Aaron Broholm - Vice President, Investor Relations Mark Smucker - President and CEO Mark Belgya - Vice Chair and CFO Tina Floyd - Senior Vice President and General Manager Consumer Foods Dave Lemmon - President, Pet Food and Pet Snacks Joe Stanziano - Senior Vice President and General Manager of Coffee.

David Driscoll - Citi Ken Goldman - JP Morgan Andrew Lazar - Barclays Pablo Zuanic - SIG Chris Growe - Stifel Bryan Spillane - Bank of America Rob Dickerson - Deutsche Bank Alexia Howard - Bernstein Akshay Jagdale - Jefferies Jason English - Goldman Sachs Robert Moskow - Credit Suisse John Baumgartner - Wells Fargo Pamela Kaufman - Morgan Stanley Scott Mushkin - Wolfe Research Jon Andersen - William Blair.

Good morning. And welcome to The J. M. Smucker Company's Fiscal 2019 Second Quarter Earnings Conference Call. This conference is being recorded and all participants are in a listen-only mode. At the request of the Company, we will open up the conference up for questions and answers after the prepared remarks.

Please limit yourself to two questions during the Q&A session and re-queue if you have additional questions. I will now turn the conference call over to Aaron Broholm, Vice President, Investor Relations. Please go ahead, sir..

Good morning. And thank you for joining us for our fiscal 2019 second quarter earnings conference call. Mark Smucker, President and CEO and Mark Belgya, Vice Chair and CFO will provide our prepared comments.

Also participating in the Q&A are Tina Floyd, Senior Vice President and General Manager Consumer Foods; Dave Lemmon, President, Pet Food and Pet Snacks; and Joe Stanziano, Senior Vice President and General Manager of Coffee.

During today's call, we will make forward-looking statements that reflect the Company's current expectations about future plans and performance. These statements rely on assumptions and estimates and actual results may differ materially due to risks and uncertainties.

I encourage you to read the full disclosure concerning forward-looking statements in this morning's press release, which is located on our corporate Web site at jmsmucker.com. Additionally, please note the Company uses non-GAAP results to evaluate performance internally as detailed in the press release.

We have posted to our Web site a supplementary slide deck, summarizing the quarterly results and fiscal 2019 full year outlook. The slides can be accessed through the link to the webcast of this call, and will be archived on our Web site along with the replay of this call. If you have additional question to ask after today's call, please contact me.

I will now turn the call over the Mark Smucker..

Thank you, Aaron. Good morning everyone and thank you for joining us. It was a pleasure to see many of you in New York at our recent Investor Day, where we provided details on our strategy to achieve our long-term financial goals, with a balanced portfolio of core and growth brands.

This morning, I will begin by discussing our second quarter results and then highlight the progress that we made this quarter in advancing our consumer centric strategy. We are pleased with the results of our business this quarter.

While they were in line with our expectations our efforts to support our balanced portfolio of brands continues to bear fruit. Our focus on adapting to consumer preferences was reflected in robust performance by key growth brands, which in total were up 12% this quarter. Sales for Nutrish premium pet food were up 23% over the prior year.

Other growth brands, including Nature's Recipe, Sahale Snacks, Smucker’s Uncrustables and Café Bustelo continue to deliver strong results as all achieved double-digit sales growth. Lower pricing and competitive activity across our broader coffee business impacted sales performance for the Folgers and Dunkin' Donuts brands, but did not impact margins.

In pet food, solid 8% growth for the Meow Mix brand was offset by the plant's discontinuation of certain Gravy Train products and weakness for Natural Balance in the pet specialty channel.

Factoring in all of this and excluding the impact of the Ainsworth acquisition and prior year sales attributed to the divested baking business, total company net sales were comparable with the prior year. As detailed in our press release this morning, our adjusted earnings per share included a pretax gain on the sale of the U.S.

baking business and income taxes related to the divestiture. However, the underlying business results, including the acquired Ainsworth business, were consistent with our expectations.

For the full fiscal year, we revised our sales forecast primarily due to competitive activity in coffee as lower green costs are being pass-through to consumers, incremental promotional spend and peanut butter and fruits spreads and in the pet segment, a shift in timing of shelf resets at key retailers that is delaying slightly the benefit of innovation launches.

Our adjusted EPS guidance reflects the impact of the revised sales forecast, a higher tax rate related to the baking divestiture freight costs, unplanned legal expenses and a shift in timing of synergy realization.

The health of our businesses remains strong as we continue to make meaningful progress against our three consumer centric growth priorities of leading in the best categories, building brands consumers love and being everywhere.

Let me provide a few examples of how we are executing against this framework, beginning with leading and the best categories. Focusing on our growth brands in Coffee, our Dunkin' Donuts K-Cup was recently recognized as a 2018 Nielsen Breakthrough Innovation, with year one sales exceeding $200 million.

In addition to the number one selling K-Cup SKU, the Dunkin' brand continues to be the number one premium bag SKU offering and the number one selling cold brew kit. 1850 brand coffee continues to perform as launch results confirm we are engaging with our target consumer.

Velocities for 18 out of 19 SKUs increased this quarter and total sales since launch are 90% incremental to the Folgers brand. The continued success of the 1850 brand will require us fill out the product offerings in the coming years. This is a multiyear effort.

Double-digit sales growth for the Café Bustelo brand was fueled by 38% growth for Bustelo K-Cups this quarter. And in fact, consumer takeaway for our total K-Cup portfolio was more than double the category growth this quarter. Further to our growth priority of leading in the best categories.

We are well positioned for growth across all key segments of pet food and pet snacks, which is now the largest category in the center store, growing at over 2 times the total store average. Our dry cat food business led by the iconic Meow Mix and 9Lives brands had double-digit sales growth this quarter.

Sales grow widely available premium pet brands Nature's Recipe and Nutrish grew by 15% and 23% respectively. While sales of pet snacks were down slightly compared to the prior year, we are excited about the upcoming snacks innovation.

Retailer acceptance of our pet food and snacks innovation has been strong with new points of distribution being 3% to 4% incremental to our current footprint for the total pet business. Turning to our growth priority of building brands consumers love.

We are following through on our commitment to increase marketing investments to support our innovation and growth brands. Our marketing expense increased $20 million this quarter compared to the prior year, driven by Coffee and the addition of Ainsworth.

