Good day, ladies and gentlemen, and welcome to the Campbell Soup fourth quarter 2015 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance, please press star then zero on your touch-tone telephone. As a reminder, this conference is being recorded. I will now turn the call over to your host, Ken Gosnell. Please go ahead.
Thank you, Stephanie. Good morning, everyone. Welcome to the fourth quarter earnings call for Campbell Soup's fiscal 2015. With me here in New Jersey are Denise Morrison, President and CEO, Anthony DiSilvestro, CFO, and Rebecca Gardy, Chief Investor Relations Officer. As usual, we've created slides to accompany our earnings presentation. You will find the slides posted on our website this morning at investor.campbellsoupcompany.com. This call is open to the media who participate in a listen-only mode. Today, we will make forward-looking statements which reflect our current expectations. These statements rely on assumptions and estimates, which could be inaccurate and are subject to risk. Please refer to our Slide two or our SEC filings for a list of factors that could cause our actual results to vary materially from those anticipated in forward-looking statements. Now, I'd like to remind you about items impacting comparability.
As we said in this morning's news release, in the fourth quarter, the company incurred charges associated with its initiatives to implement a new enterprise design that better aligns with our strategies to reduce costs and to streamline organizational structure. The company recorded pre-tax restructuring charges of $93 million related to the program and pre-tax charges of $13 million in administrative expenses related to the implementation of these initiatives. The aggregate after-tax impact of the restructuring charges and implementation costs was $0.21 per share. Last year in the fourth quarter of fiscal 2014, we recorded $21 million of pre-tax restructuring charges and restructuring-related costs. We also recorded an additional $4 million of pre-tax settlement charges associated with the U.S. pension plan. The aggregate after-tax impact of these items was $0.06 per share.
Also, as a reminder, fiscal 2014 included 53 weeks, with the extra week falling in the fourth quarter. The extra week was worth an estimated $129 million in net sales, $37 million in EBIT, and $0.08 in EPS. The adjusted results exclude the impact of the additional week in the prior year. Our comparisons of the full year 2015 with 2014 will exclude previously announced items. Because we use non-GAAP measures, we have provided a reconciliation of these measures to the most directly comparable GAAP measure, which is included in our appendix. Lastly, please mark your calendars for our planned fiscal 2016 earnings dates. We plan to release first-quarter earnings on November 24th, which will include the new segments in pension and post-retirement benefit accounting changes with the recasted prior year Q1 data. Shortly after we release our 10-Q, we will release the remaining recasted financials.
The next three earnings dates are February 25th, May 20th, and September 1st, 2016. With that, let me turn the call over to Denise.
Thank you, Ken, and good morning, everyone. Welcome to our fourth quarter earnings call. This morning, I will offer my perspective on our performance, provide a progress report on several major strategic actions we initiated in 2015, including our redesigned enterprise structure and cost savings effort, and share my outlook and areas of focus for fiscal 2016. At our Investor Day in July, I described how the food industry is in a period of revolutionary change, which presents both challenges and opportunities for Campbell. The changes in the industry are being driven by several seismic shifts. New global economic realities in the U.S. and abroad, major demographic changes and the redefinition of the American family, profound changes in consumer preferences for food with greater focus on health and wellbeing, and the impact of digital technologies on marketing, shopping, and the growing demand for greater transparency about food.
The convergence and acceleration of these shifts are reshaping the consumer and retailer landscape. Combined with the prevailing industry dynamics of consolidation and cost-cutting, these shifts are placing increased pressure on traditional center store categories and mainstream food companies. With this as context, I'll focus my remarks this morning on our performance for fiscal 2015, review the important strategic actions we initiated during the year, and highlight our key drivers for fiscal 2016. First, I'll briefly comment on our fourth quarter results. I'm pleased that we finished fiscal 2015 in line with our revised expectations. Sales in the fourth quarter reflected the tough consumer operating environment, with organic sales increasing 1%. Three of our five segments grew organic sales in the quarter. More importantly, we made significant progress in our internal actions to address our supply chain issues related to shipping capacity and customer service.
We also made substantial strides to improve our cost structure through our cost savings initiatives and enterprise redesign. We reported the largest gross margin improvement in more than six years. Adjusted EBIT and earnings per share increased 5% in the fourth quarter. I was particularly pleased with the fourth quarter organic sales and earnings performance in U.S. Simple Meals, as well as organic sales growth in Bolthouse and Foodservice. In the quarter, we also completed the acquisition of Garden Fresh Gourmet, a fresh salsa and hummus business that will provide a platform for our further expansion in the deli section. Turning to our full-year results. With a solid finish, we delivered sales, adjusted EBIT, and adjusted EPS consistent with our most recent guidance. Organic sales increased 1%, with growth in four of our five reporting segments.
Adjusted EBIT was down 2% for the year, and adjusted gross margin declined 70 basis points for the year, within the range that we had expected. As I look at the year, I'm pleased that our management team responded to our first half cost and margin challenges in a difficult operating environment. I am particularly encouraged with the improvement in gross margin we delivered in the back half, and the fact that we posted organic sales growth in four of our five reporting segments. We recognize that we have more work to do. Before Anthony provides you with a detailed review of our results, I will offer my perspective on several notable items, focusing on the full year. Looking at the year within U.S. Simple Meals, the performance of our sauce business was a standout, notably Prego and Campbell's dinner sauces.
