Good day, ladies and gentlemen, and welcome to the Campbell Soup 4th Quarter 2015 Earnings Conference Call. At this time, all participants are As a reminder, this conference is being recorded. I would now turn the call over to your host, Ken Gosnell. Please go ahead.
Thank you, Stephanie. Good morning, everyone. Welcome to the 4th quarter earnings call for Campbell Soup's fiscal 2015. With me here in New Jersey, Denise Morrison, President and CEO Anthony D'Silvestro, CFO and Blake McMahon, Senior Manager of Investor Relations. 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. These statements rely on assumptions and estimates which could be inaccurate and are subject to risk. Please refer to our Slide 2 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 of $13,000,000 in administrative expenses related to the implementation of these initiatives. The aggregate after tax impact of the restructuring charges and implementation cost was $0.21 per share. Last year in fourth quarter of fiscal 2014, we recorded $21,000,000 of pretax restructuring charge and restructuring related costs.
Taxing impact of these items was $0.06 per share. Also, as a reminder, fiscal 2014 included 53 week with the extra week falling in the fourth quarter. The extra week was worth an estimated $129,000,000 in net sales, $37,000,000 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, we 2014 will exclude previously announced items.
Because we use non GAAP measures, we a reconciliation of these measures to the most directly comparable GAAP measure, which is included Lastly, please mark your calendars for our planned fiscal 2016 earnings dates. We plan to release 1st quarter earnings on November 24th which will include the new Shortly after we release our 10 Q, we will release the remaining recasted financials. The next three earning states are February 25th, May 20th September 1, 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 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 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 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 4th quarter results.
I'm pleased that 4th quarter reflected the tough consumer operating environment with organic sales increasing 1%. 3 of our 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 the 4th quarter. I was particularly pleased with 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 adjusted EBIT and adjusted EPS consistent with our most recent guidance. Organic sales increased 1% with growth in 4 of our 5 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 team responded to our first half cost and margin challenges in a difficult operating environment. I am ex sales growth in 4 of our 5 reporting segments. However, 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 Prago and Campbell's dinner sauces. Prago had another strong year behind the success of our white sauces and overall product superiority.
Sales of Campbell Dinner sauces increased double digits for the year. Our strategically important plum business drove double digit sale growth with new products and continued distribution gains, especially in the grocery channel. In US suit, consumer takeaway was relatively stable and we posted positive share performance. Our Global Baking And Snacking 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 work decline in shelf stable U. S. Beverages. While the category remains challenged, the underlying trend of our business are beginning to show signs modest sales declines in V Eight Red Juice were more than offset by the introduction of V Eight veggie blend.
Trial and repeat of veggie blends continued to meet expectations and depth of repeat remains strong. We expect our new advertising campaign and VA plus energy continued to perform well. In our immediate consumption channel, we're beginning to see some momentum. We feel good about In fiscal 2016, the entire category will remain under significant pressure While we expect our US 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 digit 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 press 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, and we took important steps to lay the foundation for the future. We redesigned our enterprise structure and our 3 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, but 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. Were piloting ZBB in 2 cost categories in fiscal 2016 with plans to expand in the future. We believe this discipline will to realizing our $250,000,000 cost savings target.
We delivered earlier than expected savings of approximately across several categories, including headcount reductions, nonworking 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 This is accelerating meaningful changes colors and flavors from nearly all of our North American products. Looking ahead to fiscal 2016, plan to deliver moderate As we outlined at our Investor Day in July, starting in the first quarter of fiscal 2016, will change our reporting segments reflecting our Mill meals and Beverages division, we will focus on driving moderate growth while expanding our margins. We'll deliver this by focusing on fewer 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 Additionally, we'll take an industry leadership role about more of our North American products on the what's in my food dot com website.
We also plan to improve more of our recipes consistent 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, increased marketing behind our Goldfish and Milano brands, and fuel growth in products and drive TimTAM's momentum, while 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.
Will 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 faster growing developing markets with an expanding middle class. In the Campbell Fresh division, will 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 2000 stores today, and we expect to expand 8000 stores during the first quarter.
We will continue to accelerate our refrigerated salad dressing business through innovation and increased distribution. And 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 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 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 well-being, and expansion in developing markets coupled with our division's 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 costs 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. 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 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 $215,000,000 cost savings target delivering about $85,000,000 of savings in fiscal 2015.
