This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that do not relate solely to historical or current facts and can generally be identified by the use of words such as guidance, may, should, could, expects, seeks to, anticipates, plans, believes, estimates, approximately, nearly, intends, predicts, projects, potential or continue, or the negative of such terms and other comparable terminology. These statements are only predictions. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that may cause the company or its industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievement expressed or implied by these forward-looking statements. TreeHouse's Form 10-K for the period ending December 31, 2011, and subsequent Form 10-Q discuss some of the factors that could contribute to these differences. You are cautioned not to unduly rely on such forward-looking statements, which speak only as of the date made, when evaluating the information presented during this conference call. The company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in its expectations with regard thereto or any other change in events, conditions or circumstances on which any statement is based. At this time, I would like to turn the call over to the Chairman, President and Chief Executive Officer of TreeHouse Foods, Mr. Sam K. Reed.

Good morning, all, and welcome back to our TreeHouse. We have much to report today relating both to our short-term performance and tactics, as well as our long-term outlook and strategy. We will also provide an overview of our dual strategic agenda of internal improvement and external expansion. This agenda will position our TreeHouse for organic growth, better margins and expansion through acquisitions over the next several years in uncertain market conditions. As is our custom, Dennis and I will provide an amalgam of financial, operational and strategic observations to provide a comprehensive perspective on our grand private label opportunity and its current challenges. Three recurring things will resonate throughout our discussion. First, macroeconomic trends and general industry conditions in the food and beverage sector have exactly the heavy toll on consumers, retailers and manufacturers alike. While problematic the most, these circumstances also present great opportunities to some, especially those of us in customer brands. Next, we at TreeHouse, have aligned our resources in order to respond to these sustained market forces and the elemental changes that are being wrought in their aftermath. After 6 quarters of industry turmoil, first from rising costs and now from falling demand, we are remodeling our TreeHouse to withstand foul weather, and unlike most others, continue to expand our holdings. Lastly, our fundamental strategic premise in investment pieces remain intact through these hard times, namely: Superior shareholder returns in the food and beverage sector can best be generated through our program of private level growth colored by innovation and acquisition coupled with an uncommon passion for consumer value, customer brands and financial performance. Before Dennis addresses financial and operational matters in detail, I'd like to offer an overview of food market conditions in general, private label in particular, implications for the soup category and our go-to-market strategies. In doing so, I will initially refer to the marketplace based upon the historical use of syndicated data for supermarkets and other full-service grocers. Later, I will introduce new syndicated data that quantify these volumes and revenues in the alternate retail channels. The general food and beverage market has just posted its fourth consecutive quarter of year-over-year declines in unit volumes sold through supermarkets and other traditional grocers. Plagued by economic uncertainty and political impasse, consumers have cut back once again as growth and personal expenditures for our home consumption and food and beverage has fallen from a high of plus 4% back down to 0. Conventional grocers have been left behind as cash-strapped consumers have abandoned them in favor of discount and limited assortment retailers, and dollar meals and QSR chains. This shift has been exacerbated by a continual series of price increases paired with promotion decreases. Since January, general food and beverage, a composite of 102 product categories, has grown only 1% in dollars as units have dropped 4% in the face of 5%-plus pricing and an equal decline in in-store merchandise. The center of the store staples have declined even more, 6% in units, as national brand merchandising across TreeHouse categories has been pared back by 8%. These conditions have prompted a shift to alternate retail channels as consumers confronted with higher prices and fewer deals for the most basic of foodstuffs have bid the traditional but more expensive grocers adieu and gone elsewhere. While national brands and private label has suffered alike, it should be noted that syndicated data of conventional grocers does not convey a complete picture, especially in private label. Both the IRI and Nielsen have now expanded their databases to include alternate retail formats that have benefited from the channel shift away from full-line, full-service grocery, whereas the historical database reported an 8% unit decline in private label across all center of the store categories, the expanded all channeled measure reflects only a 2% volume decline for the quarter. This relative improvement in aggregate private label is based upon a 13% increase in units sold through alternate channels. Our second quarter shipments to these same channels have posted yet another quarter of double-digit unit volume gains as consumers seek value without compromise in these fast-growing nontraditional stores. As our business with these channels has increased, we have gained strategic insights regarding our consumers, shopping patterns, product and package preferences and merchandising tactics. The keys to private label profitability in these alternate formats entail not only more efficient production and distribution of opening price point merchandise and smaller package sizes, but also a fundamental understanding of the consumers they serve. The importance of these channel and consumer insights can best be grasped by an example of one of our legacy private label mainstays, non-dairy creamer, and the newest addition to our customer brand portfolio, mac and cheese. In the non-dairy creamer category, where we hold a 90% share of private label, total revenue in traditional channels declined 3% on the last 6 months with the leading national brand faring slightly better than private label. In contrast, our Retail Grocery business generated 12% more in revenues through June. The difference lies in the alternate channels were more than 1/3 of households buying private label creamer shop exclusively for this category. Household Panel data indicate that these channels account for virtually 1/2 of total private label creamer, thus making growth in this commodity-oriented products highly dependent upon penetration of these alternate channels. In mac and cheese and other dry dinners, where we account for approximately 1/2 of private label, total category volume in the first half fell 4% in traditional channels, where private label lost unit share to the leading brand. Our dry dinners category, however, dominated by mac and cheese, posted double-digit unit and revenue growth. Again, these differences in the alternate retail channels which, while they only account for 1/4 of private label category -- purchases in the category, have experienced unit growth rates 3x that of the leading supermarkets. We are now on the cusp of a new era in understanding private label trends in alternate retail channels. Nontraditional grocers offer a wide range of go-to market opportunities based upon varying consumer demographics, channel penetration and customer economics. Within our private label portfolio, their shares range from 21% to 64%, generally highest in the commodity-oriented categories and lowest in value-added products. Growth rates exceed that of traditional grocers in not some but all of our major categories. Such insights, coupled with the information reported by our IT conversion to SAP, will enable our sales and marketing teams to devise more effective go-to-market strategies across all outlooks, wherever private label appeals to customers. Regarding soup, as referenced on this morning's press release, we have embarked upon a new strategic course, favoring economic returns over category leadership. At the macro level, broad category dynamics have been determined by an ongoing loss of share of stomach to more convenient, simple meal alternatives and by a struggle for branded supremacy between 2 global CPG giants. The fundamental tenets of our portfolio strategy have been sorely strained as the total wet canned soup category has declined 15% in real terms over the past decade. Our future prospects have been diminished as lower branded volumes, coupled with industry-wide excess capacity, portend only greater difficulty for the category in the years ahead. These category-wide phenomena have been aggravated by 2 private label factors endemic to our TreeHouse: the erosion of branded contract manufacturing and the impending loss of substantial production volume for a major customer. Contract manufacturing of branded baby food broth, gravy and food service soup has steadily declined over time since our acquisition 6 years ago. More recently, weak branded category dynamics have affected the private label sector. Accordingly, we have determined that the combination of idle capacities, escalating overhead costs and limited growth opportunity have rendered our current business model untenable. When combined with a general category decline, these factors compel us to right-size both our asset base and business model. While difficult and painful, these changes will allow us to reposition our soup business, which will remain in a central element in our portfolio on a more sound and stable basis. In parallel, we will also close the Canadian facility to leverage capital investments in our growing salad dressing business. Periodic pruning of this sort is a necessity, just as innovation and acquisitions are for sustained growth at our TreeHouse. As a serial acquirer of new categories that enrich our portfolio, we must also maintain the market discipline to trim those businesses which offer a limited opportunity like soup at present, or as has been the case in years past, processed pickles. Lastly, I'll conclude with the observation that despite difficult market conditions, we at TreeHouse have more than held our own in the first half of the year, this year. Second quarter revenues, assisted by a small acquisition, increased 7% on top of last year's 10% gain. Although gross margins declined, operating income grew 23% to $41 million. Private label grocery recorded a 1% volume mix loss, where volume gains led by salad dressing, salsa and sauces primarily offset losses in the soup category. At this midyear juncture, I, for one, am quite pleased that our operating earnings are up more than 20% and that our future prospects, once we right-size soup, are even better. Dennis?

