Good morning. At this time, I would like to welcome everyone to the H.J. Heinz Company's fiscal year 2011 Q2 earnings call. [Operator Instructions.] I'd now like to turn the call over to Meg Nollen, senior vice president, investor relations. Ms. Nollen, you may begin your conference.

Thank you and good morning everyone. I'd like to welcome everyone to our conference call and webcast. Copies of the slides used in today's presentation are available on our website at heinz.com. Joining me on today's call are Bill Johnson, chairman, president and CEO; Art Winkleblack, executive vice president and CFO; and Ed McMenamin, senior vice president, finance. Before we begin with our prepared remarks, please refer to the forward-looking statement currently displayed, which is also available in this morning's earnings release and in our most recent SEC filings. To summarize, during our presentation, we may make forward-looking statements about our business that are intended to assist you in understanding the company and its results. We ask you to refer to our April 28, 2010 Form 10-K and today's press release which lists some of the factors that could cause actual results to differ materially from those in these statements. Heinz undertakes no obligation to update or revise any forward-looking statements whether as a result of a new information, future events or otherwise, except as required by securities laws. We may also use non-GAAP financial measures in our presentation, as the company believes such measures allow for consistent period-to-period comparison of the business. The most directly comparable GAAP financial measures and reconciliations of these non-GAAP measures are available on the company's earnings release and on our website at heinz.com. Please note we plan to file our first quarter 10-Q early next week. Our related financial highlights pages, or stat pages, however, are available now in the Investor Relations section of the website, towards the bottom of the page. These pages will be updated with cash flow and balance sheet information after the release of our 10-Q next week. Importantly, these stats pages provide a quarterly historical restatement for discontinued operation. Now on to today's call. Bill will review Heinz's strong performance, outlook, and growth drivers. Art will review the business unit, and Ed will touch on our financial scorecard. Of course, we'll be available then to take your questions. We'd like to request that you limit your questions during the Q&A session to one in order to ensure adequate time for all who wish to participate. Now with the formalities out of the way, let me now turn the call over to Bill.

Thank you Meg. Once again good morning there everyone. Before turning the call over to Art and Ed, I want to briefly address our solid performance in the second quarter, which once again reflected the benefits of our emerging markets strategy, our continued global growth in ketchup, the continued operating discipline that underlies our success, the consumer and economic environment, and our outlook for the full year. Turning to the second quarter, as we reported this morning on a constant currency basis, sales grew 1%, operating income rose almost 5%, and EPS from continuing operations increased nearly 7%. On a reported basis, EPS from continuing operations rose almost 3% to $0.78 a share. Encouragingly, during the quarter we saw a 100 basis point improvement in gross margin, and strong operating and free cash flow of almost $300 million. Without question, emerging markets were the growth engine in the quarter and in the first half of the fiscal year. Emerging markets achieved double-digit organic sales growth of more than 10% in the quarter, enabling Heinz to deliver our 22nd consecutive quarter of organic sales growth. The strong emerging markets sales growth was fueled by excellent results in China, India, Indonesia, and Russia. Overall, emerging markets generated 15% of the company's total sales in the second quarter, and have generated over 16% through the first half of fiscal 2011. Notably, the emerging markets infant nutrition business delivered 17% organic sales growth in Q2, reflecting strong results in China, where we grew sales, achieved record shares in infant cereal, and successfully launched Heinz Infant Formula. India continued to be a growth catalyst, with organic sales from Complan nutritional beverages, up 29%. Complan has quickly grown to become one of the company's top brands, and Heinz opened a new greenfield factory in India last…

Thanks Bill, and good morning everyone. Overall we're pleased with the results of Q2. For the quarter, we delivered continued strong sales in our key growth vehicles of emerging markets, global ketchup, and our top 15 brands. Expanded gross margins for strong productivity and net pricing delivered solid operating income and EPS growth, and continued our great momentum in driving cash flow. And as Bill mentioned, we performed quite well on a constant currency basis. Reported results were lower than these growth rates as foreign exchange reduced sales by about 2%, operating income by 2.5%, and EPS by 4%. The currency headwind during the quarter largely relates to the Venezuelan Bolivar, key European currencies, and hedges, whose impact shows up below operating income. In terms of organic sales, the increase was clearly led by emerging markets, which posted double-digit sales growth in the quarter, driven by China, India, and Russia, and pricing in Latin America. Organic sales for developed markets, excluding U.S. food service, were relatively flat in the quarter, as gains in global ketchup and our top 15 brands were offset by results in parts of continental Europe and Australia. U.S. food service continued to be impacted by soft channel trends, though we are starting to see some improvement in restaurant traffic. Our core branded ketchup and sauces business continued to grow, but was more than offset by lower sales of unbranded frozen desserts. As you know, Heinz is comprised of a highly focused portfolio, anchored by the $4 billion Heinz brand. Our top 15 brands represented more than 70% of sales in the second quarter, and have consistently led our organic growth over the last few years. And this quarter was no exception, as these brands grew organic sales at nearly 3%. Turning to our core categories, we…

