Good morning, and welcome to The J.M. Smucker Company's Fourth Quarter 2014 Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open the conference up for question and answers after the presentation. Please limit yourself to two initial questions during the Q&A session and re-queue if you then additional questions. I will now turn the conference over to Sonal Robinson, Vice President of Investor Relations. Please go ahead, Ms. Robinson.

Good morning, everyone, and welcome to our fourth quarter earnings conference call. Thank you for joining us today. On the call with me are Richard Smucker, Chief Executive Officer; Vince Byrd, President and Chief Operating Officer; Mark Belgya, Chief Financial Officer; Steve Oakland, President - International, Foodservice and Natural Foods; Mark Smucker, President, U.S. Retail Coffee; and Paul Smucker Wagstaff, President - U.S. Retail Consumer Foods. Our prepared comments this morning will be organized as follows. Richard will begin with an overview of our fiscal 2014 performance and initial thoughts as we head into 2015. Vince will then provide additional color on our fourth quarter results and Mark will close with a few comments on 2014 cash flow, followed by a discussion on our outlook for 2015. Before I turn the call over to Richard, let me remind you that we may make forward-looking statements during this call that reflect the company's current expectations about future plans and performance. These forward-looking statements rely on a number of assumptions and estimates, and actual results may differ materially due to risks and uncertainties. I encourage you to read the full disclosure statement in the press release concerning forward-looking statements. Additionally, please note that company uses non-GAAP results for the purpose of evaluating performance internally. Discussion on non-GAAP information is detailed in our press release located on our new corporate website at jmsmucker.com. A replay of this call will also be available on the website. Finally, I would like to share that this will be my last earnings call serving in an investor relations capacity as I will be assuming a new role within Smucker. It has truly been a pleasure working with all of you. Should you have any follow-up questions or comments after today's call, please continue to reach out to me over the next few weeks as I transition my responsibilities to [Aaron], a current mother of our finance team. Let me now turn the call over to Richard.

Thank you, Sonal. Good morning, everyone, and thank you for joining us. We are pleased to have concluded another successful year for the company. As we overcame a number of challenges to deliver our 13th consecutive year of non-GAAP earnings per share growth. Let me begin by providing a few highlights for 2014. First, volume gains for the year were achieved in both, our U.S. retail segments. In Coffee, the Folgers brand grew 3%, driven by mainstream roast and ground. The Dunkin' Donuts brand continued its strong momentum with volume up 7%. Within Consumer Foods, our largest brands Jif and Smucker's grew volume 2%, while key categories, including Crisco oils and Pillsbury frostings were also up. Planned business rationalizations in our International, Foodservice and Natural Foods segment impacted total company results. Overall, lower net price realization in our two largest categories of coffee and peanut butter, primarily attributed to the pass-through of favorable commodity cost and resulted in a net sales decline of 5% for the year. Second, our strong innovation pipeline enabled us to launch over 100 new items this year, spanning our key brands and categories, including items such as Jif Whips, Dunkin' Donuts Bakery Series, new varieties of K-Cups and exciting flavors of Pillsbury mixes and frostings. Looking back, we launched more than 250 items over the past three years, which contributed over $425 million or approximately 8% of net sales in 2014. Third, brand building efforts included our inaugural sponsorship of the U.S. Olympic team. Our analysis confirmed that our activation around the participating Smucker's, Folgers, Jif and Uncrustables brands, not only resonated with our core consumers, but as expected expanding our reach with millennial and other consumers garnering over a 1 billion impressions and relationship key retailers strengthened as we partnered with them for shopper…

Thank you, Richard, and good morning everyone. We delivered a stronger than anticipated earnings per share result for the fourth quarter, primarily due to higher than expected volume in our U.S. retail segments, managing our SG&A expenses and the benefits of one-time non-operating items and share repurchases. This was achieved while continuing to manage many of the same challenges discussed on our last call. My comments will provide additional commentary on the quarter as we overview our three business segments. Beginning with U.S. Retail Coffee, we achieved an eighth consecutive quarter of year-over-year volume growth despite lapping a strong period prior year comp. Volume gains at mainstream roast and ground coffee led to the Folgers brand being up 1%. Dunkin' Donuts volume also increased 1%, coming on of a 29% volume comparison in the prior year's fourth quarter. Pricing actions taken in the quarter to reflect lower green coffee cost recognized earlier in the year, accounted for the net sales decrease. The results of our K-Cup business have exceeded our overall expectations since we entered the market in fiscal 2011. This year, this business fell short of expectations, reflecting the continuation of a competitive dynamics discussed previously, however we remain pleased with the volume growth we experience on Folgers Gourmet Selections K-Cup, which were up 10% in 2014. This was mostly offset by significant declines for the Millstone branded varieties. As we start the new fiscal year, we remain optimistic about the overall K-Cup business for several reasons, including our partnership with Keurig Green Mountain, which remained strong as evidenced by our recently amended agreement, the introduction of three new varieties including our initial launch of Café Bustelo and K-Cups. The restaging of a few existing Folgers Gourmet Selections items to the iconic Folgers brand name, the expansion of our…

