Vincent Byrd - Director and President of U.S. Retail - Coffee Richard Smucker - Co-Executive Chairman, Co-Chief Executive Officer and President Mark Smucker - Director and President of Special Markets - SBA Steven Oakland - President of U S Retail - Smuckers Jif and Hungry Jack Paul Wagstaff - Director and President of U S Retail - Oils & Baking Mark Belgya - Chief Financial Officer and Senior Vice President Tim Smucker - Chairman and Co-Chief Executive Officer

Kenneth Goldman - JP Morgan Chase & Co Alexia Howard - Bernstein Research Alex Bisson - FTN Midwest Judy Hong - Goldman Sachs Group Inc. Jane Gelfand Scott Mushkin - Jefferies & Company, Inc. Eric Katzman - Deutsche Bank AG Farha Aslam - Stephens Inc. Edward Aaron - RBC Capital Markets, LLC Mitchell Pinheiro - Janney Montgomery Scott LLC David Driscoll - Citigroup Inc

Good morning. And welcome to The J.M. Smucker Company's Third Quarter 2011 Earnings Conference Call. [Operator Instructions] I will now turn the conference call over to the Chief Financial Officer, Mr. Mark Belgya. Please go ahead, sir.

Good morning, everyone. And welcome to our third quarter earnings conference call. Thank you for joining us. On the call from the company are Tim Smucker, Chairman of the Board and Co-CEO; Richard Smucker, Executive Chairman and Co-CEO; Vince Byrd, President of our Coffee business; Steve Oakland, President of Smucker's, Jif and Hungry Jack; Mark Smucker, President of Special Markets; and Paul Wagstaff, President of Oils and Baking. After this brief introduction, I will turn the call over to Tim for opening comments. I will then review the financial results for the quarter, and Richard will provide closing remarks. At the conclusion of these comments, we will be available to answer your questions. If you've not seen our press release, it is available on our website at smuckers.com. A replay of this call is available on the website. If you have any follow-up questions or comments after today's call, please feel free to contact me or Sonal Robinson, Vice President of Investor Relations. I would like to remind you that in both the prepared comments and during the question-and-answer period that follows, we may make forward-looking statements that reflect the company's current expectations about future plans and performance. These forward-looking statements rely on a number of assumptions and estimates, and actual results may differ materially due to risks and uncertainties. I invite you to read the full disclosure statement in the press release concerning such forward-looking statements. I also want to point out that the company uses non-GAAP results for the purpose of evaluating performance internally. Additional discussion on non-GAAP information is also detailed in our press release and on our website. I'll now turn the call over to Tim.

Thank you, Mark. And good morning, everyone. And thank you very much for joining us. Let me begin by summarizing the key highlights of yet another strong quarter. First, we concluded the recent Fall Bake and Holiday season with volume up 4%, excluding the impact of divestitures. Many key brands, including Crisco, Jif, Smucker's, Dunkin' Donuts and the Bick’s brand in Canada realized gains. Second, the continued rollout of our K-Cup products contributed 4% to Coffee segment net sales for the quarter. Third, non-GAAP operating income and earnings per share increased 12% and 9%, respectively. Fourth, the business generated $375 million in cash from operations, representing a new quarterly record. Finally, our commitment to delivering shareholder value remains strong. During the quarter, we repurchased 3.7 million common shares, utilizing $240 million in cash. In January, our board authorized another 5 million shares for repurchase and declared a 10% increase in the dividend following a 14% increase last April. Needless to say, we are pleased with these results, which reflects our team's disciplined approach to managing the business and our ability to generate strong cash flow. Let me now provide a few comments on each of the four business segments. In our Coffee segment, sales were up 18% for the quarter, reflecting pricing actions taken earlier this fiscal year, while volume was down 2%. The continued rollout of Folgers Gourmet Selections and Millstone brand K-Cups exceeded our expectations and is providing overall growth to the single-serve Coffee category. The Dunkin' Donuts coffee brand delivered another quarter of strong performance. Its volume was up 8% with continued growth of the core business and the successful launch of Dunkin' Donuts seasonals. We continue to invest behind the brands during the Fall Bake and Holiday seasons. This included new television advertising for the Folgers and Dunkin' Donuts brands and a full array of marketing support behind the K-Cup launch. In response to the unprecedented rise in green coffee costs, which reached a new 14-year high, we announced an additional 10% price increase earlier this month. While total U.S. Retail Coffee volume was down, it was better than anticipated especially during this period of high prices and ongoing aggressive promotional activities of our competitors. Our Coffee volume also benefited from strong growth in the alternative channel markets, primarily in warehouse club and chain drug stores. Turning to the Consumer segment. Increased sales and volume, excluding divestitures, reflected strong performance across all three brands, Smucker's, Jif and Hungry Jack. In addition to solid gains in fruit spreads and traditional peanut butter, our Jif Natural product continued its significant growth, more than doubling volume over the prior year. Marketing spending was up 5% for the quarter, focused on multi-brand promotions, and our first-ever Smucker's holiday advertisement which received great consumer response. Our Oils and Baking segment delivered increased sales and volume despite the ongoing competitive environment, which impacted the segment's profitability. Crisco realized a 27% increase in volume, reflecting our efforts to narrow the price gap on shelf. This growth more than offset the decline seen earlier in the year, resulting in a 4% volume gain year-to-date. Although Pillsbury experienced volume declines in the quarter, we continue to be encouraged by the success of new offerings, including our seasonal and sugar-free product lines. Finally, our Special Markets segment had another quarter of growth, with sales and volume up over the prior year. The Canadian business benefited from a strong Fall Bake with an overall volume gain of 6%, led by Bick’s pickles, Robin Hood flour and Folgers coffee. These results continued our positive trends in Canada as we have grown market share in most of our key categories during the fiscal year. Sales and volume in the Foodservice business increased 3%, led by gains in Smucker's portion control products and Uncrustables. In addition, the Natural Foods business continued its momentum, reflecting improvements in industry trends and the success of new products. In summary, our team executed a successful Fall Bake in conjunction with our retail partners, utilizing multi-brand promotions, responsible pricing and significant on-air advertising presence. We achieved another quarter of strong earnings and generated record levels of cash, further strengthening our position to deliver on our strategy. I would now like to turn the call back to Mark to have him review the financial results for the quarter.

