Aaron Broholm - Director, Investor Relations Richard Smucker - Chief Executive Officer Vince Byrd - Vice Chairman Mark Belgya - Chief Financial Officer Steve Oakland - President, Coffee and Foodservice Mark Smucker - President, Consumer and Natural Foods Dave West - President, Pet Food and Snacks.

David Driscoll - Citi Eric Katzman - Deutsche Bank Chris Growe - Stifel Ken Goldman - J.P. Morgan Jason English - Goldman Sachs Alexia Howard - Bernstein Robert Moskow - Credit Suisse John Baumgartner - Wells Fargo Akshay Jagdale - KeyBanc Capital Markets Farha Aslam - Stephens Rob Dickerson - Consumer Edge Research.

Good morning and welcome to the J. M. Smucker Company’s Fourth Quarter 2015 Earnings Conference Call. At this time, I would like to inform you that the 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 question and answers after the presentation.

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

Richard will begin with an overview of our fiscal 2015 performance and initial thoughts as we head into fiscal 2015; Vince will then provide color on the results for our business segments; and Mark will close with additional comments on our fourth results and an overview of our 2015 outlook.

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 as detailed in our press release, located on our corporate website at jmsmucker.com.

Given the significant impact of the Big Heart Pet Brands acquisition on our fourth quarter and full year results, a reconciliation of non-GAAP earnings per share excluding these impacts was provided in this morning’s press release. A replay of this call will be available on our website.

If you have any follow-up questions after today’s call, please contact me. I will now turn the call over to Richard..

Integrating the Pet Food business and beginning to capitalize on the synergies and growth opportunities presented by this transaction; second, we’re focusing our bigger growth opportunities that we’ve spoken to previously, particularly within coffee and the Jif, Smucker’s and Uncrustable brands.

While we continue our innovation, momentum across our key product lines including pet food, we’re also strengthening our marketing efforts in support of these innovations along with the initial initiatives around our sponsorship of the 2016 Summer Olympic Games next year; and fourth, we’re increasing our focus on our working capital efficiencies in order to meet our de-leveraging activities.

Lastly, on November 20th of this year, we will celebrate the 50th anniversary of Smucker’s being listed on the New York Stock Exchange. In conjunction with this event, we’ll be hosting an Investor Day at the exchange. We’ll provide more details as the date approaches and we hope to see many of you there.

In closing, 2015 was the year of significant change for our company, culminating with the largest M&A transaction in the company history. We’d like to thank all of our employees for their hard work and dedication over this past year. And once again, I’d like to welcome all of the Big Heart team to the Smucker Company.

Looking ahead, we remain confident in our long-term strategy, the strength of our brands and our ability to deliver growth in 2016 and beyond. With that, I’ll turn the call over to Vince..

The Jif brand volume grew 2% for the year. With our cost position now improved, we have better everyday price points and are seeing contributions from innovation such as Jif To Go Dippers. Volume for the Smucker’s fruit spread was in line with the prior year.

Driven by our natural offerings, we continue to gain those volume and dollar share in the latest 12 and 52-week periods. Smucker’s Uncrustables frozen sandwiches achieved a 13th consecutive quarter of double-digit volume growth and ended the full year up 17%.

The Crisco brand had a second consecutive strong year, aided by moderating cost -- commodity cost. While competitive activity in the oils category has increased off late, we are pleased with the Crisco’s overall performance for the year.

The baking category was challenged by shifts in consumer behavior and aggressive competitive pricing which has continued into fiscal 2016. Accordingly, our Pillsbury brand was an area of softness in the Consumer Foods portfolio for the year as it performed in line with the category.

Lastly, during the fourth quarter, we completed the integration of the Sahale Snacks acquisition. We remain focused of pursuing distribution opportunities for Sahale Snacks brand and are pleased with the initial results as we exceeded our 2015 sales projections for this business and look forward to a strong growth in 2016.

For the overall Consumer Foods business, we anticipate lower commodity costs in 2016. We also look for innovation momentum to continue including product launches spanning all of our key brands. We have marketing initiatives plan to support these new products and overall brand equity.

Lastly, we are pleased with our Memphis peanut butter facility which completed on time and on budget, providing additional capacity and flexibility to support future growth of the Jif brand. The International Foodservice and Natural Food segment achieved 10% segment profit growth in the fourth quarter following a 13% increase in the third quarter.

Full year 2015 net sales and segment profit were in line with the prior year. We are pleased with these results, given the significant impacts of foreign currency and the plant rationalization within our Foodservice business.

As we enter fiscal 2016, the effects of foreign currency, is expected to increase due to a weakened Canadian dollar versus the prior year. We are estimating an incremental profit headwind of approximately $20 million or $0.11 a share with our Canadian business.

As our underlying performance in Canada remains strong, we look to build on the volume market-share gains we achieved across nearly all of our categories this past year and pursue opportunities to offset the foreign currency challenge.

Within Foodservice, we have strong momentum with our Smucker’s branded portion control offerings, Folgers roast and ground coffee and Uncrustables frozen sandwiches.

As we look for these trends to continue, specific to Uncrustables, we realize the initial benefits from re-entering the USDA schools programs in the fourth quarter and anticipate regaining the exited business over the next two years. Overall, our Foodservice portfolio is well-positioned for profitable growth.

Lastly in Natural Foods, the strong performance of our branded beverage portfolio continued in the fourth quarter. Our truRoots brand, more stability in quinoa cost has allowed us to improve our pricing position heading into fiscal 2016 and we expect trends in this business to improve significantly.

Finally, within the Pet Food segment, Smucker’s fourth quarter included approximately six weeks of operating results for Big Heart.

