Campbell Soup Company (CPB) — Q4 2015 Earnings Call Transcript

Thank you, Stephanie. Good morning, everyone. Welcome to the fourth quarter earnings call for Campbell Soup's fiscal 2015. With me here in New Jersey are Denise Morrison, President and CEO; Anthony DiSilvestro, CFO; and Blake MacMinn, Senior Manager of Investor Relations. As usual we've created slides to accompany our earnings presentation. You will find the slides posted on our website this morning at investor.campbellsoupcompany.com. The call is open to the media who participate in a listen-only mode. Today, we'll make forward-looking statements, which reflect our current expectations. These statements rely on assumptions and estimates, which could be inaccurate and are subject to risks. Please refer to our slide two or our SEC filings for a list of the factors that could cause our actual results to vary materially from those anticipated in forward-looking statements. Now I'd like to remind you about items impacting comparability. As we said in this morning's news release in the fourth quarter the company incurred charges associated with its initiatives to implement a new enterprise design that better aligns with our strategies to reduce cost and to streamline organizational structure. The company recorded pretax restructuring charges of $93 million related to the program and pretax charges of $13 million in administrative expenses related to the implementation of these initiatives. The aggregate after-tax impact of the restructuring charges and implementation cost was $0.21 per share. Last year, in the fourth quarter of fiscal 2014 we recorded $21 million of pretax restructuring charges and restructuring-related cost. We also recorded an additional $4 million of pretax settlement charges associated with the U.S. Pension plan. The aggregate after-tax impact of these items was $0.06 per share. Also as a reminder fiscal 2015 included 53 weeks, with the extra week falling in the fourth quarter. The extra week was worth an estimated $129 million in net sales, $37 million in EBIT, and $0.08 in EPS. The adjusted results exclude the impact of the additional week in the prior year. Our comparisons of the full year 2015 with 2014 will exclude previously announced items. Because we use non-GAAP measures we have provided a reconciliation of these measures to the most directly comparable GAAP measures, which is included in our appendix. Lastly, please mark your calendars for our planned fiscal 2016 earnings dates. We plan to release first quarter earnings on November 24 which will include the new segments and pension and post-retirement benefit accounting changes with the recasted prior year Q1 data. Shortly after we release our 10-Q, we will release the remaining recasted financials. The next three earnings dates are February 25, May 20 and September 1, 2016. With that, let me turn the call over to Denise.

