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Executives

Charles Pizzi – President, Chief Executive Officer

Paul Ridder – Senior Vice President, Chief Financial Officer

Autumn Bayles – Senior Vice President, Strategic Operations

Analysts

Mitchell Pinheiro – Montgomery Scott

Tom Graves – Standard and Poor's

[Doug Thomas – Jet Investment Research]

Tasty Baking Company (TSTY) Q4 2008 Earnings Call March 6, 2009 10:00 AM ET

Operator

Welcome to Tasty Baking Company's fourth quarter 2008 earnings results conference call. (Operator Instructions) At this time for opening remarks and introductions I would like to turn the call over to Chad Ramsey.

Chad Ramsey

Good morning everyone. Thank you for joining us for Tasty Baking's conference call to discuss fourth quarter 2008 results. You should have received a copy of this morning's release. However, if for some reason you have not received a copy, please call 215-221-8538 and request a copy which will be faxed to you immediately.

Today's call is also being broadcast over the internet at www.tastykake.com in the investor section under the webcast and presentations subheading.

This conference call may contain statements that are forward-looking within the meaning of the applicable Federal Securities laws and are based on Tasty Baking Company's current expectations and assumptions which are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. Factors that could cause actual results to differ from those anticipated are detailed in the company's press release, annual report to shareholders and Securities and Exchange Commission filings.

The company assumes no obligation to publicly update or revise any forward-looking statements. This discussion also includes non-GAAP measures as defined by SEC rules. We have provided a reconciliation of those measures to the most directly comparable measures. This is available in our press release which is on our web site as well.

With us today from Tasty Baking Company are Charles Pizzi, President and Chief Executive Officer, Paul Ridder, Senior Vice President and Chief Financial Officer, and Autumn Bayles, Senior Vice President, Strategic Operations. Following introductory comments from management, we will open the call to your questions. Go ahead Mr. Pizzi.

Charles Pizzi

Good morning and thank you for joining us today. We appreciate your continued interest in Tasty Baking Company. Today we will be discussing our fourth quarter results for 2008. There are several important issues and developments affecting the company's financial results that we will explain to provide clarity on this quarter's performance.

In the fourth quarter of 2008, the company reported that gross sales increased 12.3% to $70.6 million and net sales grew 11.4% compared to the prior year period. This top line performance was driven by a combined impact of higher average selling prices and an 8.8% increase in sales volume.

Sales growth was broad based as both roots and non roots performed well. With net sales growth of 6% and 31.6% respectively as compared to the fourth quarter of 2007, root sales benefited from growth in both single serve and family pack product sales resulting from higher selling prices as compared to the prior year. Changes in the company's promotional strategy coupled with a consumer focused marketing program also helped fuel higher volumes.

Non root net sales growth was driven by strong promotional activity in the direct sales channel as well as increased sales in our third party distributor markets. Our results this quarter demonstrate the traction achieved from striking the right balance between product pricing and promotion.

Compared to the fourth quarter of 2007, the company experienced a $1.7 million increase in ingredient and packaging costs resulting primarily from higher packaging, oil, egg and grain prices which equates to approximately $0.14 of earnings per share. While market prices for many commodities began to decline at the end of 2008, they still remained above the 2007 levels.

In addition, Tasty Baking had to run out remaining fixed price supply arrangements that benefited the company during the prior periods of commodity inflation. In an attempt to more fully offset the significant rise is commodity costs the company experienced in 2008, the company implemented a price increase in January of 2009 which follows on the pricing actions of 2008.

In addition, to offset commodity and other price pressures through price action, we also continued with our focus on cost containment and operational efficiency improvement. By leveraging our technology platform, we were able to significantly reduce labor costs, particularly overtime in both our manufacturing and distribution operations.