Prego had another strong year behind the success of our white sauces and overall product superiority. Sales of Campbell's dinner sauces increased double digits for the year. Our strategically important Plum business drove double-digit sales growth with new products and continued distribution gains, especially in the grocery channel. In U.S. Soup, consumer takeaway was relatively stable, and we posted positive share performance. Our Global Biscuits and Snacks segment performed well. Organic sales increased 3%, and operating earnings were up 5%. I feel particularly good about the improvement in Australian biscuits as the team made significant progress in this important core business. In Southeast Asia, our Indonesia business delivered another year of double-digit growth, but sales declined in the fourth quarter as a result of worsening economic conditions in this market, which we expect to persist. We had another year of decline in shelf-stable U.S. beverages.
While the category remains challenged, the underlying trends of our business are beginning to show signs of improvement. Consumer takeaway and share increased in the fourth quarter. Modest sales declines in V8 Red Juice were more than offset by the introduction of V8 Veggie Blends. Trial and repeat of Veggie Blends continued to meet expectations, and depth of repeat remains strong. We expect our new advertising campaign to drive additional trial. V8 Splash, our powerhouse brand for kids, and V8 +Energy continued to perform well. In our immediate consumption channel, we're beginning to see some momentum. We feel good about the overall direction of this business, but we still face challenges, particularly with the continued decline of our V8 V-Fusion franchise. In fiscal 2016, the entire category will remain under significant pressure. While we expect our U.S. beverage businesses to improve, we're not planning on a return to growth.
Let's now turn to the Bolthouse and Foodservice segment. As a reminder, Bolthouse Farms consists of the farms and CPG businesses. Farms includes our retail fresh carrots business and our ingredients business, mainly carrot concentrate. CPG consists of our super premium beverages, ultra premium beverages, and refrigerated salad dressings. We continue to be enthusiastic about Bolthouse Farms, especially the branded CPG business. For the year, CPG sales increased high single digits. Gains were driven by product innovation, increased distribution for beverages, and incremental shelf space at existing customers for our salad dressings. The initial rollout of our cold-pressed, organic, ultra-premium beverage line, 1915 by Bolthouse Farms, is off to a good start. After completing the acquisition of Garden Fresh Gourmet in June, we have begun integrating the business. Thus far, there have been no surprises, and we're pleased with the retailer response to our long-term plans.
Fiscal 2015 was an eventful year, we took important steps to lay the foundation for the future. We redesigned our enterprise structure, our three new divisions are now operating in line with their declared portfolio roles. We established our integrated global services organization and moved elements of finance, procurement, marketing, sales, HR, and IT into this shared service group. It's early days, we're off to a solid start. The focus in fiscal 2016 will be working smarter, creating efficiencies, and reducing costs while starting to build new enterprise capabilities within this group. We initiated plans for a zero-based budgeting process. We're piloting ZBB in two cost categories in fiscal 2016, with plans to expand in the future. We believe this discipline will be of great value to Campbell going forward. We're off to a very good start to realizing our $250 million cost savings target.
We delivered earlier-than-expected savings of approximately $85 million across several categories, including headcount reductions, non-working marketing, reduced travel expenses, and spending on consultants. We added another growth engine with the acquisition of Garden Fresh Gourmet to bolster our Campbell Fresh portfolio and extend our presence in the perimeter beyond produce into the deli section. We initiated an important project to increase consumer trust by providing greater access to information about the ingredients we use and how we make our food. This is accelerating meaningful changes to our recipes. For instance, over time, we're planning to eliminate artificial colors and flavors from nearly all of our North American products. Looking ahead to fiscal 2016, we plan to deliver moderate growth in what we believe will continue to be a consumer environment marked by caution.
As we outlined at our Investor Day in July, starting in the first quarter of fiscal 2016, we'll change our reporting segments, reflecting our three new divisions, each with a distinct portfolio role. In our Americas Simple Meals and Beverages division, we will focus on driving moderate growth while expanding our margins. We'll deliver this by focusing on fewer, bigger initiatives that will attract new consumers while driving additional consumption by our loyal core consumers. For example, our Campbell's Fresh Brewed Soups in K-Cups will provide a new, convenient way for consumers to enjoy soup. This represents an incremental eating occasion that taps into the growing frequency of smaller meals and snacks. Additionally, we'll take an industry leadership role by increasing our transparency efforts. We'll provide greater access to information about more of our North American products on the whatsinmyfood.com website.
We also plan to improve more of our recipes consistent with our purpose. In Global Biscuits and Snacks, we're focused on expanding in developed and developing markets while improving our margins. In the developed markets of the United States and Australia, we're concentrating on restoring improved levels of growth. In the U.S., we'll apply a disciplined focus to consumer-driven innovation, increase marketing behind our Goldfish and Milano brands, and fuel growth in our fresh bakery portfolio. In Australia, we'll continue to improve our core Shapes products and drive Tim Tam momentum whilst shifting our marketing mix towards digital. We'll also remain focused on faster-growing spaces, building on markets where we have a foothold, such as Indonesia and China. We'll monitor and adjust to the economic conditions in both these countries throughout the year. We recognize that there may be short-term economic pressure in these markets.