Thank you Ken and good morning everyone. Welcome to our fourth quarter earnings call. This morning I will offer my perspective on our performance, provide a progress report on several major strategic actions we initiated in 2015, including our redesigned enterprise structure and cost savings effort and share my outlook and areas of focus for fiscal 2016. At our Investor Day in July, I described how the food industry is in a period of revolutionary change, which presents both challenges and opportunities for Campbell. The changes in the industry are being driven by several seismic shifts; new global economic realities in the U.S. and abroad; major demographic changes and the redefinition of the American family; profound changes in consumer preferences for food, with greater focus on health and wellbeing, and the impact of digital technologies on marketing, shopping and the growing demand for greater transparency about food. The convergence and acceleration of these shifts are reshaping the consumer and retailer landscape. Combined with the prevailing industry dynamics of consolidation and cost cutting these shifts are placing increased pressure on traditional center-store categories and mainstream food companies. With this as context, I'll focus my remarks this morning on our performance for fiscal 2015, review the important strategic actions we initiated during the year and highlight our key drivers for fiscal 2016. First I'll briefly comment on our fourth quarter results. I'm pleased that we finished fiscal 2015 in line with our revised expectations. Sales in the fourth quarter reflected the tough consumer operating environment with organic sales increasing 1%. Three of our five segments grew organic sales in the quarter. More importantly, we made significant progress in our internal actions to address our supply chain issues related to shipping capacity and customer service. We've also made substantial strides to improve our cost structure through our cost savings initiatives and enterprise redesign. We've reported the largest gross margin improvement in more than six years. Adjusted EBIT and earnings per share increased 5% in the fourth quarter. I was particularly pleased with the fourth quarter organic sales and earnings performance in U.S. Simple Meals as well as organic sales growth in Bolthouse and Foodservice. In the quarter we also completed the acquisition of Garden Fresh Gourmet, a fresh salsa and hummus business that will provide a platform for our further expansion in the deli section. Turning to our full-year results; with the solid finish we delivered sales, adjusted EBIT and adjusted EPS consistent with our most recent guidance. Organic sales increased 1% with growth in four of our five reporting segments. Adjusted EBIT was down 2% for the year and adjusted gross margin declined 70 basis points for the year, within the range that we had expected. As I look at the year I'm pleased that our management team responded to our first half cost and margin challenges in a difficult operating environment. I am particularly encouraged with the improvement in gross margin we delivered in the back half and the fact that we posted organic sales growth in four of our five reporting segments. However we recognize that we have more work to do. Before Anthony provides you with a detailed review of our results I will offer my perspective on several notable items, focusing on the full year. Looking at the year within U.S. Simple Meals the performance of our sauce business was a standout; notably Prego and Campbell’s dinner sauces. Prego had another strong year behind the success of our white sauces and overall product superiority. Sales of Campbell dinner sauces increased double digits for the year. Our strategically important Plum business drove double-digit sales growth with new products and continued distribution gains especially in the grocery channel. In U.S. soup consumer takeaway was relatively stable and we posted positive share performance. For the year our Global Baking and Snacking segment performed well. Organic sales increased 3% and operating earnings were up 5%. I feel particularly good about the improvement in Australian biscuits as the team made significant progress in this important core business. In Southeast Asia our Indonesia business delivered another year of double-digit growth but sales declined in the fourth quarter as a result of worsening economic conditions in this market, which we expect to persist. We had another year of decline in shelf-stable U.S. beverages. While the category remains challenged the underlying trends of our business are beginning to show signs of improvement. Consumer takeaway and share increased in the fourth quarter. Modest sales declines in V8 Red Juice were more than offset by the introduction of V8 Veggie Blends. Trial and repeat of Veggie Blends continued to meet expectations and depths of repeats remain strong. We expect our new advertising campaign to drive additional trial. V8 Splash our powerhouse brand for kids and V8 Plus Energy continue to perform well. In our immediate consumption channel, we are beginning to see some momentum. We feel good about the overall direction of this business but we still face challenges, particularly with the continued decline of our V-Fusion franchise. In fiscal 2016, the entire category will remain under significant pressure. While we expect our U.S. Beverage businesses to improve we are not planning on a return to growth. Let’s now turn to the Bolthouse and Foodservice segment. As a reminder Bolthouse Farms consists of the farms and CPG businesses. Farms includes our retail fresh carrots business and our ingredients business, mainly carrot concentrate. CPG consists of our super-premium beverages, ultra-premium beverages, and refrigerated salad dressings. We continue to be enthusiastic about Bolthouse Farms, especially the branded CPG business. For the year CPG sales increased high single digits. Gains were driven by product innovation, increased distribution for beverages, and incremental shelf space at existing customers for our salad dressings. The initial rollout of our cold pressed organic ultra-premium