campbell business and is inclusive of Bolthouse Farms. All of us at Campbell's agree that the pace of our progress needs to accelerate. At the same time, we remain focused and energized by our new strategic direction. We are confident that the course we've charted positions Campbell for long-term success, and we are committed to creating shareholder value by driving sustainable, profitable net sales growth. According to McKinsey's global economic intelligence, growth across the globe continued to falter in the last quarter. The only significant departure from this trend was in the United States, where in spite of lethargic growth overall, employment, consumer spending and housing markets took a positive turn. In contrast, Europe is almost in a recession, with much work remaining to address the fundamental imbalances fueling the 3-year long crisis. This environment is not for the faint of heart. Looking at the food industry in the United States across all outlets, consumers made 4% fewer trips to buy groceries in the fourth quarter and purchased less per trip, contributing to a 1% decline in food dollar sales. Cost inflation has driven significant pricing to the consumer, which tends to put pressure on volumes. Our take on these trends is that the consumer continues to be cautious, and that is not likely to change in the near future. However, we continue to believe that consumer-focused innovation, value offerings and strong marketing of powerful brands can and will drive growth, and that is precisely what we're focused on. With that as context, let me now offer my perspective on Campbell's fourth quarter results. Our fourth quarter performance was overall in line with our expectations. Sales of $1.6 billion were steady with last year's quarter despite pressure from currency. Our adjusted EBIT declined due to the marketing investments we made and higher inflation. We've had success with new product offerings in our beverage business. We've profitably grown our core U.S. Soup and Simple Meal business and significantly stepped up innovation in Simple Meals, and our Goldfish franchise has delivered exceptional growth again in this quarter. In the fourth quarter, favorable contributions from below-the-line items enabled us to deliver full year adjusted EPS that was slightly better than our guidance. In our U.S. Soup and Simple Meals business, fourth quarter sales growth of 7% fueled a 3% increase in the segment's operating earnings. Most of the sales gain was driven by promotional timing with key retailers. Fourth quarter sales of condensed soup rose 14%, driven by strong levels of promotional activity and a 5% price increase. We now have lapped the list price increase in ready-to-serve soups that we took in the fourth quarter of 2011, and stabilization in volumes contributed to the 1% RTS gain in the quarter, as did increased distribution in the club channel. Both our U.S. Broth and U.S. Sauce businesses had positive sales gains. For the full year, we met sales expectations on our important U.S. Soup and Simple Meals business. We feel good about the progress we made this past year on new product development. In fact, new Simple Meals products developed using our enhanced consumer-driven innovation process began to ship in quarter 4. In fiscal 2013, we plan to introduce more than 50 new products in U.S. Soup and Simple Meals, up from 41 in fiscal 2012 and a dramatic increase from the 7 products we introduced in fiscal 2011. Among them are Campbell's Go! Soups, Campbell's Skillet Sauces, Campbell's Gourmet Bisques and new varieties of Chunky and Slow Kettle soups. Retailer acceptance of our new products, targeted largely to the Millenials, has been extremely positive, and we look forward to the consumer response as they buy them and try them. In Global Baking and Snacking, organic sales rose 2%, driven by Pepperidge Farm. Increased marketing investments drove double-digit growth in Goldfish crackers. In our Australian business, we continue to see pressure from consumer spending and an overall challenging environment. I just returned from a trip from Australia, and despite the difficulties in that market in 2012, we continued to make investments in brand building and innovation, and we expect to show improved result in 2013. In U.S. Beverages, we continued our top line growth with sales up 3%, outpacing the category. The strongest gains came from V8 Splash and V8 V-Fusion. New items contributed to our market share gains. We successfully launched V8 V-Fusion Smoothies, Energy, Sparkling and Kids drinks this year, and we're developing new advertising that we think will improve their performance going forward. Now as we begin the new fiscal year, we're confident that we will improve our sales and earnings trends. Our confidence goes beyond the acquisition of Bolthouse Farms and extends to the new products we're launching, the productivity gains we plan to make, the innovation pipeline that we will continue to build and a very focused set of initiatives aimed at optimizing all of the drivers of demand. Today, we establish specific growth ranges for fiscal 2013 sales, adjusted EBIT and adjusted EPS. This guidance reflects improved trends in the core business, as well as contributions from our acquisition of Bolthouse Farms, which we acquired at the start of our fiscal first quarter. And now I'll turn it over to Craig for the financial review.