Thanks Art, and good morning everyone. Now that Art's covered the performance of each of the operating units, I'll briefly review the overall financial highlights. Looking at EPS, I'll give you three perspectives on the company's results that reflect the impact that currencies and last year's divestitures have had on our comparisons. First, looking at the results on a constant currency continuing operations basis, EPS was $0.81, up 6.6% from the prior year. Our current period results were unfavorably impacted by about $0.03 from currency movements, which were largely due to the relative weakening of the Euro and the pound, as well as the bolivar devaluation last year. Reported EPS from continuing operations was $0.78, up 2.6% versus prior year, and finally, including the $0.04 unfavorable impact from discontinued operations last year, total company reported EPS was up $0.05, or almost 7%. Now turning to our P&L scorecard, net sales of just over $2.6 billion benefitted from double-digit organic growth in emerging markets. The efforts of our global supply chain are delivering great results, with a gross margin increase of 100 basis points to 37%. [Inaudible] activity improvements are the main driver here, primarily in U.S. food service, the U.K., and Australia. Marketing was down slightly as increased investments in our emerging markets and the U.K. were more than offset by a shift in North America from traditional advertising to trade promotions. Operating income increased 2.1% on a reported basis, and 4.6% on a constant currency basis. Improved gross profit enabled us to increase investments in Project Keystone while still delivering operating income growth. Now that you're grounded on the major P&L line items, this chart details the currency impacts on these key measures. Despite some recent strengthening of the European currencies, overall forex was still a headwind for the…

Thanks Ed. As Bill said at the outset, we are reaffirming our constant currency P&L targets while increasing our cash flow outlook by 15%. Our year-to-date results and the plans for the balance of the year give us confidence that we will deliver another strong year for the company and its shareholders. Finally, let's talk about the shape of the next two quarters relative to last year, and items impacting comparability. Last year the high water mark in terms of EPS occurred in Q3, with Q4 profits being quite a bit lower due to commercial and productivity investments. This year we expect our EPS to be much more even in Q3 and Q4, and this largely reflects a more even distribution of investment spending this year, largely focused on Project Keystone; the modestly dilutive effects of the Food Star acquisition, as we plan to aggressively invest in this business in order to further leverage its current momentum; the overlap of the currency devaluation in Venezuela, which occurred very late in Q3 last year; a higher effective tax rate in the back half; and an increased number of shares outstanding this year. So again, we expect EPS to be relatively evenly phased between the two remaining quarters. In summary, we believe that the business is performing well in challenging times, and we are confident in our full year outlook. And we have a great runway for continued growth as we continue to invest for the future. So now, we'll open it up to your questions.

[Operator Instructions.] And your first question will come from the line of Diane Geissler of CLSA. Please proceed.

The volume trends in the quarter were a little bit lighter than what I had been looking for. You cited a number of issues, the pantry loading, allocation on the sweet potato fries, the Ramadan. Can you just give us some indication about your volume expectations in the second half of the year, what you see happening with the U.S. consumer, just any color there would be appreciated.

I think in the second half of the year, from a U.S. standpoint, remember we're up against very difficult comps because of the growth we put behind the CVP program last year. The second thing you should be aware of is, and we made the statements about where deal spending is in the first and second quarter, but year for the year I would expect deal spending as a percentage of sales to be flat, which means in the second half of the year you're not going to see us aggressively chase volume like I think we may have done last year with the CVP program. Third, the U.S. consumer is in a funk, and while we're seeing some glimmers of hope and some seem to be emerging from hibernation, the reality is that they are making conscious and significant tradeoffs in their budget and for the first time ever, maybe since the Great Depression, we're seeing 27% of them without discretionary income based on the Nielsen data we looked at last week, which is an incredibly high number. Having said that, we have a lot of innovation in the second half of the year in the U.S., and my hope in the U.S. is in the second half of the year that we see some volume improvement on Ore Ida, because of recapturing the sweet potatoes that we didn't get in the second quarter. Ketchup will continue to be relatively strong, other than it's up against a huge CVP program in the fourth quarter last year. Frozen entrees is simply a function of what the category is going to do. We're building share, and we're seeing good response to our breakfast and sliders business, but in the U.S. if we don't see a turnaround in the category I'm not…

Okay, great. Is there a breakdown within that 3-4% sales growth in terms of volume and price?

