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Executives

Marcel Smits - Former Interim Chief Executive officer, Executive Vice President and Chief Financial officer

Mark Garvey - Senior Vice President of Internal Audit and Senior Vice President

Melissa Napier - Senior Vice President of Investor Relations

Jan Bennink - Executive Chairman

Analysts

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

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

Jason English - Goldman Sachs Group Inc.

John Baumgartner

Terry Bivens - JP Morgan Chase & Co

Eric Katzman - Deutsche Bank AG

Eric Serotta - Wells Fargo Securities, LLC

Robert Dickerson - Consumer Edge Research, LLC

Robert Moskow - Crédit Suisse AG

Kenneth Zaslow - BMO Capital Markets U.S.

Bryan Spillane - BofA Merrill Lynch

Timothy Ramey - D.A. Davidson & Co.

Akshay Jagdale - KeyBanc Capital Markets Inc.

Sara Lee (SLE) Q4 2011 Earnings Call August 11, 2011 10:00 AM ET

Operator

Good morning, and welcome to the Sara Lee's Fourth Quarter Earnings Conference Call for Fiscal 2011. [Operator Instructions] This call is being recorded. If you have any objections, please disconnect at this time. I would now like to turn the call over to Melissa Napier, Senior Vice President, Investor Relations for Sara Lee Corporation. Thank you. Melissa, you may begin.

Melissa Napier

Good morning, everyone. Thanks for joining us for our fourth quarter and fiscal 2011 year-end earnings call. Joining me today are Jan Bennink, our Executive Chairman; Marcel Smits, our CEO; and Mark Garvey, our CFO.

Our fourth quarter and fiscal year-end results were released this morning, 6:30 a.m. via release that you can find on our website at www.saralee.com.

Before I turn the call over to Jan, I'd like to remind you that our remarks this morning contain forward-looking statements about Sara Lee's future operations, financial performance and business conditions. Such forward-looking statements are inherently uncertain, and actual results may differ from those expressed or implied in these statements. Consequently, we caution you not to place undue reliance on forward-looking statements. We've provided additional information in our press release and fiscal 2010 Form 10-K, that I encourage you to review, concerning these factors that could cause results to differ materially from the forward-looking statements.

Our fiscal 2011 Form 10-K is expected to be filed on or before August 31. We've also provided slides containing information that will be discussed during our webcast, and those slides can be accessed in the Investor Relations section of our website under Investor Relations Events and News. If you're having any trouble accessing the slides or the press release, please call Bonnie Kruse at (630) 598-8447.

And as a reminder, all adjusted numbers we discussed on today's call exclude the impact of significant items, contingent sales proceeds, acquisitions, divestitures and the effects of currency changes.

Our updated guidance table contains a reconciliation of recorded to adjusted EPS number, and explanations of non-GAAP financial measures are included in our release.

I now would like to turn the call over to Jan so that we can get started.

Jan Bennink

Okay. Thank you, Melissa. Good morning, ladies and gentlemen. It is a pleasure to host the Sara Lee Fiscal '11 Q4 Earnings Call this morning. I will start the meeting with taking you through an update of where we are with the spin. Marcel will follow with a deep dive into the businesses, and after which Mark will take you through the key numbers.

First of all, let me take you, I mean, to the update of the spin in the Page 1. I would say that we are very, very happy with the things that are going on at the moment. They're going according to plan, and we see no obstacle to successfully get us to the end date within quota for the 2 pure-play companies by the first half of fiscal -- first half of coming year [ph] , sorry, 2012.

Let's have a look at what we've done so far and then talk about the things we're still working on. First of all, looking back, I think the portfolio, what we've done and what we've announced is 5 divestments of our non-core businesses.

First of all, the H&BC divestitures, you see completed 98%. We're debating is it 98%, is it 99%. I think we're basically there, and we're doing lots of tail end of the divestitures.

North American Fresh Bakery, very good news. I think we expect the closing in September. I think there's an awful lot of debate about it, but that is what we can announce today. The Refrigerated Dough, which we announced 2 days ago, on the 9th, Ralcorp buying our Refrigerated Dough in the U.S. I think the price for which we've got for that is -- we are very pleased with that. I think it is a great business and a great people and in good hands with Ralcorp. So that is the first real announcement after closure of our businesses on Ralcorp.

French Refrigerated Dough, it's in progress. We've announced in June that it was up for strategic review. We've, in the meantime, seen a lot of investors and a lot of people who are interested in the business, and we are making good progress towards an announcement in that somewhere in the Q1, Q2.

