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Executives

Marcel Smits - Chief Financial Officer and Executive Vice President

Aaron Hoffman - Investor Relations

Brenda Barnes - Executive Chairman, Chief Executive Officer, Chairman of Executive Committee and Member of Finance Committee

Analysts

Vincent Andrews - Morgan Stanley

Alexia Howard - Sanford C. Bernstein & Co., Inc.

Andrew Lazar - Barclays Capital

Christopher Growe - Stifel, Nicolaus & Co., Inc.

Robert Moskow - Crédit Suisse First Boston, Inc.

Robert Dickerson

Terry Bivens - JP Morgan Chase & Co

Eric Katzman - Deutsche Bank AG

Andrew Feinman - Iridian Asset Management

Bryan Spillane - BofA Merrill Lynch

Kenneth Zaslow - BMO Capital Markets U.S.

Timothy Ramey - D.A. Davidson & Co.

Sara Lee (SLE) Q3 2010 Earnings Call May 6, 2010 10:00 AM ET

Operator

Good morning and welcome to Sara Lee's Third Quarter Earnings Conference Call for Fiscal 2010. [Operator Instructions] I would now like to turn the call over to Aaron Hoffman, Vice President of Investor Relations for Sara Lee Corp. Thank you. Aaron, you may begin.

Aaron Hoffman

Thanks, Wendy. Well, good morning, and welcome to Sara Lee's Third Quarter 2010 Earnings Conference Call. Joining me for today's call are Brenda Barnes, our Chairman and CEO; and Marcel Smits, our Chief Financial Officer.

Our third quarter 2010 results were released at 6:30 Central Time this morning via press release that you'll find on our website at saralee.com. If you have any problems accessing the release, please call Jeannie Williams at (630)598-8100. Our 10-Q is also filed this morning, concurrent with the press release.

To begin, I will caution you that our remarks this morning contain forward-looking statements about Sara Lee's future operations, financial performance and business conditions. These forward-looking statements are based on currently available competitive, financial and economic data, plus management's views and assumptions regarding future events. Such forward-looking statements are inherently uncertain, and investors must recognize that actual results may differ from those expressed or implied in these statements. Consequently, I need to caution you not to place undue reliance on forward-looking statements. We've provided additional information in our press release and Form 10-K from fiscal 2009, that I encourage you to review concerning factors that could cause actual results to differ materially from these forward-looking statements.

This morning, we're providing slides to go along with our remarks. You can find them on the webcast portion of our website in the Investor Relations section. And as a reminder, all adjusted numbers we discussed on today's call, exclude the impact of significant items, contingent bill proceeds, acquisitions, divestitures and the effects of currency changes. The release contains a reconciliation of reported to adjusted numbers.

So now, let me turn the time over to Brenda.

Brenda Barnes

Thanks, Aaron and good morning, everyone. We appreciate your interest and time today. I'm very pleased to be discussing another strong quarter at Sara Lee. We continue to build on the momentum we've achieved in the first half of the year and the important progress made over the past three years. Our focus on product innovation, operational capabilities and solid execution continues to pay off in the form of top and bottom line growth, as we gained share in many of our exciting brands.

We built solid processes to drive disciplined decision making across critical areas, like pricing and cost management. Our robust innovation pipeline and strong sales and marketing efforts are helping us gain share and improve our mix. Overall, we're well positioned to grow and reinvest, allowing us to generate real operating leverage and quicken the pace of growth.

Our third quarter was stronger than anticipated, and I'm pleased to announce that we're raising earnings guidance for the third consecutive quarter. We're now forecasting an adjusted EPS increase of 29% to 34% compared to last year, which translates to another $0.03 to $0.04 per share than our previous guidance. The increase in forecasted EPS takes into account the previously announced $500 million accelerated share repurchase. At this point, no other share buyback is included in fiscal '10 guidance, but we're off to a good start in achieving our plan, $2.5 billion to $3 billion of repurchases.

I'd like to note that in the fourth quarter, you can expect to see a significant increase in marketing investments to support our brands and major new product launches. These efforts will help set up fiscal '11 for another year of growth of adjusted operating segment income from continuing operations.

This year, we've had some headwinds and tailwinds. And looking forward to fiscal '11, we see more of the same. There will be headwinds, commodities, currencies and lapping a 53-week year to name a few. At the same time, we're creating our own tailwinds. Project Accelerate is delivering meaningful savings, our innovation is outstanding and our investments are paying off. Simply put, we feel great about where we are today and our future.

We also feel great about our pending divestiture of Household and Body Care, a segment that has performed very well this year. This divestiture is consistent with our overarching strategy to transform Sara Lee into a simpler, more focused company, with compelling prospects to create shareholder value.

We've announced two transactions to date. We have a binding offer to sell Body Care to Unilever for 1.275 billion euros or about $1.7 billion at our hedged euro-dollar rate of $1.35. And during the second quarter, we announced a binding offer with P&G to sell our Air Care business for 320 million euros or about $430 million. As you know, we're actively negotiating to sell the remaining businesses, which includes Shoe Care and Insecticides. We're pleased with how the process is progressing, and we'll continue to keep you updated.

We plan to allocate proceeds per share repurchase, as well as to sustain our $0.44 dividend. We have also made the decision to voluntarily contribute $200 million to our pension plan to reduce risks and financial statement volatility.

Now, let's take a look at the quarter. For reference, this is the same chart we showed you in the first and second quarters. I'll focus on sales and income, and Marcel will then walk you through some additional financial metrics, including earnings per share, tax rate and cash flow.

Let's start with reported sales and take out currency impact and the acquisitions and divestitures to get to adjusted sales of minus 2.5%. Next, we'll look at the components of the adjusted sales change. Price mix was positive, showing a reversal of earlier trends. As we've done in previous quarters, let's look at our volume trends to put it into context for you.

Excluding our deliberate exit of the Commodity Meats and Kosher Meats business, volumes were down 1.2%, primarily driven by the loss of a high-volume, low-margin food service bakery account. As you can see, the two highlighted figures on this chart add up to $72 million of bottom-line improvement. Let's walk through the components of this improvement.

You'll see that we delivered an incremental $32 million of adjusted operating income in the quarter. Of that amount, there was a $26 million unfavorable variance in commodity mark-to-market on a year-over-year basis. Excluding that, the increase was $58 million. $62 million of that increase came from our segments, partially offset by about $4 million of slightly higher corporate cost, all excluding significant items.

The final piece of the improvement is in Household and Body Care, which was up $14 million on an adjusted basis. Adding these figures together, we increased our bottom-line performance by about $72 million in the quarter. As you may recall, on the same basis, the bottom-line improvement in the first half was $217 million. So that totals $289 million in the first nine months. We're very pleased with this performance, and that contributions are coming from a variety of sources.

I'd like to give you a perspective on some of the non-operational contributors to this increase. You won't find these figures on the slide, but they are helpful to understand how we're generating such strong performance. First, lower commodity costs, net of pricing actions, added about $170 million. This is a real indication of our ability to manage pricing, and speaks directly to the strength of our brands. In discontinued operations, the cessation of depreciation and amortization, which we discussed on last quarter's call, was worth $21 million. And finally, Project Accelerate, our company-wide cost savings initiatives, contributed $89 million of incremental benefits this year. Let me spend a little more time on Project Accelerate.

In the quarter and year-to-date, every one of our segments achieved cost savings and productivity gains. Projects like Business Process Outsourcing, curtailment of the company's U.S. salary and pension plans and headcount in SKU reduction, all contributed in a big way to the savings. As you know, our guidance of $350 million to $400 million previously included Household and Body Care, as have the results we've updated each quarter. Today, we're pleased to provide you with a split between continuing and discontinuing operations.