In the fourth quarter, and full fiscal year 2008 we reduced manufacturing variances by more than 15% and 25% respectively as compared to the same periods in the prior year. On a net basis, the company reported a loss of $0.57 per fully diluted share in the fourth quarter of 2008 compared to a net of $0.01 per fully diluted share in the fourth quarter of 2007.

Embedded within these results are several unusual items that merit explanation in order to allow for full understanding of our operational performance. In the fourth quarter of 2008, the company recorded a $12.6 million charge related to its defined benefit pension plan primarily as a result of the performance of the access in the plan.

This $12.6 million charge represents approximately $7.8 million on an after tax basis, or $0.97 in earnings per fully diluted share. As a result in 2005, we froze benefits under the defined benefit plan which allowed us to mitigate the impact of the pension on our financial results.

Also during the fourth quarter of 2008, the company terminated its pre 65 retiree medical plan. The termination of this plan resulted in the company's recording $7.8 million of income during the quarter. This benefit represents approximately $4.8 million on an after tax basis or $0.60 per fully diluted share.

As we discussed on previous calls, we continue to record approximately $1.3 million per quarter in accelerated depreciation as a result of the change in the useful lives of assets that we will not be relocated to the new manufacturing and distribution facility at the Philadelphia Navy Yard. This accelerated depreciated equated to approximately $0.10 in earnings per share in both the fourth quarters of 2008 and 2007.

I would also point out that in the fourth quarter of 2007 the company received a $1.6 million benefit from the combined effect of a change in the company's vacation benefit policies, and the sale of certain tax credits that did not reoccur in the fourth quarter of 2008. This $1.6 million benefit equated to approximately $0.13 in earnings per share in 2007.

With respect to the construction of our new manufacturing and distribution facility, we continue to make good progress. The construction is on time and within budget. The building shell is complete and the interior piping and electrical distribution are currently in progress. The next major phase of the project will focus on equipment deliveries. We expect the deliveries to begin shortly and continue through the summer and into the fall.

The delivery and installation process is a well detailed and carefully planned series of events. Following the installation of this equipment, we expect to begin our methodical line by line transition of production from the current Philadelphia facility to the new bakery near the end of 2009. This process is expected to last into mid 2010. Every day that passes brings the company closer to reaping the benefits of this increased production efficiency and flexibility that we expect with the state of the art equipment.

We appreciate the support of our bank group, let by Citizen's Bank, Bank of America, M&T Bank and Sovereign Bank who have been valued business partners. We also value the support of our property developer, Liberty Property Trust, they're general contractor Pentex as well as our process engineering experts from Fleur Corporation, as we transformed the company through a transition from an old, aged multi-story facility to a new, modern and environmental sustainability single story bakery.

We are also preparing for our upcoming move to our new environmentally sustainable headquarters at the Navy Yard and expect to be in the offices in the second quarter of 2009.

We look forward to the benefits associated with consolidating our headquarter functions to a more efficient and open office space. While the successful completion of these projects is critical, we are also focused on effectively managing the current business during these challenging economic times.

With regard to our operating outlook for 2009, given the current economic uncertainty, and the possible implications on the consumer behavior, particularly discretionary spending, we believe it would not be prudent to provide specific guidance for this fiscal year. That being said, we are confident in the underlying ability of our people and our business to effectively compete in the marketplace.

As always, we will rely upon our ability to manage aspects of the business that are under our control and will continue to protect and position our brand for growth. We will also focus our efforts not only on fostering growth of the brand, but successful completion of our new bakery.

Now Paul will comment on some specifics regarding the fourth quarter's financial results.

Paul Ridder

As Charlie detailed, we have strong sales performance this quarter with volume and net sales increasing 8.8% and 11.4% respectively versus the fourth quarter of 2007. The changes we made in our promotional programs created more balance between the depth and frequency of the promotions and allowed the company to achieve solid growth in our route market.

Additionally, this promotional and pricing strategy helped to offset the year over year increase in ingredient and packaging costs we experienced in the fourth quarter of '08 as compared to the prior year.