Looking at the full fiscal year, on a standalone basis and before purchase accounting adjustments, net sales fell slightly below our 2015 projection of $2.3 billion and adjusted EBITDA was approximately $420 to $430 million compared to our previous estimate of $450 million.

On the top-line, the shortfall was driven by softness in mainstream Pet Food due to a continued deflationary pricing environment. The lower than projected EBITDA primarily reflected marketing investments in the fourth quarter in support of brand building efforts for our mainstream pet food and pet snacks brands.

We also chose to invest in promotional support behind natural balance in advance of expanding the brand’s footprint in the pet specialty channel which is scheduled to occur in the first half of 2016. This expansion fuels our optimism regarding the growth prospects for our pet food business.

While we expect mainstream pet food to remain challenged by the current competitive dynamics, we anticipate strong growth for both our pet snacks and premium pet food brands. In addition to planned distribution expansion in the pet specialty channel, innovation is expected to be a key contributor.

Building on the successful launch of Milk-Bone Brushing Chews, this fiscal year, we are introducing Milk-Bone Good Morning, a line of daily vitamin treats for dogs and Meow Mix Irresistible, a line of cat treats. We also look to leverage our recent launch of Wild Pursuit, an on trend high protein line extension for the Natural Balance brand.

Further, we see growth potential for the pet food business in Canada as the brands are under-indexed in this market compared to our U.S. business. As Richard indicated, a significant focus in the near-term will be the seamless integration of the pet food business and beginning to achieve our synergy targets.

Our collective teams have been actively reviewing business processes and learning from each other in order to identify and implement best practices. We’re working to validate our initial integration assumptions and we’ll finalize specific timing over the next couple of months.

In closing let me reinforce that we are excited about the initiatives we have in place to grow all of our businesses. We have great brands and what we believe is one of the best teams in the industry to execute on our plans. I will now turn the call over to Mark..

Thank you Vince and good morning everyone. Let me start with a few additional comments on the fourth quarter; I will then discuss 2015 cash flow performance and conclude with our 2016 outlook.

Fourth quarter earnings were significantly impacted by several non-comparable items related to the Big Heart acquisition as noted in this morning’s press release, resulting in a reported net loss for the quarter.

In the release, we included a reconciliation of reported results to what our estimated non-GAAP earnings per share would have been, excluding acquisition and financing activities. This was done to provide a comparison of our annual performance to the updated annual guidance we provided in February, which excluded any impact related to these items.

The reconciliations reflect fourth quarter EPS of $0.98 and full year non-GAAP EPS of $5.38, which was in line with expectations. Cash provided by operations was $222 million for the fourth quarter, bringing the full year total to $733 million. Factoring in CapEx of $248 million, free cash flow was $485 million for 2015.

We ended the year with $226 million in commercial paper borrowings and $5.9 billion in long-term debt with the combined debt of nearly $6.2 billion and pro forma EBITDA of approximately $1.5 billion for 2015. We ended the fiscal year with a leverage ratio of just over 4 times.

Turning to our 2016 outlook, we anticipate net sales to approximate $8 billion, driven by the addition of the Pet Food business along with organic growth.

Profit contributions from the acquired Pet Food business, initial synergy savings and base business growth particularly in the coffee segment are expected to result in non-GAAP operating income in the range of $1.2 billion to $1.25 billion.

Reflecting incremental interest expense and a higher weighted average share count, we are guiding non-GAAP EPS to a range of $5.65 to $5.80 for the year. It is important to note this range includes approximately $210 million or $1.15 per share of estimated non-cash amortization for 2016.

This compares to approximately a $100 million or $0.65 per share of amortization in our adjusted non-GAAP EPS for 2015 before the impacts of the acquisition.

As the Pet Food transaction significantly increased our intangible assets and annual amortization expense, we are going to emphasize earnings per share excluding amortization as an additional metric.

We believe that supplemental information allows investors to better evaluate the Company’s performance compared to our peers and provide the proxy for cash earnings per share which is important, given significant increase in the Company’s debt position and our stated deleveraging objective.

To that end, our 2016 guidance range would be $6.80, $6.95 excluding amortization. Assuming the midpoint of this range, this would represent an approximate 15% increase over the comparable EPS measure for 2015. Let me provide further color on the specific components of our 2016 guidance.

Included in our net sales outlook is approximately $2.4 billion of total Pet Food sales. For the remainder of the business, we anticipate organic sales growth of approximately 3% with Dunkin' Donuts K-Cup and other new products being key contributors.

We anticipate net commodity cost to be favorable, primarily due to lower green coffee costs beginning in the second quarter of the fiscal year. However, the continued weakness in the Canadian dollar is expected to result in higher costs of goods sold for International business. And overall, we anticipate gross margin of approximately 37% in 2016.

We estimate that SG&A will be approximately 19% of net sales. In addition to expenses associated with the Pet Food business, we anticipate increase is related to resetting our marketing and our incentive compensation budgets.

Regarding synergies, we continue to project a total of approximately $200 million on a run rate basis by the end of fiscal 2018.

We’re focused on achieving these cost savings by leveraging our scale as an $8 billion company and recently engaged a well-regarded consulting firm with significant expertise in its area to help us maximize the results of these efforts.

While we remain confident in achieving our overall synergy target within our initial timeframe, we are being thoughtful in the process to ensure a successful integration. As a result, we’ve included a synergy estimate of approximately $25 million in our operating income guidance for 2016.

Below operating income, net interest expense of approximately $180 million is anticipated, reflecting our current debt structure and expectations of interest rates and debt repayments. Our guidance range assumes an effective tax rate in line with 34.1% rate for 2015.

