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

Smucker - President US Retail Coffee and Director.

Eric Katzman - Deutsche Bank Andrew Lazar - Barclays Capital Inc. Kenneth B. Goldman - JP Morgan Securities LLC Farha Aslam - Stephens Inc. David C. Driscoll - Citigroup Inc. Alexia Howard - Sanford C. Bernstein & Co., LLC Akshay Jagdale - KeyBanc Capital Markets Christopher R. Growe - Stifel, Nicolaus & Co., Inc. Jonathan Feeney - Athlos Research Jason M.

English - Goldman Sachs & Co. Chuck Cerankosky - Northcoast Research Robert Dickerson - Consumer Edge Research John J. Baumgartner - Wells Fargo Securities, LLC Robert B. Moskow - Credit Suisse Securities LLC.

Good morning and welcome to the J. M. Smucker Company’s Third Quarter 2015 Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the Company, we will open the conference up for questions-and-answers after the presentation.

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

Richard will begin with an overview of our third 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 full-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 in the press release concerning forward looking statements. Additionally, please note the Company uses non-GAAP results for the purpose of evaluating performance internally. Discussion on non-GAAP information is detailed in our press release located on our corporate website at jmsmucker.com.

A replay of this call will also be available on the website. If you have any follow up questions after today’s call please contact me. I will now turn the call over to Richard..

Thank you, Aaron. Good morning, everyone, and thank you for joining us. As you know last week we announced the signing of a definitive agreement to acquire Big Heart Pet Brands. We are excited to be adding this business to the Smucker portfolio as a third platform for growth along with our existing food and coffee businesses.

We look forward to sharing more on the transaction when we present at Cagney next week. As we work to close the acquisition by the end of the fiscal year, we remain sharply focused on our existing businesses and we will continue to execute on our plans and initiatives.

To that end the remainder of our prepared comments today will address the third quarter performance and the outlook for our current business. Let me began with an overview of the third quarter results. Our Coffee segment performance reflected many of the competitive dynamics that we discussed on our last call in November.

While volume and sales trend showed improvement from the second quarter. Coffee results fell slightly short of our expectations for the third quarter. However, we were pleased with the solid performance of all of our other businesses.

Total company net sales declined 2% compared to the prior year, reflecting modest declines in each of our three segments. In coffee, lower volume for the Folgers brand was essentially offset by a higher price realization. The Dunkin Donuts brand performed well with volume inline with a strong quarter in the prior year. Cafe Bustelo volume was up 5%.

Within consumer foods, volume gains were achieved in a number of our key brands and categories following a successful holiday season. Most notably, volume was up in Jif Peanut Butter, Smucker’s fruit spreads, Crisco oils and Uncrustables frozen sandwiches.

The previously announced price decreases on Jif and Crisco drove the next sales decline compared to the prior year. Lastly, the International, Foodservice and Natural Foods segment excluding the impact of foreign currency and the foodservice business rationalization net sales increased.

We are encouraged to have fully lapsed the business rationalization impact in the quarter and look forward to improve top line trends for the segments as we move ahead. Non-GAAP operating income was down $22 million or 8% which was entirely driven by a 17% decline in coffee segment profit.

Consumer foods and International, Foodservice and Natural Foods achieved strong segment profit growth of 9% and 13% respectively for the quarter. Overall this resulted in non-GAAP earnings per share of a $1.54 compared to a $1.61 in the prior year.

As Mark will discuss in a moment, we are adjusting our guidance approach for the rest of this year as we expect the Big Heart Pet Brands acquisitions to close during the fourth quarter which will have a significant impact on reported results.

However, at a high level we continue to anticipate the consumer foods and International, Foodservice and Natural Foods segments well deliver full-year results in line with our most recent guidance. Coffee results in the fourth quarter are now projected to fall slightly shorter of our previous expectations.

While we are disappointed with our Coffee business for this fiscal year, we still firmly believe that it’s a great category; we have grown segment profit in five out of the six years that we’ve owned it. While the category is evolving we are participating and not just the traditional segment, but also in the segments driving category growth.

With anticipated stabilization in green coffee costs and our current initiatives, we expect to get coffee back on track for next fiscal year. Finally, the organizational changes announced on Monday provide continued talented leadership across our business.

These changes were designed to continue to drive our core businesses of consumer foods and coffee, while allowing Vince with 38 years of experience at Smucker’s to focus along with the Dave West on a smooth integration of the pet food business and achieving our targeted $200 million in synergies.

We look forward to welcoming Dave West to our team which we believe is one of the best in the industry. With that, I will now turn the call over to Vince, for further comments on our business segments..

Thank you, Richard and good morning everyone. Let me begin by summarizing the key points I would like to make today. First, we are pleased with the performance of our consumer foods and International, Foodservice and Natural Food segment.

Most of the brands and categories in these segments performed well in the quarter reflecting one of the most successful holiday and return-to-school promotional periods in the Company’s history. Second, volume and sales performance for our coffee segment improved from the second quarter.

However, we now expect our coffee results for the fourth quarter to below our previous expectations as we anticipate current competitive dynamics to remain a headwind. Lastly, we are excited on the plans that will further strengthen our coffee business as we move forward and remain confident with our overall coffee strategy.

With that let me provide some additional color on our three segments beginning with U.S. retail coffee.

During our second quarter we discussed the key dynamics that have impacted our recent coffee volume performance, specifically consumer response to higher promoted pricing on our core roast and ground offerings, reduced promotional efficiency and competitive activities, as expected volume trends improved this quarter as compared to our second quarter.

However, promoted price gaps on-shelf remains wider than anticipated which we expect to continue in the fourth quarter. Based upon recent consumption data for the last 52-week period, volume for the overall mainstream segment is down approximately 5% driven by price elasticity on the Folgers brand.

Our analysis indicates that half of this decline is a result of consumer purchasing less frequently, the remainder is due to consumer switching to other forms as we anticipated. Our volume was further impacted by consumer substituting lower price competitive mainstream roast and ground offerings.

The year-over-year decline in the third quarter segment profit remain similar to what experienced in the second quarter, in addition to lower volume the impact of higher recognized green coffee cost continued.

