Aaron Broholm - Direct of Investor Relations Richard K. Smucker - Chief Executive Officer & Director Vincent C. Byrd - President, Chief Operating Officer & Director Mark R. Belgya - Chief Financial Officer & Senior Vice President Steven Oakland - President International Foodservice & Natural Foods Mark T.

Smucker - President US Retail Coffee & Director Paul Smucker Wagstaff - President US Retail Consumer Foods & Director.

David Driscoll - Citigroup Andrew Lazar - Barclays Capital Eric Katzman - Deutsche Bank Jason English - Goldman Sachs Ken Goldman - JP Morgan Akshay Jagdale - Keybanc Capital Markets Christopher Growe - Stifel Nicolaus Alexia Howard - Sanford C. Bernstein & Co.

Jonathan Feeney - Athlos Research Robert Moskow - Credit Suisse John Baumgartner - Wells Fargo Securities, LLC. Farha Aslam - Stephens, Inc..

Welcome to the J. M. Smucker Company second quarter 2015 earnings conference call. At this time I would like to inform you that this conference is being recorded and all participants are in a listen-only mode. At the request of the company, we will open the conference up for questions and answers after the presentation.

Please limit yourself to two initial question during the Q&A session and requeue if you then have additional questions. I will now turn the conference over to Aaron Broholm, Director of Investor Relations..

Richard will begin with an overview of our second quarter performance; Vince will then provide an update on our business segments; and Mark will close with additional comments on our financial results for the quarter and our outlook for the year.

During this conference call we will make forward-looking statements that reflect the company’s current expectations about future plans and performance. These forward-looking statements rely on a number of assumptions and estimates and actual results may differ materially due to risks and uncertainties.

I encourage you to read the full disclosure statement and the press release concerning forward looking statements..

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Last week we issued a press release previewing our second quarter results and revised full year outlook. While our fundamentals remained strong, we were disappointed in the results for our second quarter. We have always managed our business for the long term, but our coffee business fell short of expectations during the second quarter.

During today’s call we want to make sure that we answer your questions, but also do not want to lose sight of the many positives in our business and why we’re optimistic as we look ahead.

The questions we expect to answer today are what were the drivers of our volume shortfall in coffee for the quarter; has there been a fundamental change to the coffee category; and more specifically, between roast and ground, premium, and single serve.

In addition to volume, are there other factors affecting the coffee segment profit? What are we doing to address the coffee issue experienced in the second quarter? Outside of coffee, how are the other business segments performing? This morning we will devote a significant portion of our scripted commentary to providing answers to these questions.

As we shared last week, second quarter non-GAAP earnings per share of $1.53 was the same as the prior year however, this fell significantly below our plan. We are pleased with the performance of our consumer foods and international food service and natural food segments.

As noted, the shortfall was driven by the US retail coffee segment, specifically the consumer response to higher price points, reduced promotional effectiveness, and ongoing competitive activities all contributed to the decline in volume for the segments resulting in lower net sales and segment profit for the quarter.

In the back half of the fiscal year, we anticipate coffee volume trends to improve compared to the second quarter but to remain down from the prior year. This combined with the relationship between price and green coffee costs, resulted in the lower full year guidance that we provided last week.

Our teams have spent a great deal of time analyzing the recent results allowing us to conclude that this performance does not reflect a fundamental change in the coffee category. We do recognize the need to continuously create value for consumers and have adjusted our tactics to address the current dynamics in the marketplace.

Vince will expand on our near term challenges and opportunities within the coffee segment shortly but first, I will address the macro view we have regarding the at home coffee category and our outlook for it.

First, we believe mainstream roast and ground coffee will continue to be very relevant to consumers as the largest segment in terms of volume within the category. Despite the current higher pricing, at approximately $0.05 per cup, mainstream coffee continues to provide a strong value proposition for consumers.

The modest value declines in the overall mainstream segment for the last few years has been in line with our expectations. Prior to this quarter volume for the Folgers brand has grown in eight of the past nine quarters. Over this time Folgers has also gained dollar share in the mainstream segment and remains the dominant brand in this space.

We also see opportunities to innovate within the mainstream segment beyond new roasts and flavors to provide consumers additional convenience options and grow our roast and ground share. Second, with much of the category growth expected to come from the K-Cup and premium segments, we are well positioned to participate in this growth.

Within premium, the Dunkin Donuts brand has strong equity and resonates with consumers. We have grown this brand consistently over the years including volume gains in eight of the past 10 quarters, increasing Dunkin Donut’s market share in the premium segment over this time.

Within K-Cups, our growth rates have slowed since we first entered the segment yet recently we have seen significant gains for our Folgers K-Cup and the initial contributions from our recently launched Café Bustelo K-Cups. We remain confident that our brands will continue to play a key role in the growth of this platform.

Third, we have demonstrated over time our ability to manage periods of higher green coffee costs while successfully growing coffee profits. In fact, we manage through even higher costs three years ago. Lastly, we remain the overall leader in the coffee category with a wide market share advantage.

As a leading participant in all key forms of coffee and segments, we play a vital role for retailers as they look to us for insights on consumer trends and our overall perspective on the category. For these reasons we believe our coffee strategy remains on point and we are confident in achieving our long term growth goals.

Let me now return to our performance for the quarter. Overall, our remaining business performed well in the second quarter and remain on track to achieve full year profit segment growth. Within the consumer food segment, volume gains were realized in Jif Peanut Butter, Uncrustable Frozen Sandwiches, and Crisco Oils during the quarter.

Segment profit increased significantly year-over-year primarily due to peanut butter as we anticipated.