And lastly a weighted average share count of a $119.7 million shares is used, reflecting a 15% increase over fiscal 2015, due to shares issued in connection with the Pet Food acquisition. We do not anticipate any repurchase of shares in 2016. We expect much of the EPS growth over the prior year to be back-half loaded due to several factors.

These include the timing of the synergy recognition, green coffee cost decreasing through the year, the impact of unfavorable FX weighted towards the front half of the year and finally, a strong first quarter but a softer second half in fiscal 2015.

Looking briefly at the segments, much of the 2016 profit growth will come from the full year addition of the Pet Food business. We anticipate the remaining segment profit growth to be driven almost entirely by an estimated 5% to 6% increase for the Coffee segment.

Consumer Foods segment profit will be impacted by overhead related to the New Memphis facility in 2016. However, future growth of our Jif business is expected to absorb these additional costs over time.

Segment profit for International, Foodservice and Natural Foods segments will be impacted by foreign currency headwinds of approximately $20 million or $0.11 per share which is expected to mostly offset gains in the underlying businesses of this segment.

We project free cash flow will approximate $850 million for 2016, using the midpoint of our EPS guidance range.

In addition to previously mentioned amortization expense, key drivers include depreciation and share-based compensation expense of approximately $250 million, restructuring and merger and integration costs of approximately $110 million of which half are expected to have the cash impact, capital expenditures of $200 million.

And lastly, we’re exploring opportunities to improve our working capital efficiency as part of the previously noted consulting project. We anticipate this may provide some upside to our free cash flow estimate for 2016.

As we’ve indicated previously, we intend to apply a significant portion of our future free cash flow to meet our deleveraging objectives. Given the recent changes in our company and a new management structure announced in late fiscal 2015, we’re currently evaluating the related impact on our reportable segments.

To the extent this evaluation results in any changes to our segments, we intend to follow Form 8-K this summer, announcing any such changes and recasting prior year results to reflect the new reporting structure.

Further regarding the leadership changes, let me briefly summarize how we intend to handle the questions specific to business segments result on today’s call. While the changes were affected in April, the individuals who oversaw the segment for the majority of the past year will take the lead in addressing the questions.

Specifically Mark will cover Coffee; Vince for Consumer Foods, for International, Foodservice, and Natural Foods; Dave of course will address questions related to Pet Food business. And also as a reminder, we will be participating in the Consumer Industry Investor Conference in Paris next Wednesday.

Who would like to listen to our presentation, a live webcast will be available through our Investor Relations website. With that we will open up the call to your questions. Operator, please queue up the first question..

The question-and-answer session will begin at this time. [Operator Instructions]. Please standby for the first question. And we’ll go to David Driscoll of Citi..

I wanted to start off with the Pet Food business; can you tell us what’s the expected EBIT margin for Big Heart in 2016? And then in addition, can you talk about the plans for Natural Balance? We see the Natural Balance brand on the PetSmart website and I’m pretty interested in that, would love to understand what kind of growth you expect in the brand and just simply kind of what’s the promotional programs that you have tied in with these events..

This is Mark Belgya and then I’ll let Dave to cover the business. Specific to question, we’re not going to provide that; we wouldn’t typically do that for any of our other businesses. What I would say is that and I think we made, this is back when we acquired the business that obviously it is good profit business.

At gross margin level, we said we’re going to beat all in at 37% for the year and their business clearly will help support that growth from what we’ve had this past year..

With respect to the Natural Balance, we completed the acquisition a little bit more than a year ago. So, we are in the process now of evaluating strategy for the business on a forward basis.

We want to make sure that consumers who shopped in at specials here Independence channel, have the opportunity to buy the Natural Balance brand wherever they are shopping. It’s not unusual for brands in that specialty and Independence pet start in one place and then move across the channel over time.

So our focus for Natural Balance and the strategy of building the brand is to get it across the channels where average consumers want to meet the brand. So we’re pretty confident that expanding the distribution footprint at this point more broadly is the right thing to do, both for the consumers and the brand franchise help.

We recognize the unique nature of programming in the channel. And in the prepared comments, Vince mentioned that in the fourth quarter we were spending some promotional dollars.

And what we’re really doing across the retail landscape and pet specialty and Independence making sure the brand has the right kind of awareness and same programming as we stand. So, we’re really comfortable about doing it. You’ll see it in the first half of the year.

We value the relationships with all the retailers across pet specialty and Independence. And I’m not going to get into specifics. But you will see unique programming and unique assortment across the channel but the Natural Balance brand, our goal is to have it available everywhere by the end of the year. .

And if could ask one question on coffee which are -- just kind of big picture. Coffee profits were down something like 14% in 2015. But you guys are giving guidance of up mid single digits. So like on its own, mid single digits sounds good but when you look at the decline in 2015, it’s not so good.

What’s your opinion here of what’s happening within your coffee operations; why only a partial recovery here; are you satisfied with what’s happening in coffee?.

I’ll start and then I’ll turn it over to Mark to talk. Mark and Steve can talk about next year. Couple of things, one is first of all, we recognize in the first quarter we’re going to be challenge because we still have some high cost coffee and so our margins in the first quarter are not going to be where we like them to be.

So, most of the gain is going to come in the last half of the year. So, if you are looking on a full year basis, it’s probably almost the double-digit gain but not over because of the first quarter and probably in the second quarter, you won’t see that this year.

But it will probably take us -- took us about 18 months to get where we are and probably take us 12 months to get back but it’s going to be in the last half of the year. But it’s still a great business; it’s still great margins. Our raw material costs are coming back in line. Our pricing on the retail shelf is getting much better.

And so, I think you’re going to definitely see that. But you’re going to see the pricing earlier in this year. But our margins will actually benefit us latter half of the year..