Thank you, Tim. Net sales for the quarter increased $107 million or 9%. Excluding the impact of divestitures and foreign exchange, sales increased 10% for the quarter. Although pricing had the biggest impact on quarter-over-quarter sale gains, volume and mix also played an integral part in the sales growth. GAAP earnings per share were $1.11 this quarter and $1.14 in the third quarter of last year, including charges related to restructuring and merger integration activities. Excluding these charges, earnings per share were $1.27 this quarter and $1.17 in last year's third quarter, an increase of 9%. The impact to the share repurchase activity was modest, contributing $0.01 to the third quarter earnings per share. The fourth quarter will receive the full benefit of the lower shares outstanding, which currently stand at approximately 116 million shares. Included in the third quarter results for both years were noncash impairment charges of approximately $17 million and $10 million, respectively, primarily related to the write-down of Europe's Best intangible assets in Canada. This represents $0.10 and $0.05, respectively, on a per-share basis. These amounts are included in both our reported and non-GAAP results. The current year impairment was recognized in order to adjust the book value of certain intangibles to their estimated fair value based upon current business expectations. Gross profit, excluding charges, increased $33 million but declined slightly as a percent of net sales from 38% in the prior year to 37.4%. Higher raw material costs for green coffee, milk, sugar and soybean oil more than offset lower costs for peanuts. Coffee price increases taken earlier in the year relative to the recognition of higher green coffee costs contributed over 1/2 of the increase in gross profit in the quarter but did not result in overall gross margin gains. Price reductions taken on Crisco oils also negatively impacted gross margin for the quarter. Unrealized mark-to-market adjustments on commodity instruments in the third quarter of 2011 were not material. SG&A expenses in the quarter were equal to the prior year yet declined as a percent of net sales from 17.8% to 16.3%, as spending trailed the increase in sales. SG&A expenses reflect a modest decrease in marketing expense and lower employee-related benefit costs offset somewhat by higher selling expenses. As a reminder, we stated previously that we expected margins to be down for the last six months of 2011 as compared to the same period in 2010, but not as much as the decline realized in the first half of this fiscal year. The marketing expense for the quarter was consistent with this outlook. Operating income, excluding charges, increased $26 million for the quarter. This resulted in an operating margin improving from 17.8% in last year's third quarter to 18.4% this year. Excluding the noncash impairment charges, operating margins would have been 19.7% and 18.6%, respectively, for the third quarters of 2011 and 2010. The effective tax rate for the quarter was 32.6%. This compares to last year's third quarter rate of 31.3%. The increase was primarily due to the fact that tax benefits associated with our Canadian operations and changes to the company's uncertain tax positions were greater in the third quarter of 2010 as compared to this year. This was partially offset by an increased benefit to 2011 related to the U.S. manufacturing deductions. Looking towards the fourth quarter, we anticipate a higher rate than last year's 27.9%, which was unusually low. Overall, we estimate the full year effective tax rate will fall between 32% and 33%. Let me now add a few more details on our reportable segments starting with U.S. Retail Coffee segment. As Tim noted, net sales increased 18% in the quarter, reflecting the price increases taken earlier in the fiscal year and a favorable sales mix. Volume was down 2% as declines in the Folgers brand were only partially offset by an 8% growth in the Dunkin' Donuts brand. Our new K-Cup products contributed favorably to the sales mix, adding approximately 4% to segment sales while its impact on volume was less than 1%. Segment profit increased $25 million or 19% over the prior year. Increases in gross profit, a favorable sales mix and overall lower rate of promotional spending and the 8% reduction in marketing expense all contributed to segment margin increasing 40 basis points in the quarter. In the U.S. Retail Consumer segment, reported sales were flat to prior year and up 5%, excluding divestitures. Sales reflected a 7% increase in volume driven by strong gains in our peanut butter and fruit spread businesses, partially offset by a 5% price increase taken on peanut butter in the first quarter. Segment profit increased 9% due to lower supply chain costs, including the impact of consolidating all Smucker's Uncrustables manufacturing into our Scottsville, Kentucky facility. These savings combined with lower costs of certain raw materials offset an increase in marketing. Segment margin improved over 200 basis points from 24.2% in last year's third quarter to 26.4% this year. Turning to the U.S. Retail Oils and Baking segment. Net sales and volume for the quarter increased 4% and 3%, respectively. Volume for the Crisco brand was up 27% during the quarter, while sales increased at a slower rate, reflecting the price decrease taken in the second quarter to lower price on shelf along with incremental promotional spending. Pillsbury Baking products volume declined 9% from the planned rationalization of lower margin flour business and the continuing competitive activity experienced in the category. Despite the decrease in volume, Pillsbury brand sales in the third quarter were equal to the prior year, reflecting the benefits of sales mix and pricing. The branded canned milk business continued to experience softness due to competitive activity resulting in an overall 5% volume decline in milk in the third quarter. Segment profit in the quarter decreased 12% with segment margin declining by more than 200 basis points to 12.4%. The decrease reflects the net impact of pricing actions along with higher costs for milk, sugar and soybean oil. And finally, Special Markets net sales and volumes both increased 7%. In Canada, volume gains were driven by the pickles, baking and coffee categories. Due to the temporary withdrawal of several competitors' products, our Bick’s pickles brand experienced above normal volume growth in the quarter that is not expected to be sustained. Foreign exchange also favorably contributed to the increase in sales. International foods business, volume was up 20% for the quarter, reflecting an increase in the non-branded side of the business. Segment profit declined 8% in the quarter, reflecting the incremental impairment charge I spoke to earlier, although partially offset by the favorable impact of sales mix, segment margin decreased nearly 200 basis points from 14.2% to 12.3%. However, if you exclude the impairment charges in both periods, segment margin would have improved by 220 basis points over the prior year. Turning to commodity costs. Market prices for the majority of our key raw materials continue to increase. Since the beginning of the calendar year, we took price increases on coffee, oil and baking products. We will continue to monitor the situation closely to determine whether further pricing actions will be required as the most recent movement in commodities will not fully impact us until next fiscal year. Let me conclude my section with a few comments on cash. As expected, cash provided by operations was significant with nearly $375 million generated in the third quarter. This brings the year-to-date total to $394 million compared to $512 million for the first nine months of last year. The year-over-year difference continues to primarily reflect the $80 million impact in the change and timing of income tax payments we discussed with you earlier in the year. With year-to-date capital expenditures of $111 million, our nine months free cash flow is approximately $283 million. We are tracking towards a range of $400 million to $450 million for the full year. Key factors that could impact the final free cash flow would be the timing of capital spending on our new facilities in New Orleans and Orrville and the impact of increasing commodity costs on raw material inventory purchases. We now expect capital expenditures for the year to approximate $175 million. With that, I will now like to turn the call over to Richard.