For the full year, we delivered results within our recent guidance 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. Now I'll review our results in more detail. For the fourth quarter, net sales on an as reported basis declined 9% to 1 point $7,000,000,000, primarily due to the impact of 1 last week and the negative impact of currency translation. Excluding those facts, 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 percent to $234,000,000, driven by a higher gross margin percentage partly offset by higher incentive compensation expenses and a 2 point negative impact from currency translation. Adjusted EPS also in 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 percent to 1.2000000000 reflecting a lower gross margin percentage, a 2 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 seventy 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% Biome and mix affected one point, which was primarily in our global baking and snacking and U. S. Beverages segments. Higher selling prices across 4 of our reportable segments added one point to sales.
Redeau's promotional spending contributed one point to sales growth, primarily driven by the Global Baking And Snacking segment. Currency translation had an adverse impact of 3 points. Our 2 primary foreign currencies, the Australian dollar and Canadian dollar both continued to weaken against the U. S. Dollar.
Our recent acquisition of Garden Fresh Gourmet added one point to sales and the impact of 1 last week subtracted 7 points. Our adjusted gross margin percentage increased by 180 basis points to 36.1 percent. For the quarter and moderating relative to back 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 beverage farm, and 80 basis points from higher selling prices, primarily on condensed soup, prego, and in Canada.
Lastly, we continue in the quarter. And overall, our operating efficiencies were above prior year levels. Marketing and selling expenses declined 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 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 $3,000,000, about $0.01 per share, primarily due to the impact of 1 less week. With $200,000,000 of share repurchases, throughout the year under our strategic share repurchase program, this has reduced our share count and added a penny 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 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 Banking And Snacking, our largest sales segment in the quarter, organic sales increased 1% as growth in Pepperidge Farm Farms 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 1 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 1 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 3rd 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 soup 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 1 less week.
In the Bolthouse And Foodservice segment, organic sales increased 4% with growth in Bolthouse Farm Beverages and salad dressings and North America foodservice, partly offset by the impact of 1 less week. U. S. Fabric organic sales fell 4% primarily due to volume losses in VA, beefusion. 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 decline, including the impact of 1 less week. International Simple Meals And Beverages organic sales declined 5% from weakness in Canada and Australia. Operating earnings declined $10,000,000 or $40,000,000, primarily due to volume declines, including the impact of 1 less week and currency translation. This chart shows the as reported sales performance of for the impact of For the quarter, U. S.
Soup sales declined 2% with condensed down 4%, ready to serve down 3% and brought up 11%. Excluding the impact of 1 less week, sales of condensed soup 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 1 less week, primarily driven by the launches The double digit sales gain on Swanson Broad was primarily led by aseptic varieties. For the fiscal year, as shown towards the bottom of the chart, suit sales declined 3% versus the prior year as a 3% decline in condensed and a 5% decline in ready to serve, were poorly offset by 3% growth in raw. Here's the U.
S. Wet soup category performance and RCF results as measured by IRI. For the 52 week period ending August 2 2015, the category as a whole declined 0.9%. Our sales in measured channels declined 0.7% with weakness in breaded partly offset by gains and broad. Our share increased 10 basis points in the last 52 weeks, and has now been relatively stable points, while private label We had strong cash flow performance in fiscal 2015.
Cash from operations increased by $283,000,000 to almost $1,200,000,000, driven by lower working capital requirements, wrapping the taxes paid in 2014 on the divestiture of the European and lower pension contributions. Capital expenditures increased to 380,000,000 as we increase capacity in Goldfish, Bolthouse Farms Beverages, broth and North America, and biscuits in Indonesia. We paid dividends totaling $394,000,000, reflecting our current quarterly dividend rate of $31..2 per share. In aggregate, we repurchased 244,000,000 share repurchase program. The balance of the repurchases were made to offset dilution from equity based compensation.