When compared to the same period last year, branded family pack and single serve prices were higher by approximately 7% and 8% respectively. Tasty Baking also announced a list price increase ranging from 6% to 8% on its family pack and single serve products that took effect in the second quarter of 2009. This increase was implemented to further offset the impact of commodity and packaging costs that despite recent moderation remain above prior year levels.

As we outlined in today's press release, the company recorded a $12.6 million pension quarter charge. This charge resulted from a negative return on assets included in the plan which was only partially offset by the impact of increases to the plan's discount rate.

Unlike most other companies that amortize pension losses over future periods, in 1986, the company elected to immediately recognize all pension quarter losses in the current period. As a result, $7.6 million of this expense was recorded in cost of goods sold as a component of fixed manufacturing costs while the remainder was recorded as a component of selling, general and administrative expenses. This $12.6 million charge represents approximately $7.8 million on an after tax basis, or $0.97 in earnings per fully diluted share.

Also in the fourth quarter of '08 the company recorded a $7.8 million benefit related to the termination of the company's retiree medical plan. While this was a difficult decision, and was not taken lightly, it was the appropriate course of action for the company. $4.7 million of this benefit associated with the plan termination was recorded in cost of goods sold as it offset fixed manufacturing costs while the remainder was recorded as a component of selling, general and administrative expenses.

This $7.8 million benefit represents approximately $4.8 million on an after tax basis or $0.60 per fully diluted share.

The portion of the pension quarter charge and plan termination benefit that was recorded as a component of cost of goods sold, totaled $2.9 million and significantly contributed to the 9.0% decline in gross margin from 26.4% in the fourth quarter of '07 to 17.4% in the fourth quarter of '08.

Also contributing to the margin decline was a $300,000 increase in depreciation as well as the $1.7 million year over year increase in ingredient and packaging costs. While commodity costs moderated during the fourth quarter of 2008, market prices remained above the prior year. In addition Tasty Baking had to run out remaining fixed supply arrangements that benefits the company during prior periods of commodity inflation which affected our earnings this quarter as well.

The company was able to offset the impact of higher commodity costs due to benefits of higher selling prices on increased sales volume. Selling, general and administrative expenses increased $3.9 million in the fourth quarter of '08 as compared to the prior year period due to several key factors.

First, the company absorbed approximately $1.9 million in expense stemming from the net impact of the pension quarter charge and the benefit from the termination of the medical plan. In addition, in the fourth quarter of 2007, the company received a $1.6 million benefit from the sale of tax credits and a change in the company's vacation benefit policies that do not reoccur in the fourth quarter of 2008, $1.2 million of which impacted selling, general and administrative expenses.

Additionally, higher transportation costs associated with increased sales volumes as well as increased marketing activity were the primary drivers of the remaining year over year increase.

Our debt position as of December 27, 2008 was approximately $60.1 million. Total capital expenditures in the fourth quarter of 2008 were approximately $9.3 million including $7.3 million of payments for equipment related to the new manufacturing and distribution facility.

For fiscal 2008, the company spent $36.1 million on capital expenditures with $29.9 million going toward the new bakery project, primarily for equipment.

It was a challenging year given the volatility in the commodities markets and the impact of the deteriorating economy. Despite these challenges our multi pronged approach on cost containment and improving operating efficiencies while at the same time maintaining proper balance between product pricing and promotion, yielded benefits for the company.

That ends my financial discussion and I will now pass it back to Charlie.

Charles Pizzi

We'll now take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Mitchell Pinheiro – Montgomery Scott.

Mitchell Pinheiro – Montgomery Scott

I'm a little confused, lots of moving parts here. Let me first look at sales which exceeded my expectations pleasantly. It might be the first time in a little bit that's happened. So the route sales were up 6%. How much of that do you think was pricing? I think you said something about 7% and 8% for single serve and family pack?

