John Bryant - Chief Executive Officer, President and Director Kathryn Koessel - Ronald Dissinger - Chief Financial Officer and Senior Vice President

Alexia Howard - Sanford C. Bernstein & Co., Inc. Andrew Lazar - Barclays Capital Diane Geissler - Credit Agricole Securities (USA) Inc. Jason English - Goldman Sachs Group Inc. Vincent Andrews - Morgan Stanley Terry Bivens - JP Morgan Chase & Co Eric Serotta - Wells Fargo Securities, LLC Eric Katzman - Deutsche Bank AG Robert Moskow - Crédit Suisse AG Kenneth Zaslow - BMO Capital Markets U.S. Bryan Spillane - BofA Merrill Lynch Edward Aaron - RBC Capital Markets, LLC David Driscoll - Citigroup Inc David Palmer - UBS Investment Bank

Good morning. Welcome to the Kellogg Company's First Quarter 2011 Earnings Call. [Operator Instructions] At this time, I will turn the call over to Kathryn Koessel, Kellogg Company Vice President of Investor Relations. Ms. Koessel, you may begin your conference.

Thank you, James. Good morning, and thank you for joining us today, and welcome to the review of our first quarter 2011 results. Joining me are John Bryant, our President and CEO; and Ron Dissinger, our Chief Financial Officer. The press release and slides that support our remarks are posted on our website at www.kelloggcompany.com. As you are aware, certain statements today such as projections for Kellogg Company's future performance including earnings per share, net sales, margin, operating profit, interest expense, tax rate, cash flow, brand building, upfront costs and inflation are forward-looking statements. Actual results could be materially different from those projected. For further information concerning factors that could cause these results to differ, please refer to the second slide of this presentation, as well as to our public SEC filings. As a reminder, a replay of today's conference call will be available by phone through Monday, May 9. The call will also be available via webcast, which will be archived for at least 90 days. Now let me turn it over to John Bryant, Kellogg Company President and CEO.