Thank you, Vince, and good morning everyone. I will begin with a few comments on the 2014 cash flow. Cash provided by operations was $856 million for the full year. Free cash flow of $577 million fell short of our target of $600 million due to higher CapEx in the fourth quarter as the substantial work commenced on the Jif capacity expansion project and the consolidation of our Miami coffee operation. This resulted in a full year CapEx spend of $280 million. At year-end, we had nearly $250 million borrowed against our revolving credit agreement. Proceeds were used to fund over $280 million in fourth-quarter share purchases. We will further borrow against the revolver in the first half of fiscal 2015 as we repaid $100 million in long-term debt earlier this week in accordance with the required maturity and to fund seasonal working capital needs. Excluding any acquisition or share purchases, we expect to pay down revolver borrowings by the end of the fiscal year. Turning to our 2015 outlook, we anticipate volume growth and commodity-driven pricing actions to result in net sales growth. This along with incremental productivity savings is expected to offset higher commodity costs and marketing investments resulting in operating income growth, with all three segments expected to deliver increases in segment profit. Combined with lower interest expense and reduced share count, we expect non-GAAP EPS in the range of $5.95 to $6.05 for the year. Excluding amortization expense $100 million or $0.65 per share, the corresponding guidance will be $6.60 to $6.70. The combination of segment profit growth, in fact, lower interest expense and reduce your account primarily benefit the first two quarters, we expect EPS growth to be mostly front-half loaded. Specific to the year, we expect net sales growth of nearly 5%. This includes…

Thank you. The question and answer session will begin at this time. (Operator Instructions). Our first question comes from Eric Katzman with Deutsche Bank.

Hi. Good morning everybody.

Good morning, Eric.

My question has to do, let's is probably with the pricing on coffee. It sounds like Starbucks is pretty well hedged. Our restaurant analyst was out there earlier and didn't sound like they were really interested in moving on pricing, not at their stores, but in grocery. Do see the pass-through mechanism as still being kind of fairly efficiently. I guess last time; we had to raise prices a lot on the back of Arabica costs going up. The volume elasticity was pretty tough, so maybe you can just kind of comment on those two things.

Sure, Eric. This is Mark Smucker. Yes, so the short answer is we do feel that our ability to pass-through is efficient. I guess maybe by way of grounding just to rewind the clock three-year, the last time we took an increase was May of '11. Since then, we took essentially three list price declines. Then this past year, we chose to use another lever, which was promotional spending to continue to bring our pricing down to remain competitive. We did take a 9% increase earlier this week. We did feel that as we have seen sustained increases, our realized cost increases in our costs that we needed to do that and we felt that taking the list price decline in this instance was truly the best lever to pull being more transparent with our customers and you know we don't think there's really any change in how we have managed the business historically. If you look at green coffee cost versus six months ago Arabica prices are still up about 60% - futures we are at, costs are still up.

Eric, this is Vince. I would just build one thing on Mark's point. When we were dealing with the issue a couple of years ago, we were talking about Arabica. They picked up well nearly over $3, and of course we are not at that level today, but your point is well taken.

Then, I guess, just as a follow-up to either Richard or Paul. I guess I had heard that from various sources that Easter season really wasn't as strong as a lot of companies had hoped for and it seems like you were - the consumer business did fairly well. A lot of that came from Crisco. I am not really sure why, but maybe you could just talk a little bit about the environment, the Easter season and I guess specifically that Crisco jump of 20% and I will pass it on. Thank you.

Sure. Hi, Eric. This is Paul Wagstaff. Actually for us the Easter season was pretty good kind of across our brands that we promote during that time. On the baking side, we didn't promote as heavily as we have in the past years during that Easter season, but our seasonal did actually very well during that time. The Crisco business actually has had a very solid year overall and we've been up about 11% for total year and we are up 20% for the quarter and we were just frankly hitting on all cylinders with our customers with our promotions with merchandising, so frankly we just had a really good season.

We'll take our next question from Andrew Lazar with Barclays.

Good morning, everybody.

Good morning, Andrew.

Richard, as you mentioned, you ramped little bit around some of the promotional programs in the quarter, but you seem to get a nice volume lift as a result, so trying to get a sense did the volume lift come in as you would have hoped based on some of the programs you ran or frankly did you get a little bit better lift than you might of thought. I am trying to get a sense whether some of programs were in response to what you are seeing out there and what you have kind of talked about you even on the last call or if you were trying to lead in that regard just may begin where the input cost outlook is and the need to try and get volume moving in the right direction?

I'll start with this. Andrew, it's Richard, and I will turn it to over to team, but we did see better results because of some of the pricing actions we've taken. We know, we pull all the levers we can where there is promotional pricing activities or merchandising activities and they all work pretty good. I mean, we came out of our third quarter, we were a little discouraged if you remember at the end of the third quarter and so we basically went back to our teams said we need to do whatever can to make the numbers and both, for the short and long-term and I would say the team delivered and we have just seen good merchandise and the trade, so I don't know if the team wants to answer that.