As savings have come in stronger than anticipated, we're maintaining our original guidance of $350 million to $400 million, though that is now only for continuing operations. We have essentially made up for the lost savings associated with discontinued operations. In fiscal '09, savings from continuing operations were $49 million, and we've realized an incremental $89 million through nine months of fiscal '10. We currently expect full year incremental benefits to be $120 million to $140 million for continuing operations alone.

Overall, we're very pleased with the significant benefits we're achieving and rapid pace at which they are being realized. I have no doubt that we'll continue to see Project Accelerate generate real tailwinds for the business for the next several years, helping driving our bottom line.

Now let's start with the segment review and start with North American Retail. This business is firing on all cylinders. Volume, excluding delivered business exits, is up 9% in the quarter and 3% through nine months. Our sales, excluding Commodity Meats, rose almost 6% this quarter and almost 2% for the first three quarters. These increases have been driven by our strategic businesses, Jimmy Dean, Hillshire Farm and Ball Park, which represent about three quarters of the segment's sales. We continue to focus our marketing investment against these big brands in an array of new product launches. In fact, MAP is up 21% in the quarter and 24% for the first nine months.

As discussed in quarter two, we'll reinvest to drive further growth and margin expansion in fiscal '11 and beyond. This is why we currently anticipate a down period for OSI in the fourth quarter. As we support the selling of new products like Hillshire Farm low-sodium and variety pack Deli Meats and Jimmy Dean Jimmy Ds, a new line of our hearty satisfying breakfast items that combines wholesome turkey sausage with the taste you'll just love, all with less than 250 calories.

We will also be fielding an aggressive consumer and shopper communication plan behind our existing brands during the seasonally important fourth quarter. This is a good representation of the model we've built, where we're able to consistently expand margins while investing in the future.

North American Foodservice delivered a mixed quarter. Importantly, adjusted OSI was up 16% as a result of lower commodity costs, the exit of low-margin items and cost savings. On the other hand, sales and volumes were down significantly. As discussed in Q2, the segment suffered a non-core business loss where we provided an unbranded ingredient for one of our customers. This business accounted for 15% of the segment volumes, 4% of sales and virtually no profit. This has started to impact volumes in this quarter, with a decline of more than 13%, and will continue to do so over the next three quarters. Given the significant sales loss compared to the lack of profit, the discontinuation of this business will be accretive to the segment's margin.

In addition, the segment lost a liquid coffee account that generated very little volume, but offered meaningful profit. This will impact the segment's year-on-year comparisons, starting the first quarter of 2011. As a result, the segment reset its manufacturing base in the second and third quarters, which led to restructuring charges totaling $23 million, of which $13 million is a non-cash asset impairment.

Earlier in the year, we anticipated decline in OSI for the segment. On the strength of favorable commodities, Project Accelerate savings, mixed improvements and new business with customers like Cisco and Sodexo, our original view turned out to be too conservative. Adjusted OSI is expected to be up for the full year, even though it's likely to be done in the fourth quarter, as the segment continues to face industry softness.

We've improved the segment's cost structure, as well as our go-to-market strategy. This has allowed us to weather the recent economic challenges and still produce good operating performance. I have no doubt that when the out-of-home market rebounds, we will be very well positioned to continue our good pace of growth.

Getting more to the first half, the North American Fresh Bakery segment increased margins and OSI in a very challenging competitive marketplace. Volume trends improved compared to the second quarter, and importantly, branded volume rose behind strategic pricing recalibration and new products, like Sara Lee Soft & Smooth Plus with Omega-3 DHA and EarthGrains' Eco-Grains. Our productivity improvement efforts that range from automation and lean efficiencies in our bakeries to advanced routing solutions, are yielding meaningful results that have contributed to our adjusted OSI growth. We expect this to continue in the future.

I'd like to give you my perspective on the business and the marketplace. As we've said, this segment accounts for 20% of total sales, but only 6% of adjusted operating segment income. However, we have the industry's largest brand at about $900 million of annualized sales, with margins that have steadily improved. Our geographic footprint consists of some very strong markets, and others that are a drag on margins. As discussed, we have active plans to improve these underperforming markets and we'll continue to reduce our cost structure. These factors allow us to be aggressive in order to defend and grow our position.

International Beverage continues to invest behind emerging markets and innovation. OSI rose double-digits in the third quarter and resulted in the largest profit quarter ever for the segment, driven by continuous improvement and Project Accelerate savings. The 20% increase in adjusted OSI includes a positive variance of approximately $9 million related to currency mark-to-market from green coffee procurements. Without this accounting treatment, performance would have looked less favorable, but adjusted OSI would still have been up substantially.

Both broader market conditions and the growth of private label had an impact in our sales and volume trends in the quarter. We continue to see weak roasted & ground coffee markets in the Netherlands, Belgium, Denmark and Hungary. While France, Spain and Brazil showed growth. Our shares improved in Belgium, France and Denmark, but were offset by share declines precipitated by private label growth in the Netherlands, Spain and Hungary. We firmly believe that our markets will show growth again overtime, and that we're well positioned to drive organic growth with a variety of exciting innovations.

Speaking of which, fiscal '10 has been a good year for innovation at Sara Lee. The [indiscernible] dosing products or drip-filter coffee machines has done well and continues to expand into new markets. And as more and more consumers want a great tasting cup of coffee to be enjoyed one at a time, we've launched our exciting new L'OR Espresso capsules in France, which can be used in an espresso coffee machine.

This breakthrough product gives consumers delicious espresso coffee of the highest quality. It's conveniently available at retail stores and is produced responsibly. At the same time, new Senseo varieties in a revamped machine continue to drive the company's leading single-serve platform.

We'll meaningful step up investments behind these and other growth programs in fiscal '11, while delivering modest bottom-line improvement for the segment. We expect to be very well positioned for the short and long term as a result. I want to comment, though, about the 22% adjusted operating margin we achieved this quarter. While we're thrilled to see such a strong performance, it does not reflect the long-term trajectory of the business. We have consistently stated that the International Beverage group should yield a margin in the high teens and can drive above average top-line to deliver incremental profit dollars for the total company. You will see a return to more normalized margin in the fourth quarter as we make large investments behind our espresso capsules and other marketing programs.

The International Bakery segment continues to face substantial headwinds in its core Spanish market, and has implement numerous actions to deliver improvements. While volumes are still under pressure, the business model has been improved through cost reductions, restructuring and the right-sizing of the manufacturing footprint.

Earlier this year, the segment sold several bakeries to another manufacturer. The production of the two companies has been combined, in order to improve plant utilization and reduce unit costs. These actions have helped mitigate the impact on profitability. This segment should have a better foundation from which to grow, and we'll benefit when the Spanish economy recovers. Plus, we continue to implement additional cost-saving initiatives. Even as Spain has had challenges, the segment's European private label refrigerated dough business has done very well, expanding market share and delivering increased operating income.

I'd like to wrap up with H&BC, which had another good quarter with 21% increase in adjusted OSI. This was driven by strong Body Care, Shoe Care and Insecticide performance. We also benefited by no longer including depreciation in our results, which was worth $8 million in the quarter. Despite difficult market conditions in Europe and an ongoing process to divest the business, the Household and Body Care segment delivered strong top and bottom line performance for the fourth consecutive quarter, while also increasing marketing investment. Operational metrics are all better than the previous year, including better fill and service rates, lower obsolete inventories and SKU reductions.

Performance for Insecticides at India, Shoe Care in the U.S. and in European specialty channels was all very strong. New products in Air Care and Body Care like Ambi Pur National Geographic, Sanex NaturProtect and Sanex Zero% have made a meaningful impact in the business and were supported by strong marketing campaigns. In particular, we're seeing much better trends in Spain, which is one of our largest markets, and has made important contributions to this quarter's results.