Thank you, Mark, and good morning, everyone. As Tim noted, we are pleased to have delivered another quarter of strong financial results, adding to what has already been a solid year of performance. We feel positive about the strength of our business and our brands and the plans that we have going into next year. Certainly, the increase in commodities is a concern. While there are a number of improving signs in our economy, we recognize that for many, value is still top of mind when it comes to food purchases. We will continue to take a balanced approach to pricing, share of market and profitability. As we look to conclude fiscal 2011, we expect full-year net sales to increase 4% over last year. This is slightly higher than last quarter's guidance and is primarily reflective of the volume gains seen in the third quarter and the recent pricing actions, particularly in Coffee. Non-GAAP income per diluted share is now anticipated to be in the range of $4.60 to $4.65, including the $0.10 impact of impairment charges recorded in this quarter. The range also includes the impact of share repurchases made to date, but does not include any impact of future share repurchases as they would not be material for this quarter. Consistent with our definition of non-GAAP measures, this range excludes restructuring and merger and integration costs now estimated to be between $0.65 and $0.70 per diluted share for the full fiscal year. In summary, we delivered another strong quarter with record sales, non-GAAP earnings per share and cash flow. Second, although commodity costs continue to rise, we are addressing these challenges effectively and responsibly. The strength of our leading brands, our ability to react swiftly and our disciplined approach give us confidence for continued growth. Third, reflecting the strength of our business, we repurchased over 3% of our outstanding shares and announced a 10% increase in our quarterly dividends during the quarter. Fourth, beginning next fiscal year, we expect future dividend adjustments will be considered by the board for the dividend payable in September of each year. This, combined with the additional share repurchase authorization, provides further opportunities to enhance shareholder value. And finally, we would like to thank our employees for their continued commitment to our brands, to our strategy and to each other, which is key to our long-term growth. Thank you for your time today, and we'd now be happy to answer your questions.

[Operator Instructions] And our first question comes from Eric Katzman with Deutsche Bank. Eric Katzman - Deutsche Bank AG: I guess my first question has to do with the lack of kind of elasticity that you saw across the portfolio. As you've kind of increased prices as the fiscal year has progressed, maybe you could kind of talk about kind of the retailer and consumer reaction you've seen and how much promotion was kind of -- we didn't see in the top line? And did that, the effective use of promotion, help you in terms of generating what seems like a low level of elasticity?

Why don't we take it by each of our businesses, probably the best way to describe it.

Eric, this is Vince. As you know, and most of you have reported given where coffee prices have been, it would indicate that the effect of elasticity would be much greater than what we saw during the quarter and year-to-date. And as Mark said, I think our volume was down 2% in the quarter in Coffee. And I would just like to make the point though, that's on a difficult comp of last year, we were up 4%. I guess we're very, very pleased. The bottom line is we're very, very pleased given the volume, how it reacted in the quarter and particularly given some of the competitive activity in the major retailers. So net-net, we're very pleased, but I think it's also fair to say we're in uncharted territory given coffee sitting at 14-year highs. I will say that we are seeing some volume being shifted to non-measured channels, and again as the consumers shop from different outlets, we’re seeing the benefit of that.

Eric, it's Steve. If we look at the Consumer business and I think we talked each quarter, we reduced our peanut butter list price to reflect the lower cost of peanuts that we've experienced this year, and we were the only major brand to do that. And so we saw our branded volume every day on some key sizes, on 28 ounce and 40 ounce and those value sizes, come down below some key deciles. So that allowed us to use marketing mix and use promotional spending that wasn't as deep as the stuff we saw competitively. We saw 10 for $10s and all of this other stuff going on between private label and branded, but we were able to get the everyday price right, put incremental promotion where we needed to, but stack the marketing mix against it. Really pleased with the response.

Eric, this is Paul. On the Oils and Baking side, specifically speaking to Crisco, we did take a price decline in the second quarter and that was really meant to close the price gaps on shelf, and I think we were able to achieve that. You could see we were up 27%. We did have some additional spending, so we did buy some of that share back, but we felt that we did get a low point in how much share we're willing to see erode. And we felt actually pretty good with the results of that volume gain in the third quarter.

I would say in Canada -- this is Mark Smucker. We have a pretty broad portfolio of products there and generally speaking, our promotions both in the Fall Bake in the baking area, as well as across some other categories like coffee, have been very effective. We have seen some easing of competitive activity and that obviously helped us as well. Eric Katzman - Deutsche Bank AG: And then I guess my follow-up question would be to Mark. And I just kind of want to understand, I'm not sure whether you're prepared to go into kind of fiscal 2012, but I suppose you're going to get some significant kind of tax breaks on some of the production that you're doing in the U.S. given the tax code. And as your pricing flows through, you should get back some of the working capital usage in the cash flow statement, and obviously, you have the goodwill amortization, which kind of hides some of your cash flow versus the income statement. So when you look out, I mean, is it the combination of those things that could make cash flow grow pretty strongly next year? And is that why I guess, Richard, you commented on both the buyback and the dividend moves over the next year or so?