Good morning, and thank you for joining us today. We are pleased with our first quarter results. Our performance reflects the building of momentum in our business and represents a good start to the year. We delivered strong top line results, both in our North America and International businesses. As Ron will discuss in more detail, operating profit declined for the quarter on a year-over-year basis, as timing of net price realization lagged input cost inflation during the quarter, and increases in supply chain investments and advertising spending impacted our growth. These results are also on top of the toughest quarterly year-over-year comparison that we faced in 2011. We remain on track for the year, raising our internal net sales outlook and reaffirming our 2011 internal operating profit and currency-neutral EPS guidance. As we said at CAGNY, regaining momentum is our primary focus in 2011. Our first quarter results set us on the right path to rebuild momentum throughout the year. We are in great categories which respond well to innovation, brand building and nutrition growth. We are focused on exciting consumers with new innovation in every major category to drive top line performance. As we shared with you last quarter and at CAGNY, we plan to launch more than $800 million worth of new products in 2011. Our first quarter results demonstrate the importance of innovation. Within the U.S. Cereal and Snacks categories, we had over 60 share of all innovation dollars in the quarter. We introduced the U.K. cereal brand, Crunchy Nut, into the U.S., where it was immediately embraced by consumers. Our new Special K Oat and Honey cereal is off to a strong start as well. In the Snacks business, we benefited from the early success of Special K Cracker Chips. Additionally, Eggo launched Thick & Fluffy waffles which in my opinion is the best waffle we have ever made. Overseas, we started off the year with strong innovation as well. In Europe, we introduced Special K Clusters and Krave Milk Chocolate cereals as well as 2 varieties of Rice Krispies squares. Our five new varieties of Be Natural cereals continued to gain momentum in Australia. Our focus on innovation continues with a solid pipeline that extends through the second half of 2011 and beyond. We continue to invest heavily in brand building, as demonstrated by our 10% spending increase during the first quarter. This brand building helped support the introduction of our innovation to the market, including programs behind Crunchy Nut Cereal and Special K Cracker Chips. We still expect advertising to grow by low single digits for the year. As we have discussed, digital media is an important tool for increasing the effectiveness and efficiency of our ad spend. With an ever increasing number of ways to target our consumers through new media platforms, we can often spend less to reach the same and potentially larger audience. Our goal is to engage our consumers, forging stronger relationships with our brands whether through traditional television, print media or online programs such as Special K Resolution. Let me give you three examples of how we engage consumers and bring our programs to life. An example of a recent integrated promotion is our Share Your Breakfast program, part of our ongoing effort to drive category growth. We are asking consumers to take a picture of their breakfast and post it on shareyourbreakfast.com. For every breakfast shared, we will donate one to a child in need, giving away 1 million breakfasts. We also celebrated National Breakfast Day on March 8 and served cereal to thousands of New Yorkers in Grand Central Station. During this week, we had the highest cereal consumption of the year. Cheez-It is another great brand that benefits from strong consumer engagement programs. In February, we launched a campaign inviting consumers to help choose the next flavor of Cheez-It. Consumers purchased samples and then went online to vote for their favorite flavor. We had 29 million votes and nearly 1 million views on Facebook. Not only did we engage with the consumer during the voting process, we are now able to build brand loyalty through a digital connection going forward. We believe that we're off to a solid start in 2011 and are well positioned to continue to build momentum throughout the remainder of the year. Turning now to our results. Let me take you through the highlights of the first quarter and how we are working to achieve our 2011 goals. In North America, we delivered strong top line results across the board, with internal net sales growth of 3% versus 2% growth a year ago. We are pleased by the return to growth of our North American Cereal business after a very difficult 2010. We see improving trends in the category in general and in our business specifically. The deflationary environment that defined 2010 improved during the quarter, as average prices continued to increase across the category. In our U.S. Cereal business, we posted a 2% increase in internal net sales driven by stronger innovation and higher promoted prices. We were able to deliver this growth without the benefit of the full impact of increased list prices across much of our portfolio. Across measured channels, we gained 0.7 share points in the quarter. Our base sales outgrew the category, while our incremental sales declined, which highlights the quality of our growth in the quarter. We also saw strong performance in club and dollar with double-digit internal sales growth in both of these channels. Kashi cereals stood out this quarter by delivering mid-single-digit internal sales growth and gaining 0.3 share points. As the growth of this premium brand demonstrates, not all consumers are chasing the latest deal and are prepared to pay for added value. Our strong performance was also driven by robust innovation launched in January. Crunchy Nut cereal gained a 0.6 share in the quarter, while Special K Oats and Honey and Mini-Wheats Touch of Fruit In the Middle both gained a 0.3 share. We will continue to support our strong first half innovation throughout the remainder of the year, and we're excited about our second half innovation, which includes Rice Krispies Gluten-Free and FiberPlus Caramel Pecan Crunch Cereal. Turning to Retail Snacks. We had a great quarter with broad-based sales growth. Our North America Retail Snacks internal net sales grew 5% even against a tough comparative of 5% growth a year ago. Pop-Tarts gained over share 2 points in the quarter, driven by the introduction of 100-calorie Pop-Tarts Mini Crisps. First quarter Cracker sales were up 4% and delivered a 2 share point gain in major channels. Early 2011 innovation helped drive the result. We had an overwhelming response to our Special K Cracker Chips. It has been one of the most successful new product launches in the Cracker category in the past decade, exceeding our expectations with a 1.5 share in major channels in the quarter. Town House Flatbread Crisps were also up nearly a share point in the quarter. The digital outreach I referred to earlier around the Cheez-It Choose the Cheese promotion helped drive additional sales as well. Our second half innovation includes Cheez-It Colby, the winner of the consumer voting campaign and Kashi TLC Peter Crisps. During the first quarter, we saw improving trends in our Cookie business, with slight share gains and a flat sales growth. We implemented Keebler Cookie line sales in anticipation of our upcoming Keebler Master Brand initiative. This aligns all Keebler cookie pricing and packaging, thereby creating scale behind the Keebler brand. The new packaging will hit the shelves later this week. Our recent innovation is performing well, with 2 varieties of Fudge Shoppe Jumbo Fudge Sticks, delivering a combined 0.4 share. During the first quarter, Wholesome Snack sales were up 6%, and we held our share leadership in this health-focused category. Across both our business and the category, we saw increased price realization and strong innovation. Our first half innovation, including Special K dessert bars and FiberPlus caramel coconut bars helped drive our strong sales results. Second half innovation includes a range of Keebler granola bars which target the afternoon snack occasion. We are excited about the great start to the year in our Snacks business, with strong sales, share gains and base growth across most of our Snacks segments. Our Frozen and Specialty business posted a 4% gain in internal net sales growth for the quarter, driven by high-single-digit growth from our Frozen Foods business. Our Eggo business, which is celebrating its 75th anniversary this year, continued to regain momentum, growing consumption by more than 60% and nearly 12 share points in the quarter. However, our shipment growth was not as high as consumption this quarter as we lapped the rebuilding of trade inventory in the first quarter of 2010. New products such as Thick & Fluffy waffles, which launched in late 2010, performed well, gaining nearly a share point across major channels in the quarter. We will continue to introduce more innovation in the second half. The Veggie category remains strong, growing at a healthy mid-single-digit rate. While our Veggie shipments were down slightly, we saw strong underlying consumption growth from Morningstar Farms. We saw some decline in our Kashi Frozen Entrée business, which we are addressing with more innovation in the back half of 2011 and across 2012. Also, our Foodservice business was largely flat in a difficult environment. Turning to International business. Outside North America, we posted 2% internal net sales growth, driven by strong top line performance in Latin America and growth in Asia Pacific. This helped offset Europe's 1% internal net sales decline. As expected, the U.K. faced a challenging operating environment, a tough economy, combined with a highly competitive retail landscape. The U.K. Cereal category was flat in the quarter, in line with most U.K. food categories, while our cereal consumption was down 2%. During the quarter, we began to see positive trends on the continent. Within our French business, consumption increased 6%, yielding a share gain of 0.6 points. The Tresor and Miel Pops cereal brands helped drive this growth. We continue to expect Europe to be our most challenging operating environment in 2011. In the first quarter, Latin America internal net sales rose 10% and volume increased 4%. The increase was led by volume recovery in Brazil, as well as higher average prices throughout much of the region, including Venezuela. In Mexico, internal net sales were up slightly in the quarter against difficult comparisons. Results in Mexico for the first quarter were also negatively impacted by a customer issue which is now largely behind us. The Special K brand relaunch continued to drive share gains across the region. Specifically, in Mexico, Special K gained nearly 2 share points. In keeping with the transfer of great ideas, we are rolling out the European favorite Krave cereal in Mexico during the second half of the year. In Asia Pacific, first quarter internal net sales grew by 2%, driven by top line delivery in both the Cereal and Snacks businesses. Strength in our South African and Indian businesses drove the top line, offsetting softness in shipments in our Australian business. Consumption in our Australian Cereal business grew more than 1% and we gained 0.4 share in the quarter. First half innovation helped drive share, with the introduction of 5 new varieties of Be Natural cereal, with 1.5 share points for the quarter and a strong performance of Sultana Bran buns. However, our first quarter net sales growth does not reflect consumption due to a retail inventory build in the first quarter of 2010. The Australian Snacks business continued its momentum, increasing share by 3.2 points in a category growing approximately 14%. South Africa was a bright spot for the quarter. The cereal category grew at a double-digit rate and we delivered sales and share growth in the region. Let me turn it over to Ron to walk you through our financial highlights.