A higher level of marketing support is critical to achieving our goal to grow our growth brands, which currently represent approximately $2 billion in total sales, by high-single digits over the next five years. We will continue to invest in our core brands and anticipate flat to 1% growth for these brands over the same period.

In support of these objectives, we announced a transformation of our marketing model consistent with our aspiration of becoming a best in class marketing organization.

The three key components to our new model are; one, overhauling our internal model to align marketing expertise to each business; two, adopting a new agency model and partner; and three, investing in resources in the areas of creative consumer insights and data.

Our new approach will yield increased productivity, cost savings that can be used to fund new investments, more breakthrough creative content and improved quality of our consumer engagement. This leads us to our growth priorities to be everywhere. As how and where consumer shop and consume products is more than ever on demand and multichannel.

We think about both traditional and emerging retail channels, including the food service channel as a single ecosystem where our brands must maintain an emotional bond with consumers. The fastest growing part of this ecosystem is e-commerce. We had strategic advantages here as coffee and pet food are two of the fastest growing categories online.

These two categories drove a 40% in our e-commerce sales this quarter. Over one third of our pet food and treats e-commerce sales and approximately 25% of our coffee online sales are on a subscription basis, and we anticipate continued growth.

As we look to expand both our partnerships with digital retailers and our own direct to consumer platforms, we will test new products and meet consumer demand for more customized offerings and variety with increased speed and minimal investment.

Our new marketing model and capabilities will also help us capitalize on how, where and when our brands engage with consumer across digital platforms in targeted ways, ensuring our brands remains top of mind with relevant consumer segments.

Within our away from home business, we are consolidating our separate U.S and Canadian operations into a single team. In addition, we transferred responsibility for the convenient channel to this team, which was previously included in our U.S retail businesses.

Our focus on brand and offerings in these channels, such as Smucker’s Uncrustables and portion control group spreads, Sahale Snacks and the upcoming launch of 1850 coffee and food service channels, further supports our intent to be everywhere and have our brands available wherever consumers shop.

In closing, let me reiterate that our decisions around M&A, our investments and capabilities, brands and supply chain supported by our cost savings efforts are all rooted in our consumer lead strategy, focused on relevant growth categories.

We have a balanced portfolio of core and high growth brand and we are committed to our increased investments, particularly in marketing to strengthen our brands purpose and connection to consumers. This strategy is our commitment to deliver total company growth and increased sustained shareholder value.

Lastly, we have a great team of dedicated employees to execute this strategy, and I would like to thank all of them for their continued dedication and effort. I will now turn the call over to Mark Belgya..

Thank you, Mark. Good morning everyone. I will start with an overview of second quarter results and then shift to an update on our full-year outlook. Adjusted earnings per share was $2.17 compared to $2.02 in 2018, an increase of 7%. As Mark noted, there were a number of factors that occurred during the quarter that affected earnings per share.

The contribution from the Ainsworth acquisition more than offset the loss of sales and profits from the divested U.S. baking business. The resulting $27 million pretax gain from the divestiture was mostly offset by a higher and planned effective tax rate due to the income taxes applicable to the sale of baking business.

Net sales increased 5%, driven by the acquisition of Ainsworth. Excluding Ainsworth and the impact from the U.S. baking divestiture, net sales declined $12 million or 1%. Lower net price realization was mostly offset by favorable volume mix. Foreign exchange was $5 million headwind during the quarter.

Adjusted gross margin showed sequential improvement, increasing from 36.8% in the first quarter to 38.2% in the second quarter. This was down 60 basis points compared to the prior year. The addition of the Ainsworth business impacted gross margins by 70 basis points.

Margins are expected to improve upon realization and acquisition of synergies and growth of the higher-margin Nutrish business. Excluding Ainsworth and the benefit of divesting the lower margin baking business, our gross margin was down slightly as lower net price realization was not fully offset by favorable cost.

SG&A increased $23 million or 6% compared to 2018, primarily related to the addition of Ainsworth. Marketing expenses increased $20 million or 17%, driven by Ainsworth and support for our recent new product launches.

G&A expenses decline $3.3 million or 3%, reflecting cost reductions from our right spend initiative, which are pacing slight ahead of our forecast. Factoring in all of this, adjusted operating income increased $31 million or 8% compared to the prior year.

Below operating income, interest expense increased $12 million, driven by borrowing cost associated with the Ainsworth acquisition. A $9 million unfavorable change in other income, expense was primarily driven by an increase in legal expenses.

And an effective tax rate of 30% was above our previous guidance of 24.5%, reflecting the impact of taxes in connection with the divested baking business. Let me now turn to segment results beginning with Coffee. Net sales declined 1% compared to the prior year.

The decrease was primarily attributed to the timing of promotional activities for the Dunkin' Donuts brand compared to the prior year. Sales for the Folgers brand declined 1% due to lower green coffee cost being pass-through to consumers and volume mix was flat compared to the prior year. And Café Bustelo net sales increased 12%.

Coffee segment profit increased 15%, reflecting the benefit of favorable green coffee cost and our lower contracted K-Cup costs, which were fully lapped this quarter. This segment profit growth was achieved despite 40% plus increase in marketing expense for the quarter, primarily in support of the 1850 brand.

In consumer food, net sales increased 1% excluding the non-comparable sales related to the divested U.S baking business. Looking at key brands; Smucker’s and Uncrustables sales were both up compared to the prior year; sales for the Smucker's brand was driven by Uncrustables, which increased 17%, more than offsetting decline in food spreads.

Net sales for Crisco increased 3% on strong volume growth in response to the price decrease we took earlier in the year. Sales declined significantly for R.W. Knudsen brand juices due to a strong prior-year comp that included customers building inventory of new pack sizes.

And Jif sales were flat as the contribution from PowerUps snacks and volume mix gains were offset by increased promotional spend due to private label pricing. Segment profit increased 3% in the quarter as the $27 million gain from the divestiture more than offset the loss of the prior year operating earnings related to the baking business.

Excluding these items, segment profit declined 9%, reflecting the lower net pricing, primarily for peanut butter and oils and higher peanut cost. Turning to the taste food segment, net sales increase 32%, reflecting the addition of Ainsworth.

Without Ainsworth, net sales declined 1%, reflecting the plan discontinuation of certain Gravy Train in private label products that reduced sales by 2 percentage points. Nutrish sales increased 23% compared to the prior year with robust growth across all segments to dog food, cat food and snacks.