We haven't broken it down. What we've said is 3-4% constant currency sales growth. That was the target we laid out in May and that's still the number we're looking at, so I'd rather not break it out, although you can pretty much get a good read by what we've done in the first half and then the addition of some M&A in the second half.

Your next question comes from the line of Alexia Howard of Sanford Bernstein. Please proceed.

Just wanted to continue on the question of what's going on in Germany and Benelux and the Nordic regions. Could you give us a little bit more color on that? You said it might persist into the second half. Is it weakness in the consumer? Is it competitive dynamics? Just a little bit more information there.

The answer to both those is yes. In Germany it's a function of a price increase we took on Sonnen Bassermann and the negative reaction we've gotten from the trade, and we've been delisted in some accounts in Germany, so we saw a very weak German performance in Q2. I think our plan is to have it back in the accounts, say, early part of next calendar year. In fact the one account that did eliminate the product has seen their comps versus their peer competitors drop precipitously in soup and in stews. So that's fundamentally the issue in Germany. In the Nordics the issue is a function of frozen. The frozen dynamics in the Nordics where we have a very strong Weight Watchers business are very similar to what they are in the U.S., and so we're sort of a victim of the category there. And then I think in the Benelux it's predominantly a couple of things. It's one, the customers there are really being difficult with private label and pricing and we are not participating. We have decided that it's just not simply worth the cost, nor the implications for moving in that direction, so we're not as aggressive as the market in general. I think secondly, we've got a lot of innovation in the second half in those businesses and we'll see how that plays out. Having said that, in the Benelux, our ketchup business from a volume standpoint is doing very well, as is ketchup across the continent. The other thing we're seeing is based on the Nielsen data we've looked at, and we're seeing it in our own businesses, is that in Eastern European markets, market baskets are flattish to down slightly as the consumer retrenches. Fundamentally, what you've got in Europe is a story of southern Europe and northwest Europe, and I'm excluding Ireland from that, obviously. But in northwest Europe, we're seeing better comps and better performance from a consumer standpoint, other than our one-off issue in Germany. In the southern parts of Europe, excluding Italy for the time being, where our business performed fairly well in the second quarter, the consumer is literally not coming back. You've got high unemployment, particularly among younger people, and I think as a consequence of that we just don't see a lot of good things coming out of Europe other than the U.K., where volume was up a little over 5% in the second quarter and where our team really is doing a spectacular job with innovation, and I think managing the balance between trade spend and marketing, consumer marketing. And I think it's done a very good job at driving share and volume performance as Art articulated in his comments.

Your next question comes from the line of David Driscoll of Citi. Please proceed.

I wanted to go back to the Europe question, but specifically just focused in on the U.K. You've made a couple of comments here, but it has to be Heinz's promotional campaign. I believe it began in the third quarter of last year, and the U.K. business in that quarter grew I believe it was 9%. What happens when you start to lap that promotion and what gives you confidence that we'll actually see year-over-year growth in third quarter and beyond that, just given how strong the business was during that period of time.

I want to be clear that I don't know we'll see significant year-over-year growth in the U.K., certainly not in Q3 relative to those comps from last year, but they have a lot of activity. The fridge pack beans has been a big hit, and the advertising we're running, which started last week, is very breakthrough advertising, some of the best advertising I've seen in this company. They've got a lot of activity on sauces and on soups. Soup category was up in the latest 12 weeks. Our share was up against a growing category. In fact, we're now pushing from a volume and value standpoint, upper 60s, pushing 70%, which are numbers we haven't seen in U.K. soup in a long time. But I do think the comps in the third quarter will be difficult to match, and then we'll come back and see how the fourth quarter comes out. But the U.K. business overall is very solid, fundamentally sound. They've made great progress from the supply chain standpoint, from a margin standpoint. They've got some good initiatives coming in the second half. But I want to be clear, I don't know that I want to say - and if I did I want to correct it, because I don't think I said it - that I expect big volume increases year-on-year in the U.K. given the "It Has to be Heinz" program. Having said that, again our business is very healthy in the U.K.

Thanks for the clarity. Just two quick follow ups. Art, can you tell us, and maybe you said it on the call, but what is the EPS effect projected in 2011 from foreign currency, all factors taken into account? And what's your expectation for productivity saves this year?