Yes. Andrew, this is Vince. I think also we had good sell-through from a number of our top-20 accounts as a result of our Olympic activity and so since we got big consumer takeaway from those accounts due to our merchandising, I think we benefited from some of that in the fourth quarter as well, but as you indicated, it was declared in our scripted remarks we did have better than anticipated volume in our not only actually in our U.S. retail, but also in our Canadian retail business as well. Overall, we are very pleased.

Then Mark, how should we think about our gross margin as we look out for the full-year in 2015 given some of obviously the pricing actions that you are taking and things of that nature obviously impact the percentage, but trying to get a sense of expectations around that versus the gross margin dollars trend.

Well, I think, in terms of the profitability, Andrew, if you take what we provided and - you are going to see gross profit gains in dollars of about 4%, which is pretty much in line with the sales growth. Obviously our coffee pricing, we are covering cost, so there is a little bit of slippage there, but I think what you will see as you work the P&L and we will get about 4% gross profit. We will pretty much hold that through in terms of net income and then we take up a couple of points of growth through the buyback.

Okay. That's very helpful and good luck Sonal and thanks for all your help.

Thank you.

Our next question comes from Chris Growe with Stifel.

Hi. Good morning.

Good morning.

Hi. I actually had a follow-up to Andrew's question and one other if I could. I want to be clear, Mark, getting back to the gross margin here. If I heard you correctly, is pricing going to outstrip cost inflation in fiscal '15? I thought I heard you talking about, but I want to be clear on that. Then just to be clear overall, do you expect cost inflation in fiscal '15 due to the coffee price will be up so much or peanut cost being down as well, is that offsetting that?

Yes. We do expect to see overall cost inflation as the cost of green without striping all the decreases in the sweetener oils and peanuts that I noted. In terms of margin percentage, we will have a favorable price to cost, which is contributing to the gross profit. Then the margins are going to be relatively comparable. Obviously, we are moving the top line a lot, so I don't think you are going to see significant change in the margin percentage, but just to underscore, we will see 4% gross profit gain for the year.

Okay. That's helpful. Thank you. Maybe just a bigger picture question perhaps for Richard, but there has been a while of acquisition activity, a lot of press around one in particular, but I wanted to get a sense of how you see the acquisition environment today. It seems like at least for certain assets multiples are up quite a bit. Then maybe related to that, your appetite, not only for acquisitions, but maybe for share repurchase activity in fiscal '15. Thank you.

That's a good question, and you are right. There is more acquisition activity than there has been in the past couple of years. I think that relate to two major factors. The industry is not going to drop unless we don't like it to grow even though we have had some growth. We would still like to grow better and so we are looking for like many other companies looking for brands to join and companies to join us and so is everyone else. The second reason is, just a low-cost of the interest rates. Fed's policy of having low interest rates allows companies cost of capital to be lower and so they can pay higher prices and that's true for us also. We said before, we are going to pay up where it makes sense, but we still have very firm discipline and some of the multiples we have seen on areas that we don't think long-term would be good for us and so we have to still have that discipline, but with the interest rates where they are, our cost of capitals come down also. We are still out there, we are still looking for the best fit for Smucker's and we are still going to pay up their price for it, but we are not to go beyond paying the old cost of capital. We are in Warren Buffett's camp on that.

Okay. Thank you.

Our next question comes from David Driscoll of Citi.

Thank you and good morning.

Good morning, David.

First off, Sonal, thank you for all of your help. You have been terrific over the years and wish you the best on your new endeavor. I want to start off, going back to coffee. You made some comments here, but what do you expect in terms of profitability on coffee in 2015? Typically, I believe, that operating income profit generation has been around 5% to 6% annually. Is there any reason to think that that's not going to be about the output in fiscal '15.

David, this is Mark Belgya. I guess, the way I would answer your question is, as I said in my scripted comments, we expect all three segments to garner growth and segment profit. If you look kind of look at where we are seeing basically 4% profit growth, that's kind of spread reasonably equally across the group, so you can do your own math. That will get you some sense.

Okay. My second and final question would just go to the food service operations or really the entire segment, because I think there might be other pieces in here. Frankly, this is a very confusing segment. There's a lot of things going on here. Steve, maybe I was hoping you could talk a little bit about why was there a trade adjustment again in the quarter? Kind of what's the plan to get this coffee operation going? Why are you guys so positive that this thing will move forward. I think in the fiscal year, profits were down like $30 million on the segment, which is an enormous percent decline, so just give us some understanding as to why you are confident that this thing will move in the right direction and then please address that trade accrual adjustment. Thank you.