Charles Pizzi

I think the important element in sales and I'll ask Paul to give you more statistical data, but sales were up both in dollars and volumes which I think are a very good combination for us. Paul do you want to talk specifically about the sales numbers because the comment I made was that we raised selling prices on family pack and single serve products during the year and that the average prices were up between 7% and 8%.

Paul Ridder

As Charley said the key is what we had and what we don't want to comment on the specific breakout for competitive reasons. In the route side we did have growth in volume and from increased prices.

Charles Pizzi

I would also add to that, just as we had a balance approach on the route side, we also had good sales activity in both dollars and volume on the non route side as well.

Mitchell Pinheiro – Montgomery Scott

If I could just stay on the route side, 6% sales growth, if you raised prices between 7% and 8% on average, I would then think volume was down on the routes. Why is that math not working for me?

Charles Pizzi

The 6% increase is net sales. You have gross to net difference that occur and that's where the difference comes out. I also want to point out, I said in my prepared remarks and I said by accident, we implemented a price increase in the first quarter 2009 to more fully offset the impact of commodities.

Mitchell Pinheiro – Montgomery Scott

On the non route side, obviously you have a very large customer, but you also mentioned the third party distributor sales, or those markets were strong. How much was, I know some of the large mass merchants are going through an inventory destocking. I think you've experienced some of that all throughout the year, and maybe you've lapped that now. Is that probably right?

Charles Pizzi

Yes.

Mitchell Pinheiro – Montgomery Scott

So now you're sort of like apples to apples.

Charles Pizzi

We've lapped the change or the inventory reduction that we commented on in the fourth quarter. I think there's a lot going on in the economy and it's difficult to say that it's apples to apples completely, but we have lapped that inventory change that we discussed last year.

Mitchell Pinheiro – Montgomery Scott

So it was in the third party distributors, how strong is that? Was that up at the average kind of non route sales rate or higher or lower, if you could comment?

Charles Pizzi

Well first I will tell you that this is an area that we've been building over the past few years, and we were pleased with the increases that we saw in the fourth quarter on the third party distributors. We are working to really keep improving as well as looking at additional geographic markets.

And then continuing on that original bolt on strategy, so we're moving into other geographic areas that we weren't in before in the fourth quarter and also, we're trying to get better penetration in the existing markets that we are in. I would sort of say not only did we grow sales, but we also improved the mix as well.

Mitchell Pinheiro – Montgomery Scott

What markets in the third party side were you particularly pleased with?

Charles Pizzi

I really think that we were pleased both in the Florida market. We entered into North and South Carolina and also up north in New England.

Mitchell Pinheiro – Montgomery Scott

How are you doing in the Dwayne Reed stores?

Charles Pizzi

Dwayne Reed is a great opportunity for us, and we just started it just over a year ago, so we're working hard on sales and service to really leverage that opportunity. I will also tell you we are moving more products. In the last quarter we put in additional products into the stores.

Mitchell Pinheiro – Montgomery Scott

Getting to EBITDA, I'm having trouble figuring out, when I look at your GAAP, your adjusted EBITDA that shows in the release of $9.4 million, which compared to $3.2 million. I'm having trouble understanding what that $9 million because that's a significant improvement which I don't see how that's sustainable. That would annualize it over $36 million a year. What's the real EBITDA number or an operating EBITDA number that I can look at and determine what the true profitability of the business is?

Charles Pizzi

I think that you have to look at a couple of components that we talked about today. One of the big pieces that we referenced today was the termination of the retiree medical benefit plan which benefited us by approximately $7.8 million in the quarter and you've got to make sure you look at that.

If you look at Page 7 of our earnings release, there actually is a full reconciliation of which items were added back and which items were not. But that is one of the primary pieces you would want to look at.

Mitchell Pinheiro – Montgomery Scott

So EBITDA was if I look at this was $1.6 million after you add that, remove that benefit.