Thanks, Sam. As Sam indicated in his opening remarks, our second quarter results finished very close to our expectations in total, but the route we took was quite a bit different than we thought. Our channels and customer sales showed a lot of mix shifting, resulting in lower overall margins but generally good top line sales in spite of a very modest unit sales decline of about 1%. As I review the channel results for the quarter, I think you'll find a lot more positive than negative in our sales activities. Let's look at North American Retail Grocery first. Here, our unit sales, as measured in pounds, declined about 1% compared to the same quarter last year. While not impressive on its own, recall that last year's second quarter had a retail volume increase of 5%, the best volume growth in our history. So the comps were very difficult. Plus, if you exclude just the soup category, which I'll cover in more detail, our retail volumes would have been up 2% over last year's very strong quarter. Our total sales in our retail channel segment grew 3.8% before considering acquisitions and currency. We have very nice, stellar growth in non-dairy creamer, up 12%; salad dressings, up 8%; dry dinners, up 21%; and our Mexican and pasta sauce businesses, up a combined 21%. Our hot cereal business also showed very good sales growth of 9% despite the extreme heat in the Mideast -- in the Midwest and the Northeast. And our typically flat pickle business had a 3% sales increase, driven primarily by pricing. One category that did not perform to our expectations was our powdered beverage business. Despite the dry and hot weather, the overall category dynamics were not good, and our business suffered with the rest of the powdered drinks category, resulting in sales being down 7% compared to last year's second quarter. On a positive note, we are seeing better sales in powdered beverages at the beginning of Q3 with our July sales up double digits over last year. You can see that most of the retail business was very good, but the dynamics in the soup industry, probably coupled with the extreme weather, drove our soup volumes down by 13%. So overall, the retail sales volumes were quite good, but we continue to see a very noticeable shift in sales away from traditional grocery chains to food retailers that reside on either side of the price quality spectrum. This is part of the reason we realigned our sales organization last year from a geographic focus to one focused on retail segments. Our sales of national brand equivalent products, the better of the good, better, best product to rate, underperformed compared to the good and best products. Our unit sales to customers that tend to focus on the value products increased 9% in the quarter, while our unit sales to customers have focused on the premium end of the spectrum were up 16%. At least, the more traditional full line food retailers down 5% in unit shipments. This decrease is very consistent with the numbers you see in the traditional syndicated data for private label volumes over the last 12 weeks. The shift in sales is having an effect on our total retail margins as the value segment is larger than the premium segment. Total gross margins in the retail channel were 21.6% compared to 23.4% last year. Approximately, 100 basis points of the decline was due to the effects of higher pricing offsetting higher input costs, while the vast majority of the balance was due to mix shifts towards lower margin opening price point products. Partially offsetting the gross margins were lower freight costs, resulting indirect operating income margins of 14.8% compared to 15.4% last year. Our Food Away From Home segment showed relatively good top line growth with the net sales growing 1.2% before considering additional sales from the acquisition of Naturally Fresh and foreign currency. Pricing to recover input costs fully offset volume decline to pickles. Naturally Fresh sales in the quarter contributed just over 10%, resulting in full quarter sales of $87.9 million compared to $79.2 million last year. Note that the Naturally Fresh acquisition closed on April 13, so we do not have a full quarter of sales in the period. Direct operating income in Food Away From Home improved slightly to $10.5 million compared to $10.1 million last year as the higher sales offset slightly higher selling expenses due to the addition of Naturally Fresh. The Industrial and Export segment had a sales increase of 8.7% due to a 4.2% increase in unit volume mix, but higher ingredient costs in our Industrial Powder business and mix shifts within the segment caused gross margins to decrease to 15.5% compared to 19.5% last year. On a consolidated basis, our total sales increased 7.1%, driven by higher price in the 4.7%, the addition of Naturally Fresh sales of 3.8%, and lower volume mix of 0.8%. Gross profit is 20.2% compared to 22.2% last year as the combination of mix shifts within our retail and industrial businesses caused overall gross margins to decline. As I turn to operating expenses, selling and distribution expenses totaled $33.9 million this quarter compared to $35.6 million last year, a decrease of $1.7 million despite the higher sales in the quarter. We are now realizing the benefits of the warehouse consolidation program we started last year, resulting in our selling and distribution expenses decreasing to a rate of 6.4% of net sales compared to 7.2% last year. General and administrative expenses were $22.7 million compared to $30.6 million last year as lower incentive compensation expense more than offset the small increase due to the addition of Naturally Fresh this quarter. The incentive compensation costs are being adjusted in light of the revised guidance we issued this morning. Interest expense for the quarter was $12.4 million compared to $13.5 million last year as our borrowing rates have declined. Average interest rates on our revolver were 1.7% during the quarter compared to 2.1% in last year's quarter. Total debt at June 30 was $940.2 million compared to $931.3 million at the end of the first quarter. Positive cash flow in the quarter was offset by the use of debt to fund the acquisition of Naturally Fresh. With regard to taxes, our effective tax rate for the quarter was 29%. This is below last year's rate of 32.5% but in