Gains in Meow Mix and Nature's Recipe were partially offset by declines for Natural Balance and pet snack. The softness in Natural Balance reflects ongoing softness in the pet specialty channel, which has not been offset by growth in e-commerce. Pet foot segment profit increased 1% compared to prior year.

The profit contribution with Ainsworth was mostly offset by the impact of higher commodity and freight costs across all pet categories.

Lastly, in the international away from home segment, net sales declined 2% compared to the prior year, reflecting unfavorable foreign currency exchange and non-comparable sales in prior year from the divested baking business.

Favorable volume mix, most notably for Smucker's Uncrustables, contributed 2% of net sales and offset the impact of lower net price realization. Segment profit increased 2% as the declining input cost, primarily for coffee and decrease in marketing, offset the impact of lower pricing and the unfavorable exchange rate.

Looking at cash flow and debt, second quarter free cash flow was $125 million. This represented $55 million are increase compared to prior year, reflecting a decrease in working capital that more than offset planned higher CapEx spending.

During the quarter, we paid down $440 million in debt, primarily funded by the proceeds from divestitures baking business, resulted in a debt balance of $6.3 billion at October 31st. Based on a trailing 12 month EBITDA of approximately $1.6 billion, our leverage ratio stands at 3.9 times.

Let me conclude my comments with an update on our full-year outlook. As noted in this morning's press release, we updated our full year guidance. We now expect net sales to approximate $7.9 billion in line with consensus estimates.

This reflects continued lower net price realization on coffee and peanut butter and the impact of delayed distribution for pet innovation. We project full year gross margin will be approximately 38%.

This compares to our previous forecast of 38.5%, which we based on our first quarter margin of 36.8% and an estimated 39% gross margin to the last three quarters. Adjusted earnings per share is expected to be in the range of $8 to $8.20.

Key factors that cause us to change our EPS guidance range include; the estimated earnings impact of reduced sales guidance; and increase in the effective tax rate to 25.5% to 26% to reflect the second quarter tax impact associated with the baking divestiture; this reflects a normalized tax rate of approximately 24.5% for the remainder of the fiscal year; an increase in freight cost, approximately $7 million of unplanned legal costs that we recorded in the second quarter; and a shift in timing of $5 million of synergy realization related to the Ainsworth acquisition from this fiscal year to next.

While we still have a clear line of sight to the projected $55 million total synergies, we intentionally delayed some synergy capture related to headcount to protect business continuity purposes. Regarding the earnings cadence for the remainder of the year, we anticipate third quarter EPS to decline approximately 20% from last year's third quarter.

This is primarily due to an increase in marketing expense, higher input cost for the pet business, loss profits related to the divested baking business and higher interest expense. The prior year's third quarter also included a low effective tax rate as the company recorded additional benefit of the U.S. income tax reform.

Fourth quarter EPS growth will be driven primarily by innovation launches within the U.S. pet food segment, distribution expansion for the Nutrish brand and the realization of acquisition synergies. As it relates to free cash flow, we now project a range of $700 million to $750 million compared to our previous range of $770 million to $820 million.

The reduction reflects income taxes associated with the divestiture and a decrease in earnings guidance, partially offset by a working capital benefit. Our estimate for capital expenditures remain unchanged at $350 million to $370 million. In addition to this free cash flow, we received net proceeds from the divestiture of $372 million.

As net proceeds were used to pay down debt, full-year net interest expense will approximate $210 million to $215 million. In closing, while we recognize there is still much to be done, we are confident in our ability to execute our strategy and deliver the sustainable long-term growth that we outline at our recent Investors Day.

We thank you for your time this morning, and we will now open the call up to your questions. Operator, can you please queue up the first question..

Thank you. The question-and-answer session will begin at this time [Operator Instructions]. And our first question comes from David Driscoll of Citi. Your line is now open..

My first question is just the fact one, I believe you said marketing expenses were up $20 million in the quarter, and I believe the full year previous expectation was for marketing to be up $80 million to $85 million.

Can you confirm that you're still on track for that $80 million to $85 million increase in marketing?.

So you are right. Marketing was up $20 million for the quarter and that was Ainsworth mostly and in coffee. What I would say is that of that $80 million you referenced, $50 million of that was specifically for PowerUps and 1850 that is still on target.

We are trimming our overall marketing spend back a little bit but we’re still -- the good news is that we expected about 7.3% to 7.4% marketing to net sales and we’re going to be at just about that same relationship.

So obviously, we've had some favorable spending as we pushed our spending programs across all disciplines and that’s helping and there is just some selective where we feel comfortable that we weren’t hurting any of the near-term growth..

And then my second is just on the guidance. So your quarter comes out in line with expectations. Mark -- and this is all my comments exclude anything related to the baking divestitures. So I’m trying to not talk about that. The core piece of it looks like it came out in line to your expectations.

Mark, I think you said that in your script, but then you lower the guidance. So the question then is, there is a lot of pieces that you gave us here on coffee, peanut butter, delayed innovation. Can you just give us sense of magnitude where the real pressures are? It feels to me like it's more in coffee.

But I don’t really understand the delayed innovation comments as affecting the full year guidance. Any help and clarity would be appreciated..

Davem this is Mark Belgya, I'll start and then I will just look to Joe and to Dave and to Mark to ads, because I figured you'd have some follows up there, in particular and some of the language we had.

So in terms to just dig buckets, we’re lowering -- if you went from where our original guidance was at 8.48, 65 and I recognized that you exclude the gain, but I will just -- if you don’t mind, I will include that in my conversations to reconcile that down.

So if you take the tax impact and call that your rate anywhere from $0.17 to $0.19 and there we’ve mentioned litigation freight cost and the delay in the synergy, that’s all about $0.12 roughly.

And then the decline in the sales of -- depending on what numbers, anywhere probably its $75 million to $100 million depend on your rounding, so those are the key drivers. If you look at the guidance in aggregate are resulting, if you take the low end going from $8.40 to $8.

So in terms of the top line decline we’re going to obviously lose the margin from that sale. But we’re seeing favorable -- continued favorable extend across the company in excess of our plans that’s helping offset that softness a little bit. So that’s big picture of how do you go from an $8.40 to $8 and $8.65 to $8.20.

You guys want to jump on some of the specifics..

Just from a pet perspective this is Dave Lemmon, David. So I would just say that the slow in getting our products to market is as a result of our key customers moving their mod day reset about six weeks and the impact that has on projected sales..