Net debt increased by approximately $60,000,000 to $3,800,000,000 as gains in cash flow were more than offset by the $232,000,000 dollars acquisition of Garden Fresh Gourmet. Now I'll review our fiscal 2016 guidance. The company expects to grow sales by 0% to 1%, adjusted EBIT to grow by 3% to 5%, and adjusted EPS to grow by 3 percent to 5 percent or $2.53 to $2.58 per share. This guidance includes the estimated negative impact of currency translation of 2 across sales, EBIT, and EPS. This guidance also includes the impact of the Garden Fresh Gourmet acquisition, which is estimated to contribute one point of 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 impacts from currency headwinds and the acquisition, These growth rates are within our at EPS. While we don't give quarterly guidance, I will say that we expect some sales headwinds in the 1st 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 and therefore excluded from adjusted results. We believe this accounting change will improve the transparency of our results and year to year operability. The 2016 guidance does not reflect the impact of the anticipated accounting change, However, 2016 growth rates are not expected to change from the recasted 2015 base. As we operationalize our new division structure beginning in first quarter of fiscal 2016, we'll move from our current 5 reporting to 3: America's 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 of like 2% to 3%, including the negative impact of a stronger U. S. Dollar on the input costs of our international businesses. Cost inflation will be offset by gains from our ongoing productivity program, which excluding our ZBB initiative, it's targeted at 3% of cost of products sold. We expect our gross margin percentage to improve modestly as we continue 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% to 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 to decline by $30,000,000 to approximately $350,000,000, which is more in line with our historical spending levels. In fiscal 2015, we launched a comprehensive reorganization and a 3 year cost reduction initiative leveraging a 0 based budgeting approach and targeting annual savings of $250,000,000. As shown on this chart, We have achieved about $85,000,000 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 $145,000,000 which would put us more than halfway to our $250,000,000 goal. Most of the 2016 gains will come supply chain gains will $325,000,000. In fiscal 2015, we $4,000,000, which includes $22,000,000 of implementation costs and $102,000,000 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 $100,000,000 in fiscal 2016. That concludes my remarks, and I'll turn it back to Ken for the Q And A.
Thanks, Anthony. We will now start our Q and A session and we have limited time out of Fair and Taylor callers, if you could please ask only one question at a time. Thanks.
Our first question comes from Robert Moskow with Credit Suisse. Your line is open.
Hi, thank you. The gross margin expansion obviously was was much higher than than what we all expected. And, I'm I don't know. Have you given any specific guidance for what kind of expansion you expect in fiscal 'sixteen. And also, was there any, any help in the quarter resulting from, kind of like the mismatch of, incremental costs that you took on in 1st and second quarter, Anthony.
I remember there was some noise there related to some some inefficiencies for for extra costs that needed to be spread out over multiple quarters. Did that influence the fourth quarter expansion at all?
So Robin comment on the fourth quarter and 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. So we had a little bit of favorability this year relative to last year. So if a small portion of that 180 basis points is that.
And the rest is improving in the operating performance of the business. In terms of 2016, as I said in my remarks, improvement in our gross margin percentage. And 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 cost COPs productivity program where we target 3% of COPs. Obviously, that's the most significant benefit.
We expect see continued benefit on net price realization, mostly from the pricing actions that we've taken in the back half of this year. We do expect to see some margin improvement from improved supply chain performance year on year given the challenges we had in the first half of last year. On the negative side, three things to mention. 1 is cost inflation, which we expect to be about 2% to 3%. That includes the negative impact of, currency on the input costs of a number of our international businesses.
But also includes some negative mix. And lastly, the cost of some quality improvements we're making in some of our, both our products and, packaging.
Okay. I'll let it go. Thanks.
Our next question comes from John Baumgartner with Wells Fargo.
Denise, wanted to ask about global baking and snacking and the volume pressure there. Maybe if you could address in a bit more detail some of that pressure in Asia particularly, I guess, Kelson 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.
You seeing some elasticity impact there and how are you thinking about that for fiscal 'sixteen?
Yes. Let me start first with our core business in the United States and in Australia. We are pleased with the share and consumption of Goldfish Crackers and in particular Milan although we did experience in the quarter some softness in cookies, that was pretty much as expected because we in the biscuit business in the United States, particularly in the quarter, we did not promote heavily as last year, So that was pretty deliberate. But we expect moderate growth in the United States on our biscuit business. In the Australian business, we're really happy with the year that we had there.
That has been pretty remarkable turnaround. And it's been really on the fundamentals, better advertising, more innovation, more brand building, more digital So we believe that the building blocks they put in place there are very sustainable. We had a great year in Indonesia with double digit growth, but we did have a slow 4th quarter. And all you have to do is pick up a newspaper to see what's going on in Asia these days. But, we're watching that very carefully.