Further, we increased price investments in our premium and K-Cup and offerings in response to competitive activities, resulting in a significant impact on near-term profitability.

As we enter the fourth quarter we expect continued softness driven by ongoing competitive activity, higher green coffee cost compared to the prior year and reduced promotional effectiveness.

With that said, we are taking actions to address the current challenges while further positioning our coffee business for a long-term success and for a number of reasons we are optimistic as we look ahead.

First, remain committed to strengthening of the long-term health of our brands through a focus on brand support, innovation, responsible pricing and promotional activities and ensuring our coffee constantly provides the taste profile that consumers come to expect from our brand.

Secondly, in the second quarter of fiscal 2016, we will begin to convert our core Folgers roast and ground items to a smaller canister, we look forward to providing consumers with a lower price point without compromising quality and improving our competitive positioning within mainstream coffee.

Third, given the current market conditions for green coffee, we anticipate improvements in our cost structure in fiscal 2016, which will also allow us to achieve lower promoted price points.

Fourth, we're well-positioned in the premium segment, although we anticipate some volume softness in the near-term we are optimistic for the potential of The Dunkin Donuts business, which continues to benefit from the strong coffee heritage of The Dunkin Donuts brand.

Our partnership with Dunkin remains strong and we continue to explore opportunities for growth. And lastly, we are capitalizing on the growing convenience trend. This includes an expanding K-Cup platform reflecting this year’s strong launch of the Café Bustelo K-Cups and the introduction of new offerings in the beginning of the next fiscal year.

Overall, we expect our innovation, packaging downsize and projected lower green coffee costs will allow us to grow our Coffee segment profit in fiscal 2016 at a higher rate than our overall long-term organic growth objective. Turning to U.S.

Consumer Foods segment our momentum continues and during the third quarter concluded one of the most successful holiday and return to school periods in the company’s history. Our Spreads business had a strong quarter highlighted by volume growth of 2% for Smucker’s Fruit Spreads and 7% for the Jif brand.

In addition, both volume and sales for Smucker Uncrustables Frozen Sandwiches were up 10%, representing the 12th consecutive quarter of double-digit growth in retail channels for the Uncrustable business. In the bake isle, the Crisco brand continued it solid performance with base oil growing 4% against a strong 22% prior year comp.

In addition, we are encouraged the volume for the Pillsbury brand remain comparable to the prior year given the current softness in the baking category and increased competitive activities.

Looking across all of our consumer foods businesses for the last 12 week scan period, we are pleased to have maintained or grow our volume and dollar share in essentially every key category in which we compete.

Segment profit for the third quarter was up 9% over the prior year, bringing the year-to-date increase to 15%, which was primarily driven by more normal cost of price ratio along with the contributions of volume.

Well lower marketing expense also contributed to the segment profit growth we expect our full-year marketing spend and consumer food segment to be inline with the prior year and remain confident in the level of brand support. In the coming months, we look forward to a couple of key milestones in our consumer foods business.

In the fourth quarter we expect our new peanut butter facility in Memphis Tennessee to begin production in line with our plan timing. In addition, we are on track to complete the integration of the Sahale Snack acquisition by the end the fourth quarter and remain excited about the growth opportunities for this business.

In the International, Foodservice, and Natural Foods segment, we expected segment profit growth to turn positive in the second half of our fiscal year, and that has been the case.

Third quarter segment profit was up 13% over the prior year, including the offsetting effects of foreign currency in the current year and the foodservice trade spending adjustment last year.

As we entered the fourth quarter and look ahead to fiscal 2016, the impact of foreign currency is expected to increase due to further weakening of the Canadian dollar. However, we have now lapped the other headwinds that have impacted the International, Foodservice and Natural Foods segment for the past couple of years.

We are encouraged by the momentum developing across all of our businesses in this segment and look for this to continue as we remain focused on our key growth opportunities. Our Canadian business also had a successful holiday big season across nearly all brands.

In addition, we look forward to capitalizing on the growth potential for the Big Heart Pet Brands business as they currently have a modest presence in Canada. Within foodservice, we had a strong third quarter for Smuckers branded portion control offerings, Folgers roast and ground coffee and Uncrustables frozen sandwiches.

And we look for these trends to continue, specific to the Uncrustable business we expect to see the initial benefits from reentering the USDA school programs in the fourth quarter as we anticipate regaining the exited businesses over the next few years.

And lastly on natural foods we look to build on the strong performance of our branded beverage portfolio, participating in the continued growth in natural and organic offerings in both the traditional and natural food channels.

In closing let me reinforce that we are excited about our plans that we have in place to grow our businesses and remain optimistic as we look forward. I will now turn the call over to Mark..

Thank you, Vince. Good morning everyone. I will start by briefly summarizing our third quarter results and then conclude with additional comments related to our outlook for the remainder of the year. Net sales decreased $26 million or 2% in the third quarter reflecting lower overall volume primarily driven by coffee.

The combined impact of positive net price realization and unfavorable mix was immaterial. GAAP earnings per share were $1.58 this quarter, compared with $1.59 in the third quarter of last year. Included in this year’s GAAP earnings were $13 million in unallocated derivative gains compared to a gain of $4 million in the prior year.

Excluding these and certain other items affecting comparability as described in our press release, non-GAAP EPS was $1.54, a decline of 6% in the prior year. The quarter-over-quarter results were primarily impacted by a decline in non-GAAP gross profit which decreased $34 million or 6%. Gross margin declined 170 basis points to 35.4%.

The net impact of changes in commodity cost to pricing which includes both list price and promotional spending was unfavorable most notably for coffee and peanut butter. In addition, lower coffee volume and the related impact on overall mix also contributed to the decline.

Partially offsetting the lower gross profit was a 5% decrease in SD&A driven by lower marketing expense. And significant portion of the reduction this quarter and year-to-date was utilized to support price. Factoring in the lower SD&A non-GAAP operating income decreased 8%.

Factors below operating income that benefited year-over-year EPS comparisons were lower interest expense reflecting a reduction in the long-term debt and a decrease in a number of average shares outstanding resulting from share repurchases activity in the prior fiscal year.