That wraps up my look at theses key results. And now Marcel will take you through some additional financials. Marcel?

Marcel Smits

Thank you, Brenda, and good morning to everybody on the call. Brenda left it with the summary results slides, where she also started, and I'm going to take it from there and look how that translates into BPS figures.

These sheets reconciles our adjusted EPS and our reported EPS. You may remember the format from our Q2 presentation. If you'll allow me, let me just go straight to the last row of the sheet, the adjusted EPS line. As you can see, we did $0.29 in the third quarter of fiscal 2010, and that's $0.07 up on the prior year. You maybe surprised by the amount of the increase, given our cautious remarks at the end of the second quarter call. What happened in the third quarter is that our Coffee and Tea business did great in terms of profitability, and that coincided with soaring sales of the most profitable parts of our North American retail business.

Still, on this bottom row, on a cumulative basis, to the right, you can see that so far this year, we did $0.89, very nice increase over $0.50 we did last year. If I now jump to the top line in the table, and that is EPS on a reported basis, you can see that we're showing a loss in the third quarter of the year of $0.49. Now let me remind you that at CAGNY, we announced that in the second half of the year, we were going to take more than $500,000,000 of provision for repatriation tax. And that's equivalent to $0.75 per share. As such, it has a major influence on our reported EPS figures.

You'll remember that we explained the detail at CAGNY. The essence is that in the absence of a definitive intention to permanently reinvest abroad the proceeds of the disposition of the H&BC business, we have to take a provision for repatriation tax related to bringing the earnings home. In this quarter, we're taking the provision for the book value, and we will take a provision for repatriating the book gains, as and when they are recorded. So the $0.60 of repatriation tax in discontinued operations essentially related to bringing home the book value of the H&BC business and the cash on the balance sheet related to this segment.

Meanwhile, we have quite a bit of cash related to continuing operations on the balance sheet, and when it comes home, repatriation tax will have to be paid. That's what the $0.15 relates to.

Lastly, on these sheets, please be informed that we have another $0.04 to account for in the fourth quarter. To be precise, that is excluding the repatriation tax we may incur on transactions closing prior to year-end.

Now while we are on the subject of tax, let me get you grounded on the tax rate of our continuing operations. As to be expected, the provision for the repatriation tax materially impacts our reported tax rates, no less than 87.1% in continuing operations in Q3, as shown here. That said, if we take out the impact of contingent sale proceeds from the tobacco disposition and the significant items that we've just discussed, we get back to 34.3% for the quarter and 33.4% for the cumulative of the year. The third quarter includes a small true-up in relation to the slightly higher back grade anticipated for the full year.

Now let me just go back one more time to the EPS sheet. Apart from the repatriation tax, what also stands out, of course, is the positive contribution that we're having from significant items in our reported EPS in the cumulative year-to-date figures. You may recall that we had significant releases from our tax reserves, mainly in the second quarter of this year, and that's why we are reporting a positive figure below our ongoing restructuring yielded chart. The following sheet updates you on the significant item charges we have taken against our continuing operations. This sheet provides a summary, I said, of significant items included in our pretax income for continuing operations.

As you can see, most relate to our Project Accelerate. These charges are in line with what we have been guiding for all along. Brenda has just explained, we believe we will incur some $300 million plus in charges for total Project Accelerate and continuing operations. Now let me remind you that last year, we incurred $123 million, and this year, as you could see here, we have so far incurred $72 million. There's one more quarter to go in which a number of charges will come through. And given our guidance for the total program, the conclusion, therefore, is that we believe next year, the Project Accelerate charges will be lower. That being said, we will be incurring restructuring cost in our international operations and in our corporate center, in order to eliminate the stranded overhead from the disposition of Household and Body Care. We're working our way through estimating these and we will give you guidance in August.

To round it up then, EPS guidance. Given the fact that we've had a very favorable Q3 just behind us, we're in a position to raise guidance again. The previous adjusted EPS guidance for 2010, as you all remember, was $1.02 to $1.07 per share. We're increasing that by $0.03 to $0.04, updating guidance to a range of $1.06 to $1.10. This increase is entirely attributable to an improved pretax operating income, offsetting $0.01 of higher tax.

In a moment, we'll look into what the updated guidance implies for the last quarter. But before we do that, let me just remind you of a couple of key figures from fiscal 2009. As you can see here, in the last quarter of fiscal 2009, we had a big favorable mark-to-market variance in the fourth quarter. In addition, in that quarter, our corporate expenses were relatively low. We had some releases over a couple of provisions coming through. While we may have a positive mark-to-market variance in the last quarter of this year, we're, of course, not planning for it.

In addition, our corporate center cost in the last quarter of this year is somewhat above the trend line. We have some extra expenses coming through, and of course, we have an extra week in the last quarter of this year. So the comparables in the coming fourth quarter on corporate center expenses and mark-to-market will push our EPS down relative to the prior year.

In addition, we are currently investing heavily on MAP. We have good product innovation and penetration objectives to invest behind, and you will have noted the launches in France, and in North American Retail, we are building on our momentum. We're setting ourselves up for a good start in fiscal 2011, and that would appear to be the sensible thing to do, as at least for the next two quarters, we will have to deal with rising commodity costs.

Now let me conclude with cash flow. We reckon we will come in above the $900 million mark for the full year. That would be a great achievement. It'd be higher than the 2009 figure, which you may recall, was exactly $900 million. At that time, we were mighty pleased with it, and having achieved a massive working capital improvement in the last quarter. And that working capital inflow in the last quarter of fiscal 2009 was a correction on outflows earlier in that year. This year, our working capital basin is much more even, and hence, the last quarter spreads will not be repeated.

Meanwhile, we have a fair amount of restructuring to pay for in the last quarter, and we're currently assuming that we will incur somewhat more tax. That explains our relatively low figure for the last quarter. I should note that this guidance does not include the anticipated additional $200 million payment into our pension funds that we talked about at CAGNY.

Now, let me turn it back to Brenda to provide you some closing remarks. Brenda?

Brenda Barnes

Thanks, Marcel. In summary, it's an exciting time to be at Sara Lee. We continue to gain real traction in the marketplace, where ongoing focus on innovation is backed by solid execution. We're building world-class brands and gaining share in large important categories.

We continue to satisfy consumers around the world with affordable, high-quality food and beverage products. And on the customer front, we're building our track record as a winning and valued business partner. The bottom-line is that our company is more focused and effective than it's ever been. We've made significant progress and it's continuing this quarter and for the full year.

As we continue to focus on driving both topline growth and substantial cost savings around the world, we'll only get better and more competitive over the next few years. We're confident that our accelerating momentum will translate into compelling value creation for our shareholders.

Now, Marcel, Aaron and I are happy to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question today is from Andrew Lazar.

Andrew Lazar - Barclays Capital

Barclays Capital. First, I noticed the price mix, pretty broadly across most of the, if not all the segments, was at least sequentially better than it was in the last two quarters. And I guess that's despite, I think, some of the tactical spending and recalibrating that you've been doing. I'm just trying to get a sense of whether you were able to sort of pull back on some of that recalibration spending or what drove that? I understand Bakery in particular, because of the loss of that business, but in the others, price mix wasn't as down as much either.

Brenda Barnes

Well, a couple of factors is going to improve in the price mix. One is the range of new products that we're offering, which has been a key part of the strategy. Everything we introduced should be a higher margin than what we have in our base portfolio. You are right to point out that some of the exits made a big difference on that number, where you had a large volume going out at virtually no profit. So that definitely skewed the numbers.

Andrew Lazar - Barclays Capital

So probably no big change, I would assume, in just some of the recalibration efforts and things like that?