beverage line 1915 by Bolthouse Farms is off to a good start. After completing the acquisition of Garden Fresh Gourmet in June we have begun integrating the business. Thus far there have been no surprises and we are pleased with the retailer response to our long-term plans. Fiscal 2015 was an eventful year and we took important steps to lay the foundation for the future. We redesigned our enterprise structure and our three new divisions are now operating in line with their declared portfolio roles. We established our integrated global services organization and moved elements of finance, procurement, marketing, sales, HR, and IT into the shared service group. It's early days but we're off to a solid start. The focus in fiscal 2016 will be working smarter, creating efficiencies and reducing costs, while starting to build new enterprise capabilities within this group. We initiated plans for a zero-based budgeting process. We're piloting ZBB in two cost categories in fiscal 2016 with plans to expand in the future. We believe this discipline will be of great value to Campbell going forward. We're off to a very good start in realizing our $250 million cost savings target. We delivered earlier than expected savings of approximately $85 million across several categories, including headcount reductions, non-working marketing, reduced travel expenses, and spending on consultants. We added another growth engine with the acquisition of Garden Fresh Gourmet to bolster our Campbell Fresh portfolio and extend our presence in the perimeter beyond produce into the deli section. We initiated an important project to increase consumer trust by providing greater access to information about the ingredients we use and how we make our food. This is accelerating meaningful changes to our recipes. For instance, over time we're planning to eliminate artificial colors and flavors from nearly all of our North American products. Looking ahead to fiscal 2016, we plan to deliver moderate growth in what we believe will continue to be a consumer environment marked by caution. As we outlined at our Investor Day in July, starting in the first quarter of fiscal 2016 we'll change our reporting segments reflecting our three new divisions, each with a distinct portfolio role. In our America's Simple Meals and Beverages division we will focus on driving moderate growth while expanding our margins. We'll deliver this by focusing on fewer bigger initiatives that will attract new consumers while driving additional consumption by our loyal core consumers. For example, our Campbell's fresh fruit soups in K Cups will provide a new convenient way for consumers to enjoy soup. This represents an incremental eating occasion that taps into the growing frequency of smaller meals and snacks. Additionally, we'll take an industry leadership role by increasing our transparency efforts. We'll provide greater access to information about more of our North American product on the whatsinmyfood.com website. We also plan to improve more of our recipes consistent with our purpose. In global biscuits and snacks we're focused on expanding in developed and developing markets while improving our margins. In the developed markets of the United States and Australia, we're concentrating on restoring improved levels of growth. In the U.S., we'll apply a disciplined focus to consumer-driven innovation, increased marketing behind our Goldfish and Milano brands, and fuel growth in our fresh bakery portfolio. In Australia, we'll continue to improve our core Shapes products and drive Tim Tam's momentum while shifting our marketing mix towards digital. We'll also remain focused on faster-growing spaces, building on markets where we have a foothold such as Indonesia and China. We’ll monitor and adjust to the economic conditions in both of these countries throughout the year. We recognize that there may be short-term economic pressure in these markets. In the long term we believe that it is essential to become more geographically diverse with a higher percentage of our business in faster-growing developing markets with an expanding middle-class. In the Campbell Fresh division we'll make focused investments to accelerate sales growth and expand into new categories. As we outlined at Investor Day, our priorities are to build on the successful launch of our ultra-premium offering 1915. The product is in 2,000 stores today and we expect to expand to 8,000 stores during the first quarter. We will continue to accelerate our refrigerated salad dressing business through innovation and increased distribution. And finally, we will integrate the Garden Fresh Gourmet acquisition and our existing refrigerated soup business into the Bolthouse Farms' fresh platform and significantly expand our market penetration. We expect our fresh business to become a full force growth engine for Campbell. Across all of our businesses, we’ll continue to actively explore external development opportunities that make both strategic and economic sense. We will also remain focused on transforming our cost structure and culture. We are off to a promising start with our cost reduction efforts but we must remain diligent and continue to create an ownership mindset where employees treat every dollar as if it were their own. In closing, I am cautious but optimistic about fiscal 2016. I believe that the strategic imperatives we are pursuing, purpose and transparency in our core business, digital marketing and e-commerce, health and wellbeing and expansion in developing markets, coupled with our divisions' clear portfolio roles position us well for the year ahead. We’re very clear-eyed about our challenges, particularly driving sustainable sales growth, but we’re now better organized and better prepared to meet those challenges head-on. We believe that our strategy to focus on driving growth, aggressively reducing cost and reinvesting a portion of the savings in the areas of our business with the greatest growth potential is the best way to create shareholder value. I look forward to answering your questions in a few minutes. Now let me turn the call over to our Chief Financial Officer, Anthony DiSilvestro.