In our international food service and natural food segments, the underlying businesses performed well, although the headwinds we’ve spoken to previously, most notably foreign exchange and rationalized businesses continued to impact the reported results. But for this segment, we expect both sales and segment profit growth in the back half of the year.

As we look at the overall food industry all the participants continue to navigate through a challenging environment.

Two months ago at the Barclay’s back-to-school conference, we spoke to some of the current dynamics including the certain segments of the consumer base are financially pressed and remain cautious that there are evolving consumer trends such as heightened focus on health and wellness and increased desire for transparency and the growing impact of the social media and eCommerce on consumer’s behavior.

All of these factors are contributing to the center of the store volume trends that have been the subject of much discussion. Based on the latest [SCAN] data, whether you look at the four, 12, or 52 week period, the total food volume across measured channels is down approximately 1%.

Partially in response to this, promotional activities have increased as manufacturers and retailers compete for share. At the same time, traditional promotional tactics are proving to be less efficient. We’ve seen this in our own business as well. That being said, we see some positive trends starting to develop.

Overall US retail sales including all sectors were up 0.3% in October. A major retailer recently reported their first comp sales growth in more than a year. Energy costs are coming down both in oil and natural gas providing consumers with more disposable income. Commodity costs have in many cases, stabilized, with some at five year lows.

The latest consumer sentiment numbers reached a seven year high with consumers expecting lower inflation and due primarily to lower gas prices. Lastly, the moderate economic recovery seems to be moving forward based upon strengthening consumer sector and increasing consumer confidence.

To address the challenges and take advantages of the opportunities, we continue to focus on innovation with an increased emphasis on products that are consistent with evolving consumer trends.

We’re also accelerating our commitment to those areas of our business that provide the biggest opportunities for future growth ensuring that our resources are aligned properly. At the same time we are continuing to review all of our cost levers throughout our organization.

Lastly, we have the ability to leverage our balance sheet to support future EPS growth be it through accretive M&A activity, or through share repurchases. While most of our remaining comments today will focus on the second quarter and the balance of the fiscal year, we look forward to sharing more about these opportunities in the months ahead.

We have leading brands and a great team of passionate employees. We firmly believe that we’re moving forward with the right approach and have the right actions in place to provide more upside potential for the remainder of the year. With that, I’ll turn the call over to Vince for an overview of our business segments..

temporary and incremental cost that occurred in our Orrville and Scottsville manufacturing facilities and the timing of a peanut butter price decline taken in advance of recognizing lower peanut costs. Effective earlier this month, we took a 7% price decline on the majority of our peanut butter products reflecting our lower peanut cost position.

Finally, in consumer foods, we completed the acquisition of Sahale Snacks during the quarter. We continue to project necessary sales contributions of approximately $25 million in fiscal 2015 with an immaterial bottom line impact in the first year.

The integration work is going well and we remain excited about the growth opportunities this business presents in the snacking arena. In international food service and natural foods, we continue to see the sequential improvement of underlying trends that was expected for the segment.

Our top line performance compared to the prior year continued to be impacted by the rationalizations in our food service hot beverage business which we expect to fully lap at the end of the third quarter.

For segment profits, the items we discussed on our last call, a weaker Canadian dollar and a higher run rate on trade spin in the US food service coffee continued to impact second quarter results. The currency impact is expected to remain a headwind through the end of the fiscal year and into fiscal 2016.

However, we will lap the trade spend adjustments recorded in the back half of last year which will provide year-over-year benefit for the next two quarters. While these items have led to a lot of noise in the segment, we are encouraged by our recent performance and are focused on our key growth opportunities as we move ahead.

These include in Canada, building on the recent market share gains we’ve achieved across nearly all of our categories including expectations for a strong conclusion to the fall bake period. Within food service, we are gaining momentum in our portion control business and in the conversion of the customers to our Folgers brand liquid coffee offering.

Further, as we leverage the capacity investments made over the past few years in our Scottsville facility, we are looking to regain much of the exited school Uncrustable business. This reflects recent changes to the USDA program which will allow us to manufacture the peanut butter used in the sandwiches for this channel.

We expect the related sales benefit to begin in fiscal 2016. In natural foods, our newly integrated sales organization is aligned to take advantage of the continued growth in the natural and organic offerings in both traditional and natural food channels. This drove a strong quarter performance for our R. W.

Knudsen brand and we look for this momentum to continue. Our truRoots brand has been challenged by higher quinoa costs since its acquisition a year ago primarily driven by higher demand. With costs moderating and anticipated distribution gains, we look for a stronger back half of the year for this brand.

In closing, it’s important to note that since acquiring the coffee business in 2008 we have successfully navigated through many business climates including changing consumer habits and fluctuating green coffee markets.

During these time we’ve been able to consistently grow earnings in the coffee segment and our brands continue to lead in market share by a wide margin. We remain confident in our coffee strategy and the long term prospects for this business. I’ll now turn the call over to Mark..

I will start by briefly summarizing our second quarter results. The remainder of my comments will then focus on our revised outlook for the full year including additional color around the back half. Net sales decreased $78 million or 5% in the second quarter reflecting lower overall volumes most notably for coffee along with unfavorable mix.

The impact of net price realization, acquisitions, and foreign exchange was not material. GAAP earnings per share were $1.55 this quarter, up 6% from $1.46 in the second quarter of last year. Included in this year’s GAAP earnings were $8 million in unallocated derivative gains compared to a loss of $2 million in the prior year.

Excluding certain items affecting comparability, as defined in our press release, non-GAAP EPS was $1.53 in line with the prior year. Non-GAAP gross profit decreased $27 million or 5% in the second quarter with gross margin remaining flat to the prior year at 35.7%.