Yes, this is Mark. Eric, I'll start. In terms of cash flow, we recognize that we have taken our free cash flow down from our original estimate we gave this year, and you really hit on the point on the working capital. We knew that we had -- the change in the tax payment timing was going to be a negative, and that basically is something that we benefited on last year. Even though at the negative, we were able to defer tax payment by a few months or so, and the result was, it was a good thing. But clearly, the increase in commodities and particularly in coffee is driving our increase in inventory. It's really dollar-driven because we've been able to manage our units very well, particularly in finished goods unit, so it's clearly a cost issue here. So as those costs ultimately turn, there will be a benefit. Now I can't say that's going to be next year but whenever that does occur, that will benefit. In terms of taxes, I think we would say we have a fairly good tax rate being a North American-based company. We do benefit as we commented time to time on this U.S. tax deduction that we do get for our U.S.-based production. So obviously, we're not sure what all is going to change in the tax laws as they work through them, but I wouldn't see a major change in that. But bottom line is we would expect cash flow to improve as the commodities soften. We're obviously, going to generate good cash flow in the coming years, and that just adds to the confidence in our willingness to both buy back shares and to consistently increase our dividend.

This is Richard. I'll just add to that. As you know, we do have very strong balance sheet. And at the price that our stock is currently trading at, our multiple is one that -- investment in our stock is a very good investment for the company and for our shareholders, so we anticipate that going into the future.

We go next to Judy Hong with Goldman Sachs. Judy Hong - Goldman Sachs Group Inc.: I had two questions on coffee. First, just from a cost perspective, is there any way to sort of quantify the magnitude of coffee inflation that you've seen so far in your P&L either year-to-date or in the third quarter because some of the hedges that are in place, obviously, insulates you right now from feeling the full brunt of the price increases. So I'm just trying to get a sense of how much you felt in your P&L? And then directionally, how does that sort of play out assuming spot prices in fiscal '12?

This is Vince. We wouldn't give I guess the specifics, but I will say in the third quarter, coffee costs were up. I'll give you a range between 25% and 30% roughly year-on-year. And then on a going forward basis, obviously, we just took a price increase in early February. But I would say that again, without giving specifics given our position, we did not price to where the coffee is trading today. And so we would look at if something doesn't happen in a reduction, we may be faced with another review of that in the first quarter.

Judy, this is Mark Belgya. Just to add to that kind of your comment, clearly, the costs, they have just consistently risen through the first 10 months of the fiscal year. We're going to see the full-year impact of much that next year. And kind of to Vince's point, we are going to have to look at prices in probably a number of our categories. But next year's cost will be up significant even in comparison to this year, which was obviously, a very high increase year as well. Judy Hong - Goldman Sachs Group Inc.: And your point is that you need to see another price increase that's really fully offset the cost if you look at fiscal '12?

Unless the market backs in.

Unless the market. Judy Hong - Goldman Sachs Group Inc.: And then the second question is in terms of your K-Cup. I think you called out that it added about four points of sales in the third quarter. So it seems like the run rate is something like $20 million for the quarter and then $80 million for the full year or so. Is that kind of a good full run rate to use for the full year? What sort of ACV distribution do you have currently? And if you can just talk about some of the progress that you've seen? And if you have any target distribution, number of SKUs, that you can give us a little bit more color on.

Yes, sure. Well, first of all, I will say that the K-Cup acceptance by retailers and consumers has exceeded our expectations given it’s only been in the marketplace for four months. Very, very rough numbers, on a four-week basis, we have about a 60% ACV on Folgers and about a 30% to 35% on the Millstone brands. But again, it's still early days, we're still gaining distribution. You have to keep in mind there's a little bit of seasonality to K-Cups, which we are learning. But we would continue to -- we're going to continue to grow the category and hopefully, grow our brand. So the estimate that you use is probably in the range. A lot depends on what goes on in the environment, but probably where you are is not too far off at this point. But given that it's far exceeded our expectations at this point, we're revisiting our objectives. Judy Hong - Goldman Sachs Group Inc.: And was there any profit impact in sort of that magnitude? Or was that a lot of investment?

No, actually the profitability is equal to or better than our corporate average.

Our next question comes from Farha Aslam with Stephens Inc. Farha Aslam - Stephens Inc.: Could you just give us some color on your Folgers and Dunkin'? In the fiscal third quarter, it was Dunkin' that really fueled the growth in volume or the volume in Coffee. Recently, you've seen a lot go on in the Coffee category. And we've noticed that on shelf, in many places, Starbucks Coffee is actually equal in price to Dunkin' where it's historically, it sells at a premium. And recently, you've had comments by Kraft saying that they are going to take higher pricing in their brand. So have you seen a flip in terms of your brands as Folgers volume increased recently? And has Dunkin' been pressured?

So Farha, a couple of points. First of all, in specialty or gourmet, it's fair to say that we have now taken three price increases and the main competitor has not, and so that gap has significantly narrowed or in some cases, gone unfavorable to us. We're all aware there's a lot of activity going on in that relationship. Having said that, again we were up, I think, 8% in the quarter and that was on an 18% growth in last year's third quarter. Relative to Folgers and Maxwell House, again, prices are up for both of us, but our merchandising prices and our unpromoted prices are up higher than our competition. And in a major retailer, they chose to investment in spend back and gain share significantly during the third quarter. In terms of what we were seeing, yes, we're starting to see with their announcement and our announcement in February, prices are starting to being reflected on shelf.

It's Richard. I think there's more rational [ph] pricing starting to come to the marketplace. Everyone knows that these commodity costs are up, so I think most consumer product companies are looking at the promotional budget and believing that it's not wise for the consumer or their shareholders to continue to deep discount. So I think everybody is re-evaluating, which I think will be good for us. Farha Aslam - Stephens Inc.: And as my follow-up, could you comment on the M&A environment that you're seeing right now? Are there opportunities to invest your cash in new businesses?

This is Richard, and I'll let Tim add to this too, but the answer is there's always opportunities. And as we've said before, there's a number of brands out there that we think would be nice fits with our company, and there's probably a little more activity now than we've seen in the last couple of years in terms of ideas. But again, those are hit and miss. You just have to do it at the right time, but we're always in the market. Farha Aslam - Stephens Inc.: Any particular category?