In the long term, we believe that it's essential to become more geographically diverse with a higher percentage of our business in faster-growing developing markets with an expanding middle class. In the Campbell Fresh division, we'll make focused investments to accelerate sales growth and expand into new categories. As we outlined at Investor Day, our priorities are to build on the successful launch of our ultra-premium offering, 1915. The product is in 2,000 stores today, and we expect to expand to 8,000 stores during the first quarter. We will continue to accelerate our refrigerated salad dressing business through innovation and increased distribution. Finally, we will integrate the Garden Fresh Gourmet acquisition and our existing refrigerated soup business into the Bolthouse Farms fresh platform and significantly expand our market penetration. We expect our C Fresh business to become a full-force growth engine for Campbell.
Across all of our businesses, we'll continue to actively explore external development opportunities that make both strategic and economic sense. We will also remain focused on transforming our cost structure and culture. We're off to a promising start with our cost reduction efforts, but we must remain diligent and continue to create an ownership mindset where employees treat every dollar as if it were their own. In closing, I'm cautious but optimistic about fiscal 2016. I believe that the strategic imperatives we're pursuing, purpose and transparency in our core business, digital marketing and e-commerce, health and wellbeing, and expansion in developing markets, coupled with our divisions' clear portfolio roles, position us well for the year ahead. We're very clear-eyed about our challenges, particularly driving sustainable sales growth, but we're now better organized and better prepared to meet those challenges head-on.
We believe that our strategy to focus on driving growth, aggressively reducing cost, and reinvesting a portion of the savings in the areas of our business with the greatest growth potential is the best way to create shareholder value. I look forward to answering your questions in a few minutes. Now let me turn the call over to our Chief Financial Officer, Anthony DiSilvestro.
Thanks, Denise, and good morning. Before reviewing our results and guidance, I wanted to give you my perspective on our performance and future outlook. We finished the year with a solid quarter. I'm very pleased with our gross margin performance in the fourth quarter, which improved by 180 basis points, benefiting from our price realization and productivity efforts. The improved gross margin and earlier-than-expected cost reductions drove 5% gains in both adjusted EBIT and the EPS for the quarter, despite a 2-point negative impact from currency translation. We've made very good progress against our 3-year, $250 million cost savings target, delivering about $85 million of savings in fiscal 2015. For the full year, we delivered results within our recent guidance ranges with EPS of $2.46 at the top end of the range.
Looking ahead to 2016, our guidance, when you exclude the impact of currency translation and the Garden Fresh Gourmet acquisition, is within our new long-term targets. I'll review our results in more detail. For the fourth quarter, net sales on an as reported basis declined 9% to $1.7 billion, primarily due to the impact of one less week and the negative impact of currency translation. Excluding those factors and our recent acquisition of Garden Fresh Gourmet, organic net sales increased 1% in the quarter as we benefited from higher selling prices. Adjusted EBIT increased 5% to $234 million, driven by a higher gross margin percentage, partly offset by higher incentive compensation expenses and a two-point negative impact from currency translation. Adjusted EPS also increased by 5% to $0.43.
For the full year, reported net sales declined 2%, with organic sales gaining 1%, led by the strong performance of our global baking and snacking segment. Adjusted EBIT declined 2% to $1.2 billion, reflecting a lower gross margin percentage, a two-point negative impact from currency translation, and higher incentive compensation expense, partly offset by volume gains and the benefit of our cost savings initiatives. The decline in gross margin, down 70 basis points, was driven by higher-than-anticipated cost inflation and the supply chain issues we experienced in the first half, partly offset by productivity and pricing gains. EPS of $2.46 was comparable to the prior year. Decomposing our sales performance for the quarter, as reported, sales declined 9%, with organic sales increasing by 1%. Volume and mix subtracted one point, which was primarily in our global baking and snacking and US Beverages segments.
Higher selling prices across four of our reportable segments added one point to sales. Reduced promotional spending contributed one point to sales growth, primarily driven by the global baking and snacking segment. Currency translation had an adverse impact of three points. Our two primary foreign currencies, the Australian dollar and Canadian dollar, both continued to weaken against the US dollar. Our recent acquisition of Garden Fresh Gourmet added one point to sales, and the impact of one less week subtracted seven points. Our adjusted gross margin percentage increased by 180 basis points to 36.1%. For the quarter, and moderating relative to earlier quarters, inflation increased by approximately 2%. Inflation and other factors had a negative impact on gross margin of 1.1 points. Mix had a negative impact of 40 basis points.
In aggregate, our price realization actions have contributed 1.2 points of margin expansion, with 40 basis points from reduced promotional spending, principally trade reductions in Pepperidge Farm, and 80 basis points from higher selling prices, primarily on condensed soup, Prego, and in Canada. Lastly, we continue to drive meaningful productivity gains in our supply chain, which contributed 210 basis points of margin improvement in the quarter. And overall, our operating efficiencies were above prior year levels. Marketing and selling expenses declined by 7% in the quarter, reflecting the impact of currency and reductions in selling expense and non-working marketing, both benefiting from our cost management efforts, partly offset by an increase in advertising and consumer promotion expense. Adjusted administrative expenses increased 10%, driven by higher incentive compensation costs compared to the prior year in which the expense was significantly below targeted levels.