The same is for Spanish Bakery, and I think we are very pleased with that. I mean, we've been looking at that for a long time, and I think we've announced now today that we will divest the businesses. And also there, we have seen a lot of interest, and we expect announcement for that in Q1 and Q2.

We have announced an acquisition last time. The closures, in the meantime, happened. I mean, the business has been integrated completely into the budget. I think that is, although a small acquisition, an important acquisition. And I think both the businesses as well as the people are very pleased with how things are happening over there.

So I think that is -- first and most important thing is the divestments, clarity of where we're going and kind of maybe a first build for a new business.

In terms of corporate structure, I think we've identified a net savings of about $130 million, which will be kind of coming to fruition in the next 2 years. Now if you take our headquarter costs, and we had a lot of discussions in our calls about our headquarter costs, what will happen with our headquarter costs, and if you will look at the numbers, they're currently about $115 million. So if you take the $130 million net savings, which we'll have over the next 2 years, that is, in a way, offsetting completely our headquarter costs, which we're currently -- we're having. And on top, we'll have some more, so the $115 million on headquarter costs plus an additional $15 million happening in the next 2 years.

We're working very hard on changing the organizational structure for both companies to make them entrepreneurial, lean, and I think we're well underway. We're not finished yet. I think it's work in process. If I would say, Meat is probably ahead of Coffee. The announcement of Maria Henry as the CFO for the Meat business has been very well received. She's already starting to work. I mean, our first 3 weeks are behind us, and I think she's delivering very nice a new vision to what the business should look like.

And Coffee, the same. I think we're looking at restructuring our business. We're looking at how to get faster to market innovation processes and the top management structure. We're in the process, I think, between now and mid-October, November, we'll be fully staffed, and it is very clear where the organization is and will be.

So also there, in terms of the organizational structure, we're well underway. It is a longer process than you potentially would see in some other businesses, but I think we want to be absolutely sure that we set up the business for success with the best management we have in place.

In terms of financial separation, the financial statements that are being prepared, I mean, there is a lot of work being done on separating everything. I think that is a work stream which is on track. A lot of work for a lot of people, but that's on track, and there's no major hurdles foreseen.

We're still awaiting the IRS private letter ruling, important, and as I come back later, that will probably happen somewhere in the fall, being October, being November, but somewhere in the fall of this year.

In terms of business performance, I think that we delivered solid business results. And if you realize where we've been going through this fiscal, between the speculation in the first half of the fiscal, between the organizational changes, i.e. the divestments, all the kind of turmoil which we have created by going to a spin, I mean, an insider that is a lot of insecurity we're creating in the business. And on top, last but definitely not least, is the commodity cost increases of -- be it $700 million, $680 million. That is an unprecedented number, which I, in my career, have never seen. And Coffee, of course, has been hit the most. And all those 3 elements together and still having delivered the business results as we are, I think, is a major achievement. Just imagine that if you go -- well, you normally talk as a trade, and you talk to the -- you go to the trade and talk about business building ideas, I think our year has been filled with talking about price increases. So rather than talking about business building, we've been talking about price increases. And it doesn't help your business, and despite that, I think the results which we have delivered gives me a lot of confidence of where we'll be going after the spin or even in the next 12 months.

And then if you go to the next Page, I mean, 2012, the year of transition. We're not ready yet, and I think it's probably unfortunate. There's lots of moving parts, and I know you don't like that, and we don't like it either. But we're doing our best to do things as quickly as we potentially can, I think. So I'll be ready. Everything will be stable this year, we cannot say yes. I mean, so it is a year of transition. We're well underway, but we'll do our best to make it as quickly as possible to make the numbers comparable, easy, not have anything going and everything changing all the time. So the year of transition, but we feel very good about it.

What are we going to do in the rest of the time between now and the spin? And if you go to the next page, I think we have a clear, clear, clear objective. What we want to do is we're going to create 2 simpler, faster and much more entrepreneurial pure-play companies than we currently have.

What does it mean for Meat? Now Meat has been having and going through a very positive last 3 years. Forget the last year for the moment because with all the raw material cost increases, it is not really a year where you can look at the trend, but it's a dip rather than a trend. I would say that for Meat, we're working on accelerating top line growth with continuous margin improvement. That's absolutely the objective, and I think so far, everything I've seen, our objective is a very achievable one.