The lower gross profit resulting from coffee driven impacts on volume in mix being only partially offset by an overall favorable price-to-cost relationship during the quarter. A 7% decrease in SG&A spend primarily driven by a reduction in marketing helped offset some of the lower gross profit.

Other items contribute favorably to year-over-year EPS comparisons were lower interest expense as we benefitted from a reduction in outstanding long term debt and last year’s interest rate swap, and a decrease in the number of average shares outstanding resulting from share repurchase activity in the prior fiscal year.

Turning to cash flow, cash provided by operations was $92 million for the quarter compared to $86 million in the prior year. This quarter’s cash generation turned the year-to-date total to a positive $84 million compared to $168 million for the first half of last fiscal year.

This decline primarily attributable to great current year use of cash for working capital needs reflecting higher green coffee costs in inventory as well as certain timing factors. With capital expenditures of $65 million in the second quarter, free cash flow was $27 million for the quarter, but $30 million negative for the first half of 2015.

While we expect significant cash generation during the third quarter as we complete the fall bake and holiday period, we will not achieve our original free cash flow guidance range of $625 million to $635 million. We now [indiscernible] 2015 free cash flow will approximately $500 million.

This reflects the expected decrease in net income as well as an increase for working capital. Along with the working capital factors I noted previously, we expect a temporary increase in our day’s inventory on hand as we manage industrywide risk related to the increased demand for transportation providers and other initiatives.

During the quarter, commercial paper borrowings peaked at approximately $650 million reflecting the closing of the Sahale acquisition and seasonal working capital needs. Before declining to the end of the quarter at $546 million outstanding.

We expect to pay down much of the remaining borrowing by the end of the fiscal year assuming no share repurchase or M&A activities. Let me conclude with our sales and EPS outlook. We now anticipated 2015 net sales will be down approximately 1% compared to the prior year reflecting lower volume expectations most significantly for US retail coffee.

Overall, this revised guidance implies a modest year-over-year increase in net sales for the last six months of 2015. In the coffee segment we anticipate volume trends to improve from the second quarter but to remain down year-over-year in the back half with declines expected in the mid to high single digit range.

However, higher net price realization and favorable mix are anticipated to result in segment net sales growth for the last two quarters of the year. Within consumer foods, we anticipate the first half trends to continue for the remainder of the year with lower price realization impacting net sales.

This reflects the recent price decline taken on peanut butter and the Crisco price decline taken in the fourth quarter of last year.

Finally, in the international food service and natural food segment year-over-year trends are expected to improve sequentially in the last two quarters as higher price realization and favorable mix more than offset lower volume.

Turning to EPS we now expect 2015 non-GAAP earnings per share to be in the range of $5.45 and $5.65 the revision from our original guidance range of $5.95 to $6.05 relates to the coffee business. The midpoint of our revised EPS range [verses] the back half of the fiscal year is approximately 6% below the prior year.

Looking at the puts and takes for the last two quarters of 2015, the primary year-over-year headwind is expected to be lower coffee profitability that will be driven by the anticipated decline in volume as well as sequentially higher coffee costs that are not expected to be fully offset by net price realizations.

Our profitability expectations for the other two segments have not changed significantly as we continue to expect them to achieve full year segment profit growth in 2015.

We previously indicated segment profit growth for the consumer food segment was anticipated to be significantly front end loaded reflecting the timing of recognizing lower peanut costs.

While we expect to continue recognizing lower costs, the year-over-year impact will subside in the back half of 2015 and will be more than offset by the lower peanut butter pricing over this period. That said, consumer food segment profit for the back half of 2015 is expected to increase slightly over the prior year.

We continue to anticipate back half segment profit growth for international food service and natural foods. This reflects the lapping of the food service trade set adjustments recorded in the second half of last year as well as growth in natural foods including incremental contribution from the Enray acquisition.

We now expect total SG&A spend for the year will be down slightly for the prior year reflecting a reduction in the marketing expense for the full year along with lower incentive compensation expense. This compares to our original 2015 expectations of a 4% year-over-year increase.

Related to the reduction in marketing it is important to reinforce that this is not a shift in our long term strategy of investing behind our brands.

With approximately $275 million in planned spending, we remain satisfied with the level of brand support in place for the year including a strong on air presence while continuing to execute on our digital initiatives and other opportunities.

In addition, last year’s back half included marketing support for our sponsorship of Team USA 2014 winter Olympics. Our revised 2015 guidance continues to reflect approximately 102 million shares outstanding.

No shares were repurchased during the company’s quarter and the board recently increased our share repurchase authorization to 10 million shares.

In closing, let me reiterate that we firmly believe we are moving forward with the right approach to overcome short term challenges and that when we make decision with the long term perspective, growth will naturally flow. With that, we will now open up the call for your questions. Operator, I ask that you queue up the first question..

[Operator Instructions] Our first question comes from David Driscoll - Citigroup..

I wanted to start off in coffee, certainly a fairly startling event here in the second quarter.

I appreciate all the comments that you guys made in your prepared comments but maybe I’d like to ask just kind of simply, do you believe that Smuckers was over earning in coffee in fiscal ’14 and that the fiscal ’15 correction is just a normalization? Then basically to that, how do you know either way?.

I think it’s a very fair question. We obviously finished last year very, very strongly and would say that our margins last year were in very good shape compared to historical levels. The only thing you have to keep in mind on a margin percent basis that’s going to fluctuate depending on where green is at any particular time.