Our center of the store is our strategy, so there are a number of categories in center of the store that you can imagine. None that we're going to talk about today on the call. But when you walk down each aisle, you could imagine there's some good fits with Smucker's.

We'll go now to Jane Gelfand with Barclays Capital.

Obviously, there is a lot of sort of investor concern about how you deal with a 14-year high in coffee prices. So you, clearly, have a history and a legacy of dealing in more commodity-oriented categories. So I'm wondering could you maybe compare and contrast what it's like, what it's been like for you to kind of price against the spike in coffee? This is your first experience whether it be relative to some of your other categories, whether it be in the context of competitive set of dynamics that may be different, hedging practices that may be different, maybe a consumer behavior that's different given it's a category where there's more kind of a habitual presence or and in general, whether it's easier or maybe harder to kind of stay in line with that cost curve or even potentially get ahead of it?

This is Tim. Let me just have an overall comment and then turn it over to whomever here on the team. But certainly, we look at value as more than just price, and certainly our dedication to quality, the consumer buying over and over again. So this is not new to us, although the spike's a little bit bigger than we've been used to. But clearly, the consumer does understand and appreciate long-term receiving the same quality year in, year out, time in, time out. And that's what why we want to invest in the brands long term. So just to provide, that's center of our thinking, and we'll continue to be that. So value is up a lot more than price.

So, Jane, this is Vince. I guess I would add a couple of thoughts. First of all, we just have a very solid team working in the Coffee business as we do in our other brands, and the expertise that has come to us in green coffee and previously in the oils area from Procter has just been very, very helpful. And so clearly, coffee is unique. I think 14-year highs are issues that we're -- and the volatility we're dealing with every day. But I do think it gets back to one thing, and that's the benefit of having number one brands and leading price up or down, being transparent with customers and acting responsibly. And sure, we internally discuss and debate what's the market going to be in the future. But when 80% of the commodity is being traded by non-roasters or people who really need the coffee, so to speak, it's a challenge, but I still think it gets back to the strength of our brands and our ability to implement through our sales team.

Maybe just as a follow-up, I know you won't necessarily comment specifically on fiscal '12 at this point. But as we think about your long-term algorithm, maybe excluding acquisition, we're looking at kind of 6% to 8% earnings growth without a deal, and there are some puts and takes as we think about next year whether it be the $0.10 of impairment charges you absorbed in this quarter or the share repo of 5 million that you've authorized in January. Some potential for underlying core growth. So I guess, is there's something that you see at this stage from a kind of pricing inflation standpoint that may either prevent you or help you to get closer to where the street expects at that point? And whether you’ve thought about that?

Well, yes. Jane, this is Mark. I mean, we clearly think about that. But again, just to ground everyone, I think that it's consistent with what we've done in the past. As you know, we'll certainly give more color at our year-end call specific to our plans. But I just think in terms of looking out next year, you mentioned a number of items, some non-recurring, some opportunities to increase EPS such as buyback. If you go back to Tim's point, clearly, prices is one of the levers that we do utilize to address these rising commodity costs, but we do have opportunities. As you're aware of, we're undertaking a major restructuring project across many of our plants though we'll get some additional benefit from that, and then we just continue to look at discretionary spending, particularly in times like this. Pricing though, we've taken a number of price increases throughout the year that will continue to benefit us on a full year basis next year. So although we've talked specifically about the rising cost, we do know that some of those costs have been covered already just by the full-year benefit of pricing. But we'll continue to look for opportunities to offset that if the market stays as it is, and we'll just add more clarity as we get closer to year end.

Our next question comes from the Scott Mushkin with Jefferies & Company. Scott Mushkin - Jefferies & Company, Inc.: So I just wanted to get into the K-Cup business a little bit more. Clearly, the volumes were nice in the quarter, helpful for the business. But I guess as we've looked at the K-Cup, I guess our concern is growing about what it may do to the coffee market. I think there's some interesting data out of New England saying that K-Cups are taking some tremendous share up there. I mean, do you share these concerns about what they might do to the ground coffee market over time? And obviously, you're in a strategic relationship right now, but is there anything else strategically you could do to offset this threat to the ground coffee business?

Well, I guess our response is, is that the reason we chose to align with Green Mountain and Keurig is because we think that they are, at least at this point, the clear winner in the category. And we said before like any of our categories, we like to participate in all segments, and so that's why we chose to get in it as quickly as we did. The teams did a great job of engaging with Green Mountain. We have a great relationship with them. Household penetration is still, I believe, 4% to 6% or something like that. Again, it's still a $0.55 to $0.60 cup of coffee versus roasted ground, which is still going to be in that $0.10 to $0.15 range. And even a gourmet brand is maybe 2x to 3x that, but not anywhere near $0.50. And so I think we all believe roasted ground will be around for a long time.

And this is Richard. We've been in the business long enough that we've seen a lot of these trends and some stick and do well. We think this is one that's going to do well and just continue to be a major part of the category. But we're in the organic business and have been for a number of years, and that's not as big as anyone anticipated it was. But 10 years ago, everybody thought that was going to be 20% of the industry well it's still down in less than 5%. So I think we have to be engaged in all of these, but we also have to make sure that we take a realistic look, and that's what we do. Scott Mushkin - Jefferies & Company, Inc.: Is the switch from ground coffee to K-Cups -- I know you said it's good for the overall margins of the business, but is it good for the Coffee segment profits?

Not currently. But again, we are investment spending in it. But we're very pleased where the margins sit today vis-à-vis our overall corporate average. Scott Mushkin - Jefferies & Company, Inc.: And then this is kind of along the lines with Jane's questions, but I'm going to try to see if I -- maybe just trying to understand the math as we get to the fourth quarter. It seems to indicate the Street estimates are too high, maybe some margin pressure here is my guess driven by input costs. I mean, are these -- as we look at the fourth quarter, maybe the beginning of next year, is this kind of what you guys see with what's going on with commodity price, that there's going to be a little bit of pressure?