I'm not sure we quantified it exactly, given the extreme volatility of currency. I think as Ed mentioned it will be somewhat better than what we had thought at Analyst Day, but still down to prior year overall. So a few cents I would expect coming there. We've locked a number of our currencies. The remaining open one is the pound, so we're getting some clarity there, but there's still volatility in the pound and also on some of the Asian currencies. So we'll keep you posted as that goes along, but I wouldn't get too far ahead of yourself on currency, just based on what we've locked at, and also the continuing volatility. I mean, three days ago I would have said one thing and today I'd have said something different. So I think currency should be a modest help to us. And in terms of productivity, we're off to a great start productivity wise, and that has really helped drive our gross margin up 100 basis points in the quarter, so that we continue to make progress on, and I'm very pleased with the Keystone progress as well, a successful rollout in the Netherlands, those are never easy processes, but we got in the global template and now we're continuing to work to expand to other geographies.

On the productivity, I think Bob [inaudible] and the global supply chain team we put in place in the last six months has had a huge impact. Now obviously, we're benefitting from some very good moves in the procurement side. We're also benefitting from tomatoes and potatoes finally moving our way, but we are also benefitting from the time they're spending in the emerging markets and in other markets trying to bring everybody onto the HGPS system. And I think from that standpoint we're seeing good productivity gains across the board, particularly in Europe and in the emerging markets. And I look forward to that continuing as part of what we've laid out for future goals, but I think particularly with the Food Star acquisition and some of the other moves in the emerging markets, we now have 12 factories in China and there are significant opportunities to improve their processes and improve their returns. We have three factories in Indonesia, we've got two in India, and so there are significant plans in place to greatly improve the returns and the productivity we're getting out of those facilities, as well as continuing the growth and improvements we're seeing in the developed western world.

Your next question comes from the line of Vincent Andrews of Morgan Stanley. Please proceed.

Just maybe two quick ones. First, in the quarter, was your sales growth, relative to your internal expectations, above or below what you were expecting? And can you kind of triangulate whatever happened with the tactical decisions you've been talking about making in terms of allocating G&A both in general and then across your geographic segments?

I think from a sales standpoint every quarter looks different to us. Sales finally came in towards the end against our expectations, about where we thought they would for the quarter. Now if you go back to the original plan, it always changes because of the investment decisions we make and the moneys we move around. So we evolve as we go through the year. From a tactical standpoint, on G&A, we have been very hard-nosed. As you know, this is something that I believe in, both philosophically and personally, that we need to be cautious. And we've seen some areas in the United States, for example, we've seen some areas where G&A was up and we made some conscious decisions to reallocate some marketing to the G&A line. And as Ed said in his comments, I don't think we've gotten a return for it, and frankly you'll see that come back in the second half for the year, because we're just not going to spend money against a consumer that is not influenced by that kind of promotion activity. We are allocating additional marketing money into the emerging markets where we're seeing significant growth. We're putting a significant amount of marketing money behind the Food Star acquisition to build on the incredible momentum we're already seeing over the last six months in their top line. And we're seeing some reallocations across Europe to some of the businesses that are performing better. We are ruthless in allocating marketing, and taking it away from those businesses that don't do well and putting it against those businesses that do, and as you can see year-to-date we're up about 4% - $5 million to $6 million in marketing - and I would expect you to see some investment marketing in the second half…

And if I could just ask you quickly on food service, to get to that flat year-over-year number in the back half are there particular segments of food service that you're expecting to drive this, or is it more broad based?

I think it's going to be predominantly condiments and sauces driving in the second half, particularly portion control in response to the Dip & Squeeze launch in January. I think the other thing we're starting to see is, as you see, the QSRs are performing better than the fast casual restaurants. And so I don't expect a huge turnaround in some of our frozen businesses in food service, but I do expect condiments and sauces, as it has for the last couple of quarters, to continue to do well. It's one of the things driving the margin on food service. I want to give kudos to the food service guys on all the productivity initiatives, but they're also getting the benefit of the mix shift into our branded products and I think that's where you'll see the focus in the second half. But I think we have good plans in the second half, and providing the consumer continues to show some continued improvement in access to the food service venues, I feel fairly good that we'll deliver that flat performance. But it is going to be driven by condiments and sauces.

On top of that, in addition to the general economic comments, remember that over the last couple of years the food service team has been proactively eliminating some SKUs and in some cases getting out of some customer agreements where they just weren't profitable cases. So I think we've kind of gotten through most of that. We'll see that headwind soften a bit going forward.

Your next question comes from the line of Ed Aaron of RBC Capital Markets. Please Proceed.

Bill, I was hoping you could maybe just kind of share some views on how you're thinking about the pricing environment, maybe versus prior cycles. There seems to be growing evidence that food companies are taking price a bit faster than in the past, but it's happening in a pretty weak volume environment. So you seem to be of the view that trade spending hasn't really helped drive volumes, so do you think that the volumes will kind of hold up as this pricing makes its way through the system over the next few months?