Thanks Denise and good morning. Before reviewing our results and guidance I wanted to give you my perspective on our performance and future outlook. We finished the year with a solid quarter. I am very pleased with our gross margin performance in the fourth quarter, which improved by 180 basis points, benefiting from our price realization and productivity efforts. The improved gross margin and earlier than expected cost reductions drove 5% gains in both adjusted EBIT and the EPS for the quarter, despite a two-point negative impact from currency translation. We made very good progress against our three-year $215 million cost savings target, delivering about $85 million of savings in fiscal 2015. For the full year, we delivered results within our recent guidance ranges with EPS of $2.46 at the top end of the range. Looking ahead to 2016 our guidance, when you exclude the impact of currency translation and the Garden Fresh Gourmet acquisition is within our new long-term targets. Now I will review our results in more detail. For the fourth quarter, net sales on an as-reported basis declined 9% to $1.7 billion, primarily due to the impact of one less week and the negative impact of currency translation. Excluding those factors and our recent acquisition of Garden Fresh Gourmet organic net sales increased 1% in the quarter as we benefited from higher selling prices. Adjusted EBIT increased 5% to $234 million driven by a higher gross margin percentage, partly offset by higher incentive compensation expenses and a two-point negative impact from currency translation. Adjusted EPS also increased by 5% to $0.43. For the full year, reported net sales declined 2% with organic sales gaining 1% led by the strong performance of our Global Baking and Snacking segment. Adjusted EBIT declined 2% to $1.2 billion, reflecting a lower gross margin percentage, a two-point negative impact from currency translation and higher incentive compensation expense partly offset by volume gains and the benefit of our cost savings initiatives. The decline in gross margin down 70 basis points was driven by higher than anticipated cost inflation and the supply chain issues we experienced in the first half, partly offset by productivity and pricing gains. EPS of $2.46 was comparable to the prior year. Decomposing our sales performance for the quarter as-reported sales declined 9%, with organic sales increasing by 1%. Volume and mix affected one point which was primarily in our Global Baking and Snacking and U.S. Beverages segments. Higher selling prices across four of our reportable segments added one point to sales. Reduced promotional spending contributed one point to sales growth primarily driven by the Global Baking and Snacking segment. Currency translation had an adverse impact of three points. Our two primary foreign currencies, the Australian dollar and Canadian dollar both continued to weaken against the U.S. dollar. Our recent acquisition of Garden Fresh Gourmet added one point to sales and the impact of one less week subtracted seven points. Our adjusted gross margin percentage increased by 180 points to 36.1%. For the quarter, and moderating relative to earlier quarters, inflation increased by approximately 2%. Inflation and other factors had a negative impact on gross margin of 1.1 points. Mix had a negative impact of 40 basis points. In aggregate, our price realization actions have contributed 1.2 points of margin expansion with 40 basis points from reduced promotional spending, principally trade reductions in Pepperidge Farm and 80 basis points from higher selling prices, primarily on condensed soups, Prego and in Canada. Lastly, we continue to drive meaningful productivity gains in our supply chain, which contributed 210 basis points of margin improvement in the quarter, and overall on operating efficiencies we're above prior year levels. Marketing and selling expenses declined by 7% in the quarter, reflecting the impact of currency and reductions in selling expense and non-working marketing, both benefiting from our cost management efforts partly offset by an increase in advertising and consumer promotion expense. Adjusted administrative expenses increased 10% driven by higher incentive compensation costs compared to the prior year in which the expense was significantly below targeted levels. For additional perspective on our performance, this chart breaks down our EPS change between our operating performance and below the line items. As you can see, adjusted EPS increased $0.02 compared with the prior year increasing from $0.41 to $0.43 per share. On a currency-neutral basis, growth in adjusted EBIT contributed $0.04 to EPS. Net interest expense declined $3 million, about a penny per share primarily due to the impact of one less week. With $200 million of share repurchases throughout the year under our strategic share repurchase program, this has reduced our share count and added a penny to EPS in the quarter. Going the other way, our adjusted tax rate for the quarter was 34.8% up 80 basis points versus the prior year reflecting a shift in the mix between U.S. and foreign earnings and negatively impacting EPS by $0.01. Currency had a $0.01 negative impact on EPS in the quarter completing the bridge to $0.43. Now turning to our segment results, in global baking and snacking our largest sales segment in the quarter. organic sales increased 1% as growth in Pepperidge Farm and Arnott’s were partly offset by a decline in Kjeldsens. Sales gains in Pepperidge Farm were driven by Fresh Bakery, Goldfish Crackers and frozen products partly offset by a decline in cookies. Organic growth in Arnott’s reflected gains in Australia, partly offset by a decline in Indonesia. Operating earnings declined 26%, driven by the impact of one less week, higher marketing and administrative expenses, principally incentive compensation, currency translation and impairment charges to minor trademarks, partly offset by gross margin expansion. Excluding the impact of one less week, currency translation and the impairment charges, operating profit increased in the quarter. In U.S. Simple Meals, organic sales increased 4% while dollar consumption of soups in measured channels increased 1%. Movements in retail inventory levels contributed to sales gains in the quarter. As you may recall, movements in retail inventory levels had a negative impact on third quarter sales and we're experiencing the opposite effect in the fourth quarter. We ended the year with retail inventory levels comparable to the prior year. Organic sales in other Simple Meals increased driven by the continued strong growth of Prego pasta sauce. Segment sales also benefited from higher selling prices in condensed soups and Prego pasta sauce. Operating earnings increased 4% reflecting organic sales growth, productivity improvements and benefits from our cost savings initiatives, partly offset by cost inflation and the impact of one less week. In the Bolthouse and Foodservice segment organic sales increased 4%, with growth in Bolthouse Farms beverages and salad dressing and North America Foodservice partly offset by declines in Bolthouse Farms carrots. Operating earnings fell 3% on higher administrative expenses and the impact of one less week. U.S. beverage organic sales fell 4% primarily due to volume losses in V8 V-Fusion. While consumer takeaway dollar