For additional perspective on our performance, this chart breaks down our EPS change between our operating performance and below the line items. As you can see, adjusted EPS increased $0.02 compared with the prior year, increasing from $0.41 to $0.43 per share. On a currency-neutral basis, growth in adjusted EBIT contributed $0.04 to EPS. Net interest expense declined $3 million, about $0.01 per share, primarily due to the impact of one less week. With $200 million of share repurchases throughout the year under our strategic share repurchase program, this has reduced our share count and added $0.01 to EPS in the quarter. Going the other way, our adjusted tax rate for the quarter was 34.8%, up 80 basis points versus the prior year, reflecting a shift in the mix between U.S. and foreign earnings and negatively impacting EPS by $0.01.
Currency had a $0.01 negative impact on EPS in the quarter, completing the bridge to $0.43. Now turning to our segment results. In Global Biscuits and Snacks, our largest sales segment in the quarter, organic sales increased 1% as growth in Pepperidge Farm and Arnott's were partly offset by a decline in Kelsen. Sales gains in Pepperidge Farm were driven by fresh bakery, Goldfish crackers, and frozen products, partly offset by a decline in cookies. Organic growth in Arnott's reflected gains in Australia, partly offset by a decline in Indonesia. Operating earnings declined 26%, driven by the impact of one less week, higher marketing and administrative expenses, principally incentive compensation, currency translation, and impairment charges to minor trademarks, partly offset by gross margin expansion. Excluding the impact of one less week, currency translation, and the impairment charges, operating profit increased in the quarter.
In U.S. Simple Meals, organic sales increased 4%. While dollar consumption of soup in measured channels increased 1%, movements in retail inventory levels contributed to sales gains in the quarter. As you may recall, movements in retail inventory levels had a negative impact on third-quarter sales, and we're experiencing the opposite effect in the fourth quarter. We ended the year with retail inventory levels comparable to the prior year. Organic sales in Other Simple Meals increased, driven by the continued strong growth of Prego pasta sauce. Segment sales also benefited from higher selling prices in condensed soups and Prego pasta sauce. Operating earnings increased 4%, reflecting organic sales growth, productivity improvements, and benefits from our cost savings initiatives, partly offset by cost inflation and the impact of one less week.
In the Bolthouse and Foodservice segment, organic sales increased 4%, with growth in Bolthouse Farms beverages and salad dressings and in North America Foodservice, partly offset by declines in Bolthouse Farms carrots. Operating earnings fell 3% on higher administrative expenses and the impact of one less week. U.S. Beverages organic sales fell 4%, primarily due to volume losses in V8 V-Fusion. While consumer takeaway dollar sales in measured channels was positive, sales were negatively impacted by reductions in retail inventory levels and sales declines in the club channel. Operating earnings declined 23% due to the sales declines, including the impact of one less week. International Simple Meals and Beverages organic sales declined 5% from weakness in Canada and Australia. Operating earnings declined $10 million or 48%, primarily due to volume declines, including the impact of one less week and currency translation.
This chart shows the as-reported sales performance of U.S. Soup, unadjusted for the impact of one less week, which subtracted 7 points in the quarter and 1 point for the full year. For the quarter, U.S. Soup sales declined 2%, with condensed down 4%, ready-to-serve down 3%, and broth up 11%. Excluding the impact of one less week, sales of condensed soups increased, with gains in both eating and cooking varieties, driven by net price realization. Sales of ready-to-serve soup also increased, excluding the impact of one less week, primarily driven by the launches of our Campbell's Fresh Brewed Soups for Keurig and our line of organic soups. The double-digit sales gain in Swanson broth was primarily led by aseptic varieties.
For the fiscal year, as shown towards the bottom of the chart, soup sales declined 3% versus the prior year as a 3% decline in condensed and a 5% decline in ready-to-serve were partly offset by 3% growth in broth. Here is the U.S. wet soup category performance and our share results as measured by IRI. For the 52-week period ending August 2nd, 2015, the category as a whole declined 0.9%. Our sales in measured channels declined 0.7%, with weakness in ready-to-serve soups partly offset by gains in broth. Our share increased 10 basis points in the last 52 weeks and has now been relatively stable for three years. Other branded players in aggregate had a share of 28.1%, declining 30 basis points, while private label, with a 12.6% share, gained 20 basis points. We had strong cash flow performance in fiscal 2015.
Cash from operations increased by $283 million to almost $1.2 billion, driven by lower working capital requirements, ramping the taxes paid in 2014 on the divestiture of the European Simple Meals business, and lower pension contributions. Capital expenditures increased to $380 million as we increased capacity in Goldfish, Bolthouse Farms beverages, broth in North America, and biscuits in Indonesia. We paid dividends totaling $394 million, reflecting our current quarterly dividend rate of $0.312 per share. In aggregate, we repurchased $244 million of shares in fiscal 2015, $200 million of which were under our strategic share repurchase program. The balance of the repurchases were made to offset dilution from equity-based compensation. Net debt increased by approximately $60 million to $3.8 billion as gains in cash flow were more than offset by the $232 million acquisition of Garden Fresh Gourmet. Now, I'll review our fiscal 2016 guidance.