Well, yeah, I worry about us, Ed. I don't pay a lot of attention to what other people are doing, and our pricing decisions are predicated on our cost profile, what we expect to happen in the future from a commodity perspective, the elasticities that we understand, and they vary by business, significantly by business, and by customer, and by geography. I think it will also be predicated on the productivity measures we're seeing, and how effective they're going to be. My own view on pricing is that for the Heinz company, even if we were to see some volume tradeoff, the net-net benefit typically over time is a positive one. But I don't think you should expect to see this company take blanket pricing across the board. I think we'll be very selective in areas where we know the elasticities and where the brand strength and the trail of innovation is enough to continue to support the premiumization of some of these products. It's interesting, and very few people comment on this, but if you go back and look at our last four fiscal years - fiscal '07, '08, '09, '10, we got net price in each of those years. Fiscal '06 was the last year we didn't get net price, and it was essentially flat. And year-to-date this year we're up net price obviously. And so our view is we'll continue to reflect the dynamics of the market, the dynamics of our brand, what our marketing is showing us, what our innovation packages look like, and what productivity and commodity costs are going to be and we'll be prudent and selective. But I think in some cases we'll probably have no choice but to take price. But I have to tell you, I don't reflect on anything other than what I think we can do as a company and where we can be successful. And I don't worry about what anyone else is doing. I don't follow the commentary on it because I think it's usually nothing but puffery. But we will take appropriate action where we deem it appropriate.

Thanks, and then one quick follow up. The comment about shipments having lagged consumption in the quarter, is that just because you shipped ahead of consumption in Q1, or is this something that should reverse in a positive way in the third quarter.

No, I think it's primarily because of the Walmart situation in Q1 on ketchup and some Smart Ones pickup in Q1. So I certainly wouldn't read into it that you should expect a big pop in the third quarter as a function of catching up. I think I'm hoping the exception to that is going to be sweet potato fries, where we did have a significant supply issue in the second quarter. And based on our trends and the strength of the SKUs I think you'll see some pickup there. But I think generally it's a function more of promotion timing and the split between the first and second quarter.

Your next question comes from the line of David Palmer.

My question, I guess, follows up on some of those other questions about pricing. I can't help but see your outlook standing in contrast to a lot of these grain-based packaged food companies that have seen a sharp decrease in effectiveness in their promotions of their categories. And they're seeing greater price shocks from the grains themselves than you're seeing in your basket, which seems to be a lot more balanced and diverse. So the 3% outlook on your basket, you're doing better than that, and arguably you sell a little bit more expensive calories to the consumer. It doesn't seem like from what you're laying out here that you're expecting, nor really pitching here, that you're going to take a more aggressive stance on price or reduction in promotions in the medium term. But maybe I'm looking at that wrong.

No, I would never say that David. [Laughter.] I certainly think as I pointed out that if deal spinning's a bit ahead of last year in the second quarter and year-to-date, and we're going to be flat across the year where I think we're going to be plus or minus 10 basis points, then I think you should assume in the second half we're going to be less aggressive from a G&A standpoint. You know, pricing decisions, I think people who talk about pricing decisions in the public domain are airheads. I think the reality is you can't make decisions in a vacuum. You have to make decisions based on the strength of your brand. You have to make decisions based on the innovation pipeline you've got. You have to make decisions based on the cost profile of the businesses affected. You have to make decisions based on the strength of the brand and the positions you have in the marketplace. And we will be selective as we look at opportunities. But I am clearly not going to articulate for a broad audience what our pricing strategy has been. I just gave you a pretty good sense that the last four years we have netted price in each of the last four fiscal years better than 2-2.5% on an annualized basis. Some of that's driven by emerging markets in response to inflation. Some of it's driven by developed markets in response to opportunities. Clearly, for example, Dip & Squeeze is a more-expensive product than pouch, and as we've launched Dip & Squeeze we'll obviously get some mix pick-up in terms of the price value of that on a single tradeoff between pouch. So those are the things we continue to look at, and I'm not trying to denigrate or besmirch anybody else. I've been in this job a long time and I've seen these discussions come and go over time, and I am a believer that you do what's right for your shareholders and for your employees, and for your brands on an individual basis. And that's the way we evaluate it. But I want to be clear. I'm not saying we're going to take price. I'm not saying we're not going to take price. I'm saying to you that we evaluate the opportunities going forward to create value for our brands and our shareholders, and we look at those on an individual basis and sometimes we see opportunities, and other times we don't. But we're incredibly careful about it given the elasticities and given the markets we operate in.

And is there a comment you could make about - in some of your major categories, particularly the U.S., are you seeing the type of behavior from your competition about price that you would expect at this point, given the outlook on costs. Are folks what you would call rational at this point?