And we believed, look, we have a lot of runway in Indonesia to expand our distribution points But we're going to be very responsible about that business in 2016. And then the Kelton business, this is a very small quarter for Kelton in, the sales are skewed in China, largely towards Chinese New Year. But that said, we did have some inventory overhang from Chinese New Year this year. And we're working through that right now. And 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 then. I just want to get a sense of the degree of promotional spending and what you expect it to do across I know every business is different and, I'm sure, you know, broadly, you have expectations for each business. But is there an overall comment you can make on promotional spending, maybe related to that advertising record and 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. And we are, as noted, looking for opportunities to improve our trade spending, not only for ourselves to get a better return, but for our customers to get a better return. And so there's 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 to 25% as a rule.
Our next question comes from Jason English with Goldman Sachs. Your line is open.
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 $100,000,000 pretax And that's a good proxy for the impact of the accounting change when we get through a bunch of pluses and minuses. So I think couple additional points on this. These fund plans have been closed to new hires for a couple of years now.
They're very well funded. We ended the year at 97% to 98% in terms of funded status. And we don't expect to make any contributions to our U. S. Plans in 2016.
Thank you. That's helpful. And you mentioned ZBB focused on 2 cost categories. Can you specify what categories those are?
Yes. We did a pilot program on our non working marketing and also, on consulting.
And on marketing, it's you're focused on more productivity there. It's down around 17 percent from your fiscal 10 high, how much further can you go? And as you try to sort of balance and walk the line of of containing promotions. And I think it's encouraging to see that 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 of pulling back or finding efficiencies on trade spend, or 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. And of course, that mix is going to vary by business in terms of what degree we spend. But we do have some shifts going on. As Anthony alluded to, we are making a conscious effort to reduce our non marketing, marketing, where it's not a productive spend. The second is within advertising, we are shifting more dollars out of convention LTV and more into digital.
And that spend has been shifting over time, but will be up to 40% going forward. And then, and then we try again for ACT to stay in the range of about 24% to 25% of sales. And that's remained pretty constant over the last couple of years.
Thank you very much. I appreciate the color.
Our next question comes from David Palmer with RBC. Your line is open. 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 Go with JPMorgan.
Your line is open.
Hi, good morning. Hi, Kenny, 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 health and what happened that your customers, I guess, loaded up a bit on purchases versus the prior year?
Yes, I think it's more about how we came into the quarter. If you recall, the 3rd quarter, I think our sales were down 10% while our consumption was only down 1. So we came into the quarter with inventory levels down. We ended the quarter with and the year with retail inventories out where they were a year ago. So in the 4th quarter, while our consumption was +1 percent, our organic sales were plus about 5%.
So we had about four points of lift from that shift in inventory.
Thanks. And then a quick one, if I can. Denise, in terms of U. S. Cookies, your 2 main competitors have made some DSD investments there.
Can you talk about whether you think those investments have affected you there to match what some of your period has done.
Yes. 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 a large part of our business model and we'll continue to build the business alongside of them.
Our next question comes from Matthew Granger with Morgan Stanley. Your line is open.
Hi, good morning everyone.
Hi, Matt. Good morning.
Thanks. Denise, I just wanted to touch on the come back to the outlook for U. S. Beverages. In 2016, it sounds like you're still cautious, definitely from a sales perspective, but is it possible that we could begin to see some improvement in margin or profit growth And 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 we're doing both. And, you know, obviously, the category itself has been under a lot of pressure based on the consumer. And so 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. And we believe that vegetable juices have an advantage, based on the consumer trends.
We learned a lot from Bolthouse and actually our VA veggie blends reflect a broadening of vegetable based beverages very, 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 some leaky bucket in our VA infusion that we're dealing with. Our VA splash and VA plus energy are doing really well and our immediate consumption has now posted the second quarter of growth. So we've got some good signs on the growth the growth curve, but more things working than not, but we still are cautious about declaring victory yet.
Chain, which we believe will have a really positive impact on our profit going forward. But that is a longer term play.
Okay. Thanks. And just to come back to some of the more on trend new products like V Eight 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 given sort of the added quality components of it?
The brand Energy Blend is showing some really good trial and repeat. And we believe we do have to invest marketing to drive the trial because the repeat is so strong. And building a new product today is heavy lifting. And so 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 Brian Spillane with Bank of America. Your line is open.
Hey, good morning, everyone. Hello, Brian.
Hey, Brian.
Just a quick question about just the comps inflation assumption for 2016. Can you just give us color around where the inflation pressure is, especially most more recently, you've seen some commodity movements that would presumably be more favorable. And also just to what degree your inflation assumption for 2016, reflects some incremental costs related to the, like ingredient changes?