The company expects to grow sales by 0%-1%, adjusted EBIT to grow by 3%-5%, and adjusted EPS to grow by 3%-5%, or $2.53 to $2.58 per share. This guidance includes the estimated negative impact of currency translation of 2 points across sales, EBIT, and EPS. This guidance also includes the impact of the Garden Fresh Gourmet acquisition, which is estimated to contribute 1 point to sales and EBIT growth. The acquisition is neutral at EPS, including the impact of reducing our anticipated share repurchases to repay the acquisition debt. Excluding the impact from currency headwinds and the acquisitions, these growth rates are within our long-term growth targets of 1%-3% organic sales, 4%-6% for adjusted EBIT, and 5%-7% for adjusted EPS.
While we don't give quarterly guidance, I will say that we expect some sales headwinds in the first quarter, given we're cycling a strong first quarter from last year and from timing related to our promotional strategies. As announced this morning, we intend to adopt mark-to-market pension and post-retirement benefit accounting in the first quarter of fiscal 2016 and recast our historical results. This change eliminates the deferral and subsequent amortization of historic actuarial gains and losses, which will be recognized as incurred. The periodic mark-to-market adjustment will be reflected as an item impacting comparability and therefore excluded from adjusted results. We believe this accounting change will improve the transparency of our results and year-to-year comparability. The 2016 guidance does not reflect the impact of the anticipated accounting change. 2016 growth rates are not expected to change from the recasted 2015 base.
As we operationalize our new division structure beginning in the first quarter of fiscal 2016, we'll move from our current five reporting segments to three: Americas Simple Meals and Beverages, Global Biscuits and Snacks, and Campbell Fresh. Historical results reflecting both the new segment and change in accounting will be provided shortly after we file our first quarter 10-Q. Turning to some of the key assumptions underlying our guidance, we expect inflation and cost of products sold of approximately 2%-3%, including the negative impact of a stronger US dollar on the input cost of our international businesses. Cost inflation will be offset by gains from our ongoing productivity program, which excluding our ZBB initiative, is targeted at 3% of cost of products sold. We expect our gross margin % to improve modestly as we continue to achieve net price realization and improve our supply chain performance.
We are accruing incentive compensation below target levels in 2015 and anticipate a headwind of approximately $0.04 per share in 2016. The effective tax rate is estimated to be in the range of 31%-32%, compared to the 2015 adjusted rate of 31%. This guidance assumes about a $0.02 per share incremental contribution from share repurchases, which are expected to be at levels below fiscal 2015. We are forecasting capital expenditures to decline by $30 million to approximately $350 million, which is more in line with our historical spending levels. In fiscal 2015, we launched a comprehensive reorganization and a three-year cost reduction initiative leveraging a zero-based budgeting approach and targeting annual savings of $250 million. As shown in the chart, we have achieved about $85 million of savings in 2015 as we reduced headcount and realized savings across several cost categories.
For 2016, we are targeting to increase the savings run rate to $145 million, which would put us more than halfway to our $250 million goal. Most of the 2016 gains will come in the selling and marketing and administrative expense lines. The majority of the more complex supply chain gains will come later in the program. To implement the program, we estimate total program costs in the range of $250 million-$325 million. In fiscal 2015, we recognized costs totaling $124 million, which includes $22 million of implementation costs and $102 million of restructuring charges, principally severance, as we implemented both a voluntary incentive separation program and headcount reductions as we've streamlined our organization. Against this program, we estimate program costs of approximately $100 million in fiscal 2016. That concludes my remarks, and now I'll turn it back to Ken for the Q&A.
Thanks, Anthony. We will now start our Q&A session. Since we have limited time, out of fairness to other callers, if you could, please ask only one question at a time. Thanks.
Thank you, ladies and gentlemen. To ask a question, please press star then one on your touch-tone telephone. If your question has been answered and you wish to remove yourself from the queue, you may press the pound key. Our first question comes from Robert Moskow with Credit Suisse. Your line is open.
Hi, thank you. The gross margin expansion obviously was much higher than what we all expected. I don't know, have you given any specific guidance for what kind of expansion you expect in fiscal 2016? Also, was there any help in the quarter resulting from the mismatch of incremental costs that you took on in first and second quarter, Anthony? I remember there was some noise there related to some inefficiencies for extra costs that needed to be spread out over multiple quarters. Did that influence the fourth quarter expansion at all?
Rob, I'll comment on the fourth quarter. Then I'll come back to 2016. The fourth quarter comp is fairly clean. The only thing that gave us some advantage this year relative to last year is the timing of the mark-to-market adjustment on our commodity hedges. We had a little bit of favorability this year relative to last year. A small portion of that 180 basis points is that, and the rest is improvement in the operating performance of the business. In terms of 2016, as I said in my remarks, we expect to see a modest improvement in our growth margin percentage. I think the way to think about it, there's a number of positives and a number of negatives. On the positive side, our annual COPS productivity program, where we target 3% of COPS, obviously, that's the most significant benefit.