I come from the Bobby Knight school of coaching. [Laughter.] And Bobby Knight always had a philosophy if my team plays this game I don't care what the other guys do. And so from my perspective, and I'm not trying to be flip or a smart guy, I just worry about what I think we can do in the businesses where I think pricing would be available to us, and where I think we have a sufficient trail of innovations to support and warrant that among the consumers. The consumer is very fickle today. I see it in my own household. Consumers are being very selective and very prudent. And we're certainly going to reflect the consumer's behavior. I don't care what competitors do. I care what consumers do, because I want to know how consumers are going to react to what I do, and we're blessed in this company with great brands. We're very concentrated with 15 brands doing better than 70% of our business. So we can make very selective decisions against pricing as we see them relate to the Heinz company and as we look for opportunities ourselves to continue to optimize value for the multiple constituents we operate and sell to.

We're running out of time here. We've got a lot of you in queue, so if we could take some quick questions to wrap up.

Your next question comes from the line of Jonathan Feeney of Janney Montgomery. Please proceed.

You guys almost didn't get a chance to besmirch some of my puffery. [Laughter.]

That's quite all right Jonathan. I'll be happy to besmirch your puffery if you'd like me to. I can understand how people on the outside perceive things, but again we have a very long track record in this company of doing the things that are right for our businesses, and we evaluate that, and so rather than make this broad-based statement, which I think is dangerous, and frankly I don't think is necessarily relevant, we try to be very selective. But more importantly, I don't think it's appropriate to talk about pricing strategy in a global environment.

Well let me be very specific, then, Bill. The United States consumer, we just went through this. Cost inflation doesn't drive the pricing outlook. I totally agree. It's a product by product value proposition question. But it does change the economics of private label. It changes the economics of retailers, and it changes the economics of the household. So my specific question would be, when you look at the consumer environment right now, just starting to see some cost inflation in some categories, just starting to see IRI pricing across the store, certainly in some of the commodity businesses, come up after a period of coming down. How is this different than the period of '06-'07 when costs were going up with unemployment lower? I think that's the key question. Is it different? Does the consumer -

- how will the consumer react?

Exactly. How does the retailer react right now?

The consumer reacts to innovation. Take Dip & Squeeze versus a pouch of ketchup. We know how the consumer is going to react to Dip & Squeeze, and yet the customer is going to pay more for Dip & Squeeze than they pay for pouch ketchup, because it's a premier, superior product, that gives them three times as much product as a pouch, has got enormous innovation and enormous appeal to consumers. So we know that. We know, for example, consumers have been prepared to pay for Simply Heinz, because they want to make the tradeoff between fructose and sugar. So there's a select group of consumers that will make that tradeoff. We know, for example, that consumers in China on baby food will pay more for products that they perceive as premium products that offer benefits from a nutritional aspect to their children that other products don't make. We know, for example, U.K. consumers are going to pay more for fridge pack beans because fridge pack beans solves a major problem, much as steam and mash did in the United States, and that major problem is, and you'll see it in the advertising, you open a typical refrigerator in the U.K. and you will see beans piled in jars, plates, paper plates, paper cups, glasses, tin cans, half a cans, plastic jars, whatever it may be. And now they have a resealable package that allows them to put it in the refrigerator, use it whenever they want. It stays fresh for five or six days, and so we know they'll pay for that. I think you have to keep in mind that it varies significantly by product, and it varies significantly by the opportunities on each of those products. But consumers have made tradeoffs, and consumers will make a…

Your verisimilitude is appreciated Bill. [Laughter.]

Thank you very much.

Your next question comes from the line of Terry Bivens of JPMorgan. Please proceed.

Bill, as luck would have it today I'm out with a company that actually is doing extremely well in China. So I just wanted - I know you're placing a lot of emphasis there, and I think that's certainly the right thing to do. How big is the Chinese business now, and what do you think investors can reasonably expect from you guys in China as we move through the next call it, say, three to five years.

It's a very good question, Terry. Let me put it to you this way. One third of our employees are now in China. One third. We have 12 manufacturing facilities. We have a baby food business that's growing very rapidly. The Food Star business gives us entrée into the heart and soul of this company, which is condiments and sauces. It is doing very well. It gives us a base with the [inaudible] product which is 25% of the total soy sauce market in China, which is about a $2 billion market and growing at about 7-8%. But [inaudible] is growing at twice that rate, 16-17%. Food Star has a 50% market share of that and Fujian and Guangdong provinces. Art and I are heading there in the next couple of weeks. We're building a new factory in Shanghai, which will allow us to hit out of the south and go into the more northern markets where the business really hasn't expanded yet. I mean, I'm very enthused about China. Having said that, China is one of a number of markets for us that's very important in the future. India, our Indian business, is growing rapidly. Our Indonesian business is extremely well-positioned. We're looking at opportunities in other markets. And I can tell you this, given the opening, beyond China we are seeing more M&A opportunities in the emerging markets than I've seen in the last 13 years. And we are busy. And I think in the context of that we will go where opportunities take us and where we believe we can make a difference. We think Food Star is one of those opportunities. We're very enthused about it. We've put a young man in charge of the business that actually comes out of our Russian team, who was…

And one quick thing. I don't think you're subject to - you know they've been talking about price controls over there, but my understanding is that probably doesn't apply to you, certainly in the infant formula. But is there anything else we need to worry about in that vein that you've heard?