Certainly. Hi, Dave. This is Steve Oakland. Let me talk a little bit about one or two ways. Let me talk about the trade adjustment and the complexities in the foodservice trade environment and then we will talk about the business and why we think the business is still strategically the right thing for the long-term. In the foodservice market, the trade spend equation is very complex and the reason for that is the multiple layers involved in the trade spend and foodservice. Typically with a large national account, you've got a distributor at least one GPO. In some cases, two GPOs, so they are layered between those two business. Then the coffee business in particular is very strong in those segments of foodservice that use GPO, so the coffee business we bought is layered in these different things and there is a long lead time lag between when we ship this product, who we ship it to and then when we get in-voice and who we get invoice by for those trade spend, so for definition purpose, GPOs group purchasing organization, so to make sure everybody on the call knows what that is, which is phenomenon foodservice basically that help foodservice operators be effective procuring goods across the industry. With that complexity, to be effective there, you need a couple of things. You need process, you need systems and you need people and we moved that team last summer from Sara Lee's office in Chicago and we rebuilt both the process and the team. The key to that is, we now have a history overlay on that, so we feel comfortable that we can now given all of those lead times, we can make proper trade accruals. We can manage that system. That's why we feel good about it…

The $17 million accrual this year will not be a reoccurring expense in fiscal '15. True or false?

50% of that will recur. 50% will not.

Thank you. I'll pass it along.

Our next question comes from Jason English of Goldman Sachs.

Good morning, folks. Thanks for the question. Let me just reiterate what many of us said, Sonal congratulations. Best wishes. We will miss you.

Thank you.

Okay. You bet. On to the business, I guess you have anniversaried all the list price reductions in coffee I think in February, so this was a clean quarter in terms of list prices, but pricing mix down 12%. Can you parse out how much of that was mix, how much of that was price? Then, on a go forward, you have announced a 9% list price increase. Should we expect this thing to turn on a dime and go from down 12 to plus 9 or will it take time to retract some of that heavy promotional spent?

Jason this is Mark Belgya. To your first question on the breakdown of the 12% is predominantly priced about 11%, a couple of points of mix on table and then up plus 1 on the volume side.

Jason, this is Mark Smucker. As it relates to pricing and what you see in the marketplace on the shelf, generally speaking, you would start to see retailers reflect pricing very quickly, so there will be some reduction out of the gate on trade. Of course, we will continue to support our brands, but we feel very comfort with our marketing investments as well and making sure that we continue to support the consumer.

Okay, so some reduction of trade spend, should we interpret that to be the 9% list price increase for us to be enhanced by lower trade spend, so this could be a double-digit net increase for the year?

I think you will see some pull back on trade, but again I don’t think we disclose specifically what that is, but there are always will be trade and there always will be customer and consumers support as we support our business.

Okay. That's helpful one last question and then I will pass it on. Dunkin' Donuts K-Cup retail opportunity, if you listen to Dunkin' Donuts and their public comments, there are certainly singing a slightly different tune in terms of the opportunity, so I was hoping you comment on what if any tests are underway to test that opportunity out. Then conform also that were that to go to traditional retailers such as groceries it would have go for you? Thank you.

Jason, this is Vince. We really don't have anything to report on that front. We continue to work with the Dunkin' organization, but there's really nothing new at this point and I really don't want to comment on the contract. I mean, other than to say that if it was ever to be launched, obviously, we would believe that would go through us.

Great. Thanks a lot guys.

Our next question comes from Ken Goldman of JPMorgan.

Good morning. Sonal, thanks for all your help over the years. You have been a class act. Getting back to the subject of promotions, a couple of follow-ups, number one, I am curious how permanent do you expect the shift toward promos to be? I think there was a comment that you decided to do. Whatever it took to make your numbers, so I am not quite sure if that implies the shift will be more temporary in nature. Second, historically promotions - they've done a great job sparking one-time volume lifts, but then of course those volumes tend to erode as competition matches the deal back, so I am interested in what your expectation is for the competitive response. Then I guess lastly, I am curious if you expect both, total marketing and brand building spending to grow in line with sales next year. I am sneaking in one there.

Ken, I'll start and then will turn it over to Mark Belgya and the team. Let's again reinforce what we had said. In the coffee and specifically we chose not to take a list price decreased, primarily on the back half of the year and using another lever we passed those cost savings on through promotional spending, so if you would look at our statement those promotional spendings would have been higher. Now that we have taken a price increase in effective this week, those dollars would, I'll say go away for the most part to maybe a more traditional level. Again, that really depends upon, particularly in coffee, where green position is versus our price too, so it's just a mechanism, so yes, it was higher in the fourth quarter. Again, how we chose the pass those costs long and how that was recognized in our statement.

I apologize. I wasn't clear. I was talking more on the consumer food side. I apologize.

Hi. Ken, Paul here. Paul Wagstaff. Overall, no we felt very good about our balance and how we promote, and compared to marketing spending and price declines or increases et cetera. In the fourth quarter, we didn't spend deeper to get more volume. We had solid plans for the Easter as I mentioned and our business came in kind of about as expected nice and solid for that quarter.

Ken, this is Richard. You made one comment, I just want to make sure that you understand. You used the term, we will do whatever it takes to get the volume and will do whatever it takes to that hits our payout profit margins. As long it's good for the long-term growth of the business, but we want to make sure whatever we do is responsible. We go to our team, we don't say whatever it takes. We go to our team and say do whatever makes sense for the business long-term.