Thank you, Denise. Good morning. I'll spend a few minutes reviewing our fourth quarter results and segment highlights, followed by a recap of our fiscal year results. And I'll conclude with our fiscal 2013 guidance. For the quarter, we reported net sales of $1.6 billion comparable to a year ago. Excluding the unfavorable impact of currency, organic net sales increased by 3%. On August 6, we completed the acquisition of Bolthouse Farms for $1.55 billion, subject to customary purchase price adjustments. In the fourth quarter, we recorded pre-tax transaction cost of $5 million or $0.01 per share related to the acquisition. Excluding that impact, as well as the restructuring charges recorded in the fourth quarter of fiscal 2011, adjusted EBIT decreased by 10% to $208 million, primarily due to the decline in the gross margin percentage and higher marketing expenses, partly offset by an increase in sales volume. Adjusted earnings per share were $0.41 this quarter, a 5% decline as compared with the fourth quarter of 2011. The decline reflected lower EBIT, partially offset by the benefits for lower tax rate and fewer shares outstanding. In the fourth quarter, our reported net sales were comparable to the prior year. A 3-point gain in organic sales was offset by a 3-point decline from currency translation as the Australian dollar, the euro and the Canadian dollar have all weakened. As you can see on Slide #18, the growth in organic sales reflected volume, mix and pricing contributions of 6 points, partly offset by the negative impact of increased promotional spending of 3 points. All of our reporting segments had positive volume and mix. We also enjoyed the benefit of inflation-driven pricing actions, the majority of which came from 2 segments: Global Baking and Snacking and U.S. Simple Meals. The promotional spending variance is primarily due to higher rates of spending in Global Baking and Snacking. As we've mentioned, we continue to invest to remain competitive and to protect our market positions at both Arnott's and Pepperidge Farm. Our gross margin declined 130 basis points this quarter, from 39.8% to 38.5%. Cost inflation and increased promotional spending drove that decline, which was partly offset by productivity improvements and the margin benefit of higher selling prices. Overall, our inflation rate and cost of sales was about 5% in the quarter. As we expected, inflation was slightly lower in the second half than in the first. Our marketing and selling expenses increased 5% to $206 million compared with $196 million in the prior year. The rise reflected a 6% increase in advertising and consumer promotion expenses, higher spending to support innovation efforts and higher selling expense, partly offset by a decline due to currency. The increase in advertising and consumer promotion expense was driven by our U.S. Simple Meals segment, with increases in both U.S. Soup and U.S. Sauces. Administrative expense was $170 million for the quarter, which was comparable to a year ago. Below the operating earnings line, net interest expense fell $1 million or 4%. The adjusted tax rate declined 2.4 points to 30.1% from 32.5% in the prior year due to lower taxes on foreign earnings in the current year. Adjusted net earnings declined 8% this quarter, and adjusted earnings per share declined by 5%. Adjusted EPS benefited from a 2% decrease in diluted shares outstanding. Fourth quarter segment sales results and corresponding organic growth rates are shown on Slide 21. Global Baking and Snacking organic sales increased 2%, driven by Pepperidge Farm growth. Pepperidge Farm sales increased primarily from double-digit growth in Goldfish snack crackers, partially offset by sales reduction in cookies and frozen products. Sales in Arnott's were comparable to prior year as strong growth in Indonesia was offset by declines in Australia. U.S. Simple Meals sales increased 7%, led by a strong performance in U.S. Soup and growth in U.S. Sauces. The driver of a 9% gain in U.S. Soup sales was condensed soup, which benefited from movements in retailer inventory associated with the timing of promotional activity, as well as modest consumption increases. U.S. Sauce sales increased 4%. Sales of both Prego pasta sauce and Pace Mexican sauces achieved higher volumes, benefiting from an effective marketing campaign. Within the International Simple Meals and Beverages segment, organic sales increased by 1%. Higher sales in Latin America, primarily from beverage products, were partly offset by declines in Canada, while sales in Europe and the Asia Pacific region were both comparable to the year-ago period. In Europe, volume-driven gains in France were offset by lower sales in Germany. In the Asia Pacific region, sales growth in Japan and Malaysia was offset by declines in our Australian Soup business. U.S. Beverage sales, which continued to outpace the category, increased 3% versus prior year. The increase was primarily driven by double-digit growth in V8 Splash beverages and gains in V8 V-Fusion beverages, partly offset by declines in V8 vegetable juice. Sales of V8 V-Fusion in the quarter benefited from the launch of new products, including smoothies, energy, sparkling and kids drinks. Sales of North American Foodservice decreased 2% due to declines in canned soup sales. Operating earnings for U.S. Simple Meals rose by 3% to $104 million for the quarter. This increase reflected earnings gains in U.S. Soup, partly offset by a decline in U.S. Sauces. Within the segment, higher sales volume was partly offset by a decline in gross margin percentage and increased advertising expense. Earnings within Global Baking and Snacking declined 10%, reflecting lower earnings in Arnott's, partly offset by growth in Pepperidge Farm. For the segment, the decrease in earnings was primarily due to increased promotional spending and cost inflation, partly offset by higher selling prices and productivity improvements. Operating earnings for U.S. Beverages decreased by 17% despite higher sales volume, primarily due to an increase in marketing expense and a decline in gross margin percentage related to cost inflation. Within International Simple Meals and Beverages, earnings declined 38%, reflecting lower earnings in Canada and increased marketing investment in Latin America. For the international segment, the decrease in operating earnings was primarily due to cost inflation and increased promotional spending, partly offset by higher selling prices. Operating earnings within North American Foodservice decreased by $6 million or 38% versus prior year. The decrease was primarily due to increased promotional spending and cost inflation. U.S. Soup sales for the quarter rose 9%. Sales of condensed soup increased 14%, with double-digit growth in eating varieties and gains in cooking varieties. Condensed soups sales benefited from movements in retailer inventory levels. Estimated inventories were lower when we began the quarter compared with the year-ago level and ended higher than the prior year's quarter, largely in support of in-store promotional activities. Condensed soups sales also benefited from consumption increases. Ready-to-serve sales increased by 1%. Sales of Campbell Chunky soups rose slightly, while sales of Campbell's Select Harvest soups declined. Campbell's Slow Kettle Soups, which we launched in July 2011, added to the sales growth. Broth sales grew 4%, primarily due to volume-driven gains in aseptically-packaged broths and the benefit of the July 2011 launch of Swanson Flavor Boost concentrated broth, partly offset by declines in canned broth. The U.S. wet soup market share results from the latest 52 weeks, based on IRI multi-outlet data, is shown on Slide 25. Note that in prior quarters, our market share figures covered the food, drug and mass retailer channels and were based on IRI data as well as internal company estimates. This new data, which we plan to use going forward, has been expanded by IRI and now includes food, drug, mass, military and most dollar and club stores. We estimate that this more comprehensive consumption data covers approximately 80% of our U.S. retail sales, and the report no longer includes any adjustment based on internal estimates. Overall, Campbell performance in the new IRI retail universe is similar to that with the previous data set Based on the new data, Campbell's market share declined on a 52-week basis by 2.4 points to 58.9%. The change was primarily driven