Sure. I can give you a little more color on that. So overall, like I said earlier, cost inflation of about 2% to 3%. If you parse that apart and look at the core ingredients and packaging and energy component, it's about 1%. And within that, the key drivers would be, this is about 5 category vegetables, flavors, sweeteners, chocolate.
And we have a significant increase in in as a result of the avian flu in both eggs and pasta. On eggs, we're looking at inflation rate of close to 50% in fiscal team. So those are the key drivers of the 1%. And then on top of that, there's a couple of other items. So first will be, and I alluded to FX impact of input And then the other couple of pieces, one would be, wage rates within the supply chain and also benefits both health care, and pension.
And 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 team.
Okay, great. That's very helpful. And have a great Labor Day weekend, everyone.
Our next question comes from Jonathan Feeney with Atlas Research. Your line is open.
Good morning.
One question I had. I wanted to get more detail about the you mentioned retailer inventories, particularly within simple meals. And 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? And maybe more detail by channel.
I know you discussed it a little bit, but are there any particular retailers who are moving inventories around in a way that effective profit this quarter? Thanks.
No. Other than the comment I made earlier that we came into the quarter with inventory below last year. I mean, 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 1 less week in the fiscal year.
And that and then some timing in the third quarter, where we pulled back quite a bit on some of our promotional activity in soup, and that led to some reduction in retailer inventories that corrected in the fourth quarter And I would say, you know, again, we ended the year, you know, at relatively low levels comparable to a year ago, and I don't, I don't can't think of any particular anomaly within that Jonathan.
Right. His drivers are really that inventory movement is largely a function of promotional activity. And as we're noting, the activity is not consistent quarter to quarter and 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. Denise, I wanted to ask a little bit this new segment to America's Simple Meals And Beverages. And just really to ask about the margin opportunity that's there for the segment, And 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. So number 1, am I right? Am I overstating kind of a philosophical shift?
And can you give us some dimensions on on the margin opportunity. And I'm not too concerned about the timeline. This is not a fiscal 'sixteen question. I really want to understand big picture where it's going.
Yes. 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. And that doesn't mean that we won't have pockets of growth. For example, the Plumb 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. And a couple of years ago, we didn't have a pipeline. And so what happened as a result or some little ideas got out to the marketplace. Today, we have built a pipeline, and we could be more choiceful about the larger ideas where we know we're going to get a, tact from.
And so 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.
But is there any way to kind of put a sort of guideline to this margin expansion? I mean, I I'm trying to get a sense of just is this 10, 20 basis points a year? Or is this some that has bigger potential than that?
I would say let me put it this way. I think there's an opportunity over time to the profit in that division, above the company target.
Yes. And it has been eroded for the past couple of years. So, by getting into our cost structure and getting into the discipline 0 based budgeting, we're going to be able to do this in a very surgical way so that it sticks and it's sustainable.
But really appreciate the comments. Thank you so much.
Our final question comes from Diane Geissler CLSA. Your line is open. Hi, Diane. Good morning.
Good morning.
I wanted to ask about the soup category. So 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 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?
It's early days in the season. Right now, what we're focused on is making sure that our Our shelf space is intact and the products are merchandised correctly on shelf. We have new products that that are being cut in like the K Cups and organic soup making sure that that's sufficiently placed. Our Campbell sales team is working with customers on a robust promotion schedule. And no, but pretty consistent with what we've had in prior years.
So at this point in time, I don't see anything unusual. I don't know, Anthony, if you have anything to add.
And the K Cups, how will you account for those? Are those what do you consider those condensed? Register?
We, we actually believe they'll be largely incremental to the category because it is a an incremental use education, 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.
And that's basically because we believe that people who are interested in buying K Cups, we'll see this as a real positive in terms of expanding is in new use education. We have 2 pack sizes, one designed to drive trial, which we're situating in the suit file and then the that's a 2 count pack and then a 6 count pack in the Coffee aisle. So, we're pretty excited about it. It's going to be different. But, but we believe that the space has really been a game changer for coffee and we expect some good things from it.
And the segment classification is a good question. And I'd have to think about that. And 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 Cups?
I think right now it's just 2.
Yes. 2. Okay. Great. Thank you.
And that does conclude the Q And 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 2 hours after this call. You can go online or go calling 188 2662081. The access code is 1660929. You have until September 17, at which point we move our earnings call spoken to the website, investor.campbellsoupcoming.com.
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Thanks.
Thank you, ladies and gentlemen. That does conclude today's conference. You may all disconnect and everyone have a great day.