Turning to cash flow, cash provided by operations was $428 million for the quarter compared to $421 million in the prior year. As a reminder, third quarter is our key cash generating period as the fall bake and holiday periods wind down.

The quarter’s cash from operations increases our year-to-date total to $512 million compared to $589 million for the first three quarters of last fiscal year.

The decline for the year is primarily attributable to a greater current year use of cash for working capital needs, reflecting higher green coffee costs and ending inventory as well as certain timing factors.

These include a temporary increase in our date of inventory on hand as we prepare for our transition of coffee canister size and managing industry-wide risk related to the increase demand for transportation providers. Contributing to cash was $53 million received as a result of an early termination of interest rate swap.

With capital expenditures of $48 million in the quarter, free cash flow was nearly $380 million for the quarter, or year-to-date total of $350 million. For the fiscal year we are still projecting to spend approximately $240 million in CapEx. Finally, we ended the quarter with approximately $265 million in short-term borrowings.

Let me conclude with comments around our 2015 guidance. As Richard indicated we are modifying our guidance approach for the rest of this year due to the pending acquisition of Big Heart Pet Brands which is expected to close during the fourth quarter. Let me begin by previewing our net sales estimate.

We now expect a modest decrease in net sales for the last three months of the fiscal year compared to the same period last year. This primarily reflects softer volume expectations for U.S. Retail Coffee compared to our previous outlook. As we see competitive pricing in roast and ground coffee continuing through the fourth quarter.

We expect this result in volume in our segment being down low to mid-teens in the quarter. Much of this tonnage impact is expected to be offset by higher price realization and mix. Net sales expectations in our two other segments have not changed significantly from the outlook provided last quarter.

Consumer food sales are anticipated to be down in the fourth quarter resulting from price declines taken during the past year on peanut butter and oils in a solid prior year volume comparison. The Sahale Snacks acquisition will have a modest contribution in the quarter.

In the International, Foodservice, and Natural Foods segment, we expect sales to be up slightly primarily driven by growth in our Foodservice business, based on these fourth quarter estimates the company now expects annual net sales to decrease by approximately 3% compared to the prior fiscal year.

In terms of non-GAAP earnings per share, we expect fourth quarter EPS to fall below analyst consensus estimates. As a result, full-year earnings per share are expected to be below the midpoint of our previous 545 to 565 guidance range by approximately 3%.

While we plan to decrease in the fourth quarter earnings from a year ago, our revised outlook for coffee volume is the primary cause, as profit projections for our two other segments have not changed significantly.

In consumer foods, fourth quarter segment profit is expected to decline modestly versus the same period last year, consistent with our prior commentary, as segments full-year profit growth would be front half loaded.

Conversely with in International, Foodservices, and Natural Foods segment profit is expected to be up over the prior year in fourth quarter, partially reflecting the lapping of the prior year trade spending adjustments along with anticipated growth in our Foodservice and Natural Foods businesses.

However, given the further weakening of the Canadian dollar fourth quarter segment profits for International, Foodservice and Natural Foods will be slight below the amount assumed in our previous guidance range. In addition, certain deal cost and employee related expenses incurred in the third quarter were not reflected in the previous guidance.

As we consider the closing of the Big Heart Pet Brands transaction, it is important to point out key factors that will ultimately impact our reported EPS for the year, albeit for roughly one moth or so.

This includes earnings contribution from Big Heart for the period from the closing date through April 30, incremental interest, amortization and tax expense, the impact of any financing related cost beyond interest expense and the issuance of 17.9 million shares which will have a different impact on weighted average shares for the fourth quarter versus the full year.

In closing, we recognized the significance of the profit challenges in the fourth quarter, but remain confident in both our ability to address this in the near-term and our long-term coffee strategy. Further, we are pleased with the performance of our other businesses and look forward to even more growth in the future.

And finally, we are very excited to close the Big Heart Pet Brands acquisition, which will provide another platform for growth as we move ahead. With that, we will open up the call to your questions. Operator, if you please queue up the first question..

Thank you. The question-and-answer session will begin at this time [Operator Instructions]. As a reminder, please limit yourself to two questions during the Q&A session. Should you have additional questions you may requeue and the Company will take the questions as time follows. Please stand by for the first question.

Our first question comes from Eric Katzman from Deutsche Bank..

Hi, good morning everybody..

Good morning..

Good morning..

Okay, so it sounds like the Consumer and the International Foodservice, et cetera, divisions, those two are in pretty good shape.

Coffee - is this for the fourth quarter, being so challenged, are you kind of letting some of the trade inventories that maybe a built up bleed through maybe also as part of the change to the size of the Folgers can? Or is there a big A&P spending boost or a combination thereof? Because if it's all Coffee, it seems like a pretty dramatic falloff from the third quarter to the fourth quarter?.

Hey, Eric, this is Mark Smucker. Yes, on the fourth quarter what were basically seeing is - there is two key things.

We expect that the promotional efficiencies that have been not as great as we would have like or going to how they continue in the fourth quarter and there is a lot of competition we still have there is a competitive launch in the premium segment. But the other thing is we are laughing our lowest green coffee cost from last year.

So we experienced the lowest green coffee cost in our fourth quarter last year and that’s really what’s driving it. So, rather than invest more than we have we feel that our pricing is right where we need to be and we are going to weather it..

Okay. And then, I guess Vince, you gave a couple of comments around the changes you're going to make so that hopefully FY16 Coffee is in better shape.

Is there some kind of restructuring or significant cost reduction effort that's going to give some investors confidence that that's, in fact, going to be a tailwind?.

Yes, Eric, this is obviously Vince, and now I can turn it to Mark for more color and we’ll provide a little more detail at Cagney next week. But as we look forward the reason we are confident that roasting ground can improve its trends, it’s all about being more competitive on shelf.

And there is two main drivers that will help us do that is the Canister downsize, where we will pass those savings on to our consumers, we believe green coffee cost probably as we go to second quarter on will probably give us some relief. Both of those things will make us more competitive either everyday are on promotion.

We have some great innovation that’s in the pipeline that we are looking forward to and we’ll explain more on that at Cagney next week. But we do believe we’ll be able to grow this business, get it back on track earlier into our second quarter of next year..