line with the 30.4% rate from last quarter. I expect our tax rate will continue to be in the 30% range over the balance of the year. Total net income came to $19.5 million compared to $14.3 million last year, an increase of 36%. The increase compared to last year was driven primarily by operating efficiencies, and lower margins from unfavorable sales mix offset the quarter's higher sales. Fully diluted earnings per share were $0.53 compared to $0.39 last year, driven entirely by the higher net income. Our reported results for 2012 and 2011 include unusual nonoperating items that should be considered when analyzing our reported results. In 2012, we had noncash losses of $0.04 this quarter resulting from mark-to-market adjustments of forward commodity agreements. We also had $0.04 of costs in the second quarter relating to the acquisition of Naturally Fresh. And finally, we had a minor gain of $0.01 on the foreign currency translation of cash held at E.D. Smith. After considering these items and comparing them to the earnings reconciliation for 2011 that is in our press release, our adjusted earnings per fully diluted share increased 39.5% to $0.60 in 2012 compared to adjusted earnings per share of $0.43 in 2011. Now I want to talk about the outlook for the rest of the year. Our original expectations for 2012 were to see a soft first half of the year with improving trends in consumer purchases and a mostly benign commodity environment. When we spoke back in May, we were very confident in regard to the commodity markets but a bit concerned about consumer buying habits. Now 3 months later, we've all witnessed the upheaval in commodities due to the drought conditions facing most of the nation. In addition, syndicated data on consumer food purchased through the end of July continued to show negative volumes of food purchases. This negative trend in consumer buying is supported by similar negative trends in volumes, as reported by the major food retailers and the largest brand of food companies in the U.S. While we were optimistic that consumer purchases would have caught up with consumption by now, the data Sam walked you through clearly shows it's not happened yet. Although these negative dynamics are still with us, we see a lot of positives across nearly all of our key food categories. One large exception is our soup business. We've experienced the loss of key Co-Pack business that was manufactured at our Pittsburgh and Mendota soup plants and the loss of a portion of a key customer soup business. These losses were the result of not accepting business that was well below our margin hurdles. We determined that the resulting combination of excess capacity and high overhead costs requires that we make a significant change to our soup manufacturing and go-to-market strategies. The most significant change is that we will be closing our Mendota, Illinois soup plant and moving production into our larger Pittsburgh plant. This restructuring will also include an internal cost reduction program to fund further efficiencies within our Pittsburgh plant. As we've said many times, the ready-to-serve soup business is challenging due to the number of branded offerings and the lack of a reasonable margin umbrella under which private label can operate. This resizing will allow us to better compete as we reduce our overhead construction. A second change we are making is to take advantage of our capacity and efficiency investments. Over the past several years, we have made major investments to our Northeast Pennsylvania, Winona, Ontario and San Antonio, Texas plants in order to improve line speeds and operating efficiencies. Now that those investments are in place, we are able to consolidate the shelf stable salad dressing to production into our Northeast plant and close the much smaller dressing plant located in Seaforth, Ontario. As a result of these plant consolidation actions, we expect to take a charge of $35 million, $22 million of which will be noncash items, to close and relocate production. The plant closure cost will not be included in our adjusted earnings per share outlook for 2012 as we consider these to be one time and nonoperational. Also, the impact of these closures will not benefit the 2012 results because neither plant will be closed this calendar year. This will allow us to make an orderly transition of production and ensure that our upcoming soup season sees no potential disruption in service levels. We are expecting that the combined savings from closing these 2 plants will total approximately $30 million annually. Both plants will be closed during 2013, so next year, we'll have a partial benefit, while 2014 will be the first full year of those savings. The loss soup business leads us to the need for us to lower our sales and earnings expectations for the year. We now expect full year sales, including the partial year sales from Naturally Fresh, to be approximately $2.2 billion, an increase of 7.6% over last year. Naturally Fresh will represent approximately 3% of that increase. As a result of the lower retail and co-pack soup sales expectations, along with the result in plant absorption challenges that will occur until the consolidation takes place in 2013, we've adjusted our earnings per share expectation to a range of $2.75 to $2.90. While we are disappointed to make this adjustment, we believe the new foundation we will establish for the soup business will mirror the success we had with our pickle business restructuring a few years ago. The business may be smaller, but it will be better and will provide the solid cash flow foundations with margins that are more in line with our other key businesses. As we look at the rest of the business, we're very pleased with their performance. I mentioned earlier that our retail volumes would have shown a 1.9% volume increase excluding soup. On a total company level, our unit volumes would have increased 0.7%, excluding soup and the soup-related Co-Pack business. While these year-over-year increases are not significant by themselves, they are significant when compared to the very strong sales from last year's second quarter. The point is that our fundamentals remain strong, and our private label thesis still hold up well despite the challenges in the food sector. Now I'll turn it back to Sam.