by ready-to-serve soup. In ready-to-serve soup, other branded players had market share gains. Our U.S. Soup dollar sales declined 2.9%, while the overall category rose 1.1% over the past 52 weeks. We underperformed the category as a result of our reduction and promotions and our list price increase, among other factors. Other branded players increased sales by 10% in the period, while private label sales rose 2.1%. Next, I'll move to an overview of full year results. For the year, both reported or organic net sales were comparable to the prior year, excluding items impacting comparability in both years, adjusted EBIT of $1.2 billion declined 9% versus a year ago. The decrease was primarily due to decline in gross margin percentage. Both sales and EBIT results were consistent with our annual guidance. Adjusted EBIT -- I'm sorry, adjusted EPS declined 4%. We continued to benefit from using our strong cash flows to repurchase shares. Organic net sales in fiscal 2012 were comparable to the prior year. As you can see on Chart 27, higher selling prices were offset by price -- by pressure from volume mix and the negative sales impact of our increased promotional spending. Our fiscal 2012 gross margin declined by 140 basis points to 38.8% from 40.2%. This decline was due to cost inflation, increased promotional spending and unfavorable mix, partly offset by higher selling prices and productivity improvements. The inflation rate and cost of goods sold was approximately 6%, which was above our long-term average, yet at the low end of our expectations for the year. Marketing and selling expenses increased $13 million to $1.02 billion, primarily due to a 3% increase in advertising and consumer promotion expenses. As we mentioned at Analyst Day, we're now breaking out our full year advertising and consumer promotion expense. For the fiscal year, advertising and consumer promotion expense increased by $14 million to $506 million. Administrative expense for the year decreased $1 million to $611 million versus $612 million last year. Below the operating line, net interest expense fell 5% or $5 million to $106 million. This decline was primarily driven by lower rates on our long-term debt portfolio. The adjusted tax rate for the fiscal year decreased 50 basis points to 31%. For the fiscal year, adjusted net earnings declined 7%, and after benefiting from a 3% reduction in diluted shares outstanding, adjusted EPS declined 4% to $2.44. For the fiscal year, U.S. Simple Meals sales declined 1%, reflecting a 2% decrease in U.S. Soup, partly offset by sales growth in U.S. Sauces. Sales of U.S. Sauces increased slightly as gains in Prego pasta sauce were mostly offset by lower sales of Pace Mexican sauce and declines in other Simple Meal products. Organic sales of the Global Baking and Snacking segment increased 1% versus prior year, as growth in Pepperidge Farm was partly offset by declines in Arnott's. Pepperidge Farm sales increased primarily due to double-digit growth in Goldfish snack crackers, partly offset by declines in cookie and frozen products. Arnott's performance was impacted by a difficult trading environment in Australia. As a result, Arnott's sales declined for the year, reflecting an increase in promotional spending that was not successful in increasing total sales. Within the International Simple Meals and Beverage segment, organic sales declined 2%, primarily due to lower sales in Canada, Europe and the Asia-Pacific region, partly offset by gains in Latin America. U.S. Beverage sales increased 2% of sales of both V8 Splash beverages and V8 V-Fusion beverages rose, while sales of V-8 vegetable juice declined. Within the segment, volume gains were partially offset by the impact of higher promotional spending. Sales of the North American Foodservice segment increased 3%, primarily driven by volume-driven gains in fresh chilled soup sold at retail. Operating earnings for U.S. Simple Meals increased $1 million to $658 million versus the prior year, reflecting earnings gains in U.S. Soup that were mostly offset by lower earnings in U.S. Sauce. For the segment, higher selling prices, productivity improvement and lower promotional spending were largely offset by volume declines and cost inflation. Earnings within Global Baking and Snacking declined by 11%, primarily due to cost inflation, increased promotional spending and higher advertising, partly offset by higher selling prices and productivity improvements. International Simple Meals and Beverages earnings declined by 17%, primarily due to lower earnings in the Asia-Pacific region and Canada, as well as increased costs associated with the company's marketing expansion in China. Operating earnings for U.S. Beverages declined by 26%, primarily due to inflation and the cost of juice concentrates and packaging materials, increased promotional spending and higher advertising expense. Operating earnings in North American Foodservice increased by 4%, primarily driven by higher selling prices and productivity improvements, partially offset by cost inflation. U.S. Soup sales for the fiscal year declined by 2%. As you can see on Chart 32, a 7-point decline in ready-to-serve soup was only partially offset by a 1-point increase in condensed soup and a 3-point increase in broth sales. The 1-point increase in condensed soup was driven by gains in eating varieties, while cooking varieties were even with the prior year. The 7-point decline in RTS reflected lower volumes, the result of higher promoted and non-promoted price points at retail, offset by the positive impact of the Slow Kettle launch. The increase in broth sales was primarily driven by volume gains and new item launches. Cash flow from operations was strong at $1.12 billion. This $20 million decline compared with last year reflected the impact of lower cash earnings, partly offset by lower pension contributions. Capital expenditures of $323 million were in line with our full year expectations and were up from the $272 million of a year ago. Looking ahead, we are forecasting capital spending in fiscal 2013 of approximately $330 million, including Bolthouse. During the fiscal year, we utilized our positive cash flow to repurchase 12.6 million shares at a cost of $412 million under our strategic share repurchase program announced in June 2011 and our practice of buying back shares to offset those issued under our equity-based compensation programs. Net debt was $2,455,000,000, a decrease of $145 million. For fiscal 2013, Campbell expects to grow total company sales between 10% and 12%, with adjusted EBIT growth of 4% to 6% and adjusted EPS growth of 3% to 5%. Within these ranges, currency is expected to be neutral to slightly negative. We expect interest expense to increase approximately $30 million, primarily due to the acquisition financing, and we expect the tax rate to be between 31% and 32%. We expect our gross margin percentage to decline approximately 1 to 2 points, primarily due to the addition of Bolthouse, which operates with a lower margin structure. Gross margin on our base business is expected to be comparable to 2012, as we anticipate that our pricing actions and productivity savings will mostly offset the impact of 4% cost inflation. We also expect our operating margin to decline slightly in 2013, primarily due to the impact of Bolthouse. As we mentioned in July, our expectation for fiscal 2013 includes a modest reduction in advertising and consumer spending for the year, notably in U.S. Soup. Thus, we expect our marketing expense will decline slightly on our base business for next year. However, these savings will be offset by some upward pressure on SG&A from a 30% increase in pension expense, among other factors. The acquisition of Bolthouse Farms was completed in the first quarter, as I said, for $1.55 billion, plus the impact of purchase price adjustments. We financed that purchase with debt. Our fiscal 2013 guidance includes the estimated impact of the Bolthouse Farms acquisition, while excluding the impact of onetime transaction costs. We expect Bolthouse to contribute approximately $750 million to sales, which is about 10 points of sales growth for total Campbell. Bolthouse will drive most of our growth in adjusted EBIT, and it will add $0.05 to $0.07 to our adjusted EPS, including the estimated impact of purchase accounting and the suspension of our strategic share repurchase plan. Thank you. With that, I'll now turn it back to Jennifer.