Charles Pizzi

I can't comment on taking things into or out of EBITDA. I would just comment that the $7.8 million benefit is in adjusted EBITDA.

Mitchell Pinheiro – Montgomery Scott

Would this adjusted EBITDA, how do you stand relative to debt covenants?

Charles Pizzi

We're in compliance with the bank covenants as of the end of the fourth quarter.

Mitchell Pinheiro – Montgomery Scott

When I look at your cost of goods, total cost of goods excluding depreciation was about $7 million and if I back away $1.7 increase from the ingredient packaging and take away the net pension charge, and the benefit, I have an unexplained amount of about $2.4 million of increase. What is that coming from?

Charles Pizzi

When you walk through it, and we tried to lay out, it's obviously understandable that it's confusing. There are a number of moving parts. There's a volume component but what we tried to talk through is there is a 9% decline in gross margin which really hits on discussion of cost of goods sold versus sales.

The biggest driver of that was the $2.9 million net impact from pension order charge and the plan termination as well as $300,000 from depreciation and the $1.7 million increase in ingredient packaging costs. And then the final piece of that are volume related because volume was up when you just look at the dollars.

In the prior year as we said, we had $1.6 million of benefit from the change in our vacation benefit policy and the sale of tax credit $400,000 of that benefit was included as an offset of goods sold in the fourth quarter of 2007. $1.2 million of that is in SG&A and $400,000 of that was to offset cost of goods sold.

Mitchell Pinheiro – Montgomery Scott

When I look at cost of goods here, with a $4.5 million sales increase, cost of goods excluding depreciation was up $7 million so after I back out some of these things, are there any other inflationary pressure in cost of goods not covered here in non ingredient, non packaging inflation? Is there wage inflation in there? I'm still missing a chunk.

Charles Pizzi

There is always inflation going through in terms of wage inflation and other inflation components that we move through that we make efforts to offset through out cost containment programs. But there is an element of various components of inflation across our fixed and variable spending categories.

Mitchell Pinheiro – Montgomery Scott

How about sale rates? Do sale rates affect that number?

Charles Pizzi

The sale was really in line with our expectations.

Mitchell Pinheiro – Montgomery Scott

When I look at 2009, are there any unusual charges or expenses or timing issues that we need concern ourselves with as we try to forecast earnings or EBITDA?

Charles Pizzi

As we said in the call in regards to outlook for 2009, given the current economic conditions and a lot of the implications on the consumer between discretionary spending and others, we don't think it's prudent to provide specific guidance for this upcoming year.

Mitchell Pinheiro – Montgomery Scott

But what about anything unusual that I, I'm okay with not giving guidance on normal operating. I understand that. But is there anything unusual about timing that I need to concern myself with? While you're not giving guidance, I still need to put a number out there. I still have to make estimates so I can make some judgments. I just need some guidance whether there's anything that I have to. Is there any other unusual pension quarter charges or the like that I'll have to concern myself with?

Charles Pizzi

With respect to pension quarter charges, those are only measured on the last day of the year and they're out of the company's control, so we couldn't and wouldn't be able to comment on pension quarter. We believe that all the information that is out within the public between the various documents that we filed or all the agreements that are out be it bank agreements or various rental agreements with respect to projects or provide all the information really needed to go through an answer all of that.

Mitchell Pinheiro – Montgomery Scott

And there's no in terms of any bakery, new bakery related issues, is there any cash charges, severance issues, anything like that that will have an impact on the income statement this year?

Charles Pizzi

We recorded in the third quarter of 2008 a $1.6 million charge related to severance related with the project. But we don't believe it's prudent to provide guidance for specific items or in total for 2009.

Mitchell Pinheiro – Montgomery Scott

In terms of the new bakery, the equipment delivery, in terms of managing the risk of the project, are all the equipment suppliers financially sound and able to deliver what you expect them to deliver when you expect them to deliver?