sales in measured channels were positive, sales were negatively impacted by reductions in retail inventory levels and sale declines in the club channels. Operating earnings declined 23% due to the sales declines, including the impact of one less week. International Simple Meals and Beverages organic sales declined 5% from weakness in Canada and Australia. Operating earnings declined $10 million or 48% primarily due to volume declines, including the impact of one less week and currency translation. This chart shows the as-reported sales performance of U.S. Soup, unadjusted for the impact of one less week which subtracted seven points in the quarter and one point for the full year. For the quarter, U.S. Soup sales declined 2% with condensed down 4%, ready-to-serve down 3%, and broth up 11%. Excluding the impact of one less week sales of condensed soups increased with gains in both eating and cooking varieties driven by net price realization. Sales of ready-to-serve soup also increased excluding the impact of one less week, primarily driven by the launches of our Fresh-Brewed Soup and our line of organic soups. The double-digit sales gain on Swanson broth was primarily led by aseptic varieties. For the fiscal year, as shown towards the bottom of the chart soup sales declined 3% to the prior year, as a 3% decline in condensed and a 5% decline in ready-to-serve were partly offset by 3% growth in broth. Here’s the U.S. wet soup category performance and our share results as measured by IRI. For the 52-week period ending August 2, 2015, the category as a whole declined 0.9%. Our sales in measured channels declined 0.7% with weakness in ready-to-serve soups partly offset by gains in broth. Our share increased 10 basis points in the last 52 weeks and has now been relatively stable for three years. Other branded players in aggregate had a share of 28.1%, declining 30 basis points, while private label with a 12.6% share gained 20 basis points. We had strong cash flow performance in fiscal 2015. Cash from operations increased by $283 million to almost $1.2 billion driven by lower working capital requirements; lapping the taxes paid in 2014 on the divestiture of the European Simple Meals business, and lower pension contributions. Capital expenditures increased to $380 million as we increase capacity in Goldfish, Bolthouse Farms beverages, broth in North America and biscuits in Indonesia. We paid dividends totaling $394 million, reflecting our current quarterly dividend rate of $0.312 per share. In aggregate we repurchased $244 million of shares in fiscal 2015, $200 million of which were under our strategic share repurchase program. The balance of repurchases were made to offset dilution from equity-based compensation. Net debt increased by approximately $60 million to $3.8 billion as gains in cash flows were more than offset by the $232 million acquisition of Garden Fresh Gourmet. Now, I'll review our fiscal 2016 guidance. The company expects to grow sales by 0% to 1%, adjusted EBIT to grow by 3% to 5%, and adjusted EPS to grow by 3% to 5% or $2.53 to $2.58 per share. This guidance includes the estimated negative impact of currency translation of two points across sales, EBIT, and EPS. This guidance also includes the impact of the Garden Fresh Gourmet acquisition which is estimated to contribute one point of sales and EBIT growth. The acquisition is neutral at EPS including the impact of reducing our anticipated share repurchases to repay the acquisition debt. Excluding the impacts from currency headwinds and the acquisition, these growth rates are within our long-term growth targets of 1% to 2% organic sales, 4% to 6% for adjusted EBIT, and 5% to 7% for adjusted EPS. While we don't give quarterly guidance, I will say that we expect some sales headwinds in the first quarter given we're cycling a strong first quarter from last year and from timing related to our promotional strategies. As announced this morning, we intend to adopt mark-to-market pension and post-retirement benefit accounting in the first quarter of fiscal 2016 and recast our historical results. This change eliminates the deferral and subsequent amortization of historic actuarial gains and losses which will be recognized as incurred. The periodic mark-to-market adjustments will be reflected as an item impacting comparability and therefore excluded from adjusted results. We believe this accounting change will improve the transparency of our results and the year-to-year comparability. The 2016 guidance does not reflect the impact of the anticipated accounting change. However, 2016 growth rates are not expected to change from the recasted 2015 base. As we operationalize our new division structure beginning in the first quarter of fiscal 2016, we will move from our current five reporting segments to three, America's Simple Meals and Beverages, Global Biscuit and Snacks, and Campbell Fresh. Historical results, reflecting both the new segments and change in accounting will be provided shortly after we file our first quarter 10-Q. Turning to some of the key assumptions underlying our guidance; we expect inflation in cost of product sold of approximately 2% to 3%, including the negative impact of a stronger U.S. dollar on the input cost of our international businesses. Cost inflation will be offset by gains from our ongoing productivity program, which excluding our ZBB initiatives is targeted at 3% of cost of product sold. We expect our gross margin percentage to improve modestly as we continue to achieve net price realizations and improve our supply chain performance. We are accruing incentive compensation below the target levels in 2015 and anticipate a headwind of approximately $0.04 per share in 2016. The effective tax rate is estimated to be in the range of 31% to 32% compared to the 2015 adjusted rate of 31%. This guidance assumes about $0.02 per share incremental contribution from share repurchases which are expected to be at levels below fiscal 2015. We are forecasting capital expenditures to decline by $30 million to approximately $350 million, which is more in line with our historical spending levels. In fiscal 2015, we launched a comprehensive reorganization and a three-year cost reduction initiative leveraging a zero-based budgeting approach and targeting annual savings of $250 million. As shown in the chart, we have achieved about $85 million of savings in 2015 as we've reduced headcount and realized savings across several cost categories. For 2016, we are targeting to increase the savings run rate to $145 million which will put us more than halfway toward our $250 million goal. Most of the 2016 gains will come in the selling and marketing and administrative expense lines. The majority of the more complex supply chain gains will come later in the program. To implement the program we estimate total program cost in the range of $250 million to $325 million. In fiscal 2015 we recognized costs totaling $124 million, which includes $22 million of implementation costs and $102 million of restructuring charges principally severance as we implemented both a voluntary incentive separation program and headcount reductions as we've streamlined our organization. Against this program we estimate program costs of approximately $100 million in fiscal 2016. That concludes my remarks. I now turn it back to Ken for the Q&A.