Well, yes, I mean, I think to some degree, clearly where costs are, there's going to be a little bit. I mean we were coming off particularly in Coffee, but just generally coming off of really three strong quarters of margin. But still our expectation for overall operating margin is still pretty strong. But we see some erosion in gross profit. But one thing, Scott, and just keep in mind, and we've sort of been consistent in this message each quarter, is that last year's fourth quarter was unusually strong. I mean, we caught up some specific such as taxes. But it was extremely strong, and we still project a very good fourth quarter. But I think that there was maybe a little more optimism from those of you on the phone at the outset of the year. But still project a very good quarter. Scott Mushkin - Jefferies & Company, Inc.: The organic market I think, Mark, someone talked about it and said it was up 20%, your organic business, natural and organic business. And I think you said there was some private label -- I didn't quite catch what you said about that. I just wanted to clarify. What's the organic growth of your organic business if you're going to look at the branded stuff?

Well, yes, the branded stuff business is still very good. I mean, Santa Cruz Natural and R.W. Knudsen brands continue to grow. The private label business, which is a limited customer, is sort of a peak and valley type thing, and they just had a very strong quarter. But clearly, our base business which we call our branded business is up for the quarter as well.

Yes, this is Mark Smucker. I would just add to that, that in the script, we talked about overall, the industry is doing well. That is driven by the larger customers not as much the smaller customers, and we have seen some rebound across that entire industry, and our branded business for the quarter at least was driven more by the natural beverages versus the organic beverages. But overall, it's still a very healthy business.

And now we go to Ken Goldman with JPMorgan. Kenneth Goldman - JP Morgan Chase & Co: Could you walk us through your take on what's happening right now with green coffee bean prices? On the last call, you said I think that prices were high in part because of financial speculation. And that seems to be true, and I think you reiterated that today. But it also seems that maybe there's a bit of a supply issue from last year's crop still and demand keeps improving from Brazil and China, et cetera. So maybe if you could update us on your outlook there and how you see the fundamental situation? That would be useful.

Ken, this is Vince, and also I read your report this morning. Clearly, there is starting to be some impact of fundamentals versus speculation. As you point out, the Brazilian crop -- we’re going in what's called the off year, but the projections still at this point, although early, are that it's going to be a very good crop vis-à-vis that every-other-year cycle. You're clearly right that demand in Brazil and other developing countries is taking some of the, taking better coffee. We all know that Colombia has been under pressure for a couple of years. So yes, there are clearly some fundamental issues going on, which has probably helped supporting where the price is. But it's hard to put a percent on how much is driven by fundamentals versus speculation. When again, you have 80% of the coffee being traded is not from [ph] financial institutions basically. But yes, you are right. I would say that we probably have changed our view on that over the last nine months in terms of what's driving some of the cost pressures. Kenneth Goldman - JP Morgan Chase & Co: You mentioned that Coffee did well in drug and warehouse channels. Is there something you're doing there that's new and improved? Or is it more that you're going with those channels? I'm just hoping to get some color there on how to think about continued growth going forward.

Yes, I think I'd say a couple of things. First of all, clearly, Folgers has brought to us an emphasis on some of the more non-measured, non-traditional grocery channels than we had before, and that's benefiting not only Coffee, but some of our other brands as well. So it gets down to the value proposition of the pricing in those channels vis-à-vis maybe more traditional grocery. And again, if the competitor chose to maybe go after some traditional grocery or a major competitor in some cases, we might have been a better value in some of those alternative channels. But as a mix, if you would look at the Smucker Company mix of sales shipped over the years, a greater percent of our business is in more non-traditional channels than what it would have been, say, two to five years ago.

Our next question comes from Ed Aaron with RBC Capital Markets. Edward Aaron - RBC Capital Markets, LLC: I wanted to ask about sort of the coffee inflation issue in terms of how you think about your use of cash. Because when I think about acquisitions versus buyback, I'm not convinced that there's a lot out there that you can buy that has a better value than your stock here. But at the same time, I kind of wonder how you think about just the value of diversification as your cost base just given what you're seeing in the Coffee business and how you -- the value you placed on that when you think about the importance of acquisitions to your model.

Well, we agree with your opening comment about the stock price. Ed, one of the things that we've shown time and again, really since the Folgers acquisition, and I know you're aware of it, is what we call our cash and capital deployment schedule. And we show that the four primary uses or deployments of cash would be in acquisition, capital expenditures, dividend and stock buyback. And we do evaluate each of those, and we've always said that acquisitions is our primary use because that's what going to drive the growth of the company long term, and that's our strategy. But there are times whether what is available on the M&A environment or such that we will look to buy back the stock. And so the divesting question is -- it's certainly a factor that we look at. We recognize that Coffee is 40% of our sales. On the other side, there's synergies when you have leadership in the category, so just part of the decision-making process as we look at acquisitions. So we're not consciously being driven trying to diversify. It's sort of just naturally happened over the years. We've been in other situations where it seemed a little heavier and through our transactions, it sort of balances itself out over time. Edward Aaron - RBC Capital Markets, LLC: And then, Vince, obviously, this level of inflation presents of a lot of unknowns. And I know you're not prepared to comment on fiscal '12 yet, but can you tell us at this point in time, you expect that you can get growth in your segment profits in Coffee next year? Or maybe to ask the question in another way, is there some level of Coffee price inflation that would, in your opinion, kind of derail your growth model?

No. I mean, again, our objective is to grow our segment profit each year, year-on-year, by our strategic objectives, and that's what our goals are.

I may add, this is Richard. If you look at the categories that we're in, the frequency of purchase in most of our categories is not that often. And even Coffee, which is the most frequent, for example, jams and jellies, people purchase about 3x to 4x a year. So if the price goes up 10%, they're not going to -- not purchase their jam because they're only buying it once every three months. Coffee is still only about is less than once a month, and so it's about 10x a year. So Coffee could go up, but I don't think you're going to stop drinking it if it goes up a couple of dollars a can. Obviously there's some level that we wouldn't want to go above, but I think we're still in a good range. Edward Aaron - RBC Capital Markets, LLC: And just one quick follow-up if I could. The price increases that you had taken through the quarter that you just reported I think would have implied about 13% or 14% price growth and the price growth came in higher than that. I'm wondering was that mix? Or was that more just lower trade spending than maybe you had in the prior year?