Then finally, Ken, I think your question on the marketing that was for the total company, correct? For next year?

Yes. Thank you, Mark.

Yes. That would be growing pretty much in line with - in my scripted comment I said sell-through was about 5% marketing basically in line at that.

I understood. Okay. All right. Thanks everyone. I appreciate it.

Our next question comes from Robert Moskow with Credit Suisse.

Hi. This is a question about how to evaluate the year versus your internal targets. I guess, you did lower EPS guidance for the year and you came in at 5% growth. I think the guidance originally was 7.5%. This will be your proxy, but I wanted to clarify is this below what you had expected in the beginning of the year. If so I would imagine executive comp is probably lower year-over-year, your accruals for executive are lower year-over-year and maybe that's why your op expenses are not as high this year as originally expected. Is that true?

Well, this is Mark Belgya. Generally that's true. I think, you are probably aware our structure varied a little bit [business] unit or in corporate, but there is certainly is a margin or an EPS component. Again, depending upon, if you look at the business side where the respective businesses finished, some were under some were over. In corporate we finished below are overall expectations, so the adjustment over the year to the accrual would reflect a lower bonus and long-term compensation expense. That will be reinstated next year for planning purposes obviously, so there is an incremental impact that is in the guidance range that we provided.

Can you tell me about what that incremental impact is? My math indicates that your EBIT guidance here probably only up about 1% or 2% for fiscal '15. Are those assumptions correct?

No. We would say that again, it's more aligned with the gross profit growth sort of that 4%,depend on how the rounding and what part of the range you used. In terms of the compensation increase, I would say it's probably about, I don't know about $0.03, $0.04 maybe.

Okay. I'll follow up offline. Thanks.

Our next question comes from Alexia Howard with Sanford Bernstein.

Good morning, everyone.

Can I ask about competitive dynamics in the different parts of the coffee segment? I'm thinking within K-Cups, are we through the worst? In premium costs obviously ramped up on Gevalia and working on a Cafe project. How is that developing? Then in the mainstream coffee are you still gaining share from the private label area? Maybe you could talk that through for me. Thank you.

Thanks, Alexia. It's Mark Smucker. Why don't I take it, I'll do K-Cups last and just start with the core roast and ground business. Again, you know, as we said we have been very pleased with our performance in both of those segments. We have seen given the deflationary environment that we have been in, the branded businesses are doing very well versus store brands and then doing also very well versus our competition and that goes back to both, the support that we have had in place from a marketing perspective as well as managing our pricing, the gaps to our competitors and so forth. On the mainstream side, if you are looking at our recent share, you would see maybe a little decline, but I would tell you is that the interaction we have been seeing with our primary competitor in the mainstream segment has primarily been against our opening price point, where our core Red Can businesses compliments our Columbian items have all been doing very, very well and that looks to continue. Then of course Dunkin' goes without saying has done very well. Our Folgers Gourmet, sort of our lower tier in the premium segment has also been doing very well, so we have been very pleased with the results and we have continued to grow our share. One comment as I have reflected on Jason and Ken's earlier question just on trade. As we talk, we do use different levers to make sure our pricing is right, but I guess I would just like to say that you have to a little careful of what we say publicly just from a competitive standpoint, we want to be sensitive to make sure that we are divulging our strategies. Then finally on K-Cup, we have been just a little disappointed this quarter, because it is the first time we have seen some declines in our K-Cup business. That said, our Folgers brand has done very well and most of the declines having been driven by Millstone. Looking forward, we do feel that we have to continue to invest in that business. There continues to be a lot of noise and we need to make sure that our pricing is right. We need to make sure that our marketing is right and that we are investing there and we still feel confident that we can grow it with the introduction of our Bustelo K-Cup, we are restaging a few of our Folgers items. As we go through this summer and early fall, several of our customers are actually going to be resetting or restaging their shelves. Given the performance of licensed brands versus the unlicensed, licensed tend to have better turn rates, so we do feel that coming through those shelf resets that we will fare well.

Great, I'll leave it there, but thank you, Sonal, for all your help over the years. We will miss you and good luck with the next step.

Thank you very much Alexia.

Our next question comes from Akshay Jagdale of KeyBanc.

Good morning and congratulations, Sonal, and thanks for the help and good luck. You will be missed.

Thank you, Akshay.

I just want to follow-up on coffee. I guess, my favorite subject, but can you, Mark, maybe talk a little bit more about what you just mentioned in terms of the shops resetting at large customers? Obviously, guessing at these particular ones that you are talking about, you are the category leader Can you give us some insights into the type of data that is perhaps leading to these decisions and sort of what are we actually seeing in terms of turns so that we get a sense as to the magnitude of some of these changes perhaps? That's my first question.