I would just point out too David that the prior year was clearly a record year, a year that truly started all line being at all the tailwinds we needed. Going into this year, we are -- in the fourth quarter we saw how is the largest gap year-over-year in terms of commodity cost. And so, those will moderate as we go forward.

But as Richard pointed out, the moderation is really more significant after the first quarter..

The other thing I think we look out there is some exciting innovation in this category for next year. So, we’ve returned to marketing in more historic levels and we’re investing in the lead markets for Perfect Measures. We think that’s the first real innovation in roast and ground in a number of years.

And we want to make sure that we have enough spending to drive that. And additionally you’re going to see some tailwind behind the Dunkin' K-Cup launch and that’s off to a fantastic start. But again, we’re going to make sure that’s funded as well.

So, we’re going to make sure that marketing budgets behind both of those key initiatives show their success..

We’ll go next to Eric Katzman with Deutsche Bank..

I guess one of the questions that seems to be kind of being pain to us is the synergy target you talked about at CAGNY for this coming year versus the $25 million that you listed today; is the difference A&P spending in pet or is there something else explaining that difference?.

A couple of things. First of all, we remain comfortable with our $200 million target over three years. Given what’s going on in our industry, my couple of CPG companies, we felt we needed to take pause.

And as Mark said in his formal remarks, engage a well-regarded consulting firm in this phase to really challenge our cost structure across our new $8 billion company.

So that along with trying to ensure that we leverage the best practices of both companies as opposed to maybe just integrating into the existing Smucker model has forced us to take pause on some of our original assumptions as it relates to integration.

And so accordingly, although we feel very comfortable at this point with the 200 million, we felt that it was only prudent to reduce the year one guide to ensure we met our guidance down to the 25 million.

I would also say that as Mark said in his prepared remarks so, we were also looking at a working capital objective too that we feel very comfortable with. So, the bottom line is it’s just a matter of timing at this point where we feel very comfortable over the long-term of achieving the $200 million..

And then I guess to maybe this is to Mark. So, I wasn’t really thinking about a $0.10 FX headwind from Canada. And then maybe there is another -- the difference I guess maybe versus consensus, so where you’re guiding to is also tied to the synergies.

Is that kind of the way to think about the differences versus maybe consensus?.

Yes, let me kind of walk through because you hit it. If you do look at kind of what consensus out there, I think there is four pieces of the puzzle of which three probably offset. In our scripted comments, we’ve talked about what our annual estimate for amortization and interest are versus where we were couple of months ago.

So that actually is positive; so that’s ballpark is about $0.14 or $0.15. If you take the synergy impact, that’s about $0.14 or $0.15 going the other way. So that’s kind of a wash. So what remains that other fourth item is really the Canadian FX. So, it is $0.11, $20 million; the anticipation is we’ll be able to offset some of that.

There is initiatives being put in place but obviously this has to pan out over time and then there’ll be back half. So I think the way you describe it is exactly that how we would suggest where it might be versus where is sort of the mid to upper part of our range would be, for our guidance..

We’ll go next to Chris Growe with Stifel..

I just wanted to ask if I could on the Consumer Foods business. In some of the areas where you’ve taken some more aggressive pricing actions in relation to the input cost being down, oils and peanut butter in particular, we’ve seen relatively soft volumes. So I was surprised by that here in the fourth quarter.

So I want to get a sense of your reaction to that or how you -- is that promotional inefficiency that’s occurring there? And then your expectations for fiscal ‘16 in that division, should we see that volume softness persist?.

Let me just say that overall we’re very happy with our results of our peanut butter business in 2015. First of all, we grew core volume and innovation contributed to some of that growth and we brought up a brand new facility in our fourth quarter which was on time and on budget.

So, I would say first from a macro perspective, we’re very happy with the peanut butter business. You may recall we were upside down on some peanut costs from two years ago; those costs are back in line and we feel comfortable where our pricing is and our margins going forward.

The issue is what we’re talking about, Mark in his formal remarks about our consumer business being down, is a direct result of the incremental overhead cost that we will be experiencing from the Memphis facility.

But there was some softness in the fourth quarter but we really don’t anticipate that trend continuing into New Year, and we plan to grow the peanut butter business..

Just to build on what Vince said. We do think we have some really nice plans in place for the fall period coming up and we do expect particularly in the peanut butter area as well as in the food spread with new products and focus on the core, we should be able to continue to grow those businesses..

Just a quick question if I could on Dunkin' K-Cup. So, do those ship then in -- with that being in the first quarter of fiscal ‘16, was there any benefit in the fourth quarter is my question. And then Vince, you made a comment about the size of the business potentially, perhaps significantly increasing your overall K-Cup exposure.

It indicated a pretty significant potential increase I guess which you’re saying there. I was curious kind of a backdrop for that assumption. Could it be 300 plus million dollar in sales, would indicate a pretty substantial market share of the K-Cup segment, just curious on your comments there..

Yes, we are very excited. They started shipping May 1. And when we say May 1 is like 12:01 am. Our customer base was really excited about it. And in fact within a week, it was on display and on feature ad across its core markets.

So, the Dunkin' brand is so strong and the idea that to have that at home the K-Cup format has been well received so far by the trading and by the customer. So, we think it does have the potential to reach somewhere close to the numbers you’ve quoted. And we think -- we’re not sure if we’ll get all of that this year or it will take an extra year.

Just there is timing of major retailer resets and those kinds of things. But I can tell you that all the retailers are finding space for it. And it’s on the floor, exciting thing and as we look forward is the opportunity to merchandise the entire Dunkin' line.