Thanks, Craig. At this time, we will conduct the Q&A session. [Operator Instructions]

[Operator Instructions] Our first question comes from David Driscoll from Citi Investments.

Wanted to ask a little bit about the organic revenue growth within your F '13 guidance. So I believe that Bolthouse -- Craig, I think you said that it will add 10 points of revenue growth such that organic revenue would be just 0% to 2% within your guidance range. Given that Campbell's is accelerating the new product introductions with -- I think you actually went from 47 to 50 on the slides, so you're now showing 50 new products planned for F '13, and that Campbell's will realize price increases in F '13, partially because of the inflationary pressures. Why is organic revenue growth so low? Why isn't it going to be something a lot better than 0% to 2%?

Well, David, I think we continue to see some headwinds from the consumer environment. As we've also said, we're going to lower our advertising spend in the U.S. Soup business. While we think that has good payback to it, it will have a negative impact on our sales number in U.S. Soup for the year. And it's -- I would point out that we are anticipating an improvement versus our prior year organic sales with all of that in.

Maybe just one follow-up on that then. Can you quantify the fourth quarter buy-in on condensed soup? I believe there's a 5% price increase in the fourth quarter for condensed and that the retailers bought in ahead of that, hence, the significant growth in condensed. Will that -- I assume that, that negatively hits volumes in 1Q '13, but can you give us some quantification of what the magnitude you expect to happen in the first quarter?

It is very difficult to precisely quantify. I think, though, one thing that's important, it's not so much the impact of the buy-in prior to price increase as it is that we had pretty significant consumer promotion activity going on at the end of the quarter, which caused some increase in inventories in-store. We expect to see that sell-through. But you're right, there could be a little bit of overhang into Q1.