On coffee as we said earlier, the net price realization with just the competitive activity in the market that’s really reflecting the loss of that top line but as Mark Smucker mentioned earlier in his script, not impacting our margins at all..

Thank you. And our next question comes from Ken Goldman of JP Morgan. Your line is now open. .

I had a couple questions on Ainsworth. Perhaps you said this but I didn’t hear. Are you still on pace for $800 million in sales this year, because I think you did 184 this quarter, it's not a very seasonal business, you’re not quite on a run rate for that. But then you also talked about the distribution gain for Nutrish later this year.

Just trying to get a sense is that distribution you gain already part of the 800, is that really how you get there and how you get the step-up in the sales. Any color there would be helpful..

The distribution gains that we'll get from the innovation is in our number. We are confident that we will hit the $800 million. There is timing associated with the backend loading of innovation. But we still feel confident that will hit 800 million.

If you look across the business, we've got a ton of innovation coming, we still got lots of white space opportunity in dog, cat and trees and we feel confident that we'll hit the $800 million..

But it sounds like that's really fourth quarter loaded.

Is that right? We should really not expect a big ramp-up there until 4Q, or did I not hear that right?.

You'll see sales improvement in Q3 and Q4..

And then my second question is, I wanted to dig in a little bit, Mark Belgya, on the income tax related to the gain on sale. Obviously, that tax hit came in greater than what you expected. Could you provide any more detail on that? I am probably going regret asking this, because I am okay to understand the answer.

But any help you can give would be appreciated..

I'll try to do this without taking the next hour. So let me just take a group back just a little bit on what we said publicly to hit ground and I will bring that competition forward.

So we consistently, when we started talking about the disposition of the business being fully sold and we always said there's $25 million to $30 million pretax gain, which obviously that's where it landed, $27 million.

When we were going through I think that all of this internally and externally just said, we were very focused with the pretax gains that we just applied nationally while we've been our effective tax rate at the time of, call it 24% to 25% and that's kind of how we landed at that EPS number that’s been discussed.

So we go through the actual sale and get the actual recognition of the gain.

And as we're going through the part, what we call the carve out, that's basically carving out the business for accounting purposes and zeroing out accounts and so forth, it came to life that based on our tax gain the taxes associated with that, our thinking was based upon prior transactions that that would also flow through deferred taxes and there would be no effect for effective tax rate.

As it turns out there was a portion of the taxes that were not covered, if you will, by the deferred tax. And the accounting rule basically say that difference, which is the effectiveness you saw in tax rate needs to flow through our tax rate. So that's what caused it to go from 25% to 30% for the quarter.

A couple, I think, key takeaways for those on the phone are as follow. There were no incremental dollars to the actual cash taxes paid, so we were using towards $65 million to $70 million estimate all along that hasn’t changed.

We had to take the entire effect of the income tax change the rate through the quarter and the days of all we were able to smooth that over the year we couldn’t do that anymore. And perhaps the most important thing is that we expect all things being equal that next year we would expect it to go back to our normalized rate of 24.5%.

So hopefully that helped -- and obviously entertain any other question you might have on it..

Thank you. And our next question comes from Andrew Lazar of Barclays. Your line is now open..

A quick follow-up on pet for Dave and then just a broader question. Dave, I think recently a competitor in pet had talked a little bit about seeing somewhat of a slowdown in e-commerce for the overall pet category.

I hadn't necessarily heard that before and just want to get some sense from you whether that was something you were seeing for the category as a whole as well or not..

We’re seeing e-com is up about 45% to 50% similar to last quarter and we're keeping pace with that growth..

And I guess just a broader question, a number of Smucker's calendar reporting peers have already begun to I think more broadly acknowledge that the reinvestment process to jumpstart the top line will be a multiyear process. And certainly, we understand that Smucker's is making sizable investment this year as well.

But I guess in light of -- I’m trying to I guess square that with some of the trimming of marketing spend this year that had been anticipated.

Understanding that you like to return so far that you're getting on the spending that you’re doing, it just feels like this market had been described as a pretty significant reinvestment year on the part of the company and really expected to get Smucker back to a level of marketing, maybe where you were several years ago before some other decline.

So I guess I’m just trying to square that. And then thinking ahead, I know Smucker's is committed to supporting these new platforms consistently. Does that mean we've got another year or two of significant incremental marketing as you think forward longer-term? Thank you..

Andrew, its Mark thanks for the question. So as I said at Investor Day, we've got to stick to our gun.

Obviously, we came out pretty strongly in support of this increase in marketing, getting back to historical levels, staying in that 6% to 8% of net sales range, which Mark earlier highlighted that even with some modest trimming this year, we’re still going to be right -- in terms of percent of net sales will be right where we expected to be.

I would highlight, and I am going to actually ask Tina to make couple of comments that again as Mark mentioned where we felt that we could get some productivity gains, there may have been some opportunities where we didn’t need to spend some dollar on Uncrustables specifically, that growth continues and we have not needed to accelerate some of the marketing spend that we thought we would.

So I would submit to you that we have not cut any of the core marketing programs that we had intended to, it's more trimming across the variety of areas, but not I think any of our core programs..

Andrew this is Tina, just supporting Mark’s comments. We’ve seen 18 quarters of consecutive growth for Uncrustables. And again, we’re starting to build households and knowing that long months coming on next year, we just realized that we didn’t need to spend the amount of marketing that we had in place.

So that’s some of the trimming that we did on the consumer side, but we’re definitely still supporting like the launch of Jif, Power-Ups, none of that has been touched up to this point..

Thank you. And our next question comes from Pablo Zuanic of SIG. Your line is now open. .

I will stick to two questions, the first one is broader and yes, it can be answer one on one person. But Mark Belgya, when I try to think of the EBIT guide, tell me this spend is correct or incorrect. In the case of coffee, lower cost need to lower prices, but there is nothing new there on the EBIT front. When coffee cost come down, prices come down.

So coffee necessarily, from an EBIT perspective, didn’t worsen and is not the reason why the EBIT guidance was cut, ex the baking sales unit gain.

In the case of pet, part of what you're talking about margin pressures freight, it's nothing new relative to what you guys said in previous quarters, the pet interest is more about the delay on the innovation due to shelf resets. And then in the case of peanut butter, we have a situation where you have higher cost and prices are coming down.

I assume that peanut butter, it's a bit of robust to look at the volumes and prices will adjust. So is that correct or what am I missing there. I understand that maybe, Mark, Joe, Dave and team have an answer on this. But it seems to me that the EBIT cut in that context is not the end of the world.