Again, we manage the business to try to grow segment profit year-after-year. Again, I think your comment is fair but certainly we think that we can continue to grow the segment profit of this business, but clearly we are not going to do that this fiscal year..

My second question and final question is just on Pillsbury and the baking mix category, the category certainly under some pressure, General Mills has announced an earnings problem because of it and some other factors.

Have you accounted for significant promotional activities in baking mixes in your guidance? Can you give us some thoughts and color there?.

Yes, we have accounted for all the different promotional activity we are seeing in the baking category and I think overall what’s doing well for us is we have some new innovation with our bold colored frostings and cakes. Those continue to do well, our seasonals do well. We are seeing competitive challenges and we expect that.

When you think about our fall bake, as we mentioned in the script, we feel that so far we’re seeing some good consumer pull through and things look to be solid, so we would anticipate having a good year. That said we know there is competition that continues to increase and we have accounted for that..

Your next question comes from Andrew Lazar - Barclays Capital..

I had thought it might be somewhat easier to manage through the price increases this time around I guess compared to the last round of inflation if for no other reason then you were dealing with $3 coffee cost last time and I guess didn’t need to raise the absolute price of coffee at retail as much this time around.

So I’m just trying to get a sense of any perspective on that would be helpful. Is your sense of maybe why there were some wide price gaps than maybe you had anticipated in the quarter in coffee, do you think just purely based on where certain folks were hedged versus you and as opposed to there being anything more structural..

The first thing I would say is if you do rewind the clock back to those higher Arabica costs, from May 2010 to May 2011 we took - that’s a 13 month period, we took four price increases in that period and they were much closer in succession.

In this particular case, in the quarter, it is true of course, we did take a price increase but because we felt that we had to honor some of our promotional commitments in the first quarter we continued to basically investment spend on some of our promotions to protect those promotions with our customers.

So, lift price aside, when you look at how our promo prices moved going into August and September, that significant jump was somewhat unique to what we’ve done in the past and so the consumer did sort of experience some sticker shock and I think that if there is somewhat of a silver lining in this it is that not a fundamental change in the category, we do feel that many of our loyal consumers took pause, chose not to purchase, in most cases chose not to switch to other brands, and so that we do feel as we get into the back half we should see some of those loyal consumers come back into the mainstream segment.

The second part of your question was do we think our competitors may have been in a better position, obviously we don’t know specifically what their positions are although we have a pretty good idea of what type of hedge they have taken and in some cases we believe a competitor could have been in a better place.

But you know by now, all of that has probably washed its way through most of the systems so I think if not now very shortly we’ll probably all be in a similar position..

Your next question comes from Eric Katzman - Deutsche Bank..

I guess coffee is the question of the day but can you just talk about the shortfall in the quarter and maybe is it possible to break it down in terms of -- at least in terms of Folgers, but maybe more broadly on the segment, how much was due to elasticity, how much do you think was due to competition, and was there I guess some kind of trade loading and did that have an impact? Kind of where are your inventories now? Then I’ll follow up..

I’ll start with the last one, the trade loading and customer inventories was not material and so as a factor we view that there may have been some puts and takes but overall not material. Again, it really was delayed consumer purchase in the segment that was the vast majority of the volume decline.

To a much lesser degree there was some competitive switching, but as you can probably see from the share data where there was switching it went mostly to store brands and really insignificant amount of switching going into the single serve category..

Vince, I think in your prepared remarks you mentioned something along the lines of seeing potentially increased competition in the premium segment.

Can you talk a little bit more about that? What are you seeing, why are you saying that?.

Well, I think you’re well aware that our main competitor has entered into a relationship with a national food service operator and will be launching their brand or have launched their brand in both premium and again, that would be the bagged segment as well as in the K-Cups segment.

There was a small test done earlier this year and we’re anticipating a national launch of that as we speak. Given their typical pricing strategy we anticipate there will be heightened level of competition..

Then just last one to Richard, just a broader question, during your tenure as CEO you’ve created a tremendous amount of value mostly through using reverse Morris Trust with Proctor and the various deals.

Your scale now is at a point where it’s probably a little bit more difficult to do that and so do you see the M&A environment as a little more conducive? Have asks, bid asks spreads narrowed a bit and does the fact that you’re more likely to use a debt finance transaction, do you see that as maybe less compelling than an RMT or equal? How do we think about that?.

That’s a good question and two things, it will be a little bit more difficult to do an RMT today the transaction value would roughly have to be about a $10 billion transaction. There aren’t a lot of those out there.

I wouldn’t say never, but we have a great balance sheet and we’re not afraid to use it for the right transaction so even though some of the prices are high out there right now in the M&A area, we do think there are some opportunities so we’re still on the hunt..

Your next question comes from Jason English - Goldman Sachs..

I apologize if I missed this in prepared remarks, but can you comment on what you expect your marketing budget to increase or to decrease for the year?.

We said that for the year originally we were going to be up about 5% and as we look at the back half we think that the spend will basically be flat with last year. So we took roughly a $60 million marketing reduction from where we thought we would be in the first half and we’ll be about flat to prior year in the back half..

That brings us to around down 6% versus coming in up 5%. Last year you came into the year looking for a 10% increase and it came in down 1% so this leads to really my real question of are we just deferring some expenses into the out years by cutting marketing, probably keeping incentive compensation subdued.

Clearly, we have some problems this year, we do have an expense problem leading into next year?.

I think in my prepared comments, we tried to address the reduction. I think when you look at marketing to the outset when you talk about marketing the natural reaction is we’re cutting advertising and I think we feel comfortable with what we have done to date on the advertising support across the brand.