I don't want to comment on price controls other than to say that historically they've never proven very effective and we'll see. But I think most of the things they're talking about from a price control standpoint are raw materials and raw commodity products that work through the stores. They've got some issues in other areas. I am not aware of anything today, Terry, but I want to say that I'm not aware of anything today. And again, I'll be there the Monday after Thanksgiving. Art and I are heading over there and a number of Asian countries and meeting with our teams.

Your next question will come from the line of Andrew Lazar of Barclay's Capital. Please proceed.

I think my vocabulary needs a little bit of work after listening to this call. [Laughter.] I guess two quick things because I know we're running short on time. First, how much of your 3-4% full year sales guidance is helped by the Food Star deal? I want to get a sense of how much that's contributing to the 3-4% and what that means for what you'd consider organic sales growth for the year.

As I answered earlier, we've never said 3-4% would be organic. We said 3-4% would be constant currency, and Food Star will contribute to it for the second half of the year. I don't know off the top of my head. I can't give you a precise number. But it's certainly maybe 30 basis points, somewhere in there. Maybe a little more, but a lot of depends on how much we grow Food Star also.

And then you talked about lower lifts or returns on some of the promotional spend, and certainly others have too, and you're going to be a little more balanced or thoughtful about it going into the back half of your fiscal year. You had some experience with this last year, right, where in the beginning of your fiscal year you were a little less aggressive, volume weakened a bit and you ramped it up a bit with the CVP in the back half. I guess what's different this time, or what have you learned from that experience that makes you more comfortable with that strategy this time in feeling reasonably okay about where volume will come out given previous experience?

We're not getting returns. It's really that simple. We're just not seeing the kinds of lifts you would historically associate with the kinds of deal spending that we've implemented in parts of our U.S. business and parts of our western European business. Secondly, I think, as we evaluate where to best put our marketing to get the maximum returns it's not necessarily in some of those businesses from a deal standpoint. It's in some of the emerging market consumer businesses. And in the case of the emerging markets some of [inaudible] trade where we still have distribution voids and we think can get more response for our dollars. And then third, it's a function of at this point in time and that point in time could change six, nine months from now. But at this point in time we're just not getting the kind of response that I would have liked to have seen from the consumer in our businesses where we deal aggressively or where we merchandise aggressively, and I think we had pretty good experience with this on ketchup from the first quarter of this year. And while we got some lifts by bringing other people in, we also loaded a few pantries. I’m just not sure it's the way you create value for the consumer. The consumers have become far more sophisticated in looking for value, and again that's why we're focused. As I've said on Smart Ones all along, we continue to be focused on innovation. And premiumization is really related to innovation, and we if we do our job there we'll be okay. But you never say never and things change at halftime and things change at the end of the third quarter, and sometimes you do things that you didn't think you would do and other times you adjust. But we tend to be a company that's pretty adept at adjusting on the fly. So what we're doing is adjusting here on the fly because we're simply not getting the kind of response.

And having said that, you've seen our share performance in some of the big developed markets. So shares are still quite strong. And so to Bill's point we continue to adjust and adapt and hopefully do the right thing to drive share growth as best we can.

Your next question comes from the line of Chris Growe of Stifel Nicolaus. Please proceed.

If I could just ask two quick ones. My question was are you seeing the proper returns from advertising as well? So as you pull back on promotion, are you putting more money into advertising? And are you getting the proper return from that money, I guess in the right markets?

The answer to that is yes. And it, again, we're going to get a good test of this real quickly in the U.K. on fridge pack where the advertising is really fun advertising. It's 15 seconds, and when you see it, there's no verbiage in it. None. But it is incredibly breakthrough. We're seeing it on Ore Ida, where we advertise Ore Ida. We're seeing it on TGIF, and obviously in the emerging markets. So we're seeing a good response where we have something to say. Where we don't have anything to say we're not seeing much of a response at all. It's working very well in ketchup across Europe where we're using multiple kinds of advertising. Secret ingredient's running in the U.K. now and it's doing very well. We're getting good ketchup lifts. We're seeing grown not made still being used in Russia and other parts of Europe where we're getting good lift. So it just depends on the business, but generally we've been very selective with it and generally when we're running advertising we're seeing decent lifts, yeah.

