CPB
#<UNK>, on the first part of that question, <UNK> mentioned two factors that will impact at least our first half performance in 2017.
One is the supply constraints on protein drinks given the production ---+ the run times, 24 hours versus 72.
And the other thing is given some loss of customers on carrots, it will take us a little bit of time to re-acquire that business.
And so, as we look at C-Fresh for the full year we expect top-line growth low-single-digits.
Typically we would look for high-single-digits so obviously that is impacting our 2017 outlook.
And as far as innovation, I don't think the issue on this particular line has an impact on our innovation agenda.
It does not.
I would say though in the first half the team will be very focused on the fundamentals.
So the new product innovations will most likely go to market in the second half.
Yes, I think I'll try that.
So, when we first announced the cost savings program we were targeting $200 million of savings and we talked about half of that going back for re-investment.
I think as the savings level went up I think we kind of held the re-investment amount, so I don't think we are would estimate that ---+ I think I would estimate that less than half is now going back in the business.
We are not going to give a specific dollar amount in terms of reinvestment in 2017, but it is significant and it is in a number of areas.
We are going to support new product launches, things like Prego's Farmers' Market, Well Yes! soup, Plum infant formula, the Bolthouse spring innovation, Tim Tam's expansion in the US, Goldfish made with organic wheat ---+ so we have a number of product launches going on.
We are also going to invest in new capabilities around things like digital and e-commerce.
We are going to make investments in our Real Food initiative, so these are things like improving our can liners, continuing the removal of BPA, improving the product and more clean label, those types of ingredients which tend to be a little more expensive.
We are going to invest in longer-term innovation, things like our Acre investment fund.
And also <UNK> mentioned long-term innovation in Packaged Fresh.
We are also going to invest and add resources to expand our sales and distribution in China through our Kelsen business.
So we have quite a list of areas we are looking to re-invest and the P&L we have a significant allocation of funds.
Yes, and, <UNK>, our profit is strong, our challenge is top-line growth.
So these investments are really vital to the long-term health of the sales line of the Company.
Well, it is certainly F17; I am not commenting on F18 at this point, but ---+.
We did say the majority of growth will come in the second half.
And as you point out, there is two reasons for that.
We are lapping a relatively low marketing Q1-Q2 and we have these lingering issues on C-Fresh.
So that will tend to suppress our first-half performance, but we will see it come back in the second half.
Yes, we have a much stronger marketing investment in the first half, particularly in the Americas Simple Meals and Beverage with four really big campaigns.
We are not going to give specific guidance, but I would say we expect relatively weaker performance in the first half and stronger performance in the second half.
I guess we look at it a little bit different than that.
We are very focused on improving our gross margin performance and expanding margin.
Within that we look to net price realization, productivity improvements to exceed inflation.
On the net price realization we feel really good about what we have been able to accomplish in 2016.
In fact, 40 basis points of our 170 basis point gross margin improvement is driven by net price realization.
And within that ---+ and it gets a little distorted on the sales variance ---+ but we made meaningful reductions in trade spend in soup given the promotional pricing we have taken on RTS.
And although it has impacted volumes it has contributed significantly to margin expansion.
Now we were up a little bit in the fourth quarter, it is a non-seasonal quarter for us.
Most of our dollar increase in trade in the fourth quarter relates to our Arnott's business in Australia ---+ we are lapping a period of supply constraint, so we had to pull back on our promotional activity so we are wrapping that.
But as I look at the whole year, we accomplished what we set out to do in our plan and have made meaningful progress, especially in soup, which is a very critical to our agenda going forward.
Let me build on that, that we also, as part of the setup of our integrated global services, have made investments in our revenue management and advanced analytics.
And we are continuing to look for ways to manage the depth and frequency of our trade programs to maximize profitable volume.
We have to take into consideration competitive activity and customer programs and consumer response, but this is definitely a point of focus for us.
It all starts with the consumer and the consumer trends are very strong in terms of health and well-being and particularly in fresh food.
Some of these issues are part and parcel to running a fresh food business.