There’s obviously a multitude of things that go into the marketing expenditure category so to some degree yes, we are deferring a little bit but we feel those are clearly discretionary spends that will not have a long term impact on the quality and the equity of the brands.

Each team looks within their spend, but again I feel pretty confident that whether it’s digital or any support for the major brands. Baking, we’ve done obviously, fall bake is in place, we feel pretty good about what we have out there and don’t feel that we’ve been overly negatively impacted by the reductions..

Your next question comes from Ken Goldman - JP Morgan..

Just a quick question for Mark Smucker first and then I have a second one. I thought your answer to Andrew Lazar’s question was helpful, I just wanted to ask a follow up.

As you think about maybe coming off some of those promotional commitments, ripping that Band-Aid off a little bit more quicker than usual, can you talk about why that took place, what learnings you had from it going forward because Smuckers has always been, in my view, very smart about pricing so I was a bit surprised to hear you may have come off deals in this environment a bit more quickly or meaningfully than usual..

Yes, I think we did learn something. I think we learned that we wouldn’t rip the Band-Aid off this quickly again in the future, and quite frankly, as we went into the first quarter we felt that our outlook for the remainder of the year allowed us to continue to honor those commitments.

But clearly, we do feel it was a bit of a misstep when the consumer went to the shelf and their last can of Folgers was at $6.99 and now they’re saying, “Wow, it’s $8.99? Maybe I’m going to hold off for a couple of months.

I think I can make this last can work and I’ll come back and check again in a month or so.” We truly believe that’s what’s going on in the marketplace..

Just a general question I guess for anyone who wants to answer, it’s been over a year now that packaged food companies in general have been pointing to reduced promo efficiency as a driver here of top line disappointments.

So, I’m just curious from your point of view what is the food industry need to do in general to stop the bleeding? We’ve heard about some of the issues, I guess the lack of attractive display space, but how does the problem ultimately get fixed do you think?.

I’ll try to answer your question.

I think as Richard noted in his comments, we’re basically dealing with a flat industry and as we - if you’re growing, if you’re not going through innovation, you’re taking share of market from your competitors, there tends to be a lot of trade money in the system today and I think we’re all finding that we’re not getting the lifts that we did historically.

In our case, because of coffee prices being higher, we naturally know we’re not going to get as high as a lift as we would at a lower price point, but as Mark has indicated a couple of times, they were even below our expectations. I think ultimately it’s going to be a return of the economy that’s going to need to improve so we can get back on track.

Having said that, innovation is very, very key to all manufacturers and retailers and we continue to focus in that arena..

I would support Vince’s comment on innovation because the more and more we look at products that are really are true value to the consumer, we can price for those. Uncrustables are one of them, an outstanding one, it’s grown double digit so we really see that that’s a great area.

So we’ve been looking for more and more innovation that really is true innovation and not just another me too..

Your next question comes from Akshay Jagdale - Keybanc Capital Markets..

Just on coffee, how much was the volume off by relative to your expectations?.

I mean, we would have expected it to be at least in line with our prior year so it was off significantly..

If consumers are just sort of pausing, that would imply that at some point they’ll come back and you’ll get this volume back, so is that factored into your back half guidance or not?.

It is and we have factored in some recovery as was in the scripted comments. We won’t get back to prior year levels. There’s a couple of factors I could speak to, typically in the mainstream segment given the size of the containers and so forth, the purchase cycle is roughly about three months.

Then as it relates to promotional effectiveness, typically when you see two or three promotional cycles pass, typically the market tends to adjust to new pricing and so as we get into the back half of the year, we would expect for some of those things to lapse and that’s driving whey we believe consumers will come back into the segment..

Then just on single serve, can you talk about what drove the volume growth in that business? I mean, sequentially clearly an acceleration in sort of the growth - you haven’t seen double digit growth now in a bit, so can you talk about what drove the growth and then just more broadly what’s your read of the 2.0 launch and sort of the category resets that have happened, how do you see the dynamics from here?.

Let me take your first one first. So in our K-Cup business, the Folgers brand did very well, we actually grew the Folger’s brand in line with the category growth. We think that our marketing activities, as well as our pricing activities were right, and that really helped. And then also, very much helped by the launch of new items.

In that would be some new Folgers items, as well as our Café Bustelo brand as well, which is also new in the marketplace so all of that helped on K-Cup. As for the 2.0, it’s still very early as you know, it’s going to probably take − I think we’ve talked last time 18 months to two years, until those brewers are seeded sufficiently in the marketplace.

We’re still optimistic about the consumer benefits that the 2.0 Brewer provides and clearly our partner in that space has signed up a lot of new partners, and so we think that’s going to help the system as well. So, there has been some settling out in the category itself.

I think one thing we can point to is that there are a few customers that are still trying to figure out the right mix between roast and ground and K-Cup, and our actual roast and ground business may benefit a little bit going forward, as the customers reconfigure their coffee sets..

Your next question comes from Christopher Growe - Stifel Nicolaus..

I had just one coffee follow up and then one kind of the bigger picture question, if I could. So on the coffee side, you’ve indicated that there will be an imbalance between pricing and cost, I think there was here in the quarter and I think you said that for the second half of the year.

I’m just curious is that due to any adjustments you’re making in promotional spending? Is it that you do require to take more pricing, but you’re not going to do it because of the elasticity? I’m just trying to understand that imbalance that you expect for the remainder of the year..

There’s a few factors, the first is volume. As we said we don’t expect volume to get quite back to our prior-year levels, and that is clearly going to have an impact on our profit dollars.