Okay, and then just last follow-up to Richard. One of the questions I've gotten since the pet food acquisition was announced was I think most investors expected Coffee to be problematic.

Do you feel like the organization is in enough shape obviously Paul left, but is the organization in good-enough shape that with all the coffee problems that the integration of pet, along with the leverage that you're going to be adding, will be okay?.

Yes, first of all we feel very strong about our team, we’ve got as I said confidence in our team and the best team in the industry we believe and we’ve made some obviously significant changes just recently which we announced earlier this week.

Aligning the right people to head the right businesses to make that happen and then bringing Dave West on board who has got tremendous experience and Dave and Vince working hand-in-hand to make sure the integration goes well and that we hit the synergies and Mark and Steve driving the base businesses.

We really feel good about the team and the excitement around here is palpable. I mean our team is very, very excited to get there to get into the pet food business.

So we are very confident in the team that we’ve got and very excited about the talent that we’re getting from Big Heart Pet food business and combined with our talent, we are very confident..

Okay, thanks, see you next week..

And we’ll go next to Andrew Lazar from Barclays..

Good morning, everybody..

Good morning..

Good morning, Andrew..

I think in the remarks in the press release this morning you talk a bit about not having fully covered the higher coffee costs yet with pricing, but also having I guess peanut butter pricing drop ahead of you getting the benefit of lower costs in your P&L? So it kind of seems like it's a getting hit on the way up and the way down situation, which I guess is typically not the way I've remembered the pass-through model more generally working.

I think companies like yours usually at least got an outsized or disproportionate benefit on the way down.

And so I guess I'm just trying to get a sense, has something changed more structurally here in the way that pass-through model works do you think? Or is there really something more transitory with either the way consumers or retailers are behaving kind of in the current environment, which is admittedly difficult?.

Andrew, this is Vince. I would say in a general sense we’ve always said that we try to be as transparent as we can with our pricing and pass it on up or down as we need to maintain our margins.

You may recall in peanut butter we did get sort of upside down with peanut cost a couple of years ago because we had to intensify growers to grow peanuts in that being a very large bumper crop and at the end of the day our competitors where in the better positioned to benefit from that and we were because of the commitment we had to make being the largest procure of peanuts in the United States.

Accordingly then we had to be more competitive on shelf, so we did some pricing and promotional activities ahead of when our costs were actually realized. We are now and it’s one other reason our consumer foods segment is had a nice run as of that price cost ratio is where it needs to be.

As it relates to coffee I would say that fundamentally that nothing has changes except that the competitive level of promotional activity and debt caused us to go deeper and more frequent then we would have otherwise.

And as Mark articulated earlier we try to balance all of those indications, but clearly where coffee costs are it’s had an impact on our volume, but structurally we still think the same way about our pricing mechanisms..

That's helpful, and then just quickly, a follow-up on Coffee which would be the canister size change.

Is that basically being changed to be sort of in line with where the competitive set is or are you setting a different standard out there?.

No, basically in line. This is Mark..

Thanks very much. See you all next week..

Thanks..

And we will go next to Ken Goldman from JP Morgan..

Hi and thank you for the question. Can you walk us a bit through a little more of the reasoning behind the management changes you made earlier this week, I think it feels like a month ago, but I think its just a few days ago.

Are some of the moves being contemplated maybe prior to Paul’s resignation, because that really necessitate I guess some of the switches that are happening and Mark since you are on the call, I guess I’ll ask it directly, how do you personally feel about that shift for you and how favorable were you to it..

This is Richard, I’ll start. Obviously we had two significant changes in the past several months, first was Paul’s departure and then second was the addition of Big Heart Pet Brands, either one of those required us to relook at our organizational structure and combined obviously it gave us the need and opportunity to restructure.

So those were the drivers and as I said earlier, I think the team that we have in place and where we put them in terms of their new responsibilities really plays upon their strengths. Steve Oakland has been here 32 years, has run most of our key businesses over the years and was our general manager and established a whole Canadian business years ago.

So he has got great capabilities and skills to run the coffee business. Mark has run everything except for the consumer businesses.

So we have the opportunity to put Mark in that role to run consumer side of the business food side and then Vince as I mentioned has 38 years of experience and knows where all the bones are buried and so his combination along with Dave West will have real opportunities to drive that integration. So it’s very successful.

And then again, we are going to get a lot of talent I think from the big heart team in Dave West group, so those are what drove it and that’s why we made the changes and that’s why I think we are very confident that we’ve got the right leadership team in place..

So Ken this is Mark just answering your question.

I’m actually really excited about the change, because as Richard said I haven’t run these businesses, there is a lot of brands in there nascent name sake business of course but obviously peanut butter being critical and so its exciting and having the opportunity to allow the natural foods piece to run autonomously, but yet fit in the same organizational structure allows for us to make sure that we're meeting the needs of both of those customers.

So, yes, I’m very excited. Do I miss Paul on a personal level? Sure, but I think that the changes that were announced were quite logical..

Yes, and Ken, Steven Oakland. Mark touched on one of the things that maybe we didn’t discuss enough in some of the public data, we also - we’ve put some different segments together putting natural foods in the consumer group. The consumer doesn’t know where natural begins and where natural ends.

And so that allows us to really reach that constituent better. And within coffee as well the consumer’s coffee experience at home and away from home and the innovation and the research and the new products that we are doing in the coffee business really need to apply both away from home and at home.

So we think those are subtleties that maybe weren’t seen in the release that are going to drive results on across all those different businesses. And regardless of many of you have been here regardless of which business your names on top of, we’re a pretty close team and we work together very closely and have been together for so long.

The teams know each other well and it should be seamless..

Thank you very much..

We’ll go next Farha Aslam from Stephens..

Hi, good morning..

Good morning..

Good morning, Farha..

My question's on coffee. In 2011, 2012, you earned around $540 million in Coffee and then your profitability surged almost $100 million into 2014 with green coffee and K-Cups. Now it seems like you are back in that 540-ish area.

Do you think the long-term level is back at sort of that 640 is or is it here kind of closer to current levels and this is the new base that we should work off of given greater competition in the coffee category?.