The margins, when you have three parties in an agreement, aren’t the same as they are when there is just two. So, the bag business will benefit from this, all those things will benefit from it. So, we’re excited about this being a driver for the whole Dunkin' business across Smucker..

We’ll go to Ken Goldman with J.P. Morgan..

A question, I’m a bit confused and if you addressed this, forgive me. But I’m curious why your coffee costs aren’t coming down a little more quickly this year. You no longer break this out, but you used to talk about the average lag between stock beans and when they hit your numbers being around four months.

Coffee has been very cheap since pretty early this year; it’s been over four months.

So, I’m just asking, I guess is it safe to say you locked in beans at unfavorable prices for a bit longer than usual or maybe I’m missing something but why are you not getting that benefit right away this year?.

As you know, we haven’t really talked about our position; our coverage philosophy hasn’t really changed significantly.

But I am kind of go back to a comment we made earlier just as in the fourth quarter we were expanding some of our higher costs and we’re not seeing -- we’re not getting down to market rates until probably sometime in the second quarter..

We have been able to lean in for the first quarter. And I think if you look across the promoted pricing, across trade literally today, you’ll see promoted pricing well below what we have in the fourth quarter and the trade merchandising around that.

So I think you’ll see sequentially better pricing in the first quarter and then I think it will get between the downsize container which gives us even more room, you’ll see even better pricing as we go into that in the rest of the year..

And then one follow-up. In recent months, we’ve seen some pretty large food manufacturers, Kraft and Nestle talk about improving the product quality of some core items. Kraft is taking out artificial colors from mac and cheese. Nestle has really talked about removing salt and I think sugar from a lot of items across the board.

Is doing something similar at all a priority for Smucker? Because one of the push-backs I hear is that some items in the product portfolio, jams; peanut butter, there’s a lot of sugar in those items. And the bears on the stocks will tell me look these are just not necessarily in line with where better for you trends are going.

So I kind of agree with that statement a little bit and I’m curious what you guys are doing to take these core items? Not line extensions, but the basic big SKUs that you sell and maybe say you know what, can we improve the product quality a little bit and take some of the not so good items for you out of it?.

Well, we’ve been doing that for the last three to four years. So for example, just first on trans fat, we’ve basically taken trans fats from all of our products, in fact even Crisco. Well, four years ago, we took trans fats out of Crisco; it used to be the poster child for trans fats and now it’s without trans fats.

Also in every single line product that we’re in, we’ve added new products for example in the baking isle we have Purely Simple this year which is very simple ingredients in our baking mixes in the Pillsbury baking mixes. So, we’ve done in every category.

If you think about the categories that we’re in, peanut butter, there has always been -- there is not a lot of sugar in peanut butter to be perfectly honest; it’s very high protein, there is a little bit, but there is not a lot, never has been.

Food spreads, we just came out with a line of food spreads sweetened with honey which was just came out with couple of -- few months ago. And that’s actually being very well received by the consumer.

So, there actually you see a lot of our innovations being driven by better ingredients, simpler ingredients and those have contributed in total about 7% of our sales this past year. And we’re trying to do that in our mainline too. But most of our mainline whether it’s coffee or peanut butter are pretty good products for you.

In fact, coffee has got a new halo and more coffee you drink, it’s better for your health and we like to see those reports that come out those in medical studies. So, we feel really good about our portfolio and those products that we can improve in terms of simplifying ingredients we are, but we’re pushing in those areas..

Ken, I would just add, of course we have a whole Natural Foods division and plays in the space every day that has been growing fairly significantly over the past few years. And of course their focus is on both natural and organic offering. So, I think we feel pretty good about our positioning..

We’ll go to Jason English with Goldman Sachs..

I wanted to start with the top-line. 3% organic would be a pretty impressive achievement in context of the last couple of years.

Can you talk about maybe the volume and price contributions that you’re expecting from that?.

Jason, this is Mark Belgya, couple of thoughts. On volume, of course we always had this kind of ongoing discussion because of the breadth of our portfolios and by the way you’re talking flour or K-Cup. But I think a couple of comments around volume. Volume will be impacted a little bit by the previously mentioned downsizing of the Folgers canisters.

So while we expect some volume as measured in tonnage decline there, obviously growth in the K-Cup goes on a favorable mix forth and also we would expect units of Folgers in a downsized canister to grow. So volume did kind of wash there if you will. Clearly the top-line growth is coming from mix and flash new products.

So, Dunkin' K-Cup and just the innovation we talked about in each of the business areas will contribute significantly to that 3% growth rate. So, we feel pretty good about it because of the product, particularly a fairly large portion are either in market like K-Cup, Dunkin' today or will be soon to get the full year benefit of those..

In context of easing input costs across your portfolio, do you expect to be able to hold prices or do you plan to give it back as you typically have in the past..

Jason, we’ve done every year, I mean we will evaluate the situation on a case by case basis but typically we are transparent with our pricing and we’ll pass those cost savings on or whatever we need to do to meet the competitive landscape. .

All right, so probably a little bit of price give back in one form or another, a little bit of volume and a fair amount of mix contribution.

Is that the right way to think about it?.

Yes..

We’ll go to Alexia Howard with Bernstein..

Can I ask about competitive dynamics in the Pet Food business? I think you mentioned in the prepared remarks that that’s giving you some pressure. It looks as though the sales year-on-year were done quite a bit across the Pet Food business.

I’m just curious about what you’re seeing there, when you expect the sales guys to stabilize and whether you’re worried that as the category premiumizes that some of those mainstream brands will get left behind..

We did have in the mainstream part of the portfolio, particularly in dry food there was some deflationary pressure. We’ve seen corn and the soy complex come down and that’s been pass-through. In the third quarter, when you look at third-quarter results, we had some sharper price points in market, both on an EDLP basis and on a promoted basis.