Thanks, John, and good morning. As John mentioned, we are pleased with our first quarter results. We delivered strong top line growth, with net sales for the quarter increasing 5% on a reported basis and 3% on an internal basis. Operating profit was down 10% on a reported basis and down 12% on an internal basis, primarily as a result of increased commodity and brand building costs, as well as investment in our supply chain. Earnings per share declined 8% on a reported basis and 10% on a currency-neutral basis in the quarter, and included the benefit of share repurchase activity. Operating profit and earnings per share declined as we invested to build our momentum, and remember that we lapped 17% growth in internal operating profit and 27% growth in currency-neutral earnings per share in the first quarter of 2010. We recognize that we did not provide specific quarterly guidance. However, it is worth noting that we're pleased with our performance, which was ahead of our expectations for the quarter. Now I'll review the components of our financial performance. Slide 14 shows the components of our net sales growth in the quarter. Our volume increased by 1.8 points for the quarter, driven by gains across our Cereal, Snacks and Frozen Food businesses. Price and mix contributed 1.3 points of growth. We have executed our price increases as planned in the first quarter, and they have been accepted by our customers. You can expect price execution to have a greater impact over the balance of the year as we benefit from the first quarter increases and already announced second quarter pricing. Currency contributed 1.9 points of growth for the quarter. Slide 15 lays out our gross profit and gross margin performance. Reported gross profit dollars were flat in the first quarter. Gross profit dollars on an internal basis declined 2% in the quarter, primarily due to increased input costs and planned supply chain investments, for partially offset by the profit generated from our sales growth. Our reported gross margin contracted 220 basis points to 40.8%, in contrast to a year ago when our reported gross margin increased 190 basis points. Our net price realization lagged input inflation in the first quarter. We expect trends to improve as our previously announced price execution is fully recognized in our performance. While we are currently hedged approximately 85% on commodities for 2011, we expect gross margin to remain under pressure from input inflation, including fuel costs. For the full year, we now expect cost pressures on the cost of goods line to be in the 7% to 8% range, and we expect full year gross margin to be down approximately 50 basis points. Now let's turn to Slide 16 to review advertising. As John discussed, we are committed to investing in our brands through brand building activities. This quarter, we increased both advertising and total brand building by 10%. Brand building includes advertising and consumer promotion events such as National Breakfast Day. The most notable increases occurred in our North America and Asia Pacific businesses. Investments behind our major innovation launches contributed to the growth in advertising. Our investments also drove one of our strongest Special K Resolution events ever. It is important to note that timing of our innovation launches and other key events can impact year-over-year comparisons. We continue to expect advertising investment to be up low-single digits for the year, and we are confident that our media investment is sufficient to successfully engage consumers. Now let's turn to Slide 17 to review internal operating profit in more detail across the regions. First quarter internal operating profit declined by 12% facing the tough comparisons I mentioned earlier. North America internal operating profit also declined 12% against a 22% increase in the first quarter of 2010. This was due primarily to higher input costs and increased brand building investment. Europe's internal operating profit declined by 9%. As John mentioned, the challenging operating environment in the U.K. impacted our sales performance. In addition, the benefit from our price execution is lagging significant input inflation in this region. We expect sales and profits in Europe to remain under pressure this year. In Latin America, internal operating profit increased 1% for the quarter. While sales grew 10%, cost pressures were significant. Much of our pricing is largely in place, and we expect to benefit from this price execution as we progress through the year. In Asia Pacific, our internal operating profit decreased 23% in the quarter against a 10% increase a year earlier. The decline in operating profit was driven by Australia, which was lapping retail inventory growth in the first quarter of 2010 and increased advertising to support innovation launched in 2011. Slide 18 provides an update on cash flow and our uses of cash. In the first quarter, cash flow was $207 million, up slightly versus prior year. For the full year, we still expect cash flow to be in the range of $1.1 billion to $1.2 billion, and we expect capital spending to be roughly 4% of net sales at the high end of our 3% to 4% long-term range. In the quarter, we repurchased more than $300 million of shares, and we will continue to repurchase shares throughout the remainder of the year. As we said on the fourth quarter conference call, we estimate repurchasing approximately $800 million of shares in 2011. Average shares outstanding are still expected to decline by 4% year-over-year as a result of 2010 and 2011 repurchase activity. We also remain committed to returning cash to our share owners through dividends. Last week, we announced an increase to our quarterly dividend of 6% effective in the third quarter of this year. Now let's turn to our outlook on Slide 19. We currently expect internal net sales to grow approximately 4%. This reflects recent price increases implemented to offset higher input inflation, as well as improvement in our volume outlook for the year. We now expect price and mix to be at the higher end of our 300 to 400 basis point range. We expect volume to be roughly flat based upon our first quarter performance, the strength of our innovation and improvements in category trends. Internal operating profit is still expected to be flat to down 2%. The increase to our sales outlook is offset by higher input costs. As I mentioned earlier, we anticipate cost pressures as a percentage of cost of goods to be approximately 7% to 8%, up from our initial estimate of 7%. Our estimate of cost savings remains the same at about 4% of cost of goods sold. We continue to expect earnings per share to grow low-single digit on a currency-neutral basis. This includes a full year outlook on our tax rate approximately 30%. We have estimated the impact from currency at the forward rates in our Appendix. We believe that forward rates are a more conservative approach than spot rates. The latest estimate indicates $0.09 of benefit on forward rates. This implies a reported earnings per share range of $3.42 to $3.49. Currency movements can fluctuate positively or negatively, so we will continue to update you with our estimates as we progress through the year. And now let me turn it back to John for some closing remarks.