Well, Akshay, first I would say the category leader is clearly Green Mountain. I mean, they developed the system. They clearly have the largest share, so having being partner with them is something we have always been very grateful towards and I have got a couple of other very good partners, so as a whole for those of us that you know we have talked for that are licensed, we do feel we have advantages. We are in the (Inaudible), we recently got access to new channels and so forth, so that's why we continue to be optimistic. I mean the partnership is really better than ever and we do still believe that the quality in those products continues to be strong and superior to many of the unlicensed. Typically in coffee, a lot of new items and across these higher coffee categories are in accepted and cut into the shelves at this time of the year whether it's small or large customers. Some customers have acknowledged that their sets maybe got too big and there were too many brands there. Others not so much and so usually this time of the year as we go into our first and second quarters that retailers, small and large are sort of having the reckoning with this category so this is the time when we would think that we would have potentially some wins. As it relates to the data, it's multiple source. We have a strong shopper insights team, category management and who will be forming from IRI among NPD and many other sources from that perspective. What we are seeing is it continues to be encouraging.

Okay. Just as a follow-up on the partnership itself. You don't typically make these things public, but you decided to in this case. There's a lot of good things right, so you are getting channel expansion, you are getting three new SKUs, you are restaging your current lineup part of it. Then I am guessing you are going to have a [cup], if not one, multiple. Help me understand a little bit better, why we are going to see margins dip below the segment average and how does that sort of compare year-over-year? Were margins in line with segment average this year? You mentioned, I think, specifically investing in pricing but also higher cost, so help us understand that in light of the renewal of your relationship with Green Mountain and the expansion?

Okay. Akshay, it's Mark, again of course. The expansion in the contract that we typically haven't disclosed this time we felt it was a big enough deal. It is important to that and to emphasize it is consistent with other partners, so dollars channel or online, some more flexibility in the club channel and so forth. Those are some of the things that we were able regain. Obviously Green Mountain felt that was a win-win as well. Then in terms of margins, yes. In this past year that we just finished, they were in line with our segment. Going forward, as we said in the script, they will be below our segment average for a couple of reasons. As you know we did not take a price increase this week on K-Cup and we have seen some cost inflation overall in that area, but the primary reason is that although we feel that our Folgers brand will commend the price that we have been seeing on shelves. We do feel that we have to continue to invest to protect our franchise. By invest we mean in marketing for the consumer as well as continuing to support our promotional activity at the shelf.

Akshay, this is Vince. I just want to maybe summarize a little bit what Mark was saying and to answer questions, you are right that we typically don't go public with elements of our agreement, but we felt that we were being maybe disadvantaged that we weren't moving along with Green Mountain as maybe some of their other partners who tend to be more public, so that was a reason why we felt that it was important that we communicate that externally. As mark said, we believe our relationship with Green Mountain is as good as it's ever been since its inception. Then the other thing is, I think you alluded from Mark's comments is that this segment is going through transition and we just felt that we needed to continue to invest in it as we work our way through this transitional period of the new 2.0. As you know Green Mountain is signing up several retailer brands. There is a little bit of in some accounts where there is some underperforming SKUs et cetera, so are our bottom-line conclusion is we are going to continue to invest in it, take a little market hit and to make sure that we are competitive during that period.

Great. Just one last one. This is just more for the overall company. If you look at your guidance, obviously, you are guiding to I think 6%-ish EPS growth, 4% or 5% EBIT growth, which is generally in line with your long-term algorithm and generally what you delivered this year despite much more favorable cost environment than you are going to see next year. Wouldn't you say there is a little bit more risk to your outlook going into this year compared to last or how should we think about that, because we came off of a year where obviously in light of all of the challenges in the industry the result was good but still below your initial expectations. Now we are going into this year where costs are certainly rising and there competition is still pretty intense. Is there more risk to earnings guidance this year given the commodity increase or is there something controllable in your P&L that gives you more confidence this year?

Yes. Akshay, this is Mark Belgya. Let me just start and then guys jump in as you feel necessary. I think if you take a look at some of the items that hit our P&L in 2014 is, as Steve alluded earlier, whether its trade spend or some of the operational issues we had during the middle of the year, some of the disadvantaged cost position regarding peanut butter, those are items that we firmly believe that they are turning completely or turning in the right direction forward, so that's one reason we clearly feel more confident in terms of numbers. Again, depending on your perspective, you could have some different views on risk in terms of volume growth. Then kind of below the EBIT line, obviously, the interest rates for the most part and certainly the shares are locked in, so that 2-plus percentage points of growth that their certainty, so when we develop our plans as I am sure every company, you try to get the most reflective plan with the most current assumptions in it and thus we feel good about it. Are there risks? Certainly. I would not say there is any more risk this year than in any other prior year.

Great. Thank you so much.

This is Richard. I think, Mark, you answered it very well, so I won't add to that.

Thank you.

Our next question comes from Matthew Grainger of Morgan Stanley.

Good morning, everyone. Thanks for the questions. Just two things, first, you called out a favorable impact during the quarter from some of the specialty alternative Jif line extensions, so there seems to be some momentum on those products. Can you talk a bit more about the efforts that you have planned there during 2015 and how input cost dynamics could impact your ability to invest behind those in the near-term?