In the fourth quarter, we had a little bit less with respect to promotional dollars and we floated some price points up. And that’s where you see some of the decline in the fourth quarter. When you look at a 52-week share, particularly in dry dog for example, our business was roughly flat in share for the 52-week period.

So, we had some softness in the early part of the year; we changed our promotional strategy in the third quarter and then kind of backed off of that in the fourth quarter. So across the year, we held our share. And as you look forward into the next year, we certainly believe that we’re going to have pricing strategy that holds our share for the year.

So it’s deflationary. In terms of relevance of those brands, those are -- pet food in the mass market is a huge category. It’s a traffic drawing category for retailers. It gets a lot of focus from them with respect to space. So, it’s going to be relevant. Obviously we want to have brands that are affordable and accessible to all.

So, whether it’s Gravy Train and Kibbles ‘n Bits in dry dog food and some mass outlets all the way up to Natural Balance in the new line extension we have which is Wild Pursuit, which has high protein sources, you can buy pet food anywhere from $9.99 to $59.99. And it’s a consumer choice model. And we play across the entire portfolio.

So, I think we remain relevant and the categories are really relevant to all consumers..

And I guess just as a quick follow-up.

So, in terms of when those negative prices stop playing out year-on-year, does that happen in the next couple of quarters and should we expect to see sales fairly flat year-on-year from there on out or maybe even growing a little bit?.

My preference is to not talk about forward pricing policy and the way we’re thinking about it from competitive dynamics I don’t think that’s appropriate. We’re going to do what we need to do to protect our share.

What I think -- while the mainstream food business is certainly under some deflationary pressure, we’re really very pleased about the premium pet specialty business as we continue to expand our portfolio across the channel and our dog snack and cat snacks business and we’ve got great new line extensions.

We expect very strong growth in both the pet snacks business as well as in the pet specialty businesses. So across the portfolio, we feel good about the growth rates and the growth targets that we’ve talked about..

We’ll go to Robert Moskow with Credit Suisse..

You might have covered this briefly already, but lowering your synergy targets this early into the acquisition, I know you haven’t lowered the long-term target, but can you just give me a little more detail as to what specifically is causing the synergies to be lower in the first year and explain a little bit more like why we should feel confident that the $200 million is still going to be intact and maybe not get pushed out?.

We did address that. I think it was the first or second question; I guess I would just reiterate a couple of points. First of all, we feel comfortable with the $200 million.

The primary reason for the postponement is, is that we took pause and hired a well-regarded consultant, given what’s going on in our industry and felt that we needed to look at our cost structure across the $8 billion new company enterprise.

And that along with some of the learnings that we’ve had to-date coupled with the fact that we wanted to ensure that we were acknowledging best practices by both companies rather than just integrated into the Smucker Company as we have done business, all of those things just postponed some of the integration activities.

And so, at this point, we chose to be maybe a little more conservative or significantly more conservative in our year-one target. But there has been no learning at this point that would suggest that we can’t still achieve the $200 million..

I’ll just add to that and just our confidence in the 200. We have strong confidence in the 200 and the fact that we’ve done a number of integrations of acquisitions before. And the most important thing is that you do that integration right in the first 12 months.

And if -- our cautious nature as you know us, if we think that we can do an integration better by pushing some of those synergies back by -- we’re talking about $25 million from one year to the next but it makes a better integration, that you have a better team in place and that you have better programs in place, we’re going to do that.

So, it maybe our conservative Midwest nature but we think it was the right thing to do but we’re very confident that we’re going to hit the number..

Can I ask, has this consulting firm given you some advice about changes in how you integrate the business already that makes you think that maybe we should be slowing things down a bit?.

We’re going to learn a lot from but we’re just in the middle of the work with them. And in fact, we actually brought them in a little late because we said hey, we’re not just looking at Big Heart here, we’re looking at the entire Smucker Company. So, we’re looking across $8 billion, not just across $2.5 billion.

So that I guess backed us up, maybe a month or two but it’s all for the right reasons. It’s going to get us better more confident numbers and get us probably a better integration. And we do when we look at integration, if there are reasons to change how we’re doing it for all the right reasons, we do that. So we’ve learned a little bit there.

And they are actually looking at best practices across all the consumer goods companies and they are going to bring -- they are bringing some good learnings to us..

We’ll go to John Baumgartner with Wells Fargo..

I just wanted to ask about coffee in terms of the Dunkin' bags. The volume decline there was pretty significant and I guess it coincides with the McCafé rollout and maybe similar to what we saw a few years ago when Gevalia came into the market.

So, did the performance there or maybe inability to defend that, how can that be improved at all? And is there a reason to think that maybe the bag performance for Dunkin' is down in 2016?.

So, a couple of things; and this is a theme across all of our legacy Smucker businesses. And that is as commodities moderated across many of our categories, we chose to pass along some of that moderation in the front half as in promotional spending. And you saw a number of pricing, list pricing adjustments in the back half.

In the case of Dunkin' specifically that would have been the case. So, we were very competitive in the front half but as we were continuing to realize elevated green coffee costs, we chose to pull back on promotional frequency in the back half, knowing full well that the McCafé was coming in.

If you look at our share trends and you go back on an annualized basis, if you look at the 52-week trends, you will see that in our Dunkin' business, we are still holding volume share ahead of two years ago and expected a bit of a decline here in this last quarter.

So, I think -- and even though you have Gevalia coming in and they have gained call it a 5 or 6 share, we have held onto our position. And so as Steve said as well going forward very early reads on K-Cups, it looks like that K-Cup business is also helping to pull along the bag business as well.