Thank you, Ron.2011 is a year of building our momentum. And with our first quarter results, we're off to a solid start to the year. We see positive signs with strong end market performance across many regions. In the U.S., we have increased share in most of our categories. This performance reflects the importance of a strong innovation pipeline and effective brand building to drive top line growth. I am confident that through continued investment and innovation and brand building, we will continue to regain momentum in 2011 and beyond. We are well positioned to grow our internal net sales at approximately 4% and to deliver our 2011 operating profit and EPS guidance, and to reach our ongoing goal of delivering long-term sustainable growth to our share owners. I'd like to thank our 31,000 employees whose continued dedication is enabling us to achieve this goal. I'd now like to open up for questions.

[Operator Instructions] Our first question comes from Diane Geissler from CLSA. Diane Geissler - Credit Agricole Securities (USA) Inc.: I guess I'm struggling a little bit on your top line and your volume commentary. So your volume was up this quarter, but you're projecting flat for the full year? And if I remember correctly volume in 2010 was down. So I guess for me there's little bit of a disconnect between what you're saying about the percentage of your sales that's coming from new innovation. Could you maybe just walk me through your volume expectations for the full year, because otherwise, it's looking like your top line is basically all inflation. Is that an accurate way to look at it, or am I missing something?

Here's how we think about volume. We're expecting it to be sort of largely flat, maybe down a little bit for the year. And the first quarter was a great start. We have volume growth of 1.8%. We had strong innovation, and you can see the benefit of innovation coming through in the volume performance in the first quarter. However, we had relatively limited amount of our price mix benefit in Q1, only 130 basis points. And our same price mix is in the high end of the 300 to 400 basis point range. So clearly, there's a large amount of price mix that's built into the expectation for Q2 through Q4. And that's going -- we expect that to have an adverse impact on volume. This is the line of our P&L which is probably the most difficult for us to predict. Clearly, the innovation's having a very positive impact, but we do expect some price elasticity and some adverse impact on volume from the higher price mix performance in the back half of the year. Diane Geissler - Credit Agricole Securities (USA) Inc.: And then I guess a question -- kind of follow-on question, then I'll leave it at that, when do you expect the consumer then to accept price increases? Should we look 2012 the year kind of comes together and then you see the top line driven by more volume than pricing, or is it just too early at this point?

I think as you look at the consumer acceptance on our pricing, first, we step back. The retailers have accepted the pricing that we're putting through since pulling into the market. It's not fully in place in the first quarter because we took pricing throughout the first quarter, and of course there's some element of price protection for deals that had already being negotiated before the pricing went into place. So the pricing is moving through. We expect there to be some adverse consumer reaction just because there’s a segment of population is under pressure. At the same time, there’s a segment of the consumer population that’s doing quite well, and we see that in the growth of Kashi cereal. So as we look at this year, we're being cautious in our volume expectation. I don't want to get into 2012 volume forecasting, but if you look over the long term, we expect our growth to be roughly 1/3 from volume, 1/3 from price, 1/3 from mix over time.

And our next question comes from Ed Aaron from RBC Capital Markets. Edward Aaron - RBC Capital Markets, LLC: At CAGNY, you talked a little bit about looking to reinvest any earnings upside you might have this year. I'm just curious to get a feel if you’re anymore less confidence that you will have some operating upside to reinvest by the time the year is gone. And then to the extent that you do, where would you be looking to prioritize that? And I know you just brought somebody on from a supply chain perspective, so that kind of comes to mind is an area that you might look to spend some money.