Hey, Farha, this is Mark Smucker. Great question, obliviously that’s the one that we have been discussing here internally. And so the short answer is yes, we do think as the business growth, we can’t get back to the levels that we have previously seen.

I would remind you that we did have some very significant supply chain restructuring that help deliver some of that growth, clearly the results this year are largely volume driven. So I think over the next two to three years we should start to see a lot of that those dollars come back.

We actually are very confident in these last several months that we are making the right decisions on this business to return much of that profitability over the next couple of three years.

And so we think that as we sort of transition organizationally, we’ll be leaving the business in good hands with Steve, but in a direction that should help to deliver those results. I guess if I could just take one minute and just talk about some of the – Vince touched on it, in the first question why we’re optimistic.

And I put in three buckets, consumer, brands and consumption trends. On the consumer, we are seeing consumers come back into the category slower than we thought, slowly increasing the purchase frequency. We confirmed that there has been no consumer demographic shift.

Now on the brand, we still outpaced our competition on the Folgers brand and we know that Dunkin brand has very strong coffee equity versus some of the other café offerings out there. And then finally just on the consumption trends we also know that over 80% of cups consumed at home are still traditional roast and ground.

And so the fact all of those dynamics and the fact that we’re still participating in every segment we feel confident that we can gain growth..

That's helpful. And then just turning in to your consumer business.

Should we be concerned about the weather issues we've seen out West and how that relates to your nut food spreads and your natural drinks business?.

Farha, this is Vince. No, I mean obviously we’re watching all of those impacts, but I would say as we look into our fiscal 2016, we see a tailwind in our overall comp structure. Coffee is obviously to be determined, although we believe it too will be favorable.

But if you look across our entire portfolio of raw materials, we believe that our raw material costs will be a tailwind as we go into next year. Some of that of course or most of it will be passed on in pricing as we spoke to earlier, so it could affect our bottom line, but we believe we are in overall pretty good position..

Great, thank you..

We’ll take our next question from David Driscoll from Citi..

Great. Thank you and good morning..

Hi, Dave..

Good morning, Dave..

One little quick detail here.

Do you guys exclude the deal-related costs from your outlook? So in this reduction, the 3% reduction from the 555 midpoint, is that reduction just all coffee or there is some deal related stuff in that fourth quarter reduction?.

David, this is Mark Belgya. There is no deal cost in the fourth quarter guidance reduction. It’s all based in the full-year and it’s the $4.5 million roughly that we incurred this quarter, just to be clear on kind of how this will flow through going forward.

Wheat cost we treat as normal gap charges, but now that the deal has been signed as similar as we’ve done in prior deals as you’ll see on our P&L the merger integration lines.

And we spoke to these costs when we announced the deal and $225 million, so those will flow through over the course of next three years, those would be excluded from our non-GAAP earnings. So there is no additional deal cost expected in Q4..

Okay, Mark, just to follow-up on coffee.

So what I'd love to hear is just why did this situation just reach a real tipping point in the second fiscal quarter? The canister size issue has been there for a while, but it seems like this price increase that you guys tried to put into effect just really exacerbated I guess this can size issue in our on shelf comparison to your major competitor.

And I guess the whole point of this question is to look forward into second quarter of 2016 when we are lapping the 18% volume decline.

Is it reasonable to think that the volumes come back if in fact you put the product on a historic basis back in line with the price gaps that it used to be at?.

David, its Mark here. So I think it is reasonable to expect that we will get some of the volume back given the downsize it probably will not all come back, but there will be from a unit perspective we do respect unit growth.

And then the first part of your question just around the second quarter, I think we said last quarter we were surprised by the elasticity. Yes the elasticity we’ve seen mirrors the elasticity when we had even higher [revenue] cost a few years ago.

And so having a promoted on shelf price that was significantly higher than our competition was clearly a reason for that, but again the speed that which we went up basically overnight from 699 to sort of an 899 level, we saw the consumer react to that.

So when you look back over these past four, five, six months you’ll see that the winner was store brand and to a lesser degree we’ve experienced some large growth on our opening price point offerings.

And so the dynamics did surprises a little bit so going back to my previous answer about why we are optimistic I think that we have a lot of the right things in place, the ability to sharpen our price points in the next fiscal year to should help to bring a lot of that growth back..

Did you lose shelf space?.

No, in fact I mean I think we talked this last quarter, we actually have seen in a few select retailers not sizable one that perhaps over skewed on the single-serve section and you are actually now returning some of the shelf space to us, but to answer your question in the last six months we have not lost.\.

Okay. Thank you so much. I’ll pass it along..

We’ll go next to Alexia Howard from Bernstein..

Good morning everyone..

Good morning..

Good morning..

Good morning..

Good morning..

Can I ask about the profitability and pricing on the K-Cup side, there has been a lot of discussion about how pricing on K-Cups has come down even as the import costs on coffee has gone up and I know that’s to do with packaging and so on, but the commentary always used to be the profits on K-Cups were broadly inline with the margins I guess on your coffee business overall.

Is that still true or has that come down quite a bit and then I have a follow-up..

Alexia its Mark again, Mark Smucker. So we did talk last time also about this margin compression and so we have seen our K-Cup below the segment average and so we did invest in the first couple of quarters of this year.

However, we took the price increase in January and do expect that margins will improve at least in the near-term, but we may see a little softness in volume..

Okay great and then secondly on the mainstream roast and ground coffee dynamic, your main competitor seem to be talking about how they had over promoted in some of their own segments yesterday. Are you seeing any pullback or improvement in the competitive dynamic though or is it just too early to tell? Thank you and I’ll pass it on..

Thanks Alexia, the main stream, not a lot of pullback and I would say there is some of that. If you look at the share numbers or the consumption numbers again private label or store brand tended to win and even though our main competitor faired a little better than us their consumption trends were also down..

Despite their investment levels..

Right, despite their investment levels..

Very helpful, thank you very much, I’ll pass it on..

Well take our next question from Akshay Jagdale from KeyBanc Capital Markets..

Good morning..

Yes, hello Akshay..

Good morning..

Good morning..

Good morning..

Again with the coffee questions.