But we feel very good about the Dunkin' brand and our future prospects..

The only thing I would add, John -- this is Steve, is that with McCafé’s launch, the other probably the largest premium coffee company was very aggressive.

And so that there was a lot of noise in that segment in the last four to six months and so I think as that settles out the merchandising gets back to normal and the new leverage we have with K-Cups I think we’ll see a little better trends. But the pricing from the biggest guy in that segment has been lower than what we’ve seen in the past.

And I think that was to compete with the new entry of McCafé..

Okay.

So, is it fair to think that Dunkin' bag, the sales there will be up in fiscal ‘16?.

Yes, we expect growth..

We’ll go Akshay Jagdale with KeyBanc Capital Markets..

So I just want to ask a quick question on coffee. Can you just give us an overall view of share trends and roast and grounds, the various segments in fiscal 2015, and what you expect in ‘16? Obviously on the K-Cup side we’ve seen stabilization in your sales but you’ve lost a couple of points a share over the last couple of years.

And the part of the business that I really would like you to focus on from a share perspective is roast and ground; it’s been really unusual movement there.

So, can you just talk a little bit about where you ended up in fiscal 2015 in terms of share trends and what your expectations are in ‘16? Because the business is setting up to what I think have a pretty good year..

So, it goes back to the comment on the last question. If you look at whether it’s mainstream roast and ground or the bagged premium roast and ground, in both cases, we tend to look at volume share in those and that’s IRI.

There was a question earlier that we pointed to the fact that in our record year of fiscal ‘14, we had achieved share that was about 47%, 48% in the mainstream segment only. As we did see erosion in this past year, I can assure you that our shares basically came back to the levels they were in the prior year which would have been our fiscal ‘13.

So, the decline you saw in the business as we’ve talked over the last couple of quarters, the shift to K-Cup is sort of as expected in sort of low single-digit numbers.

But the declines, particularly in our roast and ground business in the back half of the year were a little bit more due to the absolute price point and some switching to other roast and ground players, including private label.

So, bottom-line in both of those roast and ground segments, I think having our share remained at or above two years ago, we feel that we’re in pretty good shape going forward..

And if we talk -- if we jump to K-Cups, clearly with all of the noise in K-Cups, our business grew in total dollars but we didn’t grow nearly as fast as the category. And so we lost share in K-Cups on a growing business. Having said that, we think the numbers we talked about earlier, we have a significant opportunity with Dunkin' K-Cups.

So, we would expect the faster share growth of our business this year will be in K-Cups..

So, just going back to Mark; so, do you expect roast and ground to gain share? I mean you’ve got this new packaging, which is in line with your competitor, lower price points.

Is it fair to expect that you should gain share in roast and ground, and in the bag segment at least maintain your share? And obviously in K-Cups, it seems like you should be gaining share.

Is that the right way to think about it?.

Yes, it is Akshay. Yes, we feel good about the merchandising, price points, sizes. Dollar share will be better than volume share because of the downsize but we expect units to be up significantly this year..

Okay. And just on the pet food side, you mentioned two factors that drove the sales and EBIT for the fiscal year to be a little bit lower than you had expected. Can you talk specifically about the two factors? You mentioned one was marketing, which is good for future growth and the other was promotional dollars.

I’m wondering if the promotional -- additional promotional expense is more defensive or offensive and why -- can you talk a little bit about why the plan changed on the marketing side to spend more? Is it just timing or something more strategic?.

Let me just say with respect to pricing, we have in all of our businesses across the pet portfolio, we have the elasticity models and we monitor our price competitive price gaps and there are certain trigger points that we reach in certain channels.

And so, we spend appropriately we think to defend our share in particularly in the dry dog food business. So there’s going to be periods of time given that it’s an EDLP category pricing tends to move around a lot more at shelf in that business than you might see in others because it’s much more of an EDLP business.

So, it doesn’t typically move the same way as you’d expect a high low category to move. So, we think we can defend our share and feel good about the brands. We were encouraged as we started to think about putting the two businesses together by a couple of programs that we had in market and in place.

And with early conversations as we brought the two companies together, we decided to accelerate some marketing spending, particularly behind new products in pet snacks, and also as we ready our portfolio in pet specialty to expand our Natural Balance distribution footprint.

So we think we’ve made some very smart investments as we closed the year which will help us grow those businesses into F16..

We’ll go to Farha Aslam with Stephens..

When you look at innovation and marketing in your business this year outside of the Dunkin' K-Cups, could you share with us your new product activity scale this year versus last year and any particular area that you’re focusing on that we should think about in terms of baking, consumer, et cetera? And then also the same, how much would you say your marketing budget is up and where would that be concentrated?.

I will just answer the last part of that question. Overall and if you look at just I will call it just base Smucker, it is up low double digits for the Company. And as we talked about throughout the past fiscal year, we were trimming marketing budgets across the business.

So I think it’s fair to say that all the brands have reestablished their marketing spend to more historical level. So I don’t think it’s concentrated in one area..

Our innovation pipeline is pretty full right now. Last year, we introduced over 100 new products. We have that same type of goal this coming year. And all of those I think I spoke to earlier -- a lot of them are around healthy alternatives for the consumer right along with consumer trends. So, we have -- and that’s also in pet food too.

So, we’re continuing that. As I said, 7% of our sales last year are from new products we didn’t have three years ago. So we expect that to continue.

We’re also entering snacking in a big way, not just the Sahale acquisition certainly helped but we have a number of snacking items, not only in the pet food side but snacking in peanut butter; our Jif To Go. We now have a new line of Jif bars which are actually outstanding. So, we’re pushing on all those areas.

And so innovation is really key to us and healthy innovation is really key to us..