It's primarily overall mix.

For our next question, we go to David Driscoll with Citi Investment Research. David Driscoll - Citigroup Inc: In the past, you guys have commented that hedges have often been in advantageous positions relative to the prices that you've announced. You were pretty clear on that a couple of quarters ago. Given that you've announced this new 10% price increase, can you also say that the green coffee positions you've taken will put you in a favorable position going forward for the next five months?

Well, not to what we've experienced fiscal year-to-date. Again, we try to be as transparent. I think you've heard us talk about our position tends to be an average between 18 and 22 weeks. We tend to be a little longer on some of the specialty coffees. But again, as I mentioned earlier, we didn't take the price as soon as our competitor did because we didn't need to. And then secondly, as we're looking at where coffee sits today, our current pricing structure would not cover that entirely once we get through our position. So we would have to look at another change in the first, potentially in the first quarter. Did I answer your question, David? David Driscoll - Citigroup Inc: Not really. The question was, so basically two quarters ago you had said that you took the 9% price increase and you said that the 9% price increase didn't reflect current spot values. However, you also said at the time that the green coffee hedges that you had in place were favorable such that you would see kind of better-than-average margins. It's not necessarily where the spot price is, it's always where you put your retail price versus your green coffee hedges in the variance between those two. And it looks to me like basically the way I think about it is that you guys buy your green coffee, you set your prices relative to those green coffee positions and usually it's going to be a little bit advantageous.

I suppose that's true in a general sense, but as Mark, I think, pointed out earlier, our gross margin percent actually went down in the quarter because we're not necessarily maintaining those margins at a gross profit level. But again, hopefully, I'm answering your question.

Well, our strategy in up market like this is to protect penny profits, and we're going to be doing that hopefully this year and next. But the margins can be squeezed, percentage margins can be squeezed.

This is Tim. As Richard had said earlier, pricing is not the only leverage here. And we're in this for the long term. We've made significant steps in terms of restructuring. We're in the middle of. We also make significant steps in terms of cost efficiencies and as we have other discretionary spending. So all of those things come into play. So I think maybe we sometimes forget those, all of us do. So just keep that in mind. David Driscoll - Citigroup Inc: Was there anything peculiar about the shipment pattern of coffee in the quarter? Just what I'm trying to get a sense of, was there anything strange in the year-ago shipment patterns that would make the percentage calculation on coffee shipments hard to interpret? Was there any reason that you might have taken volume forward into Q3 from Q4?

No. Again, customers speculate they knew that price increase was coming. Our team manages those orders very, very closely. This is the same question we got at the end of the first quarter, the second quarter, and I will just say you can look on a quarter-to-date, we're basically down I think 2% and it might fluctuate a little bit. But we don't allow forward buy. Now does that say a customer is not loading a little bit? Sure. But for the most part, it's not load.

Now we go to Chuck Cerankosky with Northcoast Research. Alex Bisson - FTN Midwest: This is Alex sitting in for Chuck. I got two questions for you on mix. First as you look broadly across the portfolio, what does the change in mix tell you about where the consumer's headed at? Are you seeing some more trading up? Or are you still seeing a lot of interest in promotions and deals? What can you tell us kind of where the consumer's head is at?

Alex, Steve Oakland. Yes, we do see that. I mean obviously, value is key both for the consumer and the retailer. The retailer wants the right value items. They want coffee items or peanut butter items, those kinds of things on the front page of their ad. I think what we proved in the quarter is you don't have to go rock-bottom to make it happen. You can stack offers. You can have coupons and consumer offers and advertising as well as price. What they are shopping some of the, and I think Vince spoke to this earlier, some of the other channels, the margins that club take on basic food items are way below what traditional grocery takes. And so that provides great value, and so those customers who shop at those channels are getting great value and have recognized that. So I think some of the alternative volume is coming just because those channels are capable of taking lower margins on the business. I guess I'll look at the other guys for this. But there's no question that both the retailer and the consumers are still -- value is still key.

Yes, I guess one thing we still have is the K-Cup is significant in terms of dollars per EU or per volume. And so as we settle out on K-Cups, we're going to have a favorable mix as we grow that business. Alex Bisson - FTN Midwest: I guess that kind of alludes to my second question on mix then. As you noted in the press release and on the call here, mix was a pretty big benefit to overall coffee sales. It sounds like K-Cups were a piece of it. What else is going on in the mix there? And can you talk about what that's doing to profitability of the business?

It's Dunkin'. So as Dunkin' was up I think 8% or something in the quarter and Folgers being down slightly, again, the net sales dollar value would help drive a favorable mix position, and profitability would be in line with or better than corporate or the Coffee margins.

Well, and if we look at the Consumer business, we typically don't comment on specific fruits, and there's a number of variables in that business. But this particular year, it's been a tough year on the grape crop, the Concord grape crop. So our mix has shifted to strawberry. And as you know, we're the largest producer, probably, globally of strawberry jam, and that has affected our business profitably and the consumer’s responded to that. So the consumer has responded to strawberry jam versus grape jelly at a higher price based on the strength of the brand, the strength of the merchandising effort.

We move now to Alexia Howard with Sanford Bernstein. Alexia Howard - Bernstein Research: Can I ask about the marketing spending versus promotional spending here? It seems, I think you mentioned that you've been trimming the marketing spending a little bit. As you look forward, are you comfortable with the ratio of that spending on the advertising versus promotional front? Or do you think you'll be pushing things in one direction or the other perhaps going out into next year?

Alexia, this is Paul. On the Oils and Baking side, we really did transition some of the marketing spend to promotional dollars on a price perspective, really on the Crisco business primarily just to ensure that we get some of that volume back, and we would hope going forward, we'd be able to continue our balanced approach on the pricing, share of market and profitability.