So it would be helpful if you could talk about - maybe help us quantify roughly how much of this overall 9.5%, 10% volume decline this fiscal year you think went to private label basically and then maybe just give us a order of magnitude on how much of the decline in volumes that you are expecting this year went to which pieces, so that we can better understand the sustainability of this headwind..

So Akshay, its Mark again we touched on this in the script and in prepared comments, and essentially about half of the decline. And this is back again to last quarter, about half of the decline has do with this sort of the sticker shock, the reduced purchase frequency, consumers taking pause maybe using less coffee that was probably about half.

And then of the remainder the shift to single serve was basically where it has been so we didn’t see an acceleration of that shift. In fact if you look at the share trends between the segment you will see that the growth in single service decelerating.

And there seems to be some sort of stabilization that might come out of this in the next couple of years. That said, so you have half in a nutshell have to purchasing less coffee just the frequency then the other half is a combination of a normal shift to single served. And then the rest would be shifting to our competitors.

And in this case it will be private label and some premium..

Okay, so in other words the shift to private label, we’ve seen this in years past and from talking to some of your private label competitors. It’s really a cost of price relationship there is a lot of blending and stuff that plays into that. But that’s not sustainable right; I mean they don’t have a cost advantage longer-term relative to you.

So those share shifts have happened before and that should presumably come back to you eventually. Right I mean that’s a good way to think about it..

Yes, it is I would say that the trends are very typical from a store brand standpoint and those brands tend to run short in their coverage from what we understand..

Okay, and then to talk to this frequency issue I mean I am not sure I really understand it well enough. So what people went to stores less and purchase less coffee, we are not seeing that in the cup consumption data per se. Can you give us some sense of what happen there? And how do you think that’s going to play out.

How do you address that?.

Akshay, I cant’ break it down between purchase frequency, dosing the Brewer less.

We don’t have that granularity, but when we’ve seen declines in the past it typically is partly driven by consumers making maybe 8 cups instead of 10 in the home maybe putting one less scoop in, so there is - there typically could be less usage which in turn could drive not instead of an 85-day purchase cycle for example maybe they are buying their next round of coffee in 95 days.

I mean it’s hard to guess that level of granularity, but that’s how we think about it..

And so the canister downsize and lower price point is going to address that issue, correct?.

Yes, we believe it will..

Okay, great. I’ll pass it on. Thank you..

We’ll take our next question from Chris Growe from Stifel..

Hi, good morning..

Good morning..

Good morning..

Hi, I just had two quick questions. I guess a bit of a follow-up and both on coffee unfortunately. So just a question for you on, there was a comment in the release about reduced promotional efficiency and I know that the canister downsize and obviously incremental promotion, but I just want to get a sense of across the different segments.

Is your promotional spending coming down with less efficiency or reducing promotional spending, does that have a knock-on effect of prices.

I’m just curious how you are going address that?.

Well, I think yes, I mean it hasn’t do with responsible pricing. We have pulled back a little bit on the frequency and as we get into the next fiscal year, we do expect both our promotional activities as well as the efficiency to return to more normalized levels..

Okay, and then just a question for you on Dunkin and that premium segment in general. You obviously have a big competitor entering that category or at lost a big brand in the café.

I’m just curious how again that you’re positioning Dunkin in front of that, again more promotional or what you are trying to do try and be more competitive in front of that launch?.

Well, first of all it’s about supporting the brand, we have to continue to support the brand. We have a great relationship with Dunkin, we enjoyed the halo effect of their advertising as well.

There will be a short-term impact which seen plenty of trial on the competitor, but we think from a brand standpoint Dunkin has a very strong coffee equity and that should help carry its weight as we move into the next fiscal year.

And then we continue to focus of course on innovation and so there will be - every year we’ve got new products, new flavors all of those things that help support the brand as well. So we think we can weather it..

Okay. Thank you for the time. See you at Cagney..

Thanks, Chris..

Thank you..

We will go next to Jonathan Feeney from Athlos Research..

Good morning. Thanks very much..

Hey, Jonathan..

Has there been any work on your demographics of maybe some of this slowdown, any customer segments in particular within coffee? I always thought of Folgers as within roasting ground of the premium player in I’m not sure if it’s possible some migration to single-serve within Folgers has maybe changed that in many people more price sensitive, but I’d love any insight you have as to is to middle income, low income consumers who are a little bit more price sensitive it would be appreciated?.

Jonathon that is exactly the question we’ve been asking ourselves and we’ve done some work on that and my earlier comment was we haven’t fortunately seen a shift in the demographic base and that does refer to the difference social economic levels the concern might have been that we were learning loosing the most, the least price sensitive consumers to other segments.

When we look at the ratios it looks like it’s pretty much the same consumer base that we’ve always had. We do view Folgers within the mainstream segment as the premium, the leader, the price leader all of those things.

So we feel good about who our consumer is and then in addition to that we are doing a lot of very deep consumer segmentation work to make sure that our own views of who our consumer is have not changed or maybe they have. So over the next several months we’ll also be updating those data points..

And just one other question Eric asked earlier in the call and I’m sorry if somebody else asked this, but Eric asked earlier in the call about retailer inventories maybe having an impact on the fourth quarter.

I’m curious about your insights about consumer level inventories that’s been a big issue for Green Mountain and their change over, but even in the roasting ground business you talked about less purchasing?.

Yes, this is Richard, just in general in terms of the economic impact with the economy we still look at the consumer based in three buckets, the top thirds doing well, the lower thirds still challenged in terms of consumer and the middle third actually starting to do a little bit better especially with gas prices coming down and I think we’ve seen a little bit of that for get to coffee for just a minute.

But just in general we see a little tick-up in our business in the months of December and January in terms of the consumers being willing to loosen up their pocket book a little bit and we think that has a lot to do with the gas prices coming down and just some optimisms. So consumer confidence is up, you’ve seen the numbers.

So we think that is going to bode well for our business overall next year and actually we’ve seen it a little bit this year, but that’s from a macro sense how we view it. I don’t know if any other guys want to. I think that covers it..

Yes thanks, but any insight on the consumer level inventory of coffee..

Just is it from a pantry perspective..

Yes, pantry perceptive, you said people are shopping less, I mean you said maybe they are drinking a little bit less coffee, I don’t know if you have any of really knowing you know you said making eight cups instead of 10 or something like that.