I think the guidance we've given here is the right guidance. I don't think we're giving guidance here that we think is conservative or we're going to beat; and therefore, reinvest. If you look at our first quarter, the delivery of $1 of EPS in the first quarter is broadly speaking 29% of the full year EPS guidance. And that is right in line with the 5-year historical average of about 29% percent of our EPS coming out of the first quarter. So I feel like Q1 is on track with our full year expectations. If we do get an opportunity to overdeliver and reinvest, that's likely to be in the areas of brand building to continue to drive the top line momentum as we go into 2012 and beyond.

Your next question comes from Ken Zaslow from BMO Capital Markets. Kenneth Zaslow - BMO Capital Markets U.S.: I think on your third quarter last year, you talked about a lack of support that kind of your non-measured channels kind of led to a 2-point drag on top line in U.S. Cereal. You didn't talk really towards that channel. Can you give us where you stand on the momentum of regaining those share points in that channel and what you're doing to address those issues and where you stand?

Well, I think we're seeing improved performance from the non-major channels. If you look at say club and dollar, there's some good growth going on in those channels. If you think back historically, when we talked about non-major channels, and let’s take the Cereal category as an example, we would have said you'd add 200 to 300 basis points of growth to the major channels to get to a total category performance. I would suspect right now you're adding about 90 basis points of growth or 1% of growth to the major channels to get the total category performance. So the non-major channels last year were a bit of a drag this year. They're growing a little bit faster but not as fast as they were, say, 3 or 4 years ago.

And our next question comes from Bryan Spillane from Bank of America. Bryan Spillane - BofA Merrill Lynch: John, just in terms of your outlook in Europe, understanding that the business or the conditions in the U.K. are tough. But just in terms of -- if you could talk a little bit about just the improvements that you've made or the progress you've made improving some of the, I guess some of the more secular issues that you were having there. Then also just in terms of outlook, how much of your outlook now is just colored by it's more difficult to price inflation through in Europe than it has been in the U. S?

Okay. As we look at Europe, as you said, U.K. is a tough market right now. And there's a couple of things going on in there. One is the Cereal category in the U.K. as we said in the prepared remarks is flat and our consumption is down slightly. We do have good innovation in the U.K. and we do expect the trends to improve as we go through the year, but it’ll take time to get us there. Also, in the U.K., we have about 20% of our U.K. business in the Snacks category, and that business has actually recently moved to the biscuit aisle, and that's disrupted that business to a degree. So we have to take some time to work through that. So it's not just cereals, there’s also some issues in snacks in the U.K. On the positive side, we are seeing some green shoots, if you like, in Continental Europe. As I said before, the French consumption is up about 6%. We saw some slight consumption growth in Italy and gained nearly a share point there. Having said that, Spain remains very difficult. So it's a bit of a mixed component coming out of Continental Europe. And we saw some good growth in Russia, some double-digit growth in Russia in the quarter as well. In terms of pricing in Europe, Europe is one of the more difficult parts of the word to execute pricing. We have executed our 2011 pricing actions in Europe. So we've gone through the retailers, and that's now flowing into the consumer environment. Bryan Spillane - BofA Merrill Lynch: All right. So it’s fair to say that the biggest challenge in Europe right now is more just the macro issue as opposed to Kellogg-specific in terms of getting things moving.

I think so. I think there's a macro element, and then from a Kellogg-specific issue, I’d say the snacks moving into the biscuit aisle in the U.K. is a little bit specific us. But beyond that, it is more macro consumer concern.

And our next question comes from Robert Moskow from Crèdit Suisse. Robert Moskow - Crédit Suisse AG: I was just wondering if you could give us a little color on how much commodity inflation you had in first quarter, and then how it kind of ramps up as the year goes on. And then a follow-up.

Yes, of course, Robert, we'd be happy to. First of all, the first quarter performance, we did expect our gross margin to decline in the first quarter. Our cost pressures in the first quarter were very consistent with what we expect for the full year. So they were in the 7% to 8% range and that's what we expect for the full year as well. So we don't necessarily see a significant ramping up. The issue for us in the first quarter, obviously, was that our pricing was settling into the marketplace, and as a result, our gross margin performance was down. Robert Moskow - Crédit Suisse AG: Okay. And I thought I heard some color somewhere that the launch of Crunchy Nut was okay, but not doing particularly great. How does it compare, compared to like other major launches you had? Just a little color on that.

I think Crunchy Nut is doing very well. It still in the first quarter. It's got about 0.6 share and it's at or above our launch expectation. So we're very happy with the performance of Crunchy Nut.

And our next question comes from Andrew Lazar from Barclays Capital. Andrew Lazar - Barclays Capital: John, can you give us a sense as I know pricing was flowing through over the course of the quarter, maybe some color on where towards the end of the quarter, what sort of net price realization were starting to look like, give us a better sense of maybe how to think about it in the second quarter, and therefore obviously, to get some comfort that you're going to be catching up, if you will, to some of the input costs you're seeing?