Yes, I mean, the -- what we saw was a normal situation around our price increase, and actually coming into our F '13, a reasonable inventory level.

Our next question comes from Thilo Wrede. Thilo Wrede - Jefferies & Company, Inc., Research Division: Denise, excluding Bolthouse, you've grown or you intend to grow EPS this year by 1% to 2%, which is obviously quite a bit away from the 5% to 7% long-term target. How quickly do you think can you get to that long-term target? And what needs to happen for you to get there?

We recognize that the EPS will represent an improvement in trend on the base business but won't get us all the way there. We're not really disclosing a time frame that we will get there, but we're just giving guidance for the entire business inclusive of Bolthouse Farms. Thilo Wrede - Jefferies & Company, Inc., Research Division: Then maybe asked differently, at the Analyst Day and today, again, you've reiterated that the growth rate that you're looking at for 2013 isn't quite what you expected last year. How much worse is the growth rate for this year than what you expected when you put out your strategic plan last year?

I think, Thilo, we talked about a return to our long-term targets, which is 3% to 4% sales, 4% to 5% EBIT and 5% to 7% EPS.

Right. And I think that the delivery this year was in line with the guidance that we gave in July 2011.

Our next question comes from Priya Ohri-Gupta.

Just a quick point of clarification. What sort of cash contribution do you expect to make towards your pensions this year?

Yes. We expect that to total about $85 million on a consolidated basis.

Okay, great. And any expectations around the possibility of refinancing your December maturity? Or should we continue to see that paid down?

I think you can assume we'll pay that down.

Our next question comes from Andrew Lazar from Barclays.

You had mentioned, I think, some positive consumption or take-away in condensed, even when you exclude the inventory adjustments that you discussed. So while it's a small quarter overall, I'm just trying to get a sense if you can glean anything in the data that you have. I guess that makes you either incrementally more or less comfortable that the pricing you're taking in condensed can be done with kind of manageable impacts on volume.

We -- Andrew, first of all, we have seen some positive consumption across Soup, particularly on condensed soup, and that's encouraging. We do feel that the price increase that we took will result in a reasonable increase in the retail price on the shelf to the consumer. However, we are planning for some volume impact due to that price increase. So that we're expecting that there'll be some pros and cons as we go into next year.

Got it. And then with condensed in the quarter up as much as it was, I guess I would've thought the mix impact would have benefited gross margins in the U.S. Simple Meals segment more than it did. Was there something else offsetting that, in that segment, that you can clarify?

Yes. You're probably seeing a little bit of the promotional spending associated with the retailer activity.

Our next question comes from Jason English from Goldman Sachs.

Sticking on the topic of promotions in Soup, I imagine a lot of your merchandising plans for the early part of the soup season are locked and loaded now. With that said, any expectation of recovering some of the loss merchandising support you ceded to your competitor last year?

Well, as you know, a couple of years ago, we had engaged in some pretty deep discounting in the category that we walked away from last year in an effort to spend more and invest more in brand building. We believe going into this season, we will have spending against an optimized driver of demand, which is inclusive of promotions and advertising and consumer promotions. So we think that we're working this season in a much more balanced way.

So Denise, should I interpret that to mean sort of comparable levels to last year? That last year is sort of the new base to look at?

Yes, yes, that's correct.

And real quick on innovation. Can you update us -- you said successful acceptance by retailer. In terms of net distribution, have you been able to secure some of the net distribution gain in Soup? Or has it been primarily a swap for other items?

Yes. It's still early days, Jason, but we are on track with our new products broadly. And our -- the retailers have accepted the products and it's been very positive. So we expect that, that momentum will continue, and the proof is what will the consumer do. So we'll be given an early read on that next quarter.

So it will be a distribution gain, but it's too early to quantify.

Our next question comes from Eric Katzman from Deutsche Bank.

I guess my question maybe to Craig on the outlook in terms of the EBIT growth versus the EPS growth. How much of a -- I think you said there's some headwind from interest expense on Bolthouse. And then you've also got -- which way, on an operating basis, is the tax rate swinging? And then, is there any kind of net benefit of the shares year-to-year? I'm just trying to kind of judge the difference between the 4 to 6 versus the 3 to 5 because it would seem that, that might be more of a gap.

Right. The -- so the tax rate might be slightly negative. The bigger impact is interest and also the cessation of our share repurchase program.

Okay. But Craig, are you following me to the extent that, okay, tax rate is slightly negative. Interest expense is a clear negative. You're not going to have the benefit of the shares, so why wouldn't the difference between EBIT and EPS growth be, let's say, more negative?

So there is a carryover benefit on shares, so we stopped the share repurchase program. But because we bought throughout the year in F '12, there's a carryover benefit in the share count, and that's a -- that's a slight positive, and that's partially offsetting the interest expense.

Okay. All right. And then, I'm sorry, if I could just follow up real quickly on Arnott's. I think you said that Australia continued to be challenged, but that was offset by, I guess, some export business to -- whether it was Indonesia or Malaysia or someplace. But why shouldn't we still be pretty worried about Australia and Arnott's, given how profitable that business is?