There may be some additional promotional spend that we’re looking at, but we’re trying to be laser focused, and very disciplined in how and when we execute promotions in light of obviously, the recent results. But, we do feel overall our pricing is right, versus our costs and is right going forward versus competition.

Then the only other factor that we’ve spoken to previously which is less of a factor, is that we have seen some margin compression on K-Cups, and that will continue through the back-half of the year..

Then just maybe an overall question on sales growth, it being down 4% year-to-date, obviously requires a stronger second half performance to get to your -1% for the year.

I’m just curious, in relation to that with the peanut butter price decline in place right now, is it mostly all contingent on the performance in coffee, the better let’s call it balance if you will, in between pricing and volume in that category, that will dictate the ability to meet the full year guidance?.

Yes, I think that’s right. I think the factor will be coffee. We’re gaining on it on price, because we are going to recognize the year-over-year price increase on coffee, and that will more than offset the effect of the peanut butter pricing, and then we’ll also have a favorable mix that will come into play.

So any shortfall, or quite candidly any gain over that estimate, year-over-year increase, would probably lie in the volume of coffee..

Your next question comes from Alexia Howard - Sanford C. Bernstein & Co..

So two quick questions, the share repurchase increase, can you make some comment about what motivated the need to [indiscernible] share purchases? Does it mean that it’s less likely perhaps that you’ll find a larger scale deal out there? Also, can confirm whether those incremental share repurchases are embedded in the guidance for this year? Then my follow up question is simply around the food service coffee business, that exit seems to be − or the impact of that exit seems to be dragging along, when do you expect that effect to be behind you?.

Just a couple comments on share repurchase and the additional authorization by the board. I don’t think I would read anything that it’s trying to drive either more or less opportunity in M&A. It’s not totally uncommon for us to have anywhere between five and 10 million shares authorized.

We do typically tend to be more around five million, so some of it is just in the ease that we can go into the market, and not have to worry about running short on the authorizations, so I wouldn’t read anymore into that. In terms of what’s included in the guidance obviously, we have fairly significant guidance range.

I think as we made in the comments that it does assume the $102 million, which is our current amount.

If we were to go into the market, as you know, just because of the nature of the waiting, it would not have a material impact on the rest of the fiscal years, but clearly if we did, it would push it north of the bottom part of the range and again, obviously it would affect quarter - end quarter, but not have a major impact on the full year because of the waiting..

I can comment on Sarah Lee.

If you remember in our third quarter last year, the largest food-service distributor in the country was a Sarah Lee customer, private label customer, and it took them a long time to replace Sara Lee as a national vendor and so, that business, we agreed to help them get into January and that business dribbled into the third quarter.

But, I can tell you the amount of effort for the team, yes the exits are still lapping in the financials, but not in the effort.

That team now has integration well behind them, and is focusing on optimizing that business and has seen a significant improvement in quality, in margin, in the roast and ground, and the liquid items that we have in the portfolio.

I think that bodes well for the future of our food service away from home, liquid business, and roast and ground business..

Your next question comes from Jonathan Feeney - Athlos Research..

A couple questions on coffee. The first is, the economic environment interplay, you mentioned this a little bit in the preamble about − and even in answer to a question about hoping a better economic environment will make things better for packaged food broadly.

It stands out to me that it was a much tougher economic environment in those four stage significant price increases took in the 2011 and early ‘12 timeframe.

If you could just first maybe contrast what happened this time, what’s been happening this time with this price increase versus back then when it was pretty clearly a worse economic environment, and maybe − since you had some different outcomes, what would make you think that that gets better with a better economy going forward? It didn’t really help that much year-over-year, maybe it did at the category level.

The second question I had was, you made the comment a couple times that you don’t think that the coffee category has fundamentally changed.

In a given quarter, I’m sure that’s right, but you’ve seen over the past four years this single serve coffee phenomena go from nonexistent to over a third of the category sales now and I wonder what would be signs that the category has changed? When you make that statement, is it household studies that you’ve done, is it focus groups with consumers, is it conversations with retailers, what makes you say that the category hasn’t changed in a way that permanently sort of hurts roast and ground coffee, and that it declines from here?.

The first part of your question, just going back three years, if you recall again as we did see volume impacted significantly, but it was over several quarters, it was over three or four quarters as opposed to over a single quarter. So, if you do rewind the clock back to 2011 or so, we did so we see those significant volume declines.

Since then, when our growth restarted, in total our coffee business in the last 10 quarters has grown in every of those 10 except for this last one, so the 10th one we were down. As it relates to the category as a whole, you’re right, it has evolved significantly, there’s absolutely no question.

Single serve has brought over two billion new dollars into the category in terms of the spend and so we’ve seen, if you will, the bedrock of the category, the roast and ground, has remained relatively strong.

We’ve talked in other calls about the mainstream segments, and the roast and ground total declining overall in very modest terms, low single digits, and that has come true and so, there’s no question that the category has changed significantly, but we do still believe that roast and ground serves as a bedrock and K-Cup and single serve really has brought a lot of new dollars into the category..

We participate in all of those. We participated in each of the areas of growth, and the mainstream still stays very, as we’ve said, the bedrock still very relevant..

Your next question comes from Robert Moskow - Credit Suisse..

I just wanted to end with a peanut butter question. Did you consider holding price on peanut butter? This category tends to be pretty inelastic. I guess I was a little surprised to see a 7% price cut in reaction to lower peanut costs.

Was that part of the plan all along, or did you consider maybe keeping prices a little higher?.

Good question, and we look at the peanut butter price decline that we took into effect, I think the first thing we always do is make sure that we’re passing along the lower commodity costs to our customers and then to the consumer. We felt that was prudent to do in the case of Jif.