Can you comment on that?.

You are correct. And in all those three, I would say of those three probably where there might be a little bit more EBIT than you have assumed in your model, and would be in the consumer food and in peanut butter. And that we are having to lean in. We are seeing low private label pricing.

But you are right in the coffee area, we've continue to see very favorable green coffee cost, which Joe has outlined and in Dave's area. The only under cost I would say that have increased or certainly haven't gone down as freight and that has a predominant hit to both coffee or to consumer I should say into pet.

But generally, I think your thinking is right. But there's probably the freight cost and the effect of peanut butter that are -- I'm guessing are negatively affecting a little bit more than what may be modeled..

And just to follow-up for Dave Lemmon. Dave, the Trade Press is talking about Petco making significant assortment changes starting next year, focusing on more Natural products, taking some brands off the shelves. Can you talk about what your exposure to Petco and how would you're portfolio affected there.

And by the same token, just comment how Nature's Recipe in mass has been affected by the launch of Nutro, and we all expect Blue Buffalo to enter Walmart at some point. So just give some context in terms of our Nature's Recipe has which took the impact from a player like Nutro on the premium side in mass..

To answer your first question on Petco, the exposure that we see is in around 8% of Petco sales are done through brands that will no longer be supported by them. I would say that we are going to offset all that and more through our innovation and new distribution launches that we have coming-up later in the fiscal.

And I would say that you can't discount our brand strength, and consumers will potentially leave the store and shop elsewhere for those brands that they know and love. So that's what I would say with regards to Petco. With regards to Nature's Recipe, we're experiencing 15% growth on that brand. We see no impact from Nutro.

We've got True Treats coming to market, as well as some innovation on food. So all is good on Nature's Recipe and we see limited interaction with Nutro..

Thank you. And our next question comes from Chris Growe of Stifel. Your line is now open..

Just want to ask if I could in relation to -- and forgive me if I missed this. But in terms of -- what was your overall inflation in the quarter? And as I was thinking through some of the divisions, I guess in coffee, your pricing net of cost was favorable but maybe less so in consumer and pet.

I want to make sure I heard that right, number one, and if you can maybe better quantify the freight and the input cost inflation for the quarter that was affecting the gross margin..

Chris, this is Mark Smucker. I am just going to start real quick and then pass it over to Mark. I think what is a little unique about our business versus some of the rest in the industry as we are seeing inflation in many categories we are starting to see some inflation in pet as we commented in the prepared comments.

But you’re corrected in coffee and to a less degree and to some degree in consumer, we’re still seeing some deflation. And so I can turn it over to Mark to just comment generally on the net effect. But I think that does make us a little unique. What I don’t think has changed is that we will continue to pass along cost up or down to the end consumer.

And so that has not changed and again we use multiple levers. I think what you’ve seen in both coffee and peanut butter of late and then probably for the back half is there we will be using the trade lever to a degree, and so that’s one way we manage it..

In terms of the net inflation, it's probably pretty modest, because as Mark suggested, we have had and we've said it since beginning the year, we expected cost increases across a whole variety of spend and on the input side on freight and those have continued to come to past.

And I am guessing there's couple of percentage points but offsetting that has been coffee. And of course, we get an additional benefit as we reported this was our fourth quarter of our K-Cup contract benefit. So that also just if you look at the total cost is offsetting that.

So it is pretty much a wash when you come to a net inflation deflection percentage, but it definitely skews unfavorable to consumer foods and to pet and positive to the coffee side..

And just had one quick follow-up for you, Mark Belgya, in relation to the receivables balance, which was a quite strongly again last quarter. I think last quarter you talked about some late in the quarter sales coming in through.

Can you give a good idea of what happened this quarter and how that affects the receivables balance and potentially sales, going forward?.

So there is two things, one is just the absolute increase that came from the Ainsworth acquisition. So that’s component of it. The second thing and I’m guessing -- I’m not sure exactly with your point comparison, but if you compare fact to the end of the fiscal year, you have to look at the last month of each quarter.

So the last month of the second quarter are -- October is a big sales month if you look at the end of obviously the fourth quarter of last year, it was a smaller so it's just the incremental increase in sales dollar. Most of those receivables are still outstanding at the end of the month..

Thank you. And our next question comes from Bryan Spillane of Bank of America. Your line is now open. .

So first question just related to -- just want to tie couple of things together with some of the questions related to pet food. I guess, stepping back and listening to what's happened and you have got some investment going on and launching some new products. There is a channel shift happening as e-commerce grows.

And I guess there is some potential disruption in the specialty channel with what's happening at Petco. So it just seems to me that -- will there be margin pressure that we should expect to see in that pet food division to net of all these things that maybe goes on for a year or two.

Just trying to get a sense for with all these changing -- all these dynamics, does it put some margin pressure on that business in the medium term..

No, we won’t see there is any margin pressure coming in pet. Yes, there is channel shifting going on and that’s common. I would say that we have major levers that we will pull as we continue on the business both synergies being the first one, which will deliver margin. Our pricing we led on snacks.

We will follow on food quickly if we see it take place in the marketplace. And we've got a bunch of levers that we're pulling from the supply chain network optimization, making sure that we have the most efficient network. We're doing some design to value and value engineering work from a formula perspective.

And then rate spend obviously continues on the business and we expect to yield better margins for that moving forward..

Mark Belgya, I'm not sure if I missed this but you talked a little about gross margin expectations for the year.

Could you just talk a little bit about phasing? Is there anything that we should be thinking about 3Q versus 4Q in terms of the phasing of gross margins year-over-year?.

I think you are going to see an enhancement more in the fourth quarter than the Q3..

And that's just timing of price increases and actions you are taking or year-over-year differences.

Just what's driving the difference?.

Yes, it is timing but certainly there's some synergies that Dave mentioned, those are both G&A and COGS impacted just the way some of the costs are hitting and again the way we price, it's just more in Q4..

Thank you. And our next comes from Rob Dickerson of Deutsche Bank. Your line is now open..

So to just a step back for submitted in terms of the pricing conversation, I know -- it sounded like earlier this year as we look forward in the full fiscal '19. We thought there might be some elevated promotional spending fast coming, especially given just where the commodity basket was.

But what we're hearing now is, yes, that did happen but also given where the pass through has occurred, namely, let's say on the private label side that overall the pricing environment just remains obviously very challenged and very competitive, which is essentially the case for all.