Thanks, Dennis. I'll conclude our prepared remarks by returning to the 3 general themes I noted in our opening comments, specifically, we will make the best of hard times to a dual strategy of internal improvement and external expansion, enabling our TreeHouse to grow strong and stand tall under adverse market conditions and volatile industry dynamics. This strategic initiative entails the profitable pursuit of private label consumers, as supermarkets and traditional grocers yield a more focused alternate retail formats. This pursuit requires that we leverage new consumer insights and channel specific marketing programs with our long-standing competitive advantages and efficient low-cost operations and unparalleled customer service. This strategic maneuver also includes -- involves a reallocation of our product portfolio as we right-size canned soup and simultaneously invest in new growth businesses like single-serve roast coffee and related beverages. Coffee will also lead our private label foray beyond grocery bricks and mortar to new distribution investors via the Internet, nonfood retailers and direct sales channels. Lastly, this strategic agenda also requires that we reset our expansion plans to include organic growth and bolt-on acquisitions as sources of growth in parallel with large-scale acquisitions that are directed at new private label categories. Acquisitions, both large and small, has worked in tandem with organic growth to expand our TreeHouse. Although small, the Naturally Fresh acquisition will lead the way to extending a high-growth category in the new markets. There will be more to come. We are, after all, TreeHouse, growing strong, standing tall. Alicia, please open the phone lines for Q&A.