Charles Pizzi

I will just start out by giving you an overview first that there were due diligence done before we entered any agreement with any of the vendors and there was a thorough exploratory discussions and related activities that we've done before we entered into those agreements. And then when we did those agreements we took great care as you might know.

Why don't I just ask Autumn to give you the current state with where we are with those vendors because we are in constant communication with them as you can well expect.

Autumn Bayles

We just had a big meeting with all of our suppliers because the equipment deliveries are moving along as we expected and all of the equipment seems to be moving on time and as scheduled.

Mitchell Pinheiro – Montgomery Scott

The same goes for the construction efforts. My bottom line question is, right now the project is on time and on budget but as we go forward here and as the economy worsens and just I'm more curious about whether the project is on time and on budget from here on out, not sort of like going backwards. I want to understand where you are on the comfort level as far as making sure you're getting equipment on time and there's no delays and the freight people aren't going to, boats aren't coming across from Australia anymore. I just want to know where we are on future risk not where we've been, if you can comment on that.

Charles Pizzi

I think the only thing we can really comment on is that we are on time and on budget as of today. We don't want to speculate on some things. I think that as we've said in the past, we will continue our appropriate risk mitigation programs in all areas of the business but we can't speculate on other areas. I can tell you we're on time and on budget today.

Operator

Your next question comes from Tom Graves – Standard and Poor's.

Tom Graves – Standard and Poor's

I think I heard you say that the pricing and volume was able to offset the commodity cost pressure in the fourth quarter, is that correct?

Charles Pizzi

The year was able to offset a substantial portion of the year over year commodity impact in the fourth quarter.

Tom Graves – Standard and Poor's

But necessarily fully offset it, is that what you're saying?

Charles Pizzi

It did not offset the cumulative rise we've since commodity costs began this volatile period.

Tom Graves – Standard and Poor's

The projections you've made for prospective cost savings from the new facility, are those still intact? Are you still sticking with those?

Charles Pizzi

We haven't changed or updated any of that information. We haven't provided any guidance as to how that would impact 2009.

Tom Graves – Standard and Poor's

I believe that there was an adjustment in your bank covenants that you announced I think at the end of the third quarter. Is that causing your interest expense to rise modestly? I feel like there was a 50 basis point increase in some of your interest rate.

Charles Pizzi

We did amend our bank credit facility actually in the fourth quarter and we commented on that as part of our third quarter results. All of that information, the detailed information is within the bank agreement however, there was an increase to the interest rate with the associated borrowing rates.

Operator

Your next question comes from Mitchell Pinheiro – Montgomery Scott.

Mitchell Pinheiro – Montgomery Scott

Can you talk about in your core territory how the snack cake category is doing and how you're doing within that?

Charles Pizzi

The snake cake, the numbers on snack cake are up as well as we are up as well. We beat the category which is also up.

Mitchell Pinheiro – Montgomery Scott

What is the category doing? How strong?

Charles Pizzi

The specific numbers are up. The category, there's various components, single serve and family pack, but the entire category was up approximately 5%, a little more than 5% depending on how you cut it obviously for the various territories and products, and we have exceeded growth for the category.

Mitchell Pinheiro – Montgomery Scott

You said 5%. How about units? Are units slightly down?

Charles Pizzi

Units and dollars were actually both up. That why when I said its both sales dollars and volume.

Mitchell Pinheiro – Montgomery Scott

What do you think in this economic environment, snack cakes aren't exactly a core, it's not a necessity, well to some they are, so I'm curious what you're seeing or hearing in the marketplace as it relates to this recession that we're in and how the snack cake category is responding to date.

Charles Pizzi

I would just say that in the fourth quarter, first of all because our product is fresh, it is a comfort food, and who doesn't need a little comfort in today's environment. Secondly I would say that the sales numbers speak for themselves and we really felt that we did have some traction in our promotional activity and sales activity.