Hi, Matt. This is Paul Wagstaff. A couple of things just on peanut butter in general. As Mark has mentioned here a second ago, our higher peanut costs we do feel are behind us, so going into '15, we feel we will price very well, closer to one of the more normal average has been. Actually, in fact the crop looks great right now. Our coverage we are pleased with, so we feel - line cost wise with our competition, so we feel very good about peanut butter business overall. When you look at some of the innovation that we have coming out in that area, we have Jif Whips, which is a snack-type item. Their snacks is growing category and certainly have been doing well. Our Jif Whips continue to do well and we are pleased that. With Jif Hazelnut, we are re-launching that product in the plastic jar at a similar size for competition, we are investing behind all of these so we feel very, very good and comfortable with our peanut butter business and where it's heading in fiscal year coming up, so we are pleased with that.

Matthew, I will add just to that. In peanut butter just in general, there is a real emphasis today in the marketplace on plant-based protein and a lot of companies are focusing on that area and peanut butter is probably the largest plant-based protein in the marketplace, so I think we will continue to get some benefit from that. Our acquisition of Enray foods performance and the team - leadership that they have is another plant-based protein that we are writing on in the health food area, so we are excited about being in those categories.

Okay. Great. Thanks, guys. Just one more on input cost. I am not sure if there's something you can address in specific or generality, but can you give us a rough sense of what type of expectations for green coffee or Arabica prices you have incorporated into your outlook? Just given how volatile it has been recently, does your guidance really capture the impact of some of the very recent pullbacks we have seen in futures prices?

Matt, this is Mark Belgya. We really have stepped away from commenting on position and coverage and how that plays. I would just say that we feel comfortable and we accelerated on price and you can do some math around that. We feel comfortable that the costs are built in our guidance are reflective of where we are.

Okay. All right thanks again everyone. Good luck Sonal.

Thanks.

Our next question comes from Farha Aslam of Stephens.

Hi. Good morning.

Hi, Farah.

First question is on your operational focus. This year you were very internally focused with a lot of transition in your plant networks. Could you just update us on where we stand with all of those projects and are you now positioned to launch new products much more actively going into 2015?

Hi, Farha. This is Paul Wagstaff. First off starting with our fruit spreads projects that we completed this year, so as you know we can find a couple of our facilities in to our Orrville, our brand new facility and that plant is up and running and doing well, so we are pleased with that performance. We are also kicking off the production or the construction of producing peanut butter in our Memphis facility in Tennessee and that is on track and on budget as we speak and it should be peanut butter by fourth quarter of this year, so we feel pleased there. We have also had some additional capacity investments in our Toledo facility for our frosting line and that's up and running and doing very well, so on the consumer side we have made some significant investments and continue to do, so and we are track.

Farha, Steve Oakland. As I think you know, we've invested over the last couple years in our Scottsville, Kentucky plant for Uncrustables. We have seen nice growth in our consumer business there we manufacturing on average of over 1 million peanut butter jelly sandwiches a day across the country, so we're excited to be able to raise that number over the next year or two, so that plant has been invested in as well.

Farha, this is Mark Smucker. In coffee, we are largely through all of our supply chain projects and have realized that savings, the one outstanding is the consolidation of Miami into New Orleans, which is on track related this calendar year. Then just total company as Richard mentioned and Mark, we are basically on pace to introduce more than 100 products again this year.

Farha, this is Vince. Having said all that, we continue to look at the entire supply chain to make sure it's most effective and efficient as possible. As we have added acquisitions over the last 18 months, we will be looking at the entire distribution network to again see if we can find some additional savings.

Great. That's helpful. Now when we look forward to M&A, Richard, you mentioned it a little bit that you are looking at M&A in this environment, but could you just spell out Smucker's criteria, particularly how you feel about your balance sheet today? What leverage level you will be willing to take Smucker's and what ROIC discipline you are just putting around in acquisitions in this environment?

I'll start with the last and we usually don't share our ROIC numbers other than we definitely more than cover our cost of capital, a little risk factor in there. As far as all the acquisition activities, if you look at our criteria, our criteria is center of the store, number one or two brands and we like to make sure that we can get to number one brands, but we don't necessarily have to buy the number one brand in the category. Center of the store allows us to play not only in the dry, but also the frozen category. The fact that there is a lot more activity out there, means that there are more brands and companies coming to the market, so it gives us more to look at and we look at them either enabling acquisitions, in Enray foods, the bolt-on, which was Café Bustelo and then transformational and we are still looking in those three buckets and so there is more coming across [the] prices as I said are higher, but we have the balance sheet. I will let Mark comment on that next, but balance sheet to really do a sizable acquisition. Mark you want to talk a little bit more about that?

Yes. Farha, I guess only the point on the leverage is, if you look, we have a leverage ratios out there about 3.5 times, so our EBITDA is about $1.2, so we are sitting at roughly 1.5 times levered, so we can borrow up to $4 billion-ish, so a $2 billion just to do a cash and debt finance transaction, not that we are looking at that necessarily, but that kind of frames what possibilities could be.

Any reason that Smucker's hasn't done a large transaction over the last two to three years? Is it that you didn't find the opportunity? Was it valuation?