For Coffee and Tea, if you look at the past, I think margins of the Coffee and Tea business has always been very good. The top line growth has never been as good. I mean, it's been 1%, 2%, 3%, and that's real top line growth. Forget for a moment the price increases, in order to cover commodity increases as we see this year. I think we see a trend. We see a dip this year, and then we continue to grow through the business. What we want to create is a top line growth which is above industry average at historical margin levels. So I think that is the clear objectives. That's how we're working at the structure of the business. That's how we're working at the top line of the business.

Now if you move to the next page, what are we doing for that in terms of improved growth? I think first of all, and it is short term, we are still looking, and we give ourselves kind of a deadline to Q1 October to really look, very, very continue to look in-depth of what we want to do with our countries, what we wanted to do with our products, and is there still things we can optimize within the portfolio as we currently have it. So that's a work for the next 2 to 3 months, and that's what we are focusing on to make sure that we are completely achieving our objectives in terms of that clean portfolio for pure play.

Another thing which is incredibly important is accelerating our innovation process and improve the route to market for our new products. We have set up a program, and I think within the turmoil, as I said before, there's how to create positive energy. And I think the positive energy as we put a project in place, Energy in Motion, we've created 14 in both companies, both in Meat as well as in Coffee. We've taken our high-potential people and have them report directly to the CEO of the businesses, as well as to myself. And their only purpose is to make sure that we have innovations coming up starting as of the Q3, Q4 of this year, and an innovation pipeline which will make us feel happy for the next 3 years.

And I'd say being 2 months into the project, we see enormous progress. I'm very, very pleased with what I'm seeing, and I think you will see, as an investor, you will start seeing things hit the shelf as of Q4 of this year, and then hopefully, going forward, we'll see a lot more interesting things. And now we've talked about last time about the Coffee, the Senseos. I think there's a lot of good stuff coming up.

Increased marketing spend is another way to improve growth. I mean, you can rest assured we're not going to spend more marketing just to spend more marketing. We're going to spend more marketing when we think it's reasonable. It will not -- we will not go for an [indiscernible] resulting in the dilution of our margins, it will just go to make sure that when we save something, part of it will go to marketing spend, and it will go against the products which we think can deliver additional volume and additional profit.

Looking at our cost and balance sheet structure. We're not finished. We're looking at our fixed cost. We said that we have a net savings of $130 million. We will continue to look whether we can reduce our fixed cost even further beyond the targets we've set. So that is an ongoing project, and I think there, we still see room for improvement.

And that is SG&A savings. I want to make a very clear split between, on one side, SG&A savings and on the other side, gross margin savings because SG&A savings are easy to identify, while gross margin savings, that is a bit more difficult because often, they get into the P&L in a different way. But that's 2 different projects, 2 different work streams.

Improved gross margins, we are looking at our procurement optimization. We have been looking into the way we buy, how we buy, our buyers, everything. We're happy, but I think there is definitely room for improvement.

We're looking at reduction of variable cost via ongoing program, and for those of you who are familiar with the [indiscernible] project squeeze, that is exactly the process we're putting in place currently in both Meat as in Coffee to make sure that we have additional savings in terms of packaging, in terms of way we go to market on an ongoing basis. So this a yearly program where we look at reduction of variable cost.

Mix management, we have made our reporting much more transparent for people into the organization to make sure they can follow up margins, and as a result, looking at product mixes and looking at country mixes and pushing the right products. Although it sounds very basic and elementary, I think will be embedded within the organization. So we'll push the high-margin products more to get a mix management to a better margin at the end.

Appropriate price increases, as you've seen, we've done a lot of price increases. We've so far implemented all the price increases which we need to cover the costs in both Coffee and Meat. And the price increases looking at the raw materials at the moment, I mean, there are some tailwind potentially in the Coffee business, where the coffee prices, from the almost $3 going now to $2.40 in terms of the kilo. So there is possibilities in terms of being less aggressive on price increases, but we'll do it whatever we think it necessary.

Working capital reduction. It's not the key priority at the moment. There's lots of things happening, but as of January next year, we'll start with working capital reduction. We're currently -- and I'm looking at working capital only at the operational part, which is stocks, receivables and payables. We're currently, as a percentage of net sales, at 12% to 13%. That is far, far, far higher than I've ever worked with, and I think our objectives of getting that down to levels which are more in line with what I'm used to, which is around 5% to 0%, will be in place as of January. And we'll achieve that not immediately, but this is a process we're putting in place.