We expect to see continued benefit on net price realization, mostly from the pricing actions we've taken in the back half of this year. We do expect to see some marginal improvement from improved supply chain performance year-over-year, given the challenges we had in the first half of last year. On the negative side, three things to mention. One is cost inflation, which we expect to be about 2% to 3%, and that includes the negative impact of currency on the input cost of a number of our international businesses. It also includes some negative mix. Lastly, the cost of some quality improvements we're making, some of both our product and packaging.
Okay, I'll let it go. Thanks.
Our next question comes from John Baumgartner with Wells Fargo. Your line is open.
Thanks. Good morning. Denise, wanted to ask about Global Biscuits and Snacks and the volume pressure there. Maybe if you could address in a bit more detail some of that pressure in Asia, particularly I guess, Kelsen in China, and then the U.S. cookie business and the softness here. It seems that Pepperidge pricing really began to outpace the category over the past few months. Are you seeing some elasticity impact there? How are you thinking about that for fiscal 2016?
Let me start first with our core business in the U.S. and in Australia. We are pleased with the share and consumption of Goldfish crackers and in particular, Milano. We did experience in the quarter some softness in cookies. That was pretty much as expected because in the biscuit business in the U.S., particularly in the quarter, we did not promote as heavily as last year because the promotions were not as productive as we would have expected. That was pretty deliberate. We expect moderate growth in the U.S. on our biscuit business. In the Australian business, we're really happy with the year that we had there. That has been a pretty remarkable turnaround. We were challenged in Australia for a couple of years, and they have now posted really outstanding results.
It's been really on the fundamentals, better advertising, more innovation, more brand building, more digital. We believe that the building blocks they've put in place there are very sustainable. We had a great year in Indonesia with double-digit growth. We did have a slow fourth quarter, all you have to do is pick up a newspaper to see what's going on in Asia these days. We're watching that very carefully. We believe, look, we have a lot of runway in Indonesia to expand our distribution points. We're going to be very responsible about that business in 2016. The Kelsen business, this is a very small quarter for Kelsen. The sales are skewed in China, largely towards Chinese New Year.
That said, we did have some inventory overhang from Chinese New Year this year. We're working through that right now. That hit us predominantly in the fourth quarter.
Great. Thank you, Denise.
Our next question comes from Chris Growe with Stifel. Your line is open.
Hi. Thank you. Good morning.
Hi, Chris.
Hi, Chris.
Hi, just a quick question if I could. I just want to get a sense of the degree of promotional spending and what you expect it to do across the year. I know every business is different. I'm sure broadly you have expectations for each business, but is there an overall comment you can make on promotional spending? Maybe related to that, advertising. I'm not sure I heard what you expect for the advertising spending for the year. Thank you.
Yes. We are continuing to manage our trade promotions to maximize our profitable volume. We're maintaining a focus on competitive activity in both our customer programs and in our consumer response. We are, as noted, looking for opportunities to improve our trade spending, not only for ourselves to get a better return, but also for our customers to get a better return. There is no real strategy to cut back, but there definitely is improved analytics and revenue management, so we have a much more productive trade spend. In total, our Advertising, Consumer, and Trade was about 24% of sales, which we try and aim for about 24%-25% as a rule.
Our next question comes from Jason English with Goldman Sachs. Your line is open.
Hey, good morning, folks.
Good morning.
Good morning.
First, a quick housekeeping question. Can you guys quantify what the 2015 EPS base is going to look like post the recasting related to pension accounting?
Sure, I can do that. I think the way to think about it is, in 2015, the amortization within our pension expense is going to be about $100 million pre-tax. That's a good proxy for the impact of the accounting change when we get through a bunch of pluses and minuses. I think a couple additional points on this. These plans have been closed to new hires for a couple of years now. They're very well-funded. We ended the year at 97%-98% in terms of funded status. We don't expect to make any contributions to our U.S. plans in 2016.
Thank you. That's helpful. You mentioned ZBB focused on 2 cost categories. Can you specify what categories those are?
Yeah. We did a pilot program on our non-working marketing and also on consulting.
On marketing, you're focused on more productivity there. It's down around 17% from your fiscal 2010 high. How much further can you go? As you try to sort of balance and walk the line of containing promotions, I think it's encouraging to see the promotions actually being a positive contributor to sales, can you do both at the same time? Can you continue to hold the line of marketing and find efficiencies there, while at the same time pulling back or finding efficiencies on trade spend? Is it an either/or type situation as you think about the forward?
I think that we look at the marketing mix as the 3 elements of advertising, consumer, and trade. Of course, that mix is going to vary by business in terms of what degree we spend. We do have some shifts going on. As Anthony alluded to, we are making a conscious effort to reduce our non-working marketing where it's not a productive spend. The second is within advertising, we are shifting more dollars out of conventional TV and more into digital, that spend has been shifting over time, but will be up to 40% going forward. Then, we try again for ACT to stay in the range of about 24%-25% of sales, that's remained pretty constant over the last couple of years.
Thank you very much. I appreciate the color. I'll pass it on.
Our next question comes from David Palmer with RBC. Your line is open.
Hi, David.