I think when you think about the Jif sales versus some of our other brands, a significant majority of the Jif sales are sold at everyday prices and with the cost situation we were in, we were having to do more discounting and promotional promotions which isn’t typically what we like to do.

So we felt by passing along the price decline to the consumers it really achieved the two objectives of getting the right cost on shelf and also reducing our need to do deeper promotional pricing..

So it wasn’t part of the original plan for the year but you came to that conclusion?.

No, we figured that we were going to be taking a price decline this year..

Oh, you did?.

Yes..

Your next question comes from John Baumgartner - Wells Fargo Securities, LLC..

Paul, I just wanted to come back to peanut butter pricing here and just in the context of a weak category in the volume sense and then consumer weakness, how confident are you that promo or price cuts won’t end up deeper in the back half than maybe you think and if they do is that embedded in your updated guidance?.

First off I’d say the first comment about the weaker category, it’s actually a strong category, it’s been growing and it’s up, and it’s really taking advantage of the consumer trend of looking for lower cost protein which peanut butter is about the lowest cost protein out there.

So, we feel we’re right on trend with the consumers and that category actually volume wise is down pretty well. So again, we are confident in the back half of the year and we feel it will continue to grow..

Just a follow up in terms of bigger picture strategic questions about coffee.

I mean, you’ve been there for about six years now, you have a nice business through some M&A over the years, but in terms of how the business has evolved, the food service profits haven’t really evolved as you had expected, K-Cups growth has slowed, as you mentioned, roast and ground still primarily a pass through business sand you’ve also referenced McCafe coming in, in January impacting the Dunkin bag business going forward.

So, as you step back and look at your categories could you address maybe whether the landscape has kind of changed competitively versus a few years ago when you came into the category and maybe does that leave you to think more about doing something more transformative in terms of adding on business, or more growth, or just more stable in terms of cash generation?.

Let me take a step back and we can talk about the history of the category and then maybe Richard can talk about how we think about other categories going forward. First of all, I would submit that it’s been a tremendous success that we have added to the company.

If you think about when we acquired it, at that time K-Cups or single serve was virtually unknown although it was beginning.

The primary driver at that time was the premium or bag coffee segment and at the time the relationship was entered into by the two parties, it was anticipated that would be about a $50 million business and it’s now a $350 million business.

Secondly, it wasn’t too long into owning that business, we knew we need to look at our supply chain and our teams did a tremendous job of quite frankly rationalizing our facilities and getting into a strong footprint, primarily within the New Orleans area.

Thirdly, we knew that this single serve area was evolving and you had three or four players and quite frankly, all the major players in the coffee category were not successful at that time and you had the emergence of Green Mountain and we quickly aligned with them and we were the first national brand to be part of that system.

Then when the Sarah Lee food service opportunity came up, we felt that was a technology and a capability that we would like to have in our arsenal being the liquid coffee technology.

But, as stated, and as Steve has mentioned, it was probably a little more challenged than what we thought, but it gets back to our overall premise of waning to compete in all forms and segments and up until this quarter we’ve been successful in growing the segment profit year-on-year.

I guess I’ll stop there with the little bit of historical perspective..

I’ll add two things to that, one to Vince’s comments, we really like the coffee categories. It’s one of the only categories that has actually grown in dollars and a lot has to do with K-Cups by $2 billion. It’s gone from, I don’t know, a $6 billion category to over an $8 billion category and we’ve been able to participate in that.

There’s almost no other food category in certainly the mainstream sections that have grown that much by adding innovation. Now, would we have liked to have created the K-Cup category? Well sure, but we participate in it and we’re great partners with Green Mountain. But on acquisitions, let me speak to that for just a minute.

We look at acquisitions in three areas, enabling acquisitions, we’ve done two there and those are things that just get us into new categories or new areas which is Enray and Sahale, so it’s helped us in the snacking area and the [indiscernible] which is Enray foods.

On bolt ons we did Café Bustelo, which was a great acquisition for the coffee category.

Then the strategic acquisitions, obviously, the Jif, Crisco, and the Folgers are strategic and we still see a couple of real opportunities in the strategic side to get some - basically, as you commented to get us into another area in the food business that would be very important for us.

So, we’re still looking at those and still think there’s a couple of good opportunities out there..

Your next question comes from Farha Aslam - Stephens, Inc..

You guys highlighted that innovation is going to be critical for Smuckers going into drive future growth and that you’re looking for more differentiated and transformative innovation.

Could you go through your portfolio and highlight to us where your team is working and kind of the initiatives and the timing of those initiatives?.

I’ll go through my area and then turn it over to Mark or Steve.

But, I think when you start with peanut butter we’re looking at again, the protein trends that I spoke to earlier and we’re in the snacking area so our Jif To-go Dippers, our Jif To-go products have done very well and we continue to push out new items there and there are some other areas that we won’t speak to on peanut butter that we think there’s some great opportunity with.

On crustables we continue to really drive that business, in fact, we sell about $300 million peanut butter and jelly sandwiches a year and that’s growing at double digit rates and we think there’s some opportunity to continue to push out on some new innovation in that category.

On the fruit spread side, we’ve launched our fruitfuls which is 100% fruit in a pouch which is really on trend with the pouch type packaging that’s out in the marketplace as we speak. There’s no sugar added and all the other ingredients are natural, etc. That continues to do well and we have some other items coming out in that front.

On the baking side, we talked about we have a lot of new innovation coming out with our seasonals and some of the [indiscernible] that we’ve spoken to previously and so I think from the consumer food side and then Sahale with the new acquisition, again that’s right on trend with the protein and snacking.