Brenda Barnes

No. We got to a pretty good point, adjusting as you know from the first and second quarter. We are definitely having to dial a little bit more toward being more aggressive. And that we think we got it to a good point, good balance point, and we're reaping those benefits.

Marcel Smits

Under the price components of that price mix figure is pretty much in line with what we had in the second quarter as a result of the materials, food service contract that we've just talked about. That gives us a big lift in the mix. So that's one item. And if you look into the detail in North American Retail, we also had a big lift in the mix because we have gradually steadying commodity. So the price line, that was in line with what we had in the second quarter.

Andrew Lazar - Barclays Capital

You mentioned that the improvement in earnings in terms of the upper guidance is the operational and largely in the continuing operations piece. When you look at the chart of guidance that you break out for operating income for continuing operations, that has not changed much. So I'm probably just missing something.

Aaron Hoffman

The point I would call you, the point of attention there I would call you to was that those that include the significant items year-to-date. So those are offsetting. So you would need to back out the year-to-date significant items from both sides of the equation. And then what you would see is a number that makes a lot more sense left over.

Marcel Smits

Over your need to compare the adjusted EPS.

Aaron Hoffman

Yes. And I would adhere then to the adjusted EPS, most definitely.

Andrew Lazar - Barclays Capital

Yes.

Marcel Smits

So if you look at the adjusted EPS line, then you'll see the lift in the guidance.

Aaron Hoffman

So that'll flow through into the operating income once you get the significant items out.

Operator

Our next question is from Terry Bivens. [JPMorgan]

Terry Bivens - JP Morgan Chase & Co

Brenda, on your International Beverage business, I know some of the market share data that we get out of Europe is a little bit more risky to rely on maybe than over here. But we were looking at it this morning and it seems as though, when Kraft gained share in Europe, in coffee, you seemed to lose it. So the question is really, what is the outlook for managing that business going forward? This bump up in marketing, do you think you're going to have to do more advertising over there, or is it more trade spending? If you could kind of give us your idea on the trajectory of the European Coffee business?

Brenda Barnes

Sure. The way I think of the market is it's a mixture of many competitors, one which is certainly Kraft. And the competitors vary by country and another one is by the label, and you have different segments. So it's always important to look at that, too; roast and ground, single-serve, instant and whatever. Our strategy in coffee, which is why we have confidence on the long-term growth algorithm of it, is that the market is growing very rapidly in single-serve. We started a long time ago with Senseo and it continues to grow and, certainly, the L’OR introduction of our capsules that fit in espresso machines is part of that. So we will continue to innovate in the category with price improvements, quality improvements in our roast and ground as well as our instant coffees. And that is where we focused our marketing spending as well. On the base business, which is their traditional roasting ground, it's certainly a very large component of our mix in the European countries. And we have to really manage the price gap and frequency of promotions, both versus all the branded competitors, as well as the gap versus the private label. So yes, we will in fact be spending more focus, making sure we've got that right price point in the market, especially when the economic conditions are such. So we feel that we've got the tools in our portfolio to address the competitive situation, and had quite a bit of strength over time in our market share in those countries.

Terry Bivens - JP Morgan Chase & Co

Can you give us just some guidance, some of the pacing of the share buyback as we move forward?

Marcel Smits

We have said that we'd like to do between $1 billion and $1.3 billion in calendar 2010. And so no reason to assume that, that'd be different at this point in time. We've done $500 million in the first ASR [accelerated stock repurchase] that we've announcement currently ongoing. So we're looking to do another $500 million or $600 million in the remainder of the year. And that front-loads the total program of $2.5 billion to $3 billion, as outlined in our capital structure release.

Terry Bivens - JP Morgan Chase & Co

Any guidance after that, though, Marcel?

Marcel Smits

No, we haven't given any guidance. What we have deliberately done, of course, is we have spread the total buybacks out of our three-year calender period. And we have given indications that we'd like to front-load it. So I think you should assume that beyond this year we'll be in the market on a regular basis.

Operator

Our next question is from Alexia Howard. [Sanford Bernstein]

Alexia Howard - Sanford C. Bernstein & Co., Inc.

Can you talk first of all about the -- has there been any change on the expected timing of the closure of the deals that you've announced to date? I think one of the most expected to be closed sort of summer of this year, and then one of them by the end of the calendar year. But given the antitrust investigation over in the EU on the Air Care, do you -- I'm wondering if any can change there?

Brenda Barnes

No, we have no changes. And that's still expected around the same time period. Actually, we're waiting for the decision. That's really what will dictate the timing.

Alexia Howard - Sanford C. Bernstein & Co., Inc.

A real quick follow-up on the competitive dynamics in fresh bakery, any comments on whether that's improving maybe a little bit? Why can't we see some of the share trends pick up a little bit for you? How do you feel about that right now?

Brenda Barnes

Well, it's still quite competitive. And certainly, right now, we're going into our peak season, with all the holidays that used a lot of hamburger and hotdog buns. We don't -- we're seeing a little bit of moderation on really, really low prices. So the extreme movements that is really granting volume, it doesn't seem to be helping us much. But it's still quite competitive out there. And we will just stay the course and keeping our momentum on volume and, hopefully, profitability going.

Operator

Our next question is from Ken Zaslow. [BMO Capital Markets]

Kenneth Zaslow - BMO Capital Markets U.S.

Just a couple of points and clarification for the forward-looking statements you guys put out. One is, you say the North American Retail in 2011 will be another growth year. Is that including what the 52-week versus 53-week, or is that an unadjusted for that? How do you think about that?

Brenda Barnes

That's on a -- overlapping 53. It's still growing.

Kenneth Zaslow - BMO Capital Markets U.S.

International Beverage you said it continued to gain momentum, does that mean growth?

Brenda Barnes

We are planning for growth, yes.

Kenneth Zaslow - BMO Capital Markets U.S.

The other three businesses, you didn't put any comments on about going forward. Does that mean that the other three businesses will not be up? Or is that -- it seemed like there was just an omission there.

Brenda Barnes

We certainly pay a lot of attention when we talk to you about North American and our Food businesses, as well as coffee and tea. I would just say, as a total company, we expect to be growing on an operating income basis. And yes, there's still uncertainty in terms of the economic conditions on food service and all. So we'll see as the months progress how each segment breaks up. But as a total company, you can count on us continuing to grow.

Kenneth Zaslow - BMO Capital Markets U.S.

And then you did also say that cost savings -- I guess, can you just tell us what the cost savings was previously associated with discontinued operations? Because it seems like you increased the cost saving opportunities in the ongoing operations, and we don't know exactly how much?

Brenda Barnes

Well, it's just say that the total we had is now for our ongoing operations. So anything that was associated with what we've reported to date did include H&BC. And we're assuming once that segment's gone that we don't need to report on matters subtracted from our total, because the programs that we have in place are projecting to deliver more.

Marcel Smits

Yes. And off the top of my head, I think that the H&BC [Household and Body Care] contribution to the accelerated savings were smaller than the revenue contributions that they add to the total group. That gives you a feel for it.

Operator

Our next question is from the Vincent Andrews. [Morgan Stanley]

Vincent Andrews - Morgan Stanley

The distribution gains in U.S. Retail, I assume we should sort of carry those forward for the next three quarters. But maybe you could sort of dimensionalize where those are coming from, and if there is a greater opportunity to come in the future as well?

Marcel Smits

You're referring to the share gains that we have in North American Retail, I guess?

Vincent Andrews - Morgan Stanley

I'm reading that distribution for new products, you mean just -- I made it to the wrong way. Maybe I thought that you were getting into more doors. Is that not the case?