David, if your line is on mute, can you please unmute it? We'll move on to our next question. Our next question comes from Ken Goldman with J.P. Morgan. Your line is open.
Hi, Ken.
Hi, good morning.
Hi, Ken.
Good morning, everybody. One quick one. Regarding U.S. Simple Meals, forgive me if you mentioned this, but you talked about positive movements in retailer inventory levels. Can you elaborate a bit on how much that helped and what happened that your customers, I guess, loaded up a bit on purchases versus the prior year?
Yeah. I think it's more about how we came into the quarter. If you recall, the third quarter, I think our sales were down 10%, while our consumption was only down 1%. We came into the quarter with inventory levels down. We ended the year with retail inventories about where they were a year ago. In the fourth quarter, while our consumption was plus 1%, our organic sales were plus about 5%. We had about 4 points of lift from that shift in inventory.
Thanks. A quick one, if I can. Denise, in terms of U.S. Cookies, your two main competitors have made some DSD investments there. Can you talk about whether you think those investments have affected your business at all negatively, and whether you might want to add to your capabilities there to match what some of your peers have done?
Yeah. I can't comment really on competition's investments, but I can say that we continue to be very supportive of our independent distributor network. They are a large part of our business model, and we'll continue to build the business alongside of them.
Thanks very much.
Our next question comes from Matthew Grainger with Morgan Stanley. Your line is open.
Hi, good morning, everyone.
Hi, Matt.
Good morning.
Thanks. Denise, I just wanted to come back to the outlook for U.S. Beverages in 2016. It sounds like you're still cautious Definitely from a sales perspective, is it possible that we could begin to see some improvement in margin or profit growth? As you think about the growth profile of that business, given how persistent volume declines have been, do you think there may be an opportunity to perhaps take a more profit-maximizing approach, perhaps focus a little bit more on pricing realization?
No, we're doing both. Obviously, the category itself has been under a lot of pressure based on the consumer. What we've been really focused on is how do we broaden our line and better deliver on the things that consumers are looking for in vegetable juices. We believe that vegetable juices have an advantage based on the consumer trends. We learned a lot from Bolthouse, and actually, our V8 Veggie Blends reflect a broadening of vegetable-based beverages based on consumer preferences for those particular flavor profiles, and we think that that is really taking the business in the right direction. That said, we still have a leaky bucket in our V8 V-Fusion that we're dealing with. Our V8 Splash and V8 +Energy are doing really well, and our immediate consumption has now posted the second quarter of growth.
We've got some good signs on the growth curve, more things working than not, we still are cautious about declaring victory yet. The other thing we're working on is a mastering complexity project in our supply chain, which we believe will have a really positive impact on our profit going forward. That is a longer-term play.
Okay, thanks. Just to come back to some of the more on-trend new products like V8 Veggie Blends, is that something, maybe not initially, but something that you feel can be rolled out in a more of a margin-neutral way given the added quality component of it?
The brand Veggie Blends is showing some really good trial and repeat. We believe we do have to invest marketing to drive the trial because the repeat is so strong. Building a new product today is heavy lifting. Making sure that we break through and we're supporting the brands we put out there is an important idea.
Sure. Okay. Thanks, Denise.
Our next question comes from Bryan Spillane with Bank of America. Your line is open.
Hey, good morning, everyone.
Hello, Bryan.
Hey, Bryan.
Just a quick question about just the COPS inflation assumption for 2016. Can you just give us some color around where the inflation pressure is? Especially more recently, you've seen some commodity movements that would presumably be more favorable. Also just to what degree your inflation assumption for 2016 reflects some incremental cost related to the ingredient changes.
Sure. I can give you a little more color on that. Overall, like I said earlier, the cost inflation of about 2%-3%. If you parse that apart and look at the core ingredients and packaging and energy components, it's about 1%. Within that, the key drivers would be, there's about five categories: vegetables, flavors, sweeteners, chocolate, and we have a significant increase as a result of the avian flu in both eggs and pasta. On eggs, we're looking at inflation rates of close to 50% in fiscal 2016. Those are the key drivers of the 1%. On top of that, there's a couple of other items. First would be, and I alluded to it, the FX impact of input costs on our Canadian business and the Australian business is fairly significant.
The other couple of pieces, one would be wage rates within the supply chain and also benefits, both healthcare and pension. In terms of the commodities, because you mentioned some of the prices coming down, we're locked in to about 75% of our commodities for fiscal 2016.
Okay, great. That's very helpful, and have a great Labor Day weekend, everyone.
You too, Bryan.
Thanks. You too.
Our next question comes from Jonathan Feeney with Athlos Research. Your line is open.
Hi, Jonathan.
Hi, how are you?
Hi, Jon.
How are you? Good morning. One question I had. I wanted to get more detail about the you mentioned retailer inventories, particularly within Simple Meals. Any kind of detail you can give us about how sustainable those are, particularly in broth, where sales are particularly strong. What kind of went on, maybe more detail by channel. I know you discussed it a little bit, are there any particular retailers who are moving inventories around in a way that affected profit this quarter? Thanks.
No, other than the comment I made earlier that we came into the quarter with inventories below last year. It's kind of a rocky road. We started the year and ended the year about the same place, right? Which isn't a lot of retail inventories. The issue that we saw all throughout the year was the quarterly volatility, starting with the first quarter when the timing of the holidays changed because we had one less week in the fiscal year.