IRS private letter ruling, as I said before, will happen in the fall. And as a result, the optimization of our balance sheet with efficient operating structure will also happen in the fall.

Then if you go to the next page, organization, we will be -- we're estimating to be completely finalized with our organization, which is from top to bottom, by December. And so people can really stop working on making the things happen at the moment of the spin. So that's December. Implementation, a little bit contrary to what we said before. We'll have the Investor Days not one in November and not one in February, but what we'll do is we'll have the 2 Investor Days in February, and that's when we will give the total strategy, the names of the company, the financial guidance, capital structures and the organization of both company at the respective Investor Day. So that will be where you'll get the full and very transparent guidance of both of the companies. And we have a lot of information that we can really share with you, and hopefully, the first results of the positive results of the businesses will be in then by Q1 and Q2.

The launch, as we said before, the 2 Newcos in the first half of calendar year '12. That's according to the spin. That's everything about the spin. I think Marcel will take it over now and will talk about the businesses and we'll take a deep dive in the businesses. Okay, Marcel?

Marcel Smits

Okay, thank you, Jan. Good morning to everybody on the call. Let me start with a quick review of the key points of fiscal 2011. We are, of course, satisfied with the fact that the results came in at the high end of the updated guidance range. And you'll see that there's a little complexity in the fact that since we gave that guidance, North American Refrigerated Dough business, which we sold to Ralcorp, went disc ops. You would've seen Page 5 of our press release, where we bridged our results to our most recent guidance issued in May.

On a full year basis, our adjusted net sales rose 5%, driven by pricing and mix, together up 8%. Our full year adjusted operating income declined 2%, and that's obviously not what we were playing for when the year started, but it's not a bad outcome against the background of having to absorb nearly $650 million of commodity cost increases.

We've made significant progress on reducing our corporate expenses, and they came in almost $100 million lower than in fiscal 2010. And Mark will give you some details on that later.

Now despite the 2% decline in operating income, our adjusted EPS increased by 16% mainly as a result of the share count reduction.

Let me just zoom in on the commodity cost increases and remind you that we started the year expecting around $200 million of headwinds. That number is settled at $646 million, fairly close to our most recent estimates. Now faced with this challenge, we've been very clear on where we felt the priorities were. The first priority is to protect the long-term health of our margin structure and hence, our ability to innovate and support the brands. Not cutting our MAP spending to the bone is one element of protecting the long-term health of the business, and pushing through price increases is the other. And pushing for price increases, we've been willing to take short-term risks on the volume side, and we've been quite upfront about that. And meanwhile, we've pushed extremely hard to take as much cost out of the system as we could in order to protect our bottom line.

Now in all, we've seen a small decline in operating income and margin, as I've just said. Not something to brag about, but it was absolutely the right thing to do.

In fiscal 2012, the commodity price increases that we have seen to date will, of course, annualize, and that means that we have another $500 million of cost increases ahead of us. Now the good news is in North America Meat, all the required price increases in order to deal with this are already in, and in the International Beverage business, we still have a bit of work to do in terms of price increases, but mostly, we're done, and we expect to be fully done by the end of the first quarter.

Now this slide shows our price progression throughout the year. The figures speak for themselves. In North America, you will recall that as of the third quarter, our price increases and lean savings fully compensated the commodity cost increases, and that was a major milestone which was repeated in the fourth quarter.

In International Beverage, this milestone will be reached in the second quarter of fiscal 2012. Now where does that lead us for fiscal 2012 guidance? These are the figures. We're shooting for a significant increase in both the top line and the bottom line. EPS will increase with a higher percentage than the operating income, again, as a result of lower average share count.

Let me draw your attention to a couple of the bullets down below. We have excluded International Bakery from the guidance and the prior year figures for obvious reasons. And the same, of course, is true for our North American Refrigerated Dough business. For the sake of simplicity, we are expressing this guidance based on the assumption of the spin at the last day of the year. We're targeting the spin to take place a couple of months before that, but the table would become very complicated if we would reflect all that.

Now these figures are comprised of our North American Meats business, our Coffee business and, of course, our corporate expenses. Our run rate of corporate expenses in the order of magnitude of $120 million -- sorry $110 million to $120 million. And as Jan has explained, these costs will fall to the wayside after the spin. Partially, they will disappear. We have a fair amount of people and resources dedicated -- or partially dedicated to the spin, which no longer will be needed, and partially, they will be absorbed by the 2 businesses. But in our plan, these increments that will be absorbed by the businesses will be offset with cost savings from the restructuring that we are pushing through.