Just one clarification. We have businesses in both Malaysia and Indonesia. We have production facilities in both those places so -- and both those businesses did well.

Okay. Okay.

I think -- I just came back from Australia and had extensive meetings with the team and the customers there. And I think the consumer environment is still challenged. The consumers' savings rate is probably one of the highest it's ever been, and there is some concern over that. However, the team has recognized that this is an environment that we have to play in probably for a while. And so the joint business plans that we've been able to work with in the marketplace are very encouraging. And so we -- during F '12, we actually continued to invest in brand building and the innovation pipeline, so we believe that we have strong plans going into 2013 that, hopefully, adjust to the situation.

Is that one of the reasons -- is Arnott's in Australia one of the reasons why you're being a little bit more cautious on the guidance, including sales, which I think was one of Dave Driscoll's questions?

I think that's part of it. I think the other is we've been pretty conservative on our estimates for our new product innovation. The consumer will let us know if we can be more exuberant.

Our next question comes from Chris Growe from Stifel, Nicolaus. Christopher Growe - Stifel, Nicolaus & Co., Inc., Research Division: I just wanted to ask you a question in relation to marketing and the 3% increase that we saw for the year. I just wanted to confirm -- we've talked about this in previous quarters. But that, obviously, was up pretty nicely for Soup but just down -- and was it down in all other divisions from there? I'm just trying to understand kind of the magnitude of the shift that occurred across the divisions.

Yes. So Chris, the primary increases would have been against our sauce business, against our adult cracker business within Pepperidge Farm and against our beverage business in North America. Those would have been the sources of most significant increases. There would've been increases in some of our emerging marketing businesses, too. But those are pretty small relative to the total. Christopher Growe - Stifel, Nicolaus & Co., Inc., Research Division: And then just to understand, then, for fiscal '13, that increase then -- I'm sorry, that I think you said a slight decline from marketing. Is that -- was that just the U.S. Soup or was that for the overall company?

The decline -- well, it will be a decline for the overall company that is driven by a decline in U.S. Soup primarily.

For the overall company, though, our total marketing, which will be advertising, consumer and trade promotion, will be about average with the industry. Christopher Growe - Stifel, Nicolaus & Co., Inc., Research Division: Okay. That's helpful. If I could just ask a follow-up then. In relation to -- just to be clear on the new product shipments, where there -- there were some in the fourth quarter. I'm just curious if that was an incremental benefit year-over-year to the revenue growth in Q4?

Yes, but not very materially.

Yes. A small amount shipped for some shelf stuff with retailers that did their planogramming in the fourth quarter. Christopher Growe - Stifel, Nicolaus & Co., Inc., Research Division: Okay. So most of that will come really then Q1, which we're in now.

Correct.

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

Just wanted to ask a question on condensed. There's -- there have been some issues, I think, with excess capacity on the private label side in that business. And I'm just wondering, when you think about that in the context of price increases that you're taking for this year, are you at all concerned that the price gaps in that part of the business are going to widen in fiscal '13?

I think that we will always watch price gaps versus private label and competition. Private label in the Soup business has traditionally been about 10 points below the average, so we're not expecting that this would be a huge factor.

And just one quick clarification. I think you said in your prepared remarks that Bolthouse is going to drive most of the EBIT growth in fiscal '13. But I think, just doing kind of some math on it, it looks like Bolthouse should drive more than all of the EBIT growth. So I'm just trying to make sure that I'm understanding that correctly.

If you look at the base business implied in the guidance, it's about flat at EBIT, slightly up but pretty close to flat.

Okay. Maybe I'll follow up on that, but I'll take it off line.

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

Craig, just wanted to get a little bit more color on your outlook for cost of goods inflation for this year. And I think, going back to what you said in July, it looks like the range is the same, but I just want to make sure. Has anything really changed in terms of the cost inflation outlook you're using today versus what you said in July?

So the F '13 outlook for input materials, packaging and energy is around 3%, and the total inflation assumption for cost of sales is around 4% for F '13.

And the difference between the 3% and the 4% is you've got some higher like pension expense and health care costs. Is that it?

Precisely.

Okay. And then are you still -- if I remembered it correctly, you were expecting, net of productivity, the inflation would be closer to 0% to 2%. Is that still the case?

Yes.

Okay. And then just in terms of the way it phases, anything that we should think about in terms of first half versus second half?

No, I don't think so. I mean, we'll keep updating you through the year, but there's no significant difference, I don't think, as we look across the year.

Okay. And just finally, how much of it is locked in for the year versus might be subject to volatility?

We tend to average being out about 6 months. We may be a little bit longer than that right now, given the way that the commodity markets have moved, but you should think of us, generally, as being about 6 months out.

Okay. And if I could just sneak one in on -- in the same theme. Just all of the pricing -- you've priced fully to all of your inflation expectation, like there's not incremental pricing action you'd need at this point.

Well, I -- we're not going to announce future pricing activity at this point. But yes, what we said at Analyst Day, and what is still true, is that between the pricing we have already announced in the Soup business and the productivity savings that we're expecting, we're pretty well covering off the cost inflation.