Andrew, this is Ron. I'd be happy to help you with that. When you look at the price mix improvements that we saw in the first quarter, we communicated 1.3 points. So our pricing was settling in over the course of the quarter. When you look at the balance of the year, what you'll see, if we stick within this 300 to 400 basis points price mix improvement, we said we'd be at the high end of that range. That implies basically around 5 points of price mix benefit or thereabouts over the balance of the year. You'll see that progressing in the second quarter and then clearly full impact in the back half. But our second quarter will certainly be better than the first quarter. Andrew Lazar - Barclays Capital: Okay. And then this is a really tough one to really know, but with the way you're thinking about elasticity, I think it makes sense to take a more conservative sort of wait-and-see approach. But the way you're sort of modeling for internally, is it any different than you might have been modeling for it based on what you learned back in '08, just because of the tougher consumer environment? Or is it really tough to model in any case anyway, and you're just being conservative to be prudent?

I think it's very difficult to get what the real elasticity number is going to be. We have obviously a series of very complicated models to help us model out the elasticity, and we tend to give it quite frankly a haircut of what those models tell us. If you try and get a sense of how much elasticity is out there, we're not seeing very much to date. So the first quarter, we do have some price mix, we had, within U.S. Cereal our promoted price points were up 6% in the first quarter, and yet we continue to get good merchandising support and the business continued to do well. If you look, say, at another proxy around sensitivity to price, is private label doing well, were private labels down in share U.S. Cereal. It's down on all the international markets. It's moving up or down by 10, 20 basis points in some of the snack categories. So as we look at the consumer elasticity with certain expectation out there for the past 3 quarters of the year that as we sit coming through the first quarter, we're not really seeing a whole lot of elasticity yet. Andrew Lazar - Barclays Capital: Got it. That's actually a very helpful perspective.

Our next question comes from Vincent Andrews from Morgan Stanley. Vincent Andrews - Morgan Stanley: You said that you had about a 60% dollar share of U.S. Cereal innovation in the quarter. Can you compare that to where you were last year and then maybe where you were another quarter -- another first quarter where you thought you had very good innovation coming into the year.

I think 60% is probably a bit higher than what you would normally do. But certainly our innovation, we're an innovation-intensive company. We normally over-index on innovation. So I think Cereal is a little heavier than normal. I'd probably go back over to some of the snacks categories in the U.S. where we really had very strong innovation and significantly out index what we have done historically and maybe even -- that's probably even true in some of the Frozen Foods elements as well. Vincent Andrews - Morgan Stanley: But you don't have a number for last year?

No. I would suspect it was in the 40% to 50% range. Vincent Andrews - Morgan Stanley: And that’d be closer to normal or below normal?

That would be closer. We would normally over-index by 10 to 20 points above our market share.

Our next question comes from Terry Bivens from JPMorgan. Terry Bivens - JP Morgan Chase & Co: John, two quick things. Number one, if you look in the U.S., you guys continue to get some nice distribution gains. I know those are coming against your SKU cut in the recent past, as well as some of the troubles with Eggo. But I'm wondering are there distribution gains elsewhere? And how much in promotional moneys are being spent to get those? For example, maybe Wal-Mart returning to action, Halle [ph] would be an example what I'm trying to get at there.

Terry, you're right. We are picking up distribution gains in a variety of places in the business. I think what's driving that is actually the strong innovation pipeline and retailers wanting to support the innovation. Retail is looking at that business and recognizing that to drive that business they need to bring news to the category, news to the consumers and put that out in front of their consumers, and so they are actively and aggressively seeking new ideas and then supporting them when we bring them to the retailers. Terry Bivens - JP Morgan Chase & Co: And just a quick follow-to, just shifting quickly to Australia. We hear there is obviously a tremendous price war going on there between the 2 big retailers. My question is, how much do you think that is compromising your Asia Pacific results?

I think you see -- if you look in the first quarter, as we said in the prepared remarks, our consumption was up slightly. We gained some share in Australia, so we're happy with our end market performance. But our shipments did lag the end market performance and that did pull down the segment results for Asia Pacific. There's no question that the retail environment in Australia right now is very complicated and it is I guess a degree of risk as you look into the future because of that interaction between those retailers. We're trying to navigate that as best we can.

Next question comes from David Palmer from UBS. David Palmer - UBS Investment Bank: Question for you on just price elasticity of Packaged Food in general. I think it was Andrew mentioned, 2008, we look at the last 12 weeks of data across all packaged food, pricing has been creeping up to about 2% in the last 12 weeks, volumes trended off about 1% or so excluding some Easter category companies like Hershey. So it does look like things are playing out okay in a way that would give us cautious optimism. Is that the way that you see things now that the price elasticity doesn't look as bad as one-to-one or worse across many of your categories?

Yes, I think the price elasticity is probably a little bit less than 1:1. And that's kind of what's built into our expectations. If you think about what is embedded in our outlook here, in the first quarter, we had positive price mix of 130 basis points. And we're expecting, let's call it 400 basis points out for the full year, so towards the high end of our 300 to 400 basis points range. That implies that the run rate of price mix is going to improve quite a lot, and our volume would be down slightly. So it almost imply like a 2/3, a 0.6, 0.7-type price elasticity is what's built into our outlook. As I said earlier in answering Andrew's question, we're not seeing a lot of elasticity just yet, but that's what's built into our outlook. David Palmer - UBS Investment Bank: And then a separate question on cost. It seems very early to be talking about anything past 2011 on costs, but these things tend to play out over time because people hedge and pre-buy supplies of things. The current crop may be coming into focus, energy costs are higher. It feels like -- already like 2012 is going to be shaping up to be even more inflationary perhaps than 2011 in terms of everyone's actual costs, and that the average food companies are going to be going in for a round of price discussions by the end of this year. Is that -- I know you're not going to touch the pricing topic, but does it feel like from a cost perspective, that's the way it's playing out so far?