Working and being cognizant of the environment, our promotional strategy I think which we put into place in mid year, late third quarter of last year really went to the current economic environment which we're in.

Mitchell Pinheiro – Montgomery Scott

Are you seeing the same type of lift, a historical lift that you would on your typical family pack promotions? Are you seeing an increase in lift? How would you characterize that?

Charles Pizzi

We're pleased with our sales dollars in family pack.

Mitchell Pinheiro – Montgomery Scott

In terms of January sales, I know you don't give guidance but the peanut butter issues, it didn't have an impact on your manufacturing, but certainly the consumer is not sure what they're buying in peanut butter. How has that affected your peanut butter candy cakes and what can you say about that?

Autumn Bayles

We were very pleased that we didn't have any issues regarding the use of that supply. We didn't have any relationship, so we didn't have any recall or any related fallout from that because we didn't use that supplier. Our quality processes are very tight and we make sure that we test our incoming and outgoing products.

Mitchell Pinheiro – Montgomery Scott

What about the consumer? The consumer basically gave up peanut butter of all types regardless of whether a company was using that bad supplier. Did you see any fall off in sales in January as a result or not meaningful?

Charles Pizzi

We don't comment on specific products, but we are a trusted brand in the marketplace and we really, the first thing we focus in is on quality and hopefully our consumer has that trust in our brand. We take this very seriously, and as I said, we have not been a party in any way in anything that was out there.

Mitchell Pinheiro – Montgomery Scott

I'm just trying to make sure because when I'm putting my first quarter sales forecast out there, I would need to know whether I should trim it back a touch because there was a drop off in sales. I'm seeing it across from Lance peanut butter crackers who weren't affected to jars of peanut butter, the whole category is down even though not a single jar manufacturer was in trouble with that supplier, but it's just affecting anything with peanut butter, and I just don't want that called out in the first quarter as having an impact on sales when we know about it right now.

Charles Pizzi

I think that one, because of our robust QA process we were able to announce very early that we did not have products included in the recall. We actually came out with the peanut butter products during the quarter.

Operator

Your next question comes from Doug Thomas – Jet Investment Research

Doug Thomas – Jet Investment Research

I was curious with respect to a couple of things. The decision not to give guidance which I understand, a lot of companies are doing it, it seems like as time goes on and we get closer to the opening of the new facility and you've got your marketing plans in place, I just want to make sure that I'm right that it seems like you have to more certain not less of your ability to drive sales and profitability given that you're going to as every day that goes by now, you're really going to have more and more control over pretty much all aspects of your cost structure and so forth, and we've got input costs on raw material price spike out of the way.

Can you talk a little bit more about your decision not to give guidance? I understand there's concerns about consumer spending but I think in my mind clearly we've seen the number now demonstrate that the category is resilient, that we have seen declining gas prices. Maybe that's obviously giving consumers some additional money at the convenience store, but we're also seeing a trade down to Wal Mart where you play and other forms of distribution where you are at, not necessarily the grocery channel.

I know that's kind of a long winded question, but can you touch on some of those things?

Charles Pizzi

I just wanted to really accentuate what I said in my stated remarks and that's we're not going to comment on 2009.

Doug Thomas – Jet Investment Research

But is there something out there that you're particularly worried about or is just the sheer questions of consumer demand the main factor?

Charles Pizzi

That being said, we're confident in the underlying ability of our people and our business to effectively compete in the marketplace.

Doug Thomas – Jet Investment Research

What are you hearing from your customers? What are you hearing from the Sheet's of the world. Are they starting to see, is this quarter sort of representative of a bit of a comeback in terms of consumer demand across the board?

Charles Pizzi

We don't comment on communications or any of that with specific customers. So we really can't answer that.

Operator

There are no further questions at this time.

Charles Pizzi

Thank you for joining us and have a productive day.

Operator

If you would like to listen to a replay of today's call, please dial 888-203-1112 and enter the pass code 5062414.

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