It was primarily valuation and leaves us with a couple and we have been participating, but some of these multiples have been paid. Just don't seem to be at least for us the right one, so we are still looking.

Great. Thanks for the added color.

Our next question comes from Chuck Cerankosky of Northcoast Research.

Good morning, everyone. I would like to talk a little bit about trade spending in two forms, on the consumer products side what you might be looking at this year away from directly to the trade, but more consumer promotions. Our work suggests that you have slowed down a little bit on some of the consumer stuff, not a lot but some. How that might pick up? Then how trade spending works on the Foodservice side since the ultimate consumer there going to a restaurant doesn't necessarily see what brand of coffee he or she is drinking and I am wondering how that fits into some of the accruals, et cetera going on there.

Hi, Chuck. Paul Wagstaff here. First off we talk about marketing investments and progress we have going into this upcoming year. We feel very well-positioned in all of our brands. We have couple of three key timeframes. One is back to school, we feel very well-positioned with our spreads business, peanut butter and fruit spreads, our promotion not only with your in-store activities, but also on TV. We have a lot of TV coming out on our brands. Then [time period], it's a little early, but we are in the process of starting to work with our retailers to lock those timeframes up as well. So far we feel pretty good, there is always some puts and - when it comes to kind of the oil business in that area, but on the baking side it's a category which is good about that and then of course for the rest of the year, at Easter time period being one of the biggest in the fourth quarter. That's too early to tell at this point, but we feel good in what we are investing as far as marketing is concerned and we will anticipate that delivering some good results.

Will you see some increase year-over-year in some of the consumer promotions?

Yes. We should.

Hi, Chuck. Steve Oakland. You are right. In foodservice trade spend is really a different labor. Let me talk about when you talk about the back of house versus front of house brands. Our core portion control business those things are tabletop, front of house. Our relationship with Cumberland foods, sweet little sugar and the raw, those products were tabletop and front of the consumer. There is an enormous coffee business away from home, so when you segment that, there is a couple of key segments, where brand is important. Whether that would be office coffee or there are a couple where our Folgers brand plays well, but they are small. Now the downward was the liquid coffee business is strong in the most high volume of segments, which are healthcare, lodging, convention, places where a tremendous amount of casinos or tremendous amount of coffee is served at one given time and what we are selling there is brand yes, but it's technology. The downgradable system is the best in the world at high-volume, high quality coffee at a predictable cost, so you we are selling a different customer value experience in that environment, and the trade spend there is really programs spend that's really not passed on to the customer. It's a purchase contract rebate-type stuff.

All right. Thank you. That's helpful.

Our next question comes from John Baumgartner with Wells Fargo.

Mark, just again in terms of the K-Cup's in the single-serve category and just some clarity there, I guess given the pressure from net pricing you are expecting in 2015, does that suggest kind of a change in price dynamic underway in terms of maybe a greater emphasis on promotion and managing price gaps given that private label has achieved such a meaningful share right now or do you see it more as kind of a temporary phenomenon?

John, this is Mark, of course. In this most previous year, we did see a little bit more frequency of promotion and that will continue through this coming year, but pricing dynamics are generally consistent and we seen that price gaps versus both, private label and competition have remained more or less constant, but you are seeing a little bit more frequency of promotion.

Okay. Then in terms of the Folgers K-Cup brand it sounds as though your assessment of that brand is better than the measured channel data would suggest given that sales declines have been accelerating the past couple of quarters, so is there another component to that maybe non-measure performance doing better?

Well, maybe we have to look at both dollars and volumes. When you look at dollars, clearly there has been a decline. That has been driven primarily again some of the frequency and promotion just making sure that we are supporting our brand, but if you look at the Folgers Gourmet Selection that's the brand we've been using for the last three years, we are still up in this quarter 25% over two years ago, so the numbers are pretty good. For the full-year the Folgers brand is up 6% on dollars and 10% on volume. Does that help?

Yes. Thanks Mark.

Our next question comes from Robert Moskow with Credit Suisse.

Hi. A quick follow-up. You bought back a lot of shares this year. If there is no M&A activity in fiscal '15, can I assume that share count will be down again in fiscal '15 maybe 2% or 3%?

Yes. Rob, this is Mark Belgya again. I think if you look at the last three years, we have actually exceeded 2%. We sort of have [sustained] 2% goal for plan, we don't include it, but certainly if there's no M&A opportunity, I think the recent history shows that repurchases is a viable use of our cash.

Great. Thank you. Thank you again, Sonal. Good luck.

Yes. Thank you again.

There are no further questions. I will now turn the conference call back to management to conclude.

I want to thank everyone for being on the phone today and I also again want to reiterate Mark's comments about Sonal and all your wonder comments about Sonal may not let her leave her position, so [Aaron], you have good big shoes to fill, so I want to thank everybody for being on the call and have a good week.

Ladies and gentlemen, if you wish to access the rebroadcast of this live call, you may do so by dialing 888-203-1112 or 719-457-0820 with a passcode of 7130736. This concludes our conference call for today. Thank you all for participating and have a nice day. All parties may now disconnect.