Do you have way of knowing what your sort of pantries look like for dedicated Folgers households right now?.

Yes sure, there are some research that we do and it does look like consumers may have less coffee in total in their pantry, but I cant quantify that..

Okay, fair enough guys. Thanks very much. Take care..

Thank you..

Thank you for joining..

And we’ll go next to Chuck Cerankosky from Northcoast Research..

Good morning everyone, I would like to ask more of a macro question with regard to demand for center store products you sell.

In looking at customer that is feeling a little bit better about things, it looks like there has been more in the fresh food categories, do you think that makes them more sensitive to price and promotion in the products you sell and perhaps maybe even skipping some of those items to make room for fresh products, some of which have significant inflation attached to them..

Hi Chuck its Vince. I’m not sure that maybe going on, but let me just maybe frame in what we have seen on the last 12 weeks.

If you look at total retail sales dollars were up about 2.5, tonnage is down a little over one, if you look at the categories that we participate in dollar sales are only up about 1.7 and tonnage is actually down a little more about 2.5.

But if you look at us as a manufacturer including coffee and including the down size on our peanut butter business, our sales are down but that’s because we have more deflation, but our tonnage is down less than either the overall grocery store or the categories we are participating in.

So we are going share, and probably more comforting is that you compare to our number one competitor across all of that same landscape they are down 7%. So I think it gets factor, one Richard’s comment center of store is flat to down one kind of number and we're fairing pretty good relative to our competitive set..

And I would just add to that. I think you are right Chuck, primarily the store is growing and as peoples have a little more money in their pocket they are willing to spend a little more on fresh products in the perimeter of the store.

And that certainly has an impact on the center of the store, but as we know the retailer still make majority of their money on the center of the store and we are doing with the exception of coffee which we are talked about we’re doing very well in the center of the store..

Chuck this is Mark Belgya. I guess the only thing I would add from innovation standpoint, thought process and how do you sort of take the popularity of the perimeter bring into the center.

So if you look at where our innovation, clean label, good and good for you type products snacking is a real focus and you’ve seen some and you will see more and we’ll chat about that next week at Cagney. So we are trying to capitalize at least on the trends that we are seeing outside..

All right, thank you very much..

We’ll take our next question from Jason English from Goldman Sachs..

Hey, good morning folks, thanks for squeezing me in..

Good morning..

Good morning, Jason..

First, a very quick housekeeping item, I think there is some confusion related to, at the last conference call you hosted regards to Big Heart. And exactly what the incremental amortization step up is going to be. A lot of us will anchor to the $125 million, it sounds like that’s kind of all in.

Can you clarify what the incremental portion of that is?.

Jason, this is Mark Belgya. Now it is the $125 million in total its $225 million that includes the existing $100 million Smucker today. Where there might be some confusion depending it upon what research you might have done is they obviously had some of their own amortization.

So we are just looking at it, at all incremental, so that would be $125 million..

And the $125 million includes which already embedded the amortization is already embedded in their DNA?.

Yes, it does. I mean obviously we have to revalue all the assets so you kind of you flush their number and add our $125 million in..

Got it that’s helpful. Back to the business at hand, lots of different sort of story lines about what’s happening in coffee. We’re cutting some data this morning and looking at household penetration for the Folgers brand. And we see household penetration having fallen in 2009 from 35% to 31.6% in 2014 about 10% drop.

We are sort of accelerating erosion on household penetration just this past year or down 6%. This seems more concerning they are just less households buying the brand. And maybe we reached a tipping point where there is sort of craft mentality fragmentation has accelerated.

And it begs a question of whether or not there is sort of true secular issues, at full-year. Can you comment on that why we shouldn’t be concerned about this data.

And maybe what you see in terms of your own penetration data?.

Hey, Jason, this is Mark Smucker. You’re right some household penetration is down on the Folgers brand, but that’s why we are participating in all these other segments. So that the fragmentation model, I think there’s some truth to that so on one hand we are in all other segments, we are getting growth, we’ve done real well on our Folgers K-Cups.

And then just as you think about some of the things that you can hear next week, when Vince present the Cagney about some of the mainstream innovation that we’ve got coming on the stream in the fall in a small scale, but more broadly after that, we believe should still be able to show up our business in the mainstream if not the same as itself..

Okay, thanks. I look forward to seeing some of those initiatives..

Thanks, Jason..

We will take our next question from Rob Dickerson from Consumer Edge Research..

Thank you very much. I just had two questions. I guess one more strategic around Big Heart Pet Brands and the other one just housekeeping. I guess the first question is on the strategic side with Big Heart. I’m just curious, I’m not sure how much you could actually comment on this, but any additional color would be great.

So I guess just considering, Jim Kilts who obviously he had a quite successful career in the CPG side and he is Chairman of Big Heart Pet Brands and currently a partner at Centerview.

Is the expectation as you bring in David West, you’ve also have the sort of the board advisors on the private equity side it’s someone like Jim Kilts would actually be in overall part of the strategy going forward?.

Tim and I know Jim very well, and I’ve known him for years and I’ve a lot of respect for Jim, and as we said we are great that Dave West is joining the team and our observers that are going to be part of this, part of our board activity. They are all - good backgrounds in CPG.

So hopefully we gain from their experience and we think that will be very helpful as we look at our business down the road. So we are looking forward to that..

Great.

So on the advisor side then it’s not I mean it’s fair to assume obviously just considering the equity stake from the private equity side that the comments and any additional help that they can provide on the total business will be there, it’s more comprehensive versus just Big Heart Pet Brands?.

Yes, it’s more strategic. You are correct..

Okay. Fair enough. And then secondly just housekeeping I know in the past you’ve said that transactions you do, you hope that the not only would they be EPS and free cash flow per share accretive, but also accretive to return on capital.

I am assuming the expectation is Big Heart will be there as well?.

Yes, Rob, this is Mark. Yes, of course that is our expectation and with the new capital structure out there our weighted average cost capital changes net to our favor, but yes this business would also deliver on that target..

Okay..