So I'm just curious in terms of the innovation that comes as you think about how your organic sales growth trajectory flows in the back half of this year and next year. Do you say, okay, well on the core we're in the center of the store and there is a private label push. And because of the commodity complex, there is incremental pricing pressure.

So we need to continue to manage those price gaps, one. And then hopefully, we can offset with some price mix on the innovation, to get us to a normalized flattish pricing outlook overall.

Or is it a look, in general, we need to support our growth brands and increase our marketing spend and become more nimble to be more in tune with consumer demand and then -- but at the same time, we are going to have to defend our core and part of that's going to come in the form of pretty much pricing.

And it'd be might not be announcing price list declines but we do foresee the pricing environment continuing to be a big challenge as we go through the back half of the year..

Rob, its Mark Smucker I'll start and then ask the team if they have any color or commentary. So you are correct. It is a competitive environment. You are also correct that as we manage through those environment, making sure that price caps are right and our goal is to protect profit dollar profit.

Obviously, margins are important too but we really are focused on dollar profit. And as you've seen so far this year, we've been successful in doing that. We continue to believe philosophically that the right thing to do is not only be competitive but to pass through up or down cost to the end consumer. And so that will continue to be our focus.

But I do think at the end of the day we are focused again on making sure that we can sustain and ultimately grow our dollar profit..

And then just one question on shelf resets, we're entering the zones anticipation of reset that occurs in large retailers earlier in the year likely those conversations, as I would think, have been had and maybe where you foresee yourself playing out. So I’m curious namely not so much in consumer not so much in pet but more so on coffee.

Do you foresee yourself come early part of calendar '19 year, holding space for Smucker within coffee at retail? It just might be a bit of a shift. Let's say, a little less holders a little bit more 1850, et cetera..

I would say we’re always ensuring whenever we go in for a reset with a customers that we’re bringing our thoughts on what's good for the category, what’s good for the consumer, what’s good for our portfolio.

So there are always put and takes that some of those timing depending on key customers some had happened earlier in the summer as we go into next year.

We will continue to bring the same mindset to every customer, and I think that’s what they rely on us for is to be coming in with a very category specific mindset and recommendations that are going to help absolutely our business but help the whole category, grow the category..

I would add -- Rob, this is Mark Smucker again. Just as an example without naming any specific customers, we do have one of our largest customers that is in the process going through resets and actually our core folders been this is more than likely going to regain some lost shelf space that they had previously lost.

And I think the customer recognize that it probably wasn’t the right decision. And so we’re actually going to regaining some space on the core at that particular customer. So to Joe's point, we have to go in taking in an approach that we’re doing what’s right for the entire category.

And to the extent that we can do that, we feel that both the customers and our business will ultimately benefit..

Thank you. And our next question comes from Alexia Howard of Bernstein. Your line is now open..

Coming back to the question of pricing, I’m looking at the measured channel data and its showing that the pricing on the shelf across the portfolio is actually up about 1%. And obviously, that’s the pricing from the retailer to the consumer. And yet across many of your segments, the pricing is down.

Is that just a delay of some sort, maybe the retailers out passing through those price decreases they are giving them but will eventually or is there another explanation. And then my follow-up question is just really quickly is the, does the unplanned legal expenses. What would they pour and will they continue? Thank you and I'll pass it on..

I don’t want to speak for all the categories. But I would just say I'm not -- I don’t have what you're looking at maybe right in front of me. But I think some of the way that pricing measurement is reported could be depending on whether that's everyday versus promotional, some of our investment maybe is going more toward the promotion.

So again, I think overall there is some lag there but depending how the retailer reflects that on shelf and how IRI picks that up that can be the differences there..

In terms of the legal expenses, I can't go into a lot on pending litigation, its litigation claims and settlement. As far as the amount that's our best estimate right now I'm sure you are aware of the continued liability accounting rules, but that's our best estimate of what's probable and estimateable.

So I think we booked about $7 million currently..

Thank you. And our next question comes from Akshay Jagdale of Jefferies. Your line is now open..

It's a high-level question on the step-up and brand support, and really what I'm trying to get a sense from you on is. Is this offensive or defensive? So if it's offensive to me, it means it should result in better market share performance for the company relative to what we've seen historically.

And that's I think exactly what you're planning so first, is that a correct interpretation of what the company strategy intends to do.

And then secondly as we think about the likelihood of success, there is some confusion on our end, because several large companies have made similar incremental brand investments, which makes these step-ups feel defensive.

But I think what we might be missing in the big picture is the whole set of bunch of private companies small companies that we only hear whom you've compete against.

And I don't think they're making at least these levels of step-up in marking and brand investments and this is probably the cohort where majority of the share gains are likely to come from. So hopefully, it's not too dense of a question. But I would love to get your perspective on that..

You're right, it absolutely is offensive. At the end of the day, we got to do what's right for our brand and making sure that the long-term health of the brand is there is really what it's all about. And so I would submit to you that we were one of the very first companies to publicly talk about a step-up in marketing.

And whether or not some of our peers our competitors are doing the same thing, I think points to the fact that's it's probably the right thing to do across the board. As you know, there has been some erosion of brand equity just generally speaking in the industry. But in our own case, that is also true.

And so we need to make sure that we're fully engaged with the consumer as we said at Investor Day and so the step-up in marketing is absolutely offensive. If you think about -- when you look at traditional MMA analyses $1 spent on marketing, typically has a markedly higher return over than $1 spent on trade. Yet, that return tends to be a longer burn.

So the return timeframe maybe longer, it’s not an instant hit but that’s the reason why we have to stick to our guns and continue to support our brands over the long-term, and we should see our equities our awareness and all of those measures similarly rise..

And just to follow up on that. But to be clear, the reason you feel comfortable as offensive it is, you feel good that you will gain share, because you’re doing something more than most of your competitors in the categories that you compete. And as a follow up just to that is as you've gone through this new marketing model.

At a high level, I mean, is the cost of incremental sales today higher or lower than historically, because from what I can tell, the tools and the new innovative partnerships that we’re seeing from companies like yourselves on go to market seem to be a lot more productive than the traditional media spending.

So there is this view out there that it just cost more to get growth. And I actually think that the tools available today make it a lot of efficient to get growth if you execute properly. Thanks..

The latter part of your question believe that as well that it's done right. The cost of growth overtime should be more efficient. As it relates to the offensive comment, Akshay, these investments in our brands are ultimately aimed at building loyalty.