And my last question would be are you taking the experience of China and infant formula and basically using that to decide if and when and in what form you'd launch it in Russia? Is there any timetable for launching it in Russia?

No, there is no time table for launching it in Russia, and yes, we are using the experience, along with conditions of the marketplace and what we would bring to that marketplace vis-à-vis China, where we have an incredibly strong brand in infant nutrition. And as I said, I'm speaking to a large symposium of pediatricians and health officials in China two weeks from today where we'll talk about this and we'll also talk about the Heinz micronutrient program. Again, it's going to depend on a lot of other things besides whether or not we think it would work there. And there are other markets we're also looking at.

We're really over time, guys. Make 'em quick. I'm trying to get you in.

Your next question will come from the line of Robert Moskow of Credit Suisse. Please proceed.

I have a short question for Bill. I'm concerned it might be a long answer though, so prepare yourself.

Then I'll keep it short. [Laughter.]

When I try to market Heinz stock, the emerging markets story is obviously the thing that's really changed and you've really delivered. But a lot of investors say that Nestle, Coke, Unilever, companies that have been in emerging markets for a long time and have a lot of scale is where they'd rather be. Maybe you could put it in this context. What do you think that you're doing better than the big western companies that have been there for a long time? What are your advantages, and what advantages do you think they do have over you that you think you can close the gap on.

Well let's talk about that. Let's talk about Russia for a minute. Let's talk about a business we bought about three or four years ago called Petrosoyuz. It had about 57 different kinds of brands, making up a number. And we put the Heinz brand on most of it. We are now number one in condiments and sauces. Our bean business is growing rapidly. We just became number one in baby cereals over there. What we have in Russia is a spectacular brand Russian consumers have said they want. In the other markets we have built terrific infrastructure. None of them are as well structured as we are in Indonesia. There's 240 million people in Indonesia, depending on which census you look at and which numbers you believe, but nonetheless our business in Indonesia we have an incredible brand in ABC. That is our brand in Indonesia. It's a business that was well under $100 million when we bought it and is now pushing well over $300 million and is well structured. We have one of the best distribution reaches of anybody in Indonesia. In India, we have a business that was $25 million or $30 million when we bought it that this year will be well north of $200 million with a brand that's growing in the upper 20s and another brand in Glucon-D that's growing almost as fast. We've got great brands, and we've got great teams, and we've got great people, and we've got great infrastructure. The other benefit to us - yes they're big, they've got a lot of scale. It's also 30-35% of their business. For us it's still only 15-17% of our business, and so as we reposition over time the impact to us given our size now and given how relatively insignificant it…

And the other thing I'd point out is the operating model that we employ. We're very good at empowering the local teams to react very quickly and swiftly and proactively in the local markets. So we probably have a bit of an advantage in that regard, and that's helped drive our performance.

And I think over time, it will either prove itself or it won't, and I feel pretty good about where we're headed.

Your next question comes from the line of Bryan Spillane of Bank of America. Please proceed.

Just a much more micro question. Tomato costs in China, right now there's a shortage and as I understand it tomato prices are up at least 50% if not more. And they're actually difficult to get. So A, are you seeing this, B, will this impact at all your second half in the vein of what you saw in the first half with the chili shortage in Indonesia, the Ramadan shift, anything we should think about in terms of how that impacts your second half?

It will have virtually no impact on us because our tomato products business in China is very small and soy sauce is not a tomato-based product. So I think from that standpoint in China it has little impact. In Europe, it will have a minor impact because we have alternate sources for tomatoes anyway. We also have a joint venture in China with one of the leading agricultural companies and we're fully aware of this but I think from our standpoint it's virtually insignificant.

Great. Just a quick wrap up here. We want to wish everyone a very happy holiday Thanksgiving week and safe travels. Let's talk quickly about the upcoming calendar. On Wednesday, December 1, we'll be attending Citi's annual food manufacturing conference, the second annual conference, in New York Wednesday December 1. Joining me will be Mike Milone, EVP rest of world and global infant nutrition and quality as well as Dave Woodward, president of our Heinz U.K. and Ireland business. Excited to see you guys there. On Tuesday, we'll be down at Credit Suisse consumer retail conference in Orlando, and then of course in March there's two upcoming conferences, which of course is Cagney February 24, but also the Consumer Analyst Group of Europe. We'll be making our pilgrimage across the pond on March 28, and we'll also be there the 29th. So look forward to seeing you guys. We'll be around in Investor Relations all day. Give Mary Ann or I a call - 412-456-6020. Thanks so much.