Brenda Barnes

We have such broad distribution already on our North American Retail business. So it's referring to when we launch new products, how fast we get into the distribution points that we have. And we're doing that quicker as time goes on. So we ramp up in a very fast way, so that we can start marketing it and pulling it through. I think that's what you're referring to.

Vincent Andrews - Morgan Stanley

And then my second question would just be on pork cost. Back at your Analyst Day, I think I'd asked this question and the answer was that you have long-term supply contracts and so forth. So you weren't terribly concerned about the impending rise in pork costs. But now pork has gone up, and it's probably gone up a lot more than we all thought. I just want to make sure you feel the same way today. And I know you've mentioned in the release and in your commentary that the commodity costs increased. But if you could just help us understand, when we look at -- I know it's a concern for some investors when they look out at this big spike in the future's curve, how that's going to play through your P&L?

Brenda Barnes

So one thing that we feel really good about is $1 billion of increase over the last few years we've handled. The market needs to absorb it somehow. And we have a very disciplined approach on how we go to market with pricing, when we take it, how we take it. So we will have the increase, no doubt. And we know it far enough in advance. We have good visibility working with our procurement department. So we already have plans in place to take some of that through to the market. And of course, we also have to balance that with what the consumer is doing and market share trends. But we keep a close eye and plan to offset it to the extent we can.

Operator

Our next question is from Chris Growe. [Stifel, Nicolaus]

Christopher Growe - Stifel, Nicolaus & Co., Inc.

On your input costs, I guess they were down in the third quarters. I think you gave a comment about costs versus pricing was down in the quarter? Were input costs actually down in the quarter?

Marcel Smits

Yes, they were.

Aaron Hoffman

They were.

Christopher Growe - Stifel, Nicolaus & Co., Inc.

Can you say how much?

Aaron Hoffman

They were right around $75 million, $80 million.

Christopher Growe - Stifel, Nicolaus & Co., Inc.

And then, I want to go back to another question or response earlier in the call about I think you said, Marcel, the pricing line was about constant in the third quarter? Is that versus the second quarter?

Marcel Smits

Versus second quarter.

Christopher Growe - Stifel, Nicolaus & Co., Inc.

And then, I guess I'm trying to understand then...

Marcel Smits

So we put pricing and mix together, the Table that we have in the press release. Internally, of course, we look at that on a separate basis. And the pricing component in the third quarter was roughly equal to the pricing component in the second quarter.

Christopher Growe - Stifel, Nicolaus & Co., Inc.

And then my question will be relative to that, in corporate and pricing would be promotional spending, right?

Brenda Barnes

Yes.

Christopher Growe - Stifel, Nicolaus & Co., Inc.

And so that's -- so even with promotional spending likely up in the quarter, your pricing was still flat with the second quarter, is that the right way to see it?

Marcel Smits

Pricing was down on the prior-year quarter, with an equal percentage in the second quarter and the first quarter.

Brenda Barnes

But pricing includes discounts to our pricing and goes through in trade. So that's all included.

Christopher Growe - Stifel, Nicolaus & Co., Inc.

So did that pick up in the third quarter? I was expecting that to happen. Did that pick up in the third quarter? The promotional spending, sorry, the discounts?

Brenda Barnes

We just look at the net pricing number, to be honest. So we take pricing in the most appropriate way. Sometimes it's through couponing, sometimes it's through the base price, sometimes it's through trade promotions. So I, right now, don't have that in front of me. But we look at that combined.

Aaron Hoffman

It varies quite a bit by business, too, given the dynamic in various marketplaces and different categories. So I'm happy to chat more specifics about finding some more, Chris.

Christopher Growe - Stifel, Nicolaus & Co., Inc.

My final then for Marcel would be, I just want to be clear, if you look at the $935 million in cash in the balance sheet, is that all usable today? Has that been repatriated? Is this cash usable by the company?

Marcel Smits

No, it's not been repatriated. So when we bring it home, we have to pay the repatriation tax as explained in our cap approval and structure release of February. Other than that, it's usable, of course.

Operator

Our next question is from Tim Ramey. [D.A. Davidson]

Timothy Ramey - D.A. Davidson & Co.

Brenda, you warned us about coffee margins being somewhat unsustainable at 22%. But you didn't really say that about the Meats business or Retail. And I guess I've had this working assumption that margins are the best they've been in a couple of decades and you have to come back. But the business has changed, you're less exposed to commodities. Can you give us more color on kind of what you view a normalized or trend line margin in that business might be?

Brenda Barnes

Yes. Last quarter, Tim, I made a comment about this. And last quarter, they were abnormally high, and not to expect that long-term. I'd say, over time, given the model we've built and how we're running the company, which is quite different, I think we should comparable to our competitors in the peer group, which is low to mid-teens over time.

Marcel Smits

And tend to precise, in the last quarter we said we are in the second quarter above the trend line. But we see the trend line continuing in 2011. So that's I think where we still are. So we had an overall figure to be delivered in 2010. Last quarter we, as indicated, we'll invest very meaningfully, and then that will establish baseline. Then we'll then try and hit that figure again next year and do a bit better.

Timothy Ramey - D.A. Davidson & Co.

And is there a quick update on the lower pod introduction?

Brenda Barnes

So far, things are going very well. I don't have any sell-through numbers yet, other than anecdotal. But we got trade distribution really immediately, very rapidly. We got all the accounts, basically, of us rise to it now. We're on the shelves of most of them. So the offtake things will be going quite well. So far, so good.

Marcel Smits

The anecdotal evidence is positive. Well let's not tell the anecdotes individually with you, but the anecdotal evidence is positive.

Operator

Our next question is from Robert Moskow. [Crédit Suisse]

Robert Moskow - Crédit Suisse First Boston, Inc.

I guess just following up on the sustainability of margins, Brenda, you said that low to mid-teens are sustainable in the North American Retail Meats business. I mean, they were at 7% just two years ago, what makes it sustainable now? Is it moving away from commoditized products? If I just do some simple math and say, hog price is up 15%, 20%, and it's so hard to take pricing in this industry, I'm not sure I get how margins can sustain at these levels.

Brenda Barnes

Okay, so without giving you the painful exercise of me going through the whole transformation discussion again, but so much has gone through at transforming that business. And I do call it transformation. Supply chain runs totally different the way it was, the brand mix are shifted to branded items. 2.75% of the mix is in three major big brands. Pricing discipline has come to bear, we have no alliances with our supplier partners. Ongoing cost focus, lean activity going from those four walls of manufacturings of the entire company. so it is really all the actions coming together to our model that's now working. And as each clings on itself and continues to make it better. So as we free up money, we invest in the brand. The brands grow. As we build capabilities, our marketing gets better. So it's really the outcome of several years of work. And at the time, I realized there was some question whether or not we could get there, and I'd like to say I think we've gotten there. And I think we have the model that actually can sustain itself. We will have quarters, up and down, I think that's one thing you need to be prepared for. The commodities do swing in this business, and sometimes you can move fast, sometimes you can't, in terms of marketplace. But over time, I think we have the model to deal with it.

Operator

Our next question come from Bryan Spillane. [Bank of America Merrill Lynch]

Bryan Spillane - BofA Merrill Lynch

First, and maybe just a follow-up on Moskow's question about the sustainability in margins. Just rough, from the 7% to where you are now, Brenda, how much of that change in the margins in North American Retail would you estimate is just from your structural changes? And how much of it do you think is a combination of pricing and kind of where costs have gone from that point? Is it half? Is it...

Brenda Barnes

Yes, we showed you the price mix year-to-year, quarter-to-quarter, and there's no hiding that we are having a benefit this year on commodities declining, and maintaining some of that benefit for this year. If you look at over time, I don't have the exact split in mind, but it is both. I can tell you for sure, it's both. It's sustainable cost reductions. We're building a Kansas City plant that's going to be the most efficient meat selecting plant in the U.S. That'll take you to another level going forward. So it's both.