And as when you can build loyalty, you build repeat purchase and when you build repeat purchase ultimately you’re going to improve share, so absolutely.

And then the cost of incremental sales part of your question that has been true over the last few years in terms of trade dollars that there has been more trade and in certain categories you have seen more trade dollars aren’t getting the incremental lift that they say previously had, therefore, justifying a return to investing in our brands..

Thank you. And the next question comes from Jason English of Goldman Sachs. Your line is now open. .

I have two just housekeeping items. And I am sorry if I missed this in some of the prepared remarks. Can you help me understand the drivers of the quarterly gains over the next two quarters? I think you said that third quarter EPS will be down around 20%, which implies at the midpoint that your bounce back to around 11% growth in the fourth quarter.

And help me understand what drives the softness in the third quarter and the robust bounce back in the fourth?.

So the 20% reduction in Q3, there is probably three or four things. So one is there is significant step in marketing in Q3, there is a step up in Q4 too but significantly in Q3. Because the third quarter was our heaviest baking period, we're losing a significant amount of profits from last year that obviously are going to repeat this year.

And then we're also seeing the impact of both the freight cost and cost higher cost in general. And then last year, the tax rate was at normally low, because that's when we booked our initial tax reform. So I think it was, I recall it's even under 20%, so that's through the key driver.

As you flip it then to Q4 what we're going to see, although, the marketing expense is still going to be up, I think to Dave's point, we're going to see a lot of his innovation come to market in Q4 will benefit from that from the other innovations obviously are picking up some ramp-up Jif, PowerUps, and 1850s are probably the key drivers there.

I think the cost would have settle up, so I think as I just said earlier in the margin that the heaviest cost hit is more Q3 year-over-year versus Q4 year-over-year..

And then one more clean-up question on the guidance, I'm looking at your free cash flow guidance the trend it looks like around 9% at the midpoint. But at EPS, you attribute EPS by 5% and look like maybe a 0.5 or so is due to non-cash step-up in tax rate. So cash EPS trip of around 3.5%.

How does that amplify to almost the 9% decline in your free cash flow outlook, particularly in context of the positive comments you had on working capital this quarter?.

Let me spin it a little different way and see if this answers your question. So we took -- if you just go from the low end to low end, we went from $770 million to $700 million. We are paying about $70 million in cash taxes, and just bare with me here a second.

When we talked about free cash flow last quarter, we obviously hadn’t closed the transaction yet. So what we reported to you on that $775 million to $825 million did not have cash taxes coming out. What we did do is we deducted that from the proceeds. And if you go back and look at what we have said, we have proceeds of about $310 million.

As we went ahead and the way it's played in our financial statements that taxes will actually fold through cash from operations, which free cash flow. So that's the key drivers is the $70 million. If you layer in then the decline in earnings guidance that takes you down I don’t know call it another $20 million or $30 million.

And then we are seeing positive benefit of working capital that brings us back-up to get down to that roughly net $70 million reduction. I hope that helps you..

Thank you. And our next question comes from Robert Moskow of Credit Suisse. Your line is now open..

Just two quick questions, I'm little unclear on the coffee outlook for the back half of this year. Joe, are you lowering your coffee outlook for the back half? But for the year, it's pretty much as you figured. And then secondly, also wanted to question about the reformulation potential at Petco.

Dave, I just thought the concern -- what if other retailers follow Petco's lead and reduce shelf space for artificials or products with artificials or remove those products from the shelves. Do you think that's a concern? And if so, would you need to make broader reformulations across your line..

On the coffee outlook I would say where we thought we would be at this point and the year doesn't change. I mean I think we talked about the coffee margin was frontloaded in first and second quarter and you can see that as we sit here today. We're still confident with where we're going to end-up the year where we thought.

Again, I think it's just the net sales realization due to adjustments on our investment in trade based on competitive pricing has impacted that top line a little bit. We still hope to come in slightly above where we were last year from a net sales perspective..

And then just on the Petco situation, I think that other retailers will take a wait and see approach with Petco. We’re already seeing it in some in the pet stores taking a similar approach for Petco following them actually.

And I would just say that there is a large consumer base there that is buying many products that are not meeting Petco standard and they will decide, not the stores will decide, where and what they buy..

Have you evaluated, Dave, what the cost would be if you needed to reformulate?.

No, because I don't think that we need to reformulate..

Thank you. And our next question comes from John Baumgartner of Wells Fargo. Your line is now open. .

Joe, I wanted to go back to single serve coffee and the private label pricing there, because it's still deflationary it's really not getting any better.

Are you just more or less waiting for commodity inflation to induce more rational pricing more here? Or I guess is excess capacity such that pricing pressure may still persist even with commodity inflation? How are you thinking about the environment there and the structure?.

John, on one cup, I think we've talked about it and you can see what our brands are doing and we felt very confident about how our growth looks across all of our K-Cup brands.

From our perspective that contract really help us reset our pricing and has given us the ability to continue to drive growth at more category or consistent margins with the rest of the portfolio. Clearly, private label continues to grow. We’re seeing growth, especially from a price per unit with some sizing in the segment.

And I would expect to continue to see that happen. But obviously, when we talked about the coffee commodity cost impacting one cup is very -- is minor compared to the other forms in the category..

But I guess if you look at single service and your growth there, the category shifts more and more to single service field that is opening up a new vulnerability, because you've got a few of the -- just more a rational price competition in private label and single serve than you had in roast and ground over the year.

Can you comment a little bit in terms of what's in your expectations, going forward, your model? And just trying to get some comfort in terms of what that competitive dynamic looks like, going forward?.

I don’t know. I wouldn’t agree with that. There's more rational pricing in one cup. Over the years, we seem some irrational pricing in all segments. I would say, actually, there has been sharper pricing in one cup. But I wouldn't call it rational. I don’t expect that to get more irrational going forward..

Just one other things to add to Joe's comment, I agree with what Joe saying is that. Where we've seen over the years as we've been in coffee for last decade irrational is where green was. And green is just such a much smaller percentage of the input cost on K-Cup and single serve.

So the availability and the ability to do that type of pricing is just not there but it's certainly up for an extended period of time..

And then just a follow up for Dave real quick, just in terms of the clarification on pet.

Did you say that 8% of your Petco business was being rationalized?.

No, not that it was but it could be..

And then do you have the number on what Natural Balance sales were in the quarter?.

Pardon me..