And then, Alexia, in the Consumer business, I think we published that our marketing spend, traditional marketing spend was up 5%, maybe equal to volume. So in those businesses where we think we've got some great new advertising, we put some stuff out of the holidays that got us great response, and we have plans that we're excited about for next year. So we don't see that percentage changing.

And in Coffee, as we have said before, our marketing really isn't down versus the prior year. In absolute sense it is because we choose to investment spend last year given where green was. I would like to state though that coupon redemption, which is up in sales deducts, if you take that into account, our marketing for the quarter was basically equal to last year. But on a going-forward basis, I think it's probably at the levels that you're seeing this year we've not cut marketing. Alexia Howard - Bernstein Research: And as a follow-up, one of the big themes of 2010 was that a lot of SKU rationalization across the industry. I think we've been hearing that some of that maybe being reversed at this point. Can you just comment on whether you're seeing that happen or whether that's actually not a big effect that you're seeing right now?

Yes, sure. Let me make a macro statement and then each SBA can chime in. But it's clear that there was a number of key retailers that have those programs. First of all, we tend to benefit in those because being the number one or two brands, that ends up being more shelf space for us even if some of our SKUs have been cut. But I will say that at least a couple of major retailers have reversed those actions, and we have equal to or more SKUs than we might have had when the initiatives were started, And I'll now turn it to Paul or Steve.

Yes, this is Paul. I'll just add to that, that we don't have -- in some of our portfolio, we don't have all the number one brands, so we did see a negative impact when that SKU rationalization was taking place, and we have seen those SKUs be added back.

And then if we look at the specifically the fruit spread business as you know, we have a number of sizes, flavors and sugar profiles or sweetness profile, and some of those were taken out -- to Vince's comment earlier, in most of those retailers we have equal to or more SKUs on the shelf today. I think the consumers spoke in the end, and the consumer wants those items, that's why we make them. And we do a lot of work to make sure those items fit what the consumer wants. And those retailers who took them out listened to their consumer, and we're glad to see them back on the shelf.

I would just add that in Canada, we have not seen that reversal, that SKU rationalization, and the pressure on the amount of items in any given category continued. There may be a couple of exceptions to that. But overall, I think that, that in Canada may be a little different.

We go now to Robert (sic)[Mitchell] Pinheiro with Janney Montgomery Scott. Mitchell Pinheiro - Janney Montgomery Scott LLC: What's the status and the likelihood of introducing a Dunkin' Donuts K-Cup?

As we've said before, we're focused on the two brands, and we're very pleased with the results of where we are. So not likely to be in the near term. Mitchell Pinheiro - Janney Montgomery Scott LLC: You do have the right to introduce -- I mean you sell Dunkin' Coffee at grocery by contract, is there something in this contract that precludes you from doing that? A K-Cup for Dunkin'?

Yes, there are some limitations, and we're -- so yes, there are some limitations, yes. Mitchell Pinheiro - Janney Montgomery Scott LLC: And then last question is do you view at all Folgers' Red Can in the position to capture trade down in the coffee category?

To capture trade down? Mitchell Pinheiro - Janney Montgomery Scott LLC: Yes, to capture trade down from higher-priced super premium brands as these coffee prices continue to go up. There is general inelasticity in the category but there is movement from top to bottom. Would you anticipate Folgers being in a position to capture just being in sort of the more value segment?

Yes, I think the answer to that is yes. But I mean again, the gourmet or specialty category continues to grow even in these tougher times. But there's a couple of segments within Red Can that we are focused on. One is Black Silk and the other is what we call Special Roast, and we put a lot of support behind those. And both of those brands are growing very, very nicely, and yet we still have a lot of distribution opportunities for them. So yes, I suppose to answer your question, yes, but we're certainly not giving up on the growth of the Specialty or Gourmet segment.

I would add that lot of us around here drink Black Silk. It's one of the best coffees you can find for anywhere regardless of the price, and it's doing very, very well.

We go next for a follow-up question from David Driscoll with Citi Investment Research. David Driscoll - Citigroup Inc: Just wanted to ask you a question at my conference back in December, you made some interesting comments about looking for acquisitions internationally. Can you give us an update on your thought process on this? How developed is this? And is there really anything on the near-term horizon? Or was this more a very much long-term statement?

This is Mark Smucker. I would say that, obviously, we wouldn't comment about anything specific, but we are very focused on China, and we are engaged in China. We are in the process of just, at a very minimal level, we have started once again to export some products there and looking to establish some sort of a representative office. So that does not preclude our interest in having some type of meaningful presence there, and as you know, those things are sort of hit or miss. They come and go, but we are very engaged. We have a lot of feelers out in the market, and we're looking. David Driscoll - Citigroup Inc: So it really sounds like quite a serious effort on your part. Is that a fair statement?

This is Richard. Yes, this is serious. We think that that's some place we need to be, and the timing on international is long term. But it's certainly -- we're spending management time and dollars.

We take our follow-up now from Ken Goldman with JPMorgan. Kenneth Goldman - JP Morgan Chase & Co: You mentioned that K-Cups are doing extremely well right now but there's a potential roadblock ahead that I wanted to ask about, and that's Green Mountain's Keurig patent and patents. What's your understanding of what happens to the category, the single-serve category when that patent expires? Do you expect the entry of competitors' products into the category? Or maybe it's not the right way to think about it?

Ken, I don't know that we would comment on that. We've worked with Green Mountain and we know where they are protected. They feel very, very comfortable with where they're protected. There is a private label entry as we speak. But again, we evaluated all of that when we got together with the folks at Green Mountain and feel very comfortable where we are. So that's probably a better question for them.

Ladies and gentlemen, that's all the time we have for questions. Gentlemen, I'll turn the conference back over to you to conclude.

Well, thank you for your interest and time for participating. And a number of us look forward to seeing hopefully many of you down at CAGNY next week. Thanks so much.

Ladies and gentlemen, if you wish to access the rebroadcast after this live call, you may do so by dialing 1 (888) 203-1112 or 1 719-0820, with a pass code of 4716986 or by accessing the website for a downloadable MP3 format. This concludes our conference call for today. Thank you, all, for participating, and have a nice day. All parties may now disconnect.