Our next question comes from Jonathan Feeney from Janney Capital Markets.

I wanted to follow up a little bit with Craig. You said it was difficult to quantify the retailer inventory on what you mentioned, some impact on the Soup, Sauces and Beverages volume. How much visibility do you have into that inventory? And like, I mean, is it -- do you expect those levels to grow significantly with a lot of this new product activity in the coming quarter?

The thing that's difficult about it, Jonathan, is that there's a tremendous seasonality to our inventory movements anyway. So the fourth quarter always sees an inventory decline in total versus the third quarter. And what we saw this year was that both the starting point a little bit lower than the previous year, ending point a little bit higher, but all in the context of decreasing inventories. In the first quarter, we almost always see an inventory increase. And so trying to quantify what the net impact of that will be is just difficult on big inventory numbers. If we look at the warehouse inventory levels that we have visibility to, they were very normal for the fourth quarter. The in-store inventory was somewhat higher than normal at the end of the fourth quarter because of the promotional activity that we've talked about, and that's what created a pretty big swing in a pretty small quarter.

Our next question comes from Alexia Howard from Sanford Bernstein. Alexia Howard - Sanford C. Bernstein & Co., LLC., Research Division: Okay. So operating earnings, if I'm looking at Page 31, I think it is, on the slide deck, it looks as though outside of U.S. Simple Meals and Foodservice, you've obviously had a big decline in operating earnings across some of these segments here in fiscal '12. And I think a lot of that was due to competitive dynamics and cost pressures and so on. For those segments where we have seen a major decline, are we through the worst here? Where are the bright spots in terms of what could get a lot better in fiscal '13? And where are things still very tough from a profit growth perspective?

Yes. For example, in the beverage business, next year, we'll have a combination of both price and productivity improvements that will lead to an improved EBIT situation there. We also are expecting some lower commodity costs and some stronger enablers that will kick in about the middle of the year. But we have plans on most of the businesses to work the EBIT line.

Our next question comes from Rob Moskow from Credit Suisse. Robert Moskow - Crédit Suisse AG, Research Division: 2 questions. One is, I don't know if you answered why retailers were promoting condensed during the summer. I mean, it was the hottest summer in history. And then secondly, getting back to Ed Aaron's question, the math I had on Bolthouse was that operating profit was running at about $92 million on an adjusted basis. I have assumed maybe $100 million of a contribution for fiscal '13. And if I do it that way, I get core EBIT down like 2% to 4%. And I just wondered if that has anything to do with the mix shift away from Soup in fiscal '13 as you lower advertising and you probably have a sales decline.

Yes. So, well, first, with respect to promotional activity, I think it's back-to-school promotional activity that we're seeing, which is, in some cases, getting earlier in the year than it has been. But I think that's the answer to that one. With respect to Bolthouse, you have to recognize that versus the historical numbers that you've seen for Bolthouse, there is asset write-up as part of purchase accounting that will lead to higher depreciation that they've had historically. There's both an accounting change and some retention bonus kind of activity that we have in the compensation expense related to Bolthouse. And then there are certain items that are related to Bolthouse that actually fall into the Campbell P&L as part of the integration of Bolthouse. So I think all of those things are leading you to over-impute operating earnings to Bolthouse. The reality is that the base business EBIT organic growth is around flat. Robert Moskow - Crédit Suisse AG, Research Division: Okay. And as far as like maybe Soup being down a little bit, does that have more of an adverse effect on profit being down? Or is it about the same? If sales of Soup were down one, maybe profit for the overall business would be down one?

Well, Soup contribution, particularly in condensed, is higher. It's -- I think it's pretty well understood, it's higher than the company total. But I -- you're looking at some fairly small movements here. I don't think -- if you come back and think about it margin, right, we've said gross margins would be pretty comparable on the base business to prior year, and, really, the same thing is true at operating profit, too. Robert Moskow - Crédit Suisse AG, Research Division: Okay. Last question. Craig, higher grain costs, are those going to influence your Pepperidge Farm and Arnott business at all? Or is it all in the guidance?

Well, it's in the guidance. I mean, they do influence it, of course. There is pressure more at Pepperidge than at Arnott's, given the 2 fairly distinct grain markets that we're talking about. But it is anticipated in the guidance that we would have pressure at Pepperidge.

Our next question comes from Matthew Grainger from Morgan Stanley.

Just a follow-up on Soup. I just wanted to get a better sense of how you're currently thinking about the scale of the various new ready-to-serve products being shipped in fiscal '13. For items like Go! Soups and Gourmet Bisques, are your goals to reach, I guess, a similar level of ACV to what we saw for Slow Kettle in 2012? And one quick follow-up. With respect to slotting fees, can you give us a sense of whether you incurred anything material in the fourth quarter and whether we should expect a more significant impact here to be concentrated in Q1 or Q2?

Yes. We had planned for Slow Kettle to reach a lower ACV distribution than it actually did achieve. And we're planning for our new Go! Soups, Bisques and Skillet Sauces to reach an average amount of ACV distribution that we have seen in the past. And so far, that seems to be the case.