But in our case these were execution issues and we can do better there.
So, we are really confident in the strategy to pursue fresh food in addition to the strong core brands that we have.
Sure.
I think the best way to explain our gross margin performance, which was down 90 basis points in the fourth quarter, is just to parse out the impact of the C-Fresh division.
So, the C-Fresh division in aggregate had a 70 basis point impact out of the 90 basis points.
So basically most of our gross margin decline is attributable to the two issues inside of C-Fresh, the recall which was 50 basis points, and the decline on carrots which has an impact on the margin as well.
And looking at the rest of it, inflation was not that great in the fourth quarter as we talked ---+ in the bridge the higher promotional expense was the key swing relative to prior quarters.
But most of the decline, as we said, attributable to the C-Fresh performance.
Yes, so we had some ups and downs obviously in 2016.
We ended up with a $0.02 headwind in 2016 versus 2015.
And looking forward our short-term incentives are close to target, the long-term incentive will go up a little bit.
All in we had about a $0.02 negative impact in 2017.
Yes.
Yes, I wanted to clarify that.
We look at ---+ we do look at M&A more broadly than just Campbell Fresh.
And each one of our divisions has mapped out specific targets that they are interested in that are a good strategic fit for their businesses.
And so we are highly interested in other consumer behaviors like health and well-being, like snacking, like simple meals that we can pursue not only from an organic growth standpoint but also from an M&A standpoint.
I am sorry, I didn't understand the question.
Absolutely.
I mean Plum Organics is a great example of a smaller brand that we bought.
We were able to integrate that into the Americas Simple Meals and Beverage business and capitalize on things like their sales force and supply chain.
Yes.
We definitely have some bright spots in soups this year.
We basically stabilized condensed and broth is up for the year.
But the issue we have had has been RTS soup.
And as you indicate, with brand Chunky we have the price realization behind us, we have improved Chunky marketing going into 2017, we had a label execution issue in the first and second quarter last year that we are cycling.
And then we can't control the weather, but that was definitely an impact in 2016.
So we believe that the Chunky brand will have improved performance in 2017.
In addition, we are launching Well Yes! midyear, which is a great tasting clean label ready-to-serve soup that we believe will have disruption in the soup aisle and capture the hearts and minds of consumers.
The other thing we have going for us in soup is Slow Kettle and organic soups continue to do very well.
And we just came out with new stackable cans in our RTS soup, which has been received really, really well from the retailers for merchandising purposes.
So, we have got a lot more going for us this year than last year and we expect soup to grow modestly.
Yes, thanks for that reminder.
We continue to be challenged in our shelf stable beverages, particularly on our products that contain sugar.
So V8 V-Fusion, for example.
And this year we actually did have some declines on our V8 Red.
Our new Veggie Blends, which we supported with some good marketing support, continue to grow and our V8 +Energy is growing really nicely.
What we have done is we have developed a brand-new campaign, but also we have increased our support around our V8 Red juice.
So instead of just promoting the new parts of the business we are going back to better balancing of our marketing against the core V8 Red as well as the new Veggie Blends and the V8 +Energy.
And we believe that that is a much better formula for success.
We don't expect beverages to grow next year but we do expect improved performance.
We have ---+ we do have top-selling varieties in the V-Fusion line such as strawberry banana or pomegranate blueberry and some others and we will continue to include them in the V8 line.
But the consumer will take us to the flavors that they like and we'll repeat.
So that is basically how we are playing it.
Thanks, Stephanie.
Thanks, everyone, for joining our fourth-quarter earnings call and webcast.
A full replay will be available about two hours after our call concludes by going online or calling 1-703-925-2533.
The access code is 167-3833.
You have until September 15, 2016 at midnight at which point we move our earnings call strictly to the website.
Just click on recent Webcasts & Presentations.
If you have further questions please call me, <UNK> <UNK>, 856-342-6081.
If you are a reporter with questions, please call Carla Burigatto, Director of External Communications, at 856-342-3737.
That concludes today's program.
Thanks, everyone.