Aaron Hoffman

And Bryan, I think that's a great question, and one that we really need to think about as we go forward in talking to you guys. Is there a way to help conceptualize that, how to put that on the table a little bit more clearly for you guys, because obviously it's been a terrific story. And the more you can understand, it's the more helpful it'll be. So point well taken, and we'll try to get a little more detail for you in the future.

Bryan Spillane - BofA Merrill Lynch

Because I think we all start to glaze over with all of the details. And I think now we're all at the point we're just trying to figure out how much it's worth, and just try to kind of put a number on it, it's probably easier for us. And then on foreign exchange, you changed the foreign exchange translation that you're using for the year. If we looked at that and if that held for 2011, what impact would that have on revenues and earnings from continuing operations, kind of the delta being 2010 and 2011?

Marcel Smits

I don't have that at the top of my -- or at the tip of my fingers. But what I would say is that we have a sizable chunk of our international coffee and tea business in the euros, or in the Brazil's. There's a sizable chunk in Brazil, there's a sizable chunk in Australia. In those countries, their currencies have done well. So you can't just simply extrapolate the euro-dollar conversion and apply those to our total net we have reported for the segments. So you have to take into account that there is a Brazilian and an Australian component in there.

Aaron Hoffman

And Russia, Poland, Hungary, U.K., I mean, essentially a lot of currency -- Australia. There's a number of currency that flow in there.

Marcel Smits

Yes.

Aaron Hoffman

But it's fair to say the dominant currency is the euro.

Marcel Smits

The dominant currency is the euro, but you can't just do straight extrapolation and say, okay I'll take the average dollar-euro exchange rate of last year and of the current year, and I'll project that to the $1.28 that we had on our screen this morning, and that gives me an answer. You don't have to allow for the fact that, in particular, Australia and Brazil, and that's why I'm calling those two countries out, in particular. Those countries have done well, so that gives us some competition.

Bryan Spillane - BofA Merrill Lynch

A bit of an offset?

Marcel Smits

A bit of an offset. Not everything is there.

Bryan Spillane - BofA Merrill Lynch

In the press release, there's a comment about -- on the first page, about adjusted operating income from continuing operations expected to increase in fiscal '11, but nothing about continuing EPS. And I'm guessing you forgot the tax rate's going to go up and that might be somewhat of a drag in EPS. But any reason why you haven't talked about increase in EPS as well?

Marcel Smits

Well, we have a couple of very clear statements out there. And we haven't given full guidance on 2011. We thought that was too early. But we have given you a clear view that adjusted operating income from continuing operation's going to go up. We have been very specific about the share counts. And you're just saying that the tax rate will go up, I don't know which rate you're comparing that with. Is that in or excluding tobacco? So which rate do you use?

Bryan Spillane - BofA Merrill Lynch

Excluding tobacco.

Marcel Smits

Excluding tobacco, 33.4%. Well then, that's so it appears that 35% would appear to be the -- there's a whole complicated story. At this time, I promise I won't bother you with all the details. So there's a whole complicated story as to -- it's 35% to max. Just from a very simplistic view, of course, 35% is the going rate here in the U.S. And there is -- we strive not get above that.

Operator

Our next question is from Eric Katzman. [Deutsche Bank]

Eric Katzman - Deutsche Bank AG

Perhaps, without going into specifics on 2011 guidance, is the continuing operations -- can you give some kind of sense as to CapEx, D&A, interest expense, I guess the tax rate remains to be seen, as does the share count, depending upon the progress of the buyback. But some of the other numbers, to just give us a sense as we look out on the NewCo?

Marcel Smits

I think we have -- we appreciate that. Slowly, the focus is now moving towards 2011. There's a range of statements that we have made about 2011, which we think it's three, four, five months away from August. It should be very helpful in terms of determining your own calculations as to where we are going to go. We would like to leave it at that, if you don't mind. Because, obviously, if we would have wanted to give full detailed guidance then we should have done so. We're right in the middle of finalizing our next year's plan. And I think it's appropriate for us to make sure that we see how the year plays out before we give these guidance for 2011. And we're trying to be as helpful as we can. So the statements that we have in about 2011 are not a coincidence. We have tried to be as helpful as we can, in order to be able to build them out and take a view where we're going. That's an unsatisfactory answer, but you understand where I'm coming from?

Eric Katzman - Deutsche Bank AG

I mean, I think that the world's a ball to place. Your stock's down over 3% at the moment. I don't know how much of that is tied to concerns about the euro and what that means for next year, in terms of dollar-reported results versus maybe someone's concerned about what is going on in the fourth quarter. I'm not sure. But it seems to me that things like CapEx, depreciation and amortization, interest expense -- since you don't have that much debt, you're not paying down much debt and a decent portion of your debt is fixed, you should be able to give us some guidance. I mean, at the end of the day, it's our job to try to figure out sales and EBIT, and try to make some assumptions on currency. I understand that, but it seems to me that some of the other things you could give to help us out.

Brenda Barnes

Maybe we do have a fine line. And we internally debated how much to give, what not to give. And do we run a danger starting a process, because then it's an unfulfilling answer in terms of the other pieces. I would just say that this quarter we just finished was really good, and we feel really good about year-to-date this year. And even fourth quarter, there shouldn't be a worry about fourth quarter because I think we explained where are the overlaps, and why fourth quarter would look the way it is, including, by the way, investments and marketing spending behind great new products, which, I might remind you, we always ask where it's at. Seriously, we're up double-digit on marketing spending because, I always said, we're going to launch two new products. We have a three-year plan. We feel great about our three-year plan. We have started on this effort of changing the company to be a sustainable, delivering-great-consumer-goods company. We foresee that, that will continue to happen. So just take it that we're not building to the clients in anything we're doing, because we're just getting better and better at what we do. And without even handing the specific numbers, we feel great about our future. And I hope that all of you do to because we show now the capability to deliver.

Eric Katzman - Deutsche Bank AG

And then, not to get too deep into the tax rate trees and kind of missing the forest, but as you decide to repatriate cash or not, your effective tax rate rises, which I guess, Marcel, is why you were signaling the 35% rate for next year is kind of a maximum number. But that's above kind of what you've been generating on a kind of an ongoing basis. But I guess what I'm trying to get to is, as you repatriate the cash, it seems to me you kind of worked against that deferred tax asset. And so your cash flow, at least on the cash flow statement, it's negatively impacted from what -- for years had been kind of a positive. Is that fair to say?

Marcel Smits

No. We've said, I think, we've tried to explain it at the capital structure in relation to the capital structure announcement at CAGNY. We've said, look, we have an imbalance. That means that we thought it'll bring a lot of the profits from the European operations' home. That means that whatever benefit we have from paying lower tax rates effectively in Europe, this is because we have to bring the money home. And we've given a view on what sort of circumstances can we start benefiting again from the lower tax rates that we have in Europe. That will require some imbalance to work through, and we've given a view on how we're going to gradually work through those issues in terms of reducing our corporate CapEx costs. Now reducing some of the CapEx that we currently go in through here in North America, improving the working capital. And the background to that is, we're trying to make sure that over the longer time, over the longer haul, that actually goes down again. So that it's more a reflection of the fact that we are partially in Europe, partially in the U.S. And we've made sure that people had appropriate expectations as to the speed with which that will happen. Now 35% is a logical maximum, and the 33.5% that we reported cumulative to the fourth quarter this year is indicative that we're doing well in terms of staying below that limit. And obviously, that's what we're trying to make sure that we do it for next year. So from a modeling point of view, from a tax issue, I don't think you can have major uncertainty as to what we should provide in.