Just to build on Richard, it is about clean labels, launching products with cleaner labels, it is about snacking and I would submit that in every given year it’s not about the number of new products that we want to launch, it’s about making sure that we launch the right new products. So some years, we may choose to focus on fewer bigger ideas.

Perfect Measures we believe might be one of those and so we’re focused there. Another years, there’s more what we would call maybe horizon one innovations but again, it’s all about priorities..

There’s been a couple of articles recently as we’ve all seen about processed foods and the challenge processed foods are under but our portfolio we feel very good about. We’re in categories coffee obviously has a good halo about it and is a staple that everyone uses every day; peanut butter is one of the lowest cost proteins you can possibly have.

And so we think we’re in a lot of good categories that go against the grain which in this day and age is where we want to be..

Maybe I’ll close on that. The lead markets for Perfect Measures will ship late summer. And that’s a concept that we’ve spent a lot of time and a lot of money on research and development. And we want to make sure that we get the right read on that. So the marketing spend, even though it’s a lead market launch, will be at national weight levels.

So that’s one of the reasons we talked earlier about the marketing spend returning to coffee and where some of that spend is going but we want to get the right read on that and then determine how fast to pour investment in it. So, we feel good about that. It will ship it this summer.

And if we get the results that we’re hoping on, we will roll as quickly as we can..

And just as a follow-up, incentive compensation, what’s the swing year-over-year that we should think about in Smucker’s?.

It’s about $0.06 to $0.07 -- well actually it’s about $0.05 to $0.06..

We’ll take our last question from Rob Dickerson from Consumer Edge Research..

I just had a question on free cash flow, I didn’t really hear much focus on it on today’s call but I think it is important.

The key question I have is that I think originally you said when you announced the Big Heart Pet transaction that the cash from ops on average should be about $1.1 billion over the next three years, so ‘16 to ‘18, but then at the same time, it should be increasing on average each year.

So then, when I look at your free cash flow projection for ‘16 which is $850 million or approximately a 75% increase from this year’s level and you’re telling me that cash from ops should be about $1.05 billion, leaving CapEx at $200 million, I step back and say okay, well is there upside to the $1.1 billion guidance on average that you gave originally from cash from ops or should we be thinking that CapEx in ‘16 is just let’s say a bit low relative to what we should be thinking about for ‘17 and ‘18? So overall, I’m just looking for color for your free cash flow guidance over the next three years..

A couple of things here, one is -- and I’ll point this out, in terms of this year’s free cash flow, I think it is important to realize some of those debt costs and those deal costs are flowing through there. So that would be a little artificially low. But specific to your question, I think there is upside opportunity for cash from operations.

I will push it out a little bit. I will say maybe more a three to five-year window, as Vince suggested as part of this consulting project, we are looking at working capital. So, we do think that the expectation is that we generate some cash from operations from that perspective.

As it relates to CapEx, if you just do the numbers this year is about 2.5% which is clearly below our longer term objective of 3% to 3.5%. And I don’t think I’d read anything else more into that other than we have concluded a number of significant projects. Over the last five to six years, we’ve spent just on our plants about $800 million.

A lot of those we talked about over the last several quarters on conference calls. So, we’ve reached to a point where those are complete. We’re sort of in run model with either brand-new plants or virtually new plants. So, we’re still sticking to our 3% to 3.5% of sales over time, so that will increase from this year but nothing dramatic.

So, our hope is that the upside comes from the working capital management project. And we will see a bump over the next three to five years..

Then just quickly on the synergy side, the $25 million projected for this year obviously is a bit short to what you said earlier, and I know there’s a question that was asked earlier about it.

The tone today seems like a bit, people become incrementally nervous because you cut the short-term guidance expectation but then you are also telling us that you’re hiring a consulting firm that you’re currently working with that is looking at the integration but also then looking at the entire business.

So, I guess if we say okay the $200 million still seems feasible longer-term, it’s just the timing issue, then what about the rest of the work that that firm is doing? Is this overall profitability, the entire ship rises even though the synergy number long-term stays the same?.

I’ll start and maybe look to Vince or Richard. I think first of all that the hiring of the consultants I think as Vince said in light of today’s world, we just thought it was very prudent to take a step back and just not make the assumption that we’re going to layer this business onto existing Smucker.

We’ve been very impressed with the process and people as we’ve interacted over the last two months we’ve owned the business. And I kind of reinforce we’ve owned this business for 10 weeks but we have spent every day of those 10 weeks learning more about this. So again, I don’t think I’d read anything more into the delay.

Ideally, there may be some upside. We’re still too early into the project to say that. I think the important thing for the investor to hear is that we are confirming the $200 million. If there is upside, we’ll talk about that in the days to come but again, it’s really the timing issue.

At the end of the day, we’re pushing $25 million into next year and the year after that. In short of that we will tell you more when we get to that point..

And then lastly very simplistically, when does the lockup period end for your private equity ownership interest?.

I’m sorry.

Rob, we had a little hard time; could you just repeat that please?.

I thought there was a specified lockup period for the ownership that was transferred via stock on the Big Heart Pet piece. I just wanted to clarify that that’s the case and if there is a period that’s locked up, if you just tell me when that expires..

It was 90 days following the close. So that was what March 23, so yes, we’re getting close here..

If there are no other questions, I just want to thank everybody for being on today. We look forward to seeing everybody sometime next week or somebody next week in Paris and then when we do our 50th anniversary in October in New York, we’d love to see as many of you there as possible. So, thank you very much. Have a great summer..

Ladies and gentlemen, 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 7356076. This concludes our conference for today. Thank you for your participation and have a nice day. All parties may disconnect..