Thanks Anthony. We will now start our Q&A session. Since we have limited time out of fairness to other callers if you could please ask only one question at a time. Thanks.

Hi, thank you. The gross margin expansion obviously was much higher than what we all expected, and I don’t know, have you given any specific guidance for what kind of expansion you expect in fiscal ‘16? And also was there any help in the quarter resulting from kind of like the mismatch of incremental costs that you took on in first and second quarter, Anthony? I remember there were some noise there related to some inefficiencies for extra cost that needed to be spread out over multiple quarters. Did that influence the fourth quarter expansion at all?

So Rob, I will discuss the fourth quarter and then revisit 2016. The fourth quarter comparison is relatively straightforward. The main advantage this year compared to last year was due to the timing of the mark-to-market adjustment on our commodity hedges, which provided a slight benefit this year. A small part of that 180 basis points comes from this, while the remainder is due to improvements in our operating performance. Regarding 2016, as I mentioned earlier, we anticipate a modest rise in our gross margin percentage. There are various positives and negatives to consider. On the positive side, our annual cost productivity program targets a 3% reduction in costs, which is significant. We expect ongoing benefits from net price realization, mainly driven by pricing actions we implemented in the latter half of this year. Additionally, we foresee margin improvements from enhanced supply chain performance compared to the previous year, especially considering the challenges we faced in the first half of last year. However, there are three negative factors to note. Firstly, we expect cost inflation to range from 2% to 3%, which reflects the negative impact of currency fluctuations on the input costs of some of our international operations. This also incorporates some adverse mix effects and the costs associated with quality improvements we are undertaking in both our products and packaging.