Do you have a number for what Natural Balance sales did, the growth in the quarter?.

It did about $75 million..

And that was down double-digits year-on-year?.

No, it's not down double-digits. No..

Thank you. And our next question comes from Pamela Kaufman of Morgan Stanley. Your line is now open..

I just wanted to follow up on the coffee outlook for the remainder of the year and what you're anticipating from the competitive and promotional environment.

And given that the coffee margin, you mentioned it was front half loaded, should we expect EBIT margins to decline in the second half given the competitive environment and since you fully lapped the renegotiated K-Cup contract?.

Yes. Pamela, it's Joe. I would say consistent with what we've seen the rest of the year, we know that coffee futures continue to be volatile. We've seen competitors make investments, we've made investments. We would expect that, but again we feel very confident with where we are today with our price and promotion strategy for the rest of the year.

And yes, as I reiterated earlier, our plan from a margin perspective was front loaded this year so the back half I think will be down slightly..

Pam, this is Mark Belgya here. I think though when we make the commentary about front-end loaded, that was sort of a year-over-year commentary. I think the margins that Joe and the team are showing. I mean we consistently say we are going over -- beat the 30% plus segment profit and I think that's still the intention for the rest of the year..

That's right..

And just a question on your cost savings program.

Are you still on track to generate $80 million in savings from RIGHT SPEND this year?.

We are on track for the $80 million. Just to be clear, that was not all RIGHT SPEND. That was a series of projects. RIGHT SPEND is probably the largest single component of that and I think it was in one of our scripted comments that we're actually trending above or favorable to that RIGHT SPEND portion..

Thank you. And our next question comes from Scott Mushkin of Wolfe Research. Your line is now open..

So, I want to go back to what Andrew Lazar was talking about a little bit earlier and really focus more on the medium to longer term. I guess what I'm doing, I'm looking at your three segments and I'm just trying to understand.

I mean obviously you've made an acquisition in pet and you're going to try to grow that, but there's a lot of pressure as we talked about on this conference call. If we look at peanut butter and jelly, again pressure is private label.

And then if we go to coffee, it seems as if it's taken you guys a lot of money to get 1850 off the ground so that project out a year or two or three. Just trying to understand how the business changes and how you're going to spend more to stabilize things and grow things over time? That's my only question. Thank you..

Scott, this is Mark Smucker. So first of all, we are wholeheartedly committed to our strategy and one of the reasons why Uncrustables has been performing as well as it has in some of the consumption of peanut butter and jelly has or is shifting to ready pre-made sandwiches.

And so we kind of consider ourselves lucky and smart that we are in that business because clearly as the consumer doesn't make PB&J in the morning, they might default to that. So, clearly that is on strategy. As it relates to coffee, same thing. We accelerated the growth of our one cup business, that has overdelivered this quarter.

And then pet as well making -- in every category shifting our portfolio to where the growth is and I would point to the fact that we had some questions in the last few quarters about Nutrish and its ability to co-exist with Nature's Recipe and as you've seen from the results, they are doing -- they're both doing very well and they both serve a unique need.

And so in each category we are executing our strategy, making sure that we're supporting where the growth is, and consistently following through. As it relates to innovation, as I mentioned in my prepared remarks, these are multi-year efforts. We talked of a year or two ago about fewer bigger bets.

This is the beginning of that, you're seeing those efforts come to fruition, but as we're launching platforms. I would submit to you as you look across the industry the amount of investment that we're making against a new platform is not unusual or significantly higher than you might see elsewhere in the industry.

So we think we're pretty consistent there, but it does require us to maintain that investment for some period to flesh out, to fill out those product lines so that they continue to gain a presence on shelf and so we've got to continue to do those things.

So to the extent that we can continue to follow through on our strategy, we have a tremendous amount of confidence that we'll be successful..

Thank you. And your next question comes from Jon Andersen of William Blair. Your line is now open..

I was wondering if you could provide a little bit more color on the performance of 1840 and Power Up so far. I know it's early, these are platform innovations for you and as you've said, Mark, it's a multi-year effort.

But if you could talk a little bit about what you're seeing with respect to distribution, initial velocities, and what sort of the next steps are or milestones are for those platform expansions? Thank you..

You're 10 years too early, we were -- it's 1850 [Technical difficulty]..

Yes, I'm always early..

Obviously, you're not getting our targeted at..

I'm always early..

I'm kidding. As Mark said in his opening comments, we continue to be very pleased. We saw velocities improve this quarter. With continued efforts, we saw both trial and repeat rates improve. Our consumption run rate is now above $1 million per week at retail. So again, all the -- all the key metrics we're watching very closely continue to improve.

We've said it once, we'll say it again. This is a long-term project. We're going to continue to stay in it. We have continued support for the back half of the year.

We've got some good merchandising even over the next couple of months that we're excited about as we're in the highest coffee consumption time period and the incrementality continues to be better than what we expected before -- before the launch. So, we're pleased.

We'll continue to support and we'll continue to learn and adjust as we need both for our customers at retail and our consumers..

Hey Jon, it's Tina. Just on Jif Power Ups, again I'm seeing very similar metrics to Joe. Our ACV is up, our trial and repeat is up, velocities continue to improve. Again it's great as Power Ups is bringing new users into the Jif franchise, which we're really excited about.

As we look to back half of the year, we have a lot of marketing and merchandising in place as we look to Q3 and Q4 and we've also added some incremental capacity for clusters. So, so far we're really pleased with the platform and look forward to the balance of the year and continued growth..

Thank you. And that concludes our question-and-answer session. I'd like to turn the conference back over to Mark Smucker for closing remarks..

Thank you. Just want to reiterate. First of all, thank you to all of you for taking the time today to listen in. And wanted to just comment despite some of the unforeseens this quarter, the businesses are performing as expected. We see from our lens that our strategy is working.

I commented on Nature's Recipe and Nutrish co-existing, the fact that our Folgers brand the decline was very modest, our innovation is performing, our growth brands are growing. So from our perspective, it is about sticking to our guns, making sure that we continue to support those things.

And again just thank you, our investors, for the questions today. I personally felt like it was a productive dialog. Your questions were welcome and it felt like a continuation of our Investor Day from a couple of months ago. So, just wanted to thank you all for that.

And then of course to thank our employees because they are the company, they are the people that make this happen every day, and so just wanted to acknowledge their support and dedication. And have -- all of you have a great day and a Happy Holiday..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day..