May I just add to that when we talked about the amortization and our cash flow per share, we are going to start focusing more on that and showing more information about our cash flow per share going forward because our earnings per share really doesn’t tell the whole story of this company and how much cash we generate and we’ve got probably more cash flow per share versus earnings per share than most people in the CPG industry and so we need to get that message out..

Yes, I guess to add to that kind of playing off the question we just asked for awhile ago the amortization and if you look at once the deal is closed, if you take that $225 million of amortization and dollar rise that’s about a $1.25 a share, so certainly we think of valuing our company that way.

So you need to take whatever guidance rage and put another bucket and quarter on it and that gives you maybe a little better value we though of..

Fair enough, all right. Thank you..

We will go next to John Baumgartner from Wells Fargo..

Thank you, good morning..

Good morning..

Good morning..

Just wanted to ask a big picture about consumer foods for moment and at the pricing contribution is weak there presuming how commodities are tracking there may not be positive pricing for some time still. So I guess what are your expectations for the competitive dynamics and pricing incentive going forward.

Do you see more or deeper discounting the manufacturer is use to hold the line here or maybe promote back a little bit less if consumers are feeling better, just how do you kind of thinking about that?.

This is Vince. I mentioned earlier a couple of things, we took some price decreases this year on peanut butter and Crisco and we’ll have those going into next year as we look at our input cost across consumer foods and most of those are tend to be tailwinds and so from our top line perspective we will have a negative dollar impact on net sales.

In terms of our industry it’s fair to say that I think everyone is saying that our promotional dollars are not as effective as they have been historically and there is a lot of money into the trade right now.

We are very comfortable with our promotional strategy, if you look across our brands most of our brands tend to do better, everyday shelf price versus I’d say promotionally driven on the consumer side.

And so whenever we can our desire would be get the everyday shelf price right and then tactically promote from half of that and not necessarily a higher frequency or higher deal level. And so I guess I’ll leave it there and….

I am going to just add to that Vince, our strategy is number one brands in the respective categories we participate in and by that we take the leading position in terms of going up or down in price.

And we recognized in the short-term such as example peanut butter, we got upside down on that for a while, but we were willing to hang in there and do what was right for the brand and do brand building or the right pricing and it took us probably 18 months to get our cost price relationship back, but we were responsible and as the leaders in the category and overtime that has still proven as the best strategy.

We don’t think that strategy should change for the leaders in each of the categories, certainly that we participate in and overtime that’s the right strategy.

We also believe that this is a great time to be in the consumer foods business, believe it or not, although we know it’s extremely competitive right now, brands are still extremely important to consumers and if we treat them right, they will do well in the long-term..

Hey John, this is Mark Belgya.

I would add one other thing, because I agree with everything we said and I think sometimes you through the pass through categorically across all our business and I think its important to think about everything we just said is how we are managing the price and you sort of think of peanut butter and cake mixes and things like that but when you think about innovation as well though you got to think - take Sahale for example.

So while we're continuing to do the right thing in pricing, we added Sahale to bring us growth to our consumer food segment or we are introducing products under the Jif or Smucker’s brand that probably longer term once they are in the run model mode, are going to be a positive mix.

So we’ll manage the price and we’ll grow that, but we’ll add on with innovation and acquisition to build that overall consumer food segment growth algorithm in the long-term..

Okay. Thanks very much for that..

And we’ll go next to Robert Moskow from Credit Suisse..

Hey, one of the reasons I started covering your stock is that someone told me that it was under covered by the sell side, I think you are….

Rob you lost the laundry drawer in the end of that sorry..

Yes, I think we’ll probably pass that as being an issue. All right coffee question, just asked different way. You said that mainstream category volume down 5% half of it due to switching.

So I guess my concern is 70% of your sales are Folgers and coffee and you are in a mainstream category that’s probably going to decline another 2.5% in volume if that switching still occurs, maybe 5% is the switching still occurs.

So, I mean how can we feel comfortable that Folgers can get back to volume growth aside from just taking market share, because it seems like you are facing an uphill battle and the other 30% of the business is having trouble generating enough profit growth to make up for what Folgers is giving up..

Hey, Robert let me start. And then I will turn it over to Mark, but these are same issues in concerns we heard when the day that we acquired this business, that we are facing this growing premium segment.

And how we are going to compete on our Folgers mainstream and we’ve demonstrated that we took a brand that was supposed to be $50 million to over $350 million. We had this growing concern of single serve and how were we going to compete and we’re the first national brand to participate.

And so clearly, this past year we’ve had an issue with our mainstream roast and ground, but I think if you look at our history of our innovation, our supply chain initiatives that we’ve done, we’ve navigated our way through some pretty significant category and consumer trends and very significant changes in our cost of our green coffee.

Fairly, as Richard and I said in our prepared remarks and as Mark has articulated we aren’t happy with where it is today. But we still think the Folgers brand is great, we still believe there are growth opportunities. And there are other opportunities for us that we believe will come to fruition down the pike.

So I just would like to frame it in, in that matter and trust us..

Okay, and I will say one thing that I think you are at a more reasonable base of profits for coffee this time around for fiscal 2015. So I guess that’s the good thing and for profit growth in fiscal 2016 you are saying you are going to grow above your normal organic growth rate.

Is it fair to say that organic growth rate is about 5%?.

I’d probably say a tad below that..

Tad below 5%.

We typically talk, yes, we talk about organic growth rate more like a 3% growth rate 3% to 4%..

Okay so organic 3% to 4% on the sales or profit line..

Sales would be more in that sort of 3% and then you pick up 1 or 2 points on profit..

Okay so coffee profit is expected to grow a little faster than that in fiscal 2016?.

That’s right..

Okay. Thank you. End of Q&A.

There are no other questions in the queue at this time. I will now turn the conference back to management to conclude..

Yes, we’d like to thank everybody for being on today we are looking forward to seeing everybody at Cagney next week. We’ve got some more talk about Big Heart Pet food next week. And also talk about our strategy moving forward. So thank you all for being on and we will see you next week..

Ladies and gentlemen, if you wish to access the rebroadcast after this live call. You may do so by dialing 1-888-203-1112 or 719-457-0820 with a passcode of 1727919. This concludes our conference call for today. Thank you all for participating. And have a nice day. All parties may now disconnect..