[Operator Instructions] We'll go first to Chris Growe from Stifel, Nicolaus.

It's Stephen in for Chris. I had a couple questions, but I think I want to started with gross margin. I was curious, you bridged it a little bit for us, but is there any way you could provide more granularity on how much of a burdened production -- heightened production costs were on the quarter? And then I guess beyond that, the gross margin comp this quarter, I felt like, was relatively easy given you missed some pricing in 2Q '11. And how should we think about kind of the trajectory of gross margin for the remainder of the year kind of in light of that comp and just your expectations around there?

Yes. This is Dennis. Obviously, the margins were down. And yes, mix did play a role. And based on the way the sub-channel segments are moving, as Sam talked about, the alternate channel growing at very strong double digit and the more traditional going negative, if that trend continues, I expect the mix will stay challenged and the margin structure will be relatively consistent over the balance of the year to what we've experienced in Q2.

Okay, that's helpful. And if I could follow on with one more, just how should we think about G&A? I know you mentioned incentive comp was down substantially in the quarter. But is it reset -- was that kind of a hit for Q1 and Q2, and then Q3 and Q4 should be -- G&A should be down a little bit less? Or how should we think about G&A for the back half of the year?

The base -- our base line G&A excluding incentive comp is very consistent. And we've been averaging very close to about a 5% of net sales number with the decline this quarter being almost exclusively or very substantially the incentive comp. That's now been adjusted, so you won't see the big adjustment because this quarter, it had effectively the year-to-date adjustment for the incentive comp. So you'll see, probably, a better than -- or slightly better than a 5% rate in the balance of the year, but you won't have the big adjustment we did this quarter.

We'll go next to Bill Chappell from SunTrust.

Can you just help us -- I mean, help me on the math on the soup business? Because I think what you're saying for this year is the entire drop in the guidance, which is anywhere from $0.10 to $0.20, has to do with the lower soup and what you're seeing. But if I'm doing the math right, kind of $30 million of cost savings you expect from these 2 plant closures is about $0.50 to earnings on the positive side. So I was just trying to understand what we should be looking at kind of going forward and what nets out and what doesn't.

In fact, the combination of the cost savings relates both to the salad dressing and to soup with the -- weighted a little more heavily towards the soup. And Bill, we expect that we'll start to see that next year in the -- and we talked about that closure taking place in the -- during the first quarter with fully out during the second quarter. So we should see at least half of that benefit for the soup business next year, all of it in 2014. And in terms of the effect on soup, that is the substantial. Obviously, there are other minor -- the pluses and minuses that take place in the course of the year. We did talk about our year-to-date powder beverage being down. So there's a little impact there, but clearly, the biggest driver of this takedown is the soup volumes. As we said, volumes were down roughly 13%. Total revenues were down roughly 11% in that soup category, and that's the challenge in the back half here.

Okay. And just to make sure, you're not -- I know you're not giving guidance for 2013, but if I'm looking at it as kind of a going forward, it's down $0.20 for soup. If the closures had started or completed by January 1, it would be plus $0.50 for the closures. Is that about right?

Well, I'd prefer to leave that till we get through the soup season and give our normal guidance as we would in February because we all -- you have absorption issues to deal with as well. And I think we always have to get through our big soup season and non-dairy creamer season before we get comfort in giving a forward guidance number.

Okay. And then just as you look at the commodity complex, I know you're not as exposed to the kind of corn grains as some of your other food peers, but I mean, are you already looking into pricing for early next year or kind of starting these conversations?

We're evaluating the -- there's clearly been the big run up. The good news is our forward buys have kept us pretty immune to that. But we'll see what happens with 2013.

Yes, Bill, this is Sam. To add on with Dennis, as we've seen these reports on drought and crop shortages, the main of fact to date has been that our larger customers. A number have called and asked us to develop forward positions where they can lock in certain volatile commodity costs. And while we are concerned about the agriculture conditions, we welcome our customer response because in doing that, it essentially locks the customer and the supply from us and it allows us to plan for -- more effectively with regard to operations and controlling the costs, et cetera.

We'll go next to Akshay Jagdale from KeyBanc Capital Markets.

I'm just curious to get your thoughts on what actually is going on with food consumption overall? So I know there's been -- you don't have a crystal ball, but as we've gone through a few months of this weakness, what's your best guess as to what is actually happening? Are people eating less? Are they eating out more? What do you think is going on?

Akshay, it's Sam. I'll offer a couple of things. One is that, on the most general measure that we track, which is personal consumption, personal expenditures for consumption at home, that measure had moved up to a plus 4 at the end of last year, the beginning of this year. And then we have seen, since the beginning of the year, that, that measure moved back down to 0, much like it had done during the Great Recession, and we're -- so that the aggregate and its broadest measure has come back down substantially in terms of a growth rate. Also, for the first time -- and I think this quarter, perhaps late last quarter, we saw that aggregate expenditures for at-home consumption, which had been moving up quite nicely, and now for the first time, gone negative relative to consumption at Food Away From Home. And it's our belief that, that is largely focused on the, as I've indicated in my remarks, dollar meals in quick-serve restaurants. The biggest trend by far is that the pursuit of value in all channels and primarily in grocery has led purchasers to really undertake a lot of conservation activities that are just-in-time purchasing, bringing down excess inventories in their houses, being more careful with what they put on the table and what's -- and focused on making sure that leftovers are eaten rather than tossed out. And we see this across various broad demographics, and I think that it is as much a combination of uncertainty going forward. And the fact that our economy, GDP is back up to its pre-Great Recession aggregate number. We are currently producing that gross domestic output with 5 million fewer people employed then at several years hence. And I think those factors all play into this. With regard to what we do about it, I think that the program that we have discussed here where we're focused on going after to the consumer and whatever channels they elect and to do it intelligently and combine lower-cost products, operations and distribution in order to get decent margins with a better understanding of the consumer, that's the absolute key here. And during these times, we make sure that we broaden our distribution base in all of those channels. The other element of it is that we need to rearrange the portfolio to take advantage of this. And in some perverse way, I know that the reduction in canned soup to sample meals, a lot of that has gone to such items as macaroni and cheese and the similar quick, convenient, nutritious meals. And so we have -- it's an illustration that we need to keep our portfolio in sync with not only our customers, but more importantly, our consumers.