Operator

[Operator Instructions] Our next question is from Robert Dickerson. [Consumer Edge Research]

Robert Dickerson

First question really is on the food service area. I know you mentioned it's doing a little bit better. I just was wondering if you'd comment kind of quickly around that. And then also if there's some type of estimate on the percentage of overall segment operating profit from the liquid concentrate customer that kind of dropped out?

Brenda Barnes

In terms of the total segment, we're not seeing big improvements in terms of the Food Service segment coming back. We're hopeful that, that's going to start a little bit more coming up because the consumer attitude is changing a bit. So the improvement you see in this segment really is coming from a profitability standpoint, despite the lackluster top line growth. And that's been through accelerated projects, focusing our efforts on the higher-margin segments and categories in which we're competing. So it's not so much yet showing up on the top line. I don't think we have a break up of the liquid side of that, so I can't give you that number.

Robert Dickerson

And then I guess to follow up on Eric's question and just to kind of step back for a moment. I mean, obviously, you continue to see weakening volumes and the majority of the segments had a nice FX benefit for the quarter, still keep your sales positive. But in general, I'm just kind of wondering, stock is down 3% so far on the day and we've seen kind of in a number food companies now for the past six months or so that some of the companies, so to speak, are trading off of the top line and demand results versus what's happening on the call side and what you're seeing in margin expansion and operating profit. I'm just wondering in general, and I mean obviously, we see it in this quarter going to the fourth quarter. And as we kind of turn into 2011, are you managing around the expectation that volumes could still be down 3% to 4% in 2011, but at some point...

Brenda Barnes

I think it's really important to look at where we were and what our objective was as a company and how we're managing to get there. We have, had to, do have to, improve our margins. So how did we do it? We've been calling out non-profitable, non-strategic segments of our business for the last four years. And as a result, our volumes have been consistently down by our proactive intention. The most important thing to look at is our market share. And if you look at the strength of our key brands, even the less-strategic brands, we've been calling out, calling out, so we're focusing on the big brands to have a big advantage, and that's where it's coming from. So I don't want to say our business is healthy when you're looking at a decline in the numbers, but you really have to pull apart the declines and say, "What is growing?" And what is growing is our strategic brands, our strategic businesses. At the same time, we're doing all the things that we needed to do to get our margins in the right order. And that's multiple, multiple years of effort on the cost side and restructuring the whole company. We feel great about our quarter. We feel absolutely great. And we feel great position for continued growth because we have a pipeline full of new products. We have a model that now gives the money to spend behind them, which we're doing. When we launch, we have the discipline to do it well. We know how to handle pricing and deal with commodity swings up and down. I cannot explain for the life of me why our share would be down 3% right now.

Robert Dickerson

I mean, that's exactly why I want to ask you the question because I think, and maybe I'm wrong here, but I've seen the past three months as a company can report top line, it's weak, margins can be okay, EPS can even be okay, but the stock can still be down some. And I think if we step way back and we think in the past five years, as you've divested the assets and you fix mix, I'm just wondering at some point, is the investor base are overall in order [ph] (1:13:33), if there should be a shift of focus are kind of going forward from kind of a top line demand perspective to an overall health of the margin into 2011? So even as we see volumes down, right? Even if we were to see volumes down in 2011, that if there's some additional color in order to help us think about how we really should be thinking about the business more on a margin basis and looking at operating profit growth versus what's happening on the top line?

Brenda Barnes

Yes. The way I would look at it and the way -- we have numbers that we know that you don't know in terms of our outlook. You should assume that we had our margins to where we feel good about them, a little bit too high, in fact. And we will not grow our way by cutting this business -- we'll cut, we'll say, we'll do all that, but our growth is going to come from the top line over time. We have to get our house in order, we absolutely have to because we have to be able to fund that growth and we have to have an operating system that could sustainably deliver the numbers. I'd say right now, that's what's great about fiscal 10. We have demonstrated that we're at that point. And as we look out, we feel that there's nothing but upside in the Sara Lee position.

Marcel Smits

Can I just provide a couple of statements on 2011. Because if I hear you, you seem to surmise that we are cautioning people off to [indiscernible] (1:15:04) actually, the opposite is true. We have made clear statements that we're investing in growth and that we have very significant momentum in North America Retail business, behind the main brands that we have in the market. We're gaining share, and we're showing third quarter very considerable growth in what we consider to be our core business. So that's not the commodity [ph] (1:15:26) business, and I think that we've got a great story to tell on that side, one. Two, we have made it very clear that we've now got some really meaningful innovation coming through in the coffee side. Good example of that, you've recently seen. And we are telling you that we have the room to invest behind that innovation in the fourth quarter, and that is in order to set us up for good growth next year, so that's two. Then thirdly, what we are saying is the adjusted operating income from continuing operations are going to go up. Why? Well, because we have very favorable cost trends coming through, provincial report out there recently stating all pensions are going to be down. Clearly, we're calling some staff out today. We're giving people a heads-up that next year, actually, we have another round of very significant cost savings coming through. Four, we have given you an indication that we are going to be further reducing our share count. We are giving you an indication that we are not too worried about flat rate. So we are actually feeling pretty good about 2011. And we know that you all have to start filling your models and short of giving you the full detail in every single line item, full year as before the year has to start, we decided that it would be helpful if we give you some of those perspectives. All of the perspectives that we are giving for 2011 are pretty positive, I would say. So we feel great about not only 2010, where we've come out, but we feel great about our prospect for 2011 as well. And I think that is the context behind which Brenda is saying, "For the life of me, I can't figure out why." If you read this press release, say, "Hey, share price should go down." Clearly, we're setting ourselves up for a great 2011. That's the gist of the tone of voice that we're choosing here.

Operator

Our next question is from Andy Feinman [Iridian Asset Management].

Andrew Feinman - Iridian Asset Management

And I agree with you that I think this is a great time [ph] (1:17:38) opportunity and nobody should be surprised about the quarters because from the first quarter on, you outlined quarter-by-quarter how this year would progress, and it's doing exactly what you said top line and bottom line. The average number of shares for the quarter were 693. I was wondering if you could tell me what it was at the end of the quarter and if you could give me a good number to use for the full 2010 fiscal year, for the full year average number of shares.

Aaron Hoffman

Andy, it was 661 at the end of the quarter. That reflects the reduction in shares on the -- including the [ph] (1:18:18) share buyback. I apologize, I don't have the average, but essentially if you extend that 661, you'd assume that and therefore, what would it be for the last quarter five months of the year effectively. So it would be 700 for the first seven months or so and then 661 after that. I apologize, I don't have the exact average.

Marcel Smits

Andy, we have Chris on the line. The EPS calculation, there's no reason why we shouldn't be able to give you that figure. The 661 is in the press release of March 2. That's what we're currently at. And then on a go-forward basis, we are looking forward to buying back another $500 million to $800 million worth of shares.

Andrew Feinman - Iridian Asset Management

The $200 million you're putting into the pension fund, is that going to happen in this current fiscal year?

Marcel Smits

Well, we have made it clear that the guidance that we have now provided is not including that $200 million. Whether or not we should do it this year or next year, we'll see how after the year plays out. But the 900 million or the guidance that we've given in cash flow does not include that pension thing.

Andrew Feinman - Iridian Asset Management

Well, I know it's not in the cash flow slide, you've mentioned that. But I'm just trying to decide whether I should take it out of the liability because you had a $466 million liability last year, right? So I'm trying to estimate what that might be at the end of the year, but...

Marcel Smits

If you make your balance sheet, you either have that 200 million of cash in the balance sheet sitting there or you deduct this from the debt, pension debts or from a net debt point of view including pension debt, the figures will come out even.

Brenda Barnes

There'll be new estimates as well.