David, the way we look at it is we are in a long-term upward trend on cost of goods. The supply of grains has been relatively limited, the demand for grains is increasing, whether it be ethanol production or whether it be emerging market consumption, or direct grains or meat-based products. And the result of that is you're going to see increased prices for grains over time. And so we would look at 2012 and say, yes, it's probably going to be inflationary. How inflationary, we have to wait and see where all the supply demand shakes out and where the prices shake out.

Our next question comes from David Driscoll from Citi Investments. David Driscoll - Citigroup Inc: Could you discuss -- you're wrote in the press release that the first quarter exceeded your internal expectations. It was below the consensus, so perhaps you could describe how it exceeded your internal expectations.

Yes, David. Be happy to handle that one. From a top line perspective, we did a little bit better than what we had expected, particularly in our North America business. From an underlying operating profit perspective, we were a little bit better as well. Our earnings per share was better as a result of our tax rate and a little bit of currency that flowed through there. And also our cash flow came in a little bit better than expected. So broadly across all of our key measures, we performed slightly better than what we had planned. David Driscoll - Citigroup Inc: And then moving on to the volume question. I just want to follow up some of the things that some other folks asked. We’ve done a lot of work here on your SKU rationalization from last year and it would look that you took a fairly large number of SKUs off-shelf. When you think about this big surge in new product activity in 2011, number one, is it incremental to your shelf space? And then second, can you comment on your thought process on the incrementality of the $800 million in new products?

I think if you look at the distribution gains we are seeing some level of incrementality from the new products from a shelf perspective. It's never 100% incremental and there's always some in and some out at the same time, but probably more incremental than normal given, to your point, the SKU rationalization that we executed last year. And then we think about the incrementality of the $800 million, the key there is when you do the innovation to innovate into areas that are going to bring new consumers into the category, as opposed as you switch consumers around. And we think that the add-on orientation of products like Crunchy Nut, the direct taste orientation of those products really will help us bring new consumers into the category. So we believe our goal is to make the innovation, not just larger, but more incremental over time and time will tell to see how well that works. David Driscoll - Citigroup Inc: Finally, two details what the upfront spend for the year? and what's interest expense guidance?

Our upfront costs are in-line with what we previously communicated. So we estimate approximately $0.12 of upfront costs. And our outlook on interest expense is still in the range of $235 million to $245 million, so still very consistent with previous communications.

Our next question comes from Jason English from Goldman Sachs. Jason English - Goldman Sachs Group Inc.: Housekeeping item, on the supply-chain investment, I noticed you had some favorability on the upfront cost line. Can you quantify the supply-chain investment this quarter and confirm that it was not in the upfront cost?

The supply-chain investments were not in the upfront costs. And these are items such as people process and infrastructure that we're investing in. I should point out though that those supply-chain investments are embedded or included in our cost pressures estimate of 7% to 8% for the year. Jason English - Goldman Sachs Group Inc.: And I want to return to Europe. There was some news about some restructuring in Europe and how you guys are segmenting the market. And I was particularly interested about the focus on emerging markets there. Can you talk a little bit about that restructuring, and what, if anything, the implications are or how we should interpret the focus on emerging markets there?

That restructuring was in our Russian business unit in Europe. We closed one of the facilities, one of the manufacturing facilities in Russia. We have six facilities. That's one of six. We continue to be excited about the Russian business. It’s achieved double-digit growth in the first quarter, strong growth in Cereal just below 20% and so high single digit growth in Snacks as well. So we feel like we're well-positioned long-term in Cereal and in Snacks in Russia. And I would see that restructuring is just an opportunity to improve the profitability of the business so we can continue to reinvest in the business and gain long-term momentum in Europe. Jason English - Goldman Sachs Group Inc.: Globally, can you give us a sense of how big emerging markets are now and what that growth trend is?

It's always difficult when you get into emerging markets and how much of the portfolio is there. So we look at Latin America and say obviously, all of that region for us is emerging markets. You take Asia Pacific and just take Australia out of that, and the rest of Asia Pacific would be an emerging market. Even when you come across to Europe and you come out the U.K. For us, Continental Europe is an emerging cereal category. It's relatively loyal for capital consumptions and has potential for long-term growth. So we don't have a metric as such for emerging markets, but you can see 10% growth in sales and on internal basis in Latin America in the first quarter some signs of growth returning on Continental Europe, double-digit growth in Russia and if you took Australia out of Asia Pacific, it would've been a very good growth performance as well, with double-digit growth in India, South Africa, China in the quarter.

Our next question comes from Eric Katzman from Deutsche Bank. Eric Katzman - Deutsche Bank AG: I guess I have two questions. One is the K-LEAN, this is like the last year of kind of the ramp up of this savings that you had kind of put together a couple of years ago and yet sounds like inflation continues to be a challenge. I don't remember who asked the question, but how do we think about the kind of the outperformance on the K-LEAN and the cost savings kind of beyond this year?