Yes. So slotting fees for this year's fourth quarter were up about $6 million versus prior year same quarter. And you should not expect a significant difference in Q1 related to slotting fees.

Our next question comes from David Palmer from UBS.

2 quick follow-ups on other questions. On the marketing spend, going to be a little bit lower year-over-year for fiscal '13. One might have assumed that new product news would necessitate and even respond to higher levels of advertising. Is Campbell thinking about shifting some ad weight away from imagery ads, such as the "Amazing what soup can do" ads, that are more general and product -- and category broad in terms of its support levels and towards more awareness new product launch type ads? Is that some of the thinking?

Yes. Well, our marketing expense will be down modestly versus this year. And our A&C expense will be down due to reduced spending on our U.S. Soup, but we will be more than competitive in our share of voice on that business. For our new products, the marketing support will vary, but it will have a mix of TV, print, digital and promotional vehicles, each at competitive levels. And that's how we have planned the year. If they tend to take off in a bigger way, we will subsequently increase the investment.

Overall spending on new product support will be up, David, so the decrease is related to the base.

And then just also a follow-up on the timing of the shelving of your various new products. Are you fully distributed now for what you think you're going to have out there, not just the new packaging like the Go! Soups but also the repackaging of your Light soups? I mean, are you where you think you'll be in a few months' time? Are you pretty much re-shelved at this point?

Most of the items have really just started shipping. We've shipped some in the fourth quarter and some in -- have been shipping in August. So it usually takes about 3 to 4 weeks to get through the system to be totally on shelf before we actually start the marketing around them.

And with respect to Select Harvest and 100% Natural, that's going to take place over a period of time, [indiscernible] October and November.

Right. That will be a flow-through, exactly.

Our next question comes from Erin Lash from Morningstar.

I was just curious. Obviously, cash flow continues to be very solid and, while you still are well focused, appears to be paying down the debt related to the Bolthouse acquisition. I just wanted to get a sense for your appetite for additional acquisitions going forward, either in your core category or expanding your platforms further in international markets.

So I think we said both at Analyst Day and also when we did the call on Bolthouse that while we're suspending our share repurchase, we're not suspending our activities to continue to look for good, value-accretive acquisition targets or partnership opportunities or JV opportunities where they make sense. We do feel like we've still got some capacity within our balance sheet, and so we continue to try to advance our strategies by looking for those kinds of opportunities. Now having said that, they're few and far between out there, and we're very rigorous in the way that we evaluate them. But we have not -- we haven't stopped looking.

Can I ask one follow-up? With regards to your comment that they're few and far between, is that because the premiums that sellers are looking for are too high? Or is that just the potential for -- or the potential quality companies that are out there is small in and of itself?

Well, I think it's both things interacting with each other, right? There, just numerically, there are not a lot of good quality properties. And consequently, when one does come to market, it tend -- there tends to be pretty strong competition for it.

And we're very disciplined about the way we're going at this.

Our next question comes from Akshay Jagdale from KeyBanc.

Denise, you mentioned new products. You're being -- I interpret what you said as being conservative in terms of what you're modeling for new product contribution to sales growth. Can you give us a sense of what you are expecting, and so we can judge whether it's conservative or not?

It's early days, and again, we just started shipping. So as the year unfolds, we'll have an early read in quarter 1. And then in quarter 2, we should have a much better read on the consumer acceptance of these products and the consumption resulting from that. So I'd rather wait until that point in time than speculate.

Okay. With that, we will conclude our Q&A session, and we'll move over to Denise for the wrap-up.

Thank you for your questions. And we'd like to leave you with 4 key takeaways from today's call: first, we reported positive organic sales growth this quarter and finished the year with sales and EBIT consistent with the guidance we gave in July 2011 and EPS slightly ahead of that guidance; second, we told you that for fiscal 2013, we expect 10% to 12% sales growth, 4% to 6% growth from adjusted EBIT and 3% to 5% growth in EPS, including the impact of Bolthouse Farms; third, we plan to continue investing in new product innovation and brand building to optimize all of the drivers of demand; and fourth, we remain excited about the addition of Bolthouse Farms, which offers a growth platform in the faster-growing packaged fresh category and increased scale in healthy beverages. We've made progress for those strategies in fiscal 2012, and while clearly we have more work to do, we believe that the strategies we outlined to you a little over a year ago are starting to gain traction. We look forward to giving you an update on our execution of the strategies next quarter, including the early read on this year's new product launches. Thank you very much for your support of Campbell's in fiscal 2012, and we look forward to seeing many of you at the Barclays Back-to-School Conference in Boston on Wednesday and Thursday.

Thanks for joining us for Campbell's Fourth Quarter Earnings webcast. Replays are going to be available in approximately 2 hours by dialing 1 (855) 859-2056 or 1 (404) 537-3406, with the passcode of 21752010. If you are a reporter and have follow-up questions, please call Anthony Sanzio at (856) 968-4390. Investors and analysts may call me, Jennifer Driscoll, at (856) 342-6081. With that, we will conclude today's program, and you may now disconnect.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect at this time.