Marcel Smits

Yes, there will be new estimates. You've seen that we've done a remeasurement of, and to the extent I know that this is a subject that you're very interested in. We've done a measurement of course of the European position there early in the year or part of the European position, and we had a small curtailment loss in the second quarter. And then meanwhile, we've had a remeasurement of our North American business as well and we've had fulfillment gain of $24 million in the current quarter. So that will give you Somewhat more visibility as to how that debt is trending. We'll provide full update at the end of the year.

Andrew Feinman - Iridian Asset Management

So this Food Service Coffee business that you lost, I know it was small but high margin. I mean, is there anything you can say around that so that I can not worry that you're going loss other ones, and what's going there? I don't know if you can tell us who you lost it to or why and...

Brenda Barnes

Yes, I'll give you some insight into that. It was the Burger King account. It's public because Seattle's Best has announced that they got the Burger king account, so there's not secret there. I guess the comfort that you could get from this is we've always focused our growth in the Liquid Coffee segment in the non-restaurant chain area. We think it's a great solution for that. But over time, there's an emphasis on roast and ground and having a different brand name in the front of the house. We focus our Liquid business on cafeterias, hospitals, gaming locations, business and industry, which is a great solution for them to remain to be profitable. So the reason we lost it was more of a brand name reason. And the roast and ground issue in the other segments that we have, that's not the risk.

Andrew Feinman - Iridian Asset Management

I mean, there was an article in the paper about a couple of weeks ago about Starbucks putting a big push there in the sales through the supermarket channel. Is that something we should be concerned about? Is that potentially new competition that would affect you at all?

Brenda Barnes

It's not new competition. We're not really present in the retail side in North America other than our Senseo product. So that's not a big change in the competitive dynamics, nor is the Out-of-Home segment where we sell our liquid coffee. We have a real strong proprietary system. The quality is great. Our service levels are great. So competitive dynamics haven't changed much. It's more of an industry issue for us right now in terms of the growth rate.

Andrew Feinman - Iridian Asset Management

And then the last question, I know you can't answer it, but I just want to say that a lot of companies, given what's going on right now with currency, even go so far to put a footnote in the 10-K because okay on a 10% increase in the value of the dollar, this is the effect on our operating profit. So I was kind of wondering if at some point in the future, you might be able to give us the foreign currency sensitivity just because now we have to think about that with all of our investments.

Marcel Smits

Yes,that's a fair observation, Andy. I would be grateful if you could send me some examples of what other companies are writing because we'd certainly look into that. We have nothing to gain from the market not fully appreciating that. We are a part euro business and we have become less exposed to the euro zone as a result of the H&BC disposition. We have made sure that we have taken out coverage for the H&BC proceeds, and to protect that cash flow or to pay back cash in the international operations. I mean, is there a stronger feasibility that we can provide? We'll certainly look into it. So I'd be grateful for some examples there.

Operator

We have a follow-up question from Eric Katzman [Deutsche Bank].

Eric Katzman - Deutsche Bank AG

I guess I just wanted to kind of again follow up, so not to hammer away at fiscal 2011, but if I'm thinking -- I would just want to, Marcel, get some understanding, I mean, is there any reason why your D&A would be materially different from how it's running this year? I mean, was there significant amortization associated with the Household & Body Care business that would result in that dropping? And the reason why I'm asking is because the way I'm thinking about it is you've got about $1 billion of EBIT kind of, let's say, run rate. You've got about, call it, $350 million to $400 million of depreciation and amortization. So your EBITDA is running $1.3 billion to $1.4 billion. And then unless there's something on the balance sheet, which I'm not understanding, although I think Andy may have asked the question about the pension liability versus the cash, you have about $1.7 billion of net debt. So all else being equal, it seems like your trailing EBITDA level is like 7.5x times. So is there something I'm missing?

Marcel Smits

Let me just give you a couple more pieces of information. On pensions, we have adjusted, and you'll see that in the 10-Q, we have adjusted our anticipated P&L expense for fiscal 2010, and it's come down from $130 million to $150 million. That's one of the drivers, so that's for '10 and that represents a couple of months of, among others, the impact of the freeze of defined benefit scheme. So it gives you a flavor as to some favorability that we'll have next year, and that drives into the EBITDA, not then on your depreciation and amortization. We provide the full splits of how much depreciation and amortization we have in the H&BC segment. We had a little bit in the first quarter of this year and that will disappear of course next year when all of the H&BC businesses will go. There's one point on depreciation and amortization which will not happen in 2011, and that is the amortization of some of the intangibles related to the EarthGrains acquisition. We're actually coming insight of that amortization falling way, but it's not going to be in 2011. And then over and above that, we have gone through some significant investments on the IT side. Over the last few years, as you are probably aware, the IT investments typically have amortizations which are relatively short as well served [ph] (1:27:49). That again is going to provide some favorability, not so much in 2011. But at some point in time, some of these depreciation charges will stop. 2011, we're optimistic about 2011 for all the reasons explained. And I won't repeat the list that I've just given you. Beyond 2011, we will some depreciation expense to flow out of our P&L. And over and above that, beyond 2011, we will get rid of the standard overheads. We will have some standard overhead next year from H&BC, and not all of which we can take out immediately. And that will also help serve putting figure about 2011. And factual evidence would indicate that from a financial metrics point of view, we have some tailwind in 2012. And then of course, we have pretty aggressive investments in terms of reducing our share count. So if you add that all up, we feel pretty good about the outlook of the company. As Brenda has alluded to, the long-range plan that we have been making, we don't give long-range guidance. But we obvious feel pretty confident about what our long-term trends are going to be.

Eric Katzman - Deutsche Bank AG

I'll leave it there.

Marcel Smits

Is that helpful?

Eric Katzman - Deutsche Bank AG

Yes. I'm just trying to, again, it's our job, but I'm just trying to wrestle with it seems to me that unless the -- I mean, so your point about the balance sheet is pretty clear. If the depreciation and amortization is, let's say, running $350 million or so next year, the question is on $1 billion of EBIT which you're generating, to just give just keep the whole share count and timing of that out of the equation. If you're generating $1 billion of EBIT currently, how much of that is hurt by currency versus how much is hurt by inflation versus the offset of Project Accelerate and what seems like pretty good mix shift positives in some of the businesses? And again, that's for us to figure out, but it seems to me that if you can kind of generate $1.3 billion of EBITDA to trade at 7.5x is kind of on the low end of the rest of the group. But anyway, we'll see.

Marcel Smits

Yes, that's fair enough. The one thing that you should take into consideration when you start building your model is, of course, what we have clearly said is we expect adjusted operating income from continuing operations to increase in fiscal 2011. And obviously, we wouldn't be saying that unless we have some visibility that and some confidence that, that will happen. So there's some comfort level there and some room that, that will really happen. So if you run model and you come at figures which do not reflect that statement, then obviously you've got to rethink. And it's fair enough at this stage, again, I understand that people say help me understand the difference bits and pieces. And I think the call has actually been helpful in clarifying to what extent that we expose to the euro dollar rate. I think we have -- I guess the call has been helpful in terms of trying to clarify where we are from a pension point of view because there was analyst report out there which we think was wrong. I think the call has been helpful in clarifying some of the standard overhead that we'll be incurring next year and our longer-term outlook for depreciation and amortization. So with that, I hope that we've provided you some answers to do some longer-term modeling.

Operator

And this does conclude today's question-and-answer session. I would now like to turn the call over to your speakers for any closing remarks.

Aaron Hoffman

Great. Thank you very much for your time today. as always, we appreciate that and glad to take any further calls and questions off-line. Thanks again. Have a great day.

Operator

This does conclude today's conference. Thank you for participating. You may disconnect at this time.

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