That's helpful. One follow-up for Dennis on the commodity side. I know you can't be specific right now. There's a lot of uncertainty on commodities. But can you just help us understand what portion of your commodity basket is actually exposed in the short term to higher grain prices? In my estimation, it's sweeteners, casein, wheat and whey that will be impacted by it, and the timing of that will be -- will vary. But am I generally right in terms of the commodities that will be impacted and are part of your basket? And if so, can you give us a sense of like what percentage of your commodity basket is actually impacted by the Midwest drought?

You hit on the key ag, I would throw oats in there as well which you didn't put in. But because of the buy situation we have, we're through this summer, and that's not an issue. And as you indicated, the big question is next year, what's going to happen? And we can see what happens when you get a couple of weeks of cooler and wet weather, the markets react very quickly. So I think 2013's up in the air. Our initial impression was we'd see small increases next year, but small. And I think it's too early to say exactly where it's going to be next year because of all the volatility. I will say that we're going to be prepared if needed to react quickly. In terms of the breakouts, we've never given those, Akshay, and I think we'll continue with that policy of keeping the cost of sales breakouts internal.

Okay. One last one for Sam, just a follow-up on sort of commodities. With inflation picking up, all else equal, does it, in your opinion, sort of reduce the deal flow a little bit? I mean, I think we've talked about, in the past, that with inflation 2 months ago starting to sort of ease, you would have seen a few more for sales signs in the back of the year from some private company. Is this sort of put it on hold? Have you seen any signs of that? Or is that sort of not the right way to look at it?

I think the governing factor here is that until you see strength and growth in the consumer sector of the economy and specifically purchases, improving of nondurable goods and see people beginning to trade back up from opening price point to national brand equivalent to premium, I think until you see that and as long as money is free, there is very little incentive for a seller to come forth. And it's the combination of those conditions. And we all know that the equity markets will anticipate that recovery, and I think we'll watch those circumstances very closely. In the meantime, our activity has not diminished at all. And while the public auction market is quite still, our dealings with individuals, families, private equity groups, others who own private label food and beverage companies, our activity continues at a very feverish rate.

We'll go next to Farha Aslam from Stephens Inc.

I was just wondering, what is your total commodity cost increase this year, now?

Let's see. Farha, I don't have that right in front of me, but it's in the range of about 5% to 6% in total. We've got a few pluses. They're slightly higher. But for the most part, we're not far off where we had expected to be at the beginning of the year.

Okay. So it's still in line with your yearly estimates. And then what do you expect pricing to be up this year?

Most of our pricing was taken last year and carried over just like our forward positions. And I think last quarter, with talked about we did have some additional pricing in a couple of our categories. But the pricing, as a percent, is quite a bit lower than the roughly 5% that we pursued and received last year.

Okay. And then going into next year, have you started discussions with your customers regarding pricing? Because I think you were planning on doing it sooner going in the future then you had in the past because -- to get more real-time pricing for next year?

Again, Farha, to date, the activity has been pretty much one of watching those costs and dealing with our largest customers who also have great sensitivities of kind of this Midwest grains and oilseeds markets. And I explained earlier how that -- the desire to lock in or hedge those costs can, in fact, with our best customers, work to our advantage. And in the aggregate here, as you're seeing increases in that Midwest food basket, you're also seeing that energy costs greatly affect transportation and packaging costs have softened as a result of kind of world markets for oil and also the natural gas, the frac-ing phenomenon that has gone on in the United States to greatly increase supplies. With regard to customers, as we get more information about the Midwest crops in particular, then we'll be forming more concrete positions. Our capability has been extraordinarily enhanced, our capability with regarding passing through costs, thanks to the implementation of the SAP database. And we can react not only faster but far more accurately as well.

And then just your guidance, does that include take-up sales?

It includes the coffee production that we expect to be online in the fourth quarter. And far as we said that it's go be coming to online in the fourth quarter and it will be the ramp-up, so it's not a significant driver of Q4 activities. And the adjustment in the guidance has nothing to do with our single-serve beverage business.

We'll go next to Thilo Wrede from Jefferies & Company.

Dennis, I think you said that you decided to not to take some soup co-pack business because it didn't meet internal hurdles. Should we interpret that your hurdles have gotten more stringent that maybe that your customers there have become more aggressive in terms of how they want to price it? Maybe you can a little bit more background there.

Well, I don't want to discuss absolute hurdles. And in fact, we've said over time that the Co-Pack business does tend to be lower margin as it's a factory absorption play. But at the same time, yes, we've got -- we have a high cost structure. The volumes in that business, as Sam had indicated in the category, have been down for quite a time. And it gets to the point where we just weren't able to be able to continue at those types of rates with the new structure we had. So that's where the big change is. But I wouldn't say we've had a fundamental internal change in how we assess which business we take. It was really specific to the soup business.