We think there’s great new not only distribution opportunity and gain for that product line but also for some new product opportunities and concepts we have that’ll be coming out here over the next 12 to 18 months..

In the coffee area, as you know, we’ve done a nice job of just on an annual basis with new products.

There are some bigger ideas that we’ve been working on behind the scenes that I’m just not able to share at this point but hopefully in the next year or two we’ll be able to bring to market some things that everyone, including the consumer most importantly, will find interesting..

I think if you look across our [indiscernible] businesses, the Canadian business has innovated in the baking category with Nutra Flours and a number of new items.

In our natural foods business the opportunity to take Ancient Grains to both main stream and natural retailers and then Sprouted Grains, I think the next wave of that has yet to really hit the mainstream which is the benefits of sprouting and from a convenience standpoint and a health standpoint, etc.

So the Enray acquisition brought us sprouting technology as well that’s really knew. Then in Santa Cruz we’ve got a number of new items whether they be nut butters, or apple sauces, or those things that are getting tremendous acceptance across both mainstream and natural foods..

I might just comment that historically we’ve looked to grow our growth 1% of the growth if we’re going to go 5%, 20% of that would come from new products. We’ve upped that to 2% and we’re actually over delivering on that but we just [indiscernible] last year because our success rates been pretty good.

The other thing is our success rate is good in the sense when we introduce a new product most of those stay in the marketplace. We have a few failures, because we know you’re going to have that but most of ours have been successful and stayed on shelf..

I was remiss in not mentioning one thing, we’ve been so focused on our roast and ground business obviously for the last several weeks that I think I need to do justice to the team.

Our team has done a fantastic job not only dealing with the current situation but continuing to focus on the new products we do have out in the marketplace and I should mention our liquid items.

We’ve recently come out with a flavor enhancers under the Folger’s brand for coffee, basically flavoring and sweetener in a liquid form, in a very small liquid container.

In the next couple of months you’ll be seeing an ice coffee execution in the same type of container and we think those are great new products and they are gaining some relevancy with our millennial consumers so I should have mentioned that earlier..

Then just as a follow up, regarding the promotions the center of the store is very promotional.

Have you reassessed how Smuckers goes to market, manages promotions, and thinks about promotions within the mix given that the economy may be improving but it might be a sluggish recovery?.

I would say we’re evaluating it daily. I mean, honestly we, like most CPG companies have a very sophisticated trade marketing group and we evaluate pre and post every promotion, major promotion that we do and I think you do see changing tactics not only by our competitors but by ourselves. I mean, it is a daily activity that that group is working on..

Perhaps some learnings as to how you’re going to market differently as a result of those learnings?.

I guess I really don’t have anything to add in terms of how we go to market differently. You know, we work with our major retailers and joint business planning out as far as they want to plan. But I really can’t say that there’s been any major change in our go-to-market.

Now again, Mark and Paul has spoken to price point things that we’ve looked at from time-to-time but we would consider those to be routine activities we would do every day..

Your next question comes from David Driscoll - Citigroup..

I realize the time and I do appreciate the follow ups, a couple of questions here, on coffee the Maxwell container was downsized I believe, in 2012. That represented a difference from the 2011 period when we had the $3 green coffee cost.

Do you think that’s a significant issue here on the promoted price points when you talk about this - I think you said $2 on the increase in the promoted price points? Is this Maxwell lower can size exacerbating the shelf perception from consumers?.

Basically, I would say that since Maxwell House downsized I would point to our share gains and we actually performed extremely well despite the variance between the competitor and our net weight in the cans. I think time has proven out that we can perform. Given the current environment will we continue to evaluate? Absolutely.

So, there’s nothing new that I can share with you at this point, but it’s certainly something that is top of mind and as we have hiccups like this one, we certainly will go back and reconsider..

I think the answer is yes to your question. We haven’t quantified it but, yes you can’t ignore the fact that that pricing gap, half of that was probably driven by the size and so I guess very specifically it probably did have an impact..

McDonalds and this [craft] launch, I find it fascinating that McDonalds has franchise, they are going to go with K-Cups in grocery stores.

Is there any movement on this Dunkin K-Cup issue? I mean, frankly I just ask the question where are these people?.

There’s nothing to report, we continue to have a great relationship with Dunkin and Green Mountain and we continue to work the issue. But, nothing to report..

The final thing for me and I’ll end it, things go wrong it’s part of life, but in your judgment guys, do you think the team reacted fast enough to this decline in the Folger’s volumes? If not, what can you do to speed your reaction to such a dramatic decline in volumes?.

There were learnings from the way we handled our pricing increase this time especially on the promotional side and Mark said that earlier, and we’ve learned from that.

When you go to the marketplace, you can’t turn that around in one month or two months, it takes a couple of quarters to do that because you have prices out there in the marketplace but we had some learnings and we’re adjusting because of that and I think you’ll see that in the back half of the year..

It truly did occur in the back half of the quarter and so it would have been very difficult to respond to anything given what we were seeing in October..

There appears to be no further questions at this time. I’d like to turn the conference back to Richard Smucker for any additional or closing remarks..

I just want to say thank you for your interest in this company and for being on the call and asking all the intelligent questions and I’m sure we’ll have some follow up answers later today for individuals that call in. Thank you very much..

If you wish to access the rebroadcast after this live call you may do so by dialing 888-203-1112 or 719-457-0820 with a passcode of 5860677. This concludes our conference call for today. Thank you all for participating. Have a nice day. All parties may now disconnect..