Some timing in the third quarter where we pulled back quite a bit on some of our promotional activity in soup, that led to some reduction in retailer inventories. That corrected in the fourth quarter. I would say, again, we ended the year at relatively low levels comparable to a year ago, I can't think of any particular anomaly within that, Jonathan.
Right. Just drivers are really that inventory movement is largely a function of promotional activity. As we're noting, the activity's not consistent quarter to quarter, inventory changes are largely individual customer decisions. Those are three other points that round out the discussion.
Great. Well, thanks so much.
Our next question comes from David Driscoll with Citi. Your line is open.
Hi, David.
Thank you. Good morning.
Hi, David.
Denise, I wanted to ask a little bit about this new segment, Americas Simple Meals and Beverages, and just really to ask about the margin opportunity that's there for the segment. I want to say something that I feel like that there's been almost a basic philosophical shift here, such that the focus moves from what I perceive in the past as this kind of maniacal focus on volumes to a very different business focus for that segment now just going to profit. Number 1, am I right? Am I overstating kind of the philosophical shift? Can you give us some dimensions on the margin opportunity? I'm not too concerned about the timeline. This is not a fiscal 2016 question. I really wanna understand big picture where it's going.
I think expecting that business to grow moderately at the top line and expand margins is a more balanced approach to the portfolio in terms of expecting these categories to do what they can do. That doesn't mean that we won't have pockets of growth. For example, the Plum business resides in that category or in that division, and we expect robust growth from Plum. We also are not taking our foot off the gas on innovation, but we're being a lot more selective about the innovation we put into the marketplace because we're in a different place. A couple years ago, we didn't have a pipeline, and what happened as a result are some little ideas got out into the marketplace. Today, we have built a pipeline, and we could be more choiceful about the larger ideas where we know we're gonna get an impact from.
I think this is a much more responsible way to run this business, and we believe that we can deliver better value for our shareholders with this approach.
Is there any way to kind of put a guideline to this margin expansion? I'm trying to get a sense of just is this 10, 20 basis points a year, or is this something that has bigger potential than that?
I would say, let me put it this way. I think there's an opportunity over time to grow the profit in that division above the company target.
Yeah. It has been eroding for the past couple of years. By the getting into our cost structure and getting into the discipline of zero-based budgeting, we're going to be able to do this in a very surgical way so that it sticks and it's sustainable.
I really appreciate the comments. Thank you so much.
Our final question comes from Diane Geissler with CLSA. Your line is open.
Hi, Diane.
Good morning.
Morning.
I wanted to ask about the soup category. We're heading into the start of the soup season here. It seems just anecdotally, the category is a little promotional. I'm sure it's probably promotional every fall because it is the high season. Could you talk a little bit about what you're seeing on shelf and from the retailers in terms of the levels of support they're looking for? And is there any divergence from what you've seen around this time kind of every year?
Yeah. It's early days in the season. Right now, what we're focused on is making sure that our shelf space is intact and the products are merchandised correctly on shelf. We have new products that are being cut in, like the K-Cup and organic soup, making sure that that's sufficiently placed. Our Campbell sales team is working with customers on a robust promotion schedule pretty consistent with what we've had in prior years. At this point in time, I don't see anything unusual. I don't know, Anthony, if you have anything to add.
No, I don't.
The K-Cup, how will you account for those? What do you consider those, condensed or registered?
We actually believe they'll be largely incremental to the category because it is an incremental usage occasion, going after soup as a snack. We believe that there's a great overlap between our Campbell Soup users and Keurig users. Our research has confirmed that. We are shelving it in the coffee aisle in about 70% of the retail environment. That's basically because we believe that people who are interested in buying K-Cups will see this as a real positive in terms of expanding the usage of their dispensers into new categories and new usage occasions. We have two pack sizes, one designed to drive trial, which we're situating in the soup aisle, and that's a two-count pack, and then a six-count pack in the coffee aisle. We're pretty excited about it.
It is gonna be different, but we believe that the space has really been a game changer for coffee, and we expect some good things from it.
The segment classification is a good question, and I'd have to think about that. What we'll do is when we get to the first quarter, I'll make sure I highlight which segment we put that in.
Okay, and how many flavors are in the K-Cup?
I think right now it's just two.
Yes.
Two. Okay, great. Thank you.
You're welcome.
That does conclude the Q&A session. I'll turn the call back over to management for closing remarks.
Thank you everyone for joining our fourth quarter call and webcast. A full replay will be available about two hours after this call. You can go online or go calling one eight eight two six six two zero eight one. The access code is one six six zero nine two nine. You have until September 17th, at which point we move our earnings call straight to the website, investor.campbellsoupcompany.com. Just click on Recent Webcasts and Presentations. If you have any further questions, please call me, Ken, at eight five six three four two six zero eight one. If you are a reporter with questions, please call Carla Burigatto, Director of External Communications, eight five six three four two 37 37. This concludes today's call. Thanks.
Thank you, ladies and gentlemen. That does conclude today's conference. You may all disconnect and everyone have a great day.