So with this restructuring or remodeling of the soup business, will your -- the cost base come back in line that you could take this business going forward?

I don't want to talk about that. I think one of the key things about the business that's going away is that these are old legacy contracts that existed when we bought the soup business. They weren't exactly businesses that we went out to pursue. So it's not really our strategic bend to be a co-packer. If it's opportunistic, that's fine. But it's not part of our strategy.

Thilo, this is Sam. I'll try to make it clear in my comments that soup remains a vital element within our product portfolio but that when one looks at the overall dynamics. And the single factor that struck me the most was that in the last decade, that sales of wet canned soup across all of our North American market are down 15%. And we need to react to those changes and in the same way that we have purchased businesses like S.T. Specialty to gain access into this simple meals business. We also need to downsize our investment in soup. But we will do so, so that where we can, we will be able to continue to do, is adequately serve private label soup across all of North America. But we will no longer be in these ancillary businesses that at the time that we acquired the business, we're a full 1/3 of all of the production quantities.

We'll go next to Bryan Spillane from Bank of America.

Just a couple of questions. First, just on the -- in the soup business. I just want to make sure that I'm clear. Your decision to downsize or to de-scale was really more just a function of some of the contracts, or the offers of those contracts became less desirable. But it's not -- or is it a change also in retailers at all changing the way they're thinking about the soup category, shrinking shelf space, allocating less towards it? Is that a factor, at all, I guess?

There are 3 factors here. The first, as Dennis explained in some detail, is our decision to extract, move away from the branded contract packing as the economics there have deteriorated. And by the way, I believe early in -- a year ago or perhaps -- I'm unsure of the exact period. We did announce an earlier matter where we had eliminated a very substantial amount of our total production in processed pickles. This is a similar type of move. But one is the contract packing. The second is that when you take that business out and you look at the infrastructure, as I had indicated, it was at the time we bought the business, fully 1/3 of all the production requirements, and operating in 2 locations with double overhead structures. It no longer is tenable, especially as we have invested our Pittsburgh plant to keep it modern and efficient. And then the third matter, and again, it was in the notes, we have -- we are anticipating a substantial loss of volume in one customer that has modified, we believe, their approach toward private label soup. And we found that while we will continue to supply this major customer, that it was no longer something where it merited our being their exclusive supplier.

And then just one other question. Just you've got a lot of businesses that are actually performing very well. And you look at side dishes, macaroni and cheese, where the growth rates are well above the category growth. How much of that outperformance that you're seeing in those businesses is a function of share gains for private label within those categories, within those retailers? And how much of it is also -- benefit from like new customer wins, increasing the number of SKUs, just sort of efforts that you're doing to gain share within the private label?

A good bit of that is a bit of a carryover from last year, Bryan, when we talked about our big wins. And although we had that very difficult fourth quarter with a lot of retail activity almost stopping, we're now seeing the benefits of a lot of the big win programs. I think the bulk of it is really distribution gains via of our customers and taking advantage of our go-to-market strategies as opposed to fundamental category dynamics where -- I talked about some of the numbers in volumes, and there are excellent volumes. But you won't see that in the measured data, so that's really distribution wins that we're doing quite well with.

And then Dennis, just one last one. And I don't know if I missed this or not. But I think when you are asked previously about some certain commodity, ag commodity, cucumbers, just it's a little bit of a -- it's a crop that doesn't get a lot of press, I guess. Just is there anything that we should be thinking about in terms of the cucumber crop?

Yes. The cucumber crop is actually not too bad. And the reason for that is a substantial amount of cucumber production is under irrigated fields. So we're able to manage that a little better than open ag fields. So at this point, it's not as stellar as we would have hoped at the beginning, but it seems to be pretty good. So I'm not expecting that to be a big issue.

We'll go next to Jon Andersen from William Blair.

Yes, I guess just a bigger picture question. I used to think -- I've always felt that like kind of consumer value consciousness really plays into the hands of private level. And just wondering, have we hit a point kind of more recently where their value consciousness has even maybe create less of a trade-up opportunity for private label, players like yourselves in impacted credit margin opportunity at least for the kind of near, medium term?

Well, I'll tell you one thing that quite surprised me with this new IRI database, new database that looks at all of the alternate channels. As it comes with Household Panel data that, among other things, can be segmented by income strata, and we are -- you're seeing a move toward customer brands of private label over the broad spectrum. And that while we immediately grasp that, those with the most limited income are going to go through the alternate channels for opening price point merchandise and smaller packages, that our gains over the last quarter, as Dennis indicated, the gains in the -- customers that we regard as premium in private label were, I believe, 16% and customers at basically the lower end were 9%, as I recall it from Dennis. And then when I look at individual stores, the single customer that has shown the greatest growth over the last 18 months has been in the premium sector. And so I think here that there is consciousness of value is something that permeates kind of all the income strata. And what we have to do is be able, from the opening price point merchandise to the super premium, be able to develop products in conjunction with our customers that'll fit the consumer demographics or their individual chain. And while we've known that for a long time intuitively and qualitatively, we have now, for the first time, reliable data from independent parties that allows us to category by category, channel by channel, customer by customer, outside of the -- in addition to traditional grocers, now look at that business. And so we can dive down in a given category to look at a particular channel. And given that private label shares in these alternate channels within our current portfolio range from a factor of 21% to 64%, it really tells us where we can go mine for gold at all -- at the middle and both high end, the low end of the spectrum.