Thanks good morning. Denise wanted to ask about Global Baking and Snacking and the volume pressure there. Maybe if you could address in a bit more detail some of that pressure in Asia, particularly I guess Kjeldsens in China. And then in the U.S. cookie business and the softness here, it seems that Pepperidge pricing really began to outpace the category over the past few months. Are you seeing some elasticity impact there and how are you seeing that for fiscal ‘16?

Let me start with our core business in the United States and Australia. We are pleased with the market share of Goldfish crackers and Milano, although we saw some softness in cookies this quarter. This was expected because we did not promote our biscuit business in the U.S. as heavily this year, as past promotions were not as effective. We anticipate moderate growth in the U.S. biscuit market. In Australia, we are very pleased with our successful year, which marks a remarkable turnaround after facing challenges for a couple of years. The improvements have come from better advertising, more innovation, enhanced brand building, and increased digital efforts. We believe these foundational changes are sustainable. We also had a strong year in Indonesia with double-digit growth, although we experienced a slow fourth quarter, reflecting broader trends in Asia. We are monitoring the situation closely and believe there is significant potential for expanding our distribution in Indonesia. However, we will approach that market responsibly in 2016. Regarding the Kjeldsens business, this quarter is typically small due to sales being concentrated around the Chinese New Year, which contributed to some inventory issues we are currently addressing, particularly in the fourth quarter.

Hi thank you. Good morning.

Hi Chris.

Hi, just a quick question if I could then. I just wanted a sense of the degree of promotional spending and what you expected to do across the year. I know every business is different and I'm sure broadly you have expectations for each business. But is there an overall outcome that’s going to come from promotional spending maybe related to that advertising, not sure I heard that, what you expect advertising spending for the year? Thank you.

Yeah, we are continuing to manage our trade promotions to maximize our profitable volume. We're maintaining a focus on competitive activity in both our customer programs and in our consumer response. And we are, as noted, looking for opportunities to improve our trade spending not only for ourselves to get a better return but also for our customers to get a better return. And so there is no real strategy to cut back but there's definitely improved analytics and revenue management. So we have a much more productive trade spend. In total, our advertising consumer and trade was about 24% of sales which we try and aim for about 24% to 25% as a rule.

Hey, good morning folks.

Good morning.

First a quick housekeeping question. Can you guys quantify what the 2015 EPS base is going to look like post the recasting related to pension accounting?

Sure I can do that. I think the way to think about it in 2015, the amortization within our pension expense is going to be about $100 million pretax. And that's a good proxy for the impact of the accounting change when we through a bunch of pluses and minuses. I think a couple of additional points on this, these plans have been close to new hires for a couple of years now. They're very well funded. We ended the year at 97% to 98% in terms of funded status. And we don't expect to make any contributions to our U.S. plans in 2016.

Thank you. That's helpful. And you mentioned ZBB focused on two cost categories. Can you specify what categories those are?

Yeah, we did our pilot program on our non-working marketing and also on the consulting.

In terms of marketing, are you aiming for greater productivity? It's currently down about 17% from your fiscal 2010 high. How much further can you improve, and as you try to balance managing promotions, it's positive to see that promotions are contributing to sales. Can you achieve both objectives at the same time? Can you maintain your marketing strategy while also finding efficiencies in trade spending, or is it a case of choosing one over the other as you look to the future?

I think that we look at the marketing mix as the three elements of advertising consumer and trade. And of course that mix is going to vary by business in terms of what degree we spend. But we do have some shifts going on. As Anthony alluded to we are making a conscious effort to reduce our non-working marketing where it's not a productive spend. The second is within advertising, we are shifting more dollars out of conventional TV and more into digital. And that spend has been shifting over time but will be up to 40% going forward. And then we try again for ACT to stay in the range of about 24% to 25% of sales and that's remained pretty constant over the last couple of years.

Hey, good morning everyone.

Hello, Bryan.

Just a quick question about just the cost inflation assumption for 2016, can you just give us some color around where the inflation pressure is, especially most more recently you’ve seen some commodity movements that would presumably be more favorable and also just to what degree your inflation assumption for 2016 reflects some incremental cost related to the like ingredient changes?