Eric, when you look at our performance on this $1 billion challenge in K-LEAN, we’re in the last year as you suggest of the $1 billion challenge and performing quite well against that we communicated roughly 4% of savings across cost of goods sold and K-LEAN is a big part of that. However, if you look back at what we demonstrated in the past, we've been in the range of 3% to 4% of productivity savings against cost of goods sold. So we feel quite comfortable that going forward, we’ll still be in that similar range of opportunity. Eric Katzman - Deutsche Bank AG: And then just as a follow-up on, I guess, John you must've noticed the bid by ConAgra for Ralcorp going hostile and so now it looks like ConAgra may be a cereal company and they haven't historically been known as the most rational competitor. I'm not sure that you would view Ralcorp as necessarily being a rational competitor with Post over the last year or so. But how do you assess the change if that happens and just to the extent that you and General Mills maybe take some share this year within the category if you both kind of achieve your targets? What does that mean for the rest of the players out there, whether it's branded or private-label?

I can't really talk to Ralcorp or how their strategy may or may not change depending on who may or may not own Ralcorp. At the end of the day, we're driving our business and we know that what drives our business is strong innovation, brand building, nutrition and we're making those investments and improvements in our business and we're seeing the consumer respond to that. So I think there'll always be a part of the Consumer segment that will play on price and private-label will play in that area and we're playing in the added value consumer engagement end of the category and it's working for us. Eric Katzman - Deutsche Bank AG: Can I just sneak in one more and that's just on the regulatory environment. I know maybe 6, 9 months ago when you guys had your recall, the politicians were all over David and it seems like you were unfortunately the bit of a poster child for a while there undeservedly so, in my opinion, but in any case, yet it seems like every day there's another article in the papers about the regulatory environment and the cost. Is that another thing that's kind of -- that maybe isn't within COGS inflation but could be in SG&A inflation?

I think the regulatory environment's coming in 2 different places and one is to the point we've had some unfortunate issues over the last couple of years such as the cereal liner issue. And to Ron's comments earlier, we are making the supply-chain investments to try to protect our source from those sorts of issues going forward. The other regulatory issue is things like restrictions on advertising to kids and so on, and the 4 agency release that came out late last week. And as we look at that, we believe that we make great foods for consumers. We believe that cereal is a low-calorie, nutrient-dense food form. People who eat cereal, whether they're kids or adults, have a lower body mass index than people who don't. And we just quite frankly don't understand why you'd want to restrict advertising on what is essentially a very healthy food to people. So obviously, that can have an impact over the last couple of years. We have made significant changes to our food in terms of reducing sugar, reducing salt. There’s been costs associated with that, that were borne in our P&L through the cost of goods line. And we've moved the spend of some of our brand building for more kid-targeted to mom-targeted and that's resulted in some inflation in our SG&A line as you point out in terms of just higher cost of media. So it is coming through a little bit in our financials. We are moving with it over time. I’m hoping that we can have a good dialogue here about what really is good public policy as we go forward.

The next question comes from Alexia Howard with from Sanford Bernstein. Alexia Howard - Sanford C. Bernstein & Co., Inc.: Can I ask about your international expansion strategy? We're a few years beyond the acquisitions that you made in Russia and China. Perhaps you could comment, sort of in hindsight, what the biggest lessons learned from that from those moves were and how that shaped your strategy going forward. I'm thinking particularly with respect to Brazil.

Right, good question, Alexia. I don't want to talk specific about any individual market. If you look back over the last 3 years or so, we have made a couple acquisitions such as Russia and China and a joint venture with Ulker in Turkey. And I think we've learned some things from that, a part of it is to make sure that when we buy businesses, we buy businesses with a degree of scale and strong brands. And when we do joint ventures that we JV with companies like Ulker, companies that have strong positions in market. So as we go forward, there are some parts of our geographic footprint that we want to improve the footprint and will look to those sorts of joint venture-type ideas and will look to continue to make acquisitions and the extent to which we make acquisitions we want to ensure that we're buying a strong business in that market with strong brands.

The last question comes from Eric Serotta from Wells Fargo. Eric Serotta - Wells Fargo Securities, LLC: Just wondering whether the restoration of incentive comp accruals had an impact on the year-over-year basis in the first quarter or whether you are accruing in the year-ago at normal levels and the adjustments are really later in the year as results started to disappoint.

Yes, Eric, in the first quarter virtually no impact from the restoration of our incentive compensation accruals. There'll be some impact in the second quarter, but much of it really falls into the back half of the year. And recollect, we communicated in the third quarter the impact of adjusting our incentive compensation accruals downward last year. So virtually nothing in the first quarter. It's all Q2 to Q4. Eric Serotta - Wells Fargo Securities, LLC: Okay, and that was, if I remember correctly, for the year you're looking for about 400 basis point drag on internal segment operating profit from restoring IC levels?

I think what we said, Eric, it was about 6 points of operating profit and then we discussed the impact to the cereal recall and we said that was about 2 points of tailwind for 2011. So the net was about 4 points.

Thank you very much for joining us today. If you have any follow-up questions, please feel free to call me.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a great day.