And I just want to add quickly, Jon, that if you looking at what we've done so for this year, the combination of the restructuring activities, which is allowing us to be far more competitive or react better to those value channels, and the acquisition of Naturally Fresh, which is allowing us to plan the premium side as well, that you could see that's how we're reacting to these changes that Sam talked about.

Okay, makes sense. The customer that you mentioned that has kind of modified its approach to at least private label soup, I mean, do you see that as an isolated event? And I guess what I mean by that, do you see other customer, this customer or other customers, modifying their approach to private label in other categories? Or is this really to be thought of as kind of a one-off?

I won't characterize anything about this particular customer. But I think it is indicative of as consumption in its aggregate has fallen again after all of us. I mean, every last one of us, by the middle of 2011, have figured that there've been a minor hiccup or recovery, and we are at well on the way out. And now what we found is that we've got a recovery in the general economy that has left much of the consumer behind. Now I think people are questioning their strategies. There are instances where that works greatly to our favor where we are able to show a grocery customer committed to incorporating their brand, their banner into their overall image, where they're a particular consumer group. That gives us great opportunity to build. And as Dennis was talking earlier, and if you go back to the numbers he cited by categories, you can see that, that is greatly working -- we're able to make that work in our favor. On the other hand, there are customers who -- there's no discussions where price is not part of the discussion, and it is a reminder that we deal in the brands owned by others. And when customers become -- they have a look at that issue of how do they use our customer brands to build our business and the trade-offs or how do they use the customer brands as a short-term transactional tactic, this is one of those instances where the customer has chosen or has looked at a different course that just no longer fits the economics of what works entirely for us in soup.

Okay. One last one on just the single-serve coffee. I may have missed your comments earlier. I just jumped on the call recently. Can you talk at all about the range, the product that you plan to offer there and perhaps some of your targets both kind of near term and longer term in terms of market share of that segment?

Well, with regard to the product line, our basic tenet was to determine what were the effectively the 10 leading flavors and blends in both the premium and the single-serve business and retail, as well as to look at the leading coffees in the premium and the Food Away From Home, where the baristas make it cup by cup. As a result of that, we've undertaken an extensive research about coffees, engaged half dozen of what are called Q tasters, of whom there are only 300 in North America. They helped us formulate coffees that emulate those leading blends and varieties. Those were then customer by customer presented. And in many instances, we have customers who have made large-scale commitments in retail grocery to their own private label program in ground coffee, or more importantly to us, whole bean coffee, and have established certain set of expectations with their customers. Those where we use the roaster of the customers' choice We then have modified those blends to -- that started with a match of the premium end of the single-serve in the restaurant business to match the profiles that their customers are used to. But it's still basically focused on the premium and single-serve coffee business in either channel. With regard to our expectations, with regard to revenue and share, we know that private label is approximately 10% of the grocery business for ground coffee and that, that share varies over an extraordinary range depending on the individual grocery customer's commitment to its brands. And we decided to bootstrap this thing. And rather than trying to wrap all of the big share that we would launch in a way that would make this business pay for itself as it's gone along and in combination with kind of rationing our investments, we've also approached those customers of ours who independent data indicates to us have gotten -- have not only quantitatively the largest programs, qualitatively, the deepest commitment. And that's where we'll start. That's our base business. The last thing I'll add here is that what coffee is doing also is taking TreeHouse into 3 new channels of distribution. The first and most significant will be Internet. And in that regard, we have the growth square line, which excluding -- it has coffee, but it's not roast coffee. That business quadrupled in the fourth quarter of last year, and 2 of our items were on the top 5 holiday items among all food and beverage for Amazon. Secondly, this will lead us to nonfood retailers that carry coffee, coffee makers and these machines. And then thirdly, it will introduce us to direct selling organizations as well that our consumers can go to our catalog, order a broad array of products and have our coffee included in those deliveries. So I can give you everything but a number, Jon. Broad strokes there.

We'll go next to David Driscoll from Citi Research.

This is Alexis Borden for David this morning. Just a question about your volume outlook on the back half of the year. Would you say that the other recent kind of changes going on in soup is going to be more affecting waiting volumes in the fourth quarter versus the third quarter? Because I actually don't think third quarter is particularly a big soup quarter. Can you maybe give us some more color on that?

Yes, you're exactly right. Typically, the major soup shipments start at the very end of September. October is by far the biggest shipping month of the year followed by November. So these declines will be fourth quarter weighted.

At this time, we have no further questions.

All right. Well, thank you, Alicia. Again, to all of you, thanks. We're delighted to have you with us this morning. Please note that our next quarterly analyst call is scheduled for the first week of November and that our annual investor day will occur at the PLMA, Private Label Manufacturers Association, convention. That will be held in Chicago, and we look forward to seeing you on Monday, November 12, at that investor day. Thanks a lot. Goodbye.