Sure, I can provide more detail on that. Overall, as I mentioned earlier, we are experiencing cost inflation of about 2% to 3%. When you break that down, the core ingredients, packaging, and energy components account for roughly 1%. The main contributors to this are five categories: vegetables, flavors, sweeteners, chocolates, and we are seeing a significant increase due to avian flu, particularly in eggs and pasta. For eggs, we are anticipating inflation rates close to 50% for fiscal ’16. Those are the key contributors to the 1% inflation. Additionally, there are a few other factors to consider. First, the foreign exchange impact on our input costs from our Canadian and Australian operations is quite substantial. Other factors include wage increases within the supply chain and benefits such as healthcare and pension. Regarding commodities, since you mentioned some prices decreasing, we have secured about 75% of our commodities for fiscal ’16.

Hi, good morning. Real quick one, regarding U.S. Simple Meals, and forgive me if you mentioned this, but you talked about positive movements in the retailer inventory levels. Can you elaborate a bit on how much that helped and what happened that your customers, I guess loaded up a bit on purchases versus the prior year?

Yeah, I think it's more about how we came into the quarter. If you recall the third quarter I think our sales were down 10% while our consumption was only down one. So we came into the quarter with inventory levels down. We ended the quarter and the year with retail inventories about where they were a year ago. So in the fourth quarter while our consumption was plus 1%, our organic sales were plus about 5%. So we had about four points of lift from that shift in inventory.

Hi, good morning everyone.

Hi, Matt.

Denise, I wanted to revisit the outlook for U.S. beverages in 2016. It seems you remain cautious, particularly regarding sales. However, could we potentially start seeing some improvement in margin or profit growth? Considering the ongoing volume declines, do you think there might be a chance to adopt a more profit-maximizing strategy, perhaps by placing greater emphasis on pricing realization?

We are doing both and obviously the category itself has been under a lot of pressure based on the consumer and so what we've been really focused on is how do we broaden our line and better deliver on the things that consumers are looking for in vegetable juices and we believe that vegetable juices have an advantage based on the consumer trends. We learned a lot from Bolthouse and actually our V8 veggie blends reflect a broadening of vegetable-based beverages based on consumer preferences for those particular flavor profiles and we think that is really taking the business in the right direction. That said we still have some leaky bucket in our V8 V-Fusion that we're dealing with. Our V8 SPLASH and V8 Plus Energy are doing really well and our immediate consumption has now posted the second quarter of growth. So we've got some good signs on the growth curve, but more things are working than not. But we're still cautious about declaring victory yet. The other thing we're working on is a mastering complexity project in our supply chain which we believe will have a really positive impact on our profit going forward. But that is a longer-term play.

Good morning.

Hi, Diane.

I wanted to ask about the soup category. So we're heading into the start of the soup season here. It seems just anecdotally the category is a little promotional. I'm sure it's probably promotional every fall, because it is the high season. Could you talk a little bit about what you're seeing on shelf and from the retailers in terms of the levels of support they're looking for? And is there any divergence from what you've seen around this time kind of every year?

It's early in the season. Our focus right now is on ensuring that our shelf space is maintained and that the products are displayed correctly. We have new items being introduced such as K cups and organic soup, and we need to ensure they are properly placed. Our sales team is collaborating with customers on a strong promotion schedule, which aligns well with what we’ve done in previous years. At this point, I don't notice anything out of the ordinary. Anthony, do you have anything to add?

No, nothing.

And the K cups, how will you account for those? Are those considered condensed or something else?

We believe these products will largely add to the category by creating an additional usage occasion, specifically targeting soup as a snack. There's a significant overlap between our Campbell soup customers and Keurig users, as our research indicates. We plan to place these items in the coffee aisle in about 70% of retail settings because we feel that K cup buyers will view this as a valuable way to expand the use of their dispensers into new categories and occasions. We offer two pack sizes: one designed to encourage trial, located in the soup aisle as a two-count pack, and a six-count pack in the coffee aisle. We're really excited about this approach. It will be different, but we think this space has the potential to be transformative for coffee, and we anticipate positive results.

Thank everyone for joining our fourth quarter call and webcast. A full replay will be available about two hours after this call. You can go online or if you are calling 188-266-2081 the access code is 1660929. You have until September 17 at which point we move our earnings call straight into the website, investor.campbellsoupcompany.com. Just click on recent webcast and presentations. If you have any further questions please call me, Ken at 856-342-6081. If you are a reporter with questions please call Carla Burigatto, our Director of External Communications, 856-342-3737. This concludes today's call.