I said these figures are for the company as a whole. We're going through quite a few portfolio changes. The environment is very turbulent, and we're right in the middle pushing through some of the restructuring. Some of the benefits, we are waiting confirmation of where exactly they will fall. And in our plan for fiscal 2012, we have all of that neatly allocated, but we will wait to see how things pan out in detail, and we expect to give you separate guidance later in the year.

Let me quickly address what we've previously told you regarding fiscal 2012. Excluding North American Refrigerated Dough, we told you we would have tailwinds of approximately $0.15. Our guidance now projects an increase of $0.14 to $0.20.

We have some puts of takes -- or we have some puts and takes relative to where we were a couple of months ago, but for the most part, we're still tracking to plan. We have one material difference, and that is stranded costs, which are going to be higher, and that's, in fact, attributable to the H&BC transaction and the North American Fresh Bakery transaction coming through later than anticipated. And in part, this is the result of additional dispositions, such as the International Bakery business. Apart from that, our guidance range reflects increasing marketing investments in our plan and, of course, volume risk.

Now enough said about guidance. Let's go into the business segments. Let me start with North America. First, our Retail business. For the second straight quarter, pricing actions, coupled with productivity gains, enabled the business to offset commodity increases in the quarter. Sales grew by 4%, driven by more than 8% increases in prices. Volume was down in line with a decrease in the third quarter, and that requires some perspectives. Given our position as market leaders in most categories and given our strategy to protect a healthy margin structure, we have mostly been at the forefront of price increases, and that leads us to be less competitive from time to time at least temporarily.

In some categories, we've seen only a small impact on the volume side, and the slide enumerates success in Jimmy Dean and recently good performance in Ball Park. In other categories, we did suffer from a volume point of view, with some of our competitors even taking a different perspective on commodity cost realities and others, perhaps, seeing an opportunity to recover some grounds.

Be it as it may, apart from the 4% sales increase, we did over the large increase in operating income despite the volume loss, in part, that was driven by lower MAP spending against an unusually high expenditure in the last quarter of fiscal 2010. The rest is a result of cost saves and margin increases.

Meanwhile, in fiscal 2011, we completed the implementation of SAP in our meat plants, and of course, we commissioned the new Kansas City plant. Both of these actions will help us in 2012.

This is another view of the figures by quarter. In part, it is for reference purposes, so I won't dwell on it too long. But let me just call out a couple of items. Sales grew in all quarters, which is shown in the second line of the slide. On the pricing line, you can see the prices gradually increase as the year progressed, and our volume figures were negative in the last 3 quarters for the reasons that I've just explained. In terms of operating, or adjusted operating margin down below. We ended up with 11.1% for the year.

Let's then turn to North American Foodservice. First of all, I'd like to remind you that these figures exclude our North American Refrigerated Dough business, which went disc ops, but they still do include our North American Foodservice Coffee business, which, as of fiscal 2012, will move over to the Coffee and Tea business.

Now let me just say that we're very pleased with the way the year has played out for this segment. You'll remember that last year, we lost 2 Foodservice contracts, which has been a drag on performance in every quarter, and fortunately, that's now behind us. But as the year progressed, we saw performance climb back up.

In our last quarter, sales were up 9%, and for the year as a whole, we were up 3%. In the last 3 quarters, we've seen increases in operating income, and for the year as a whole, we're up.

We did well in terms of recovering commodity cost increases, and we did well in our Meats, Frozen Bakery and our Liquid Coffee business, which are the areas where we see the most value creation. In all, we're very pleased with the way this segment has played the year.

Now these are the financials. Note the increases in sales in quarter 3 and quarter 4, and also, please note the increases in adjusted operating income in the last 3 quarters.

Now with that said, on last year's business performance, let me just look forward for our North American business. First, on the volume price and commodity cost equation. Long term, the definition of success, of course, is to increase share, sales and operating income. And in 2011, we've had to make trade-offs, and we've played our part in securing the long-term health of our categories where we have leadership positions.

For 2012, we feel good about the innovation that we have in the pipeline, which is the long-term remedy against having to make too many trade-offs. And as the year progresses, you will increasingly see a range of new products hit the market. We feel good about the fact that as we start the new year, we have all the price increases in place to deal with the commodity costs as we currently see them in the forward market.

We have some headwinds from stranded costs following the disposition of North American Fresh Bakery and Refrigerated Dough, but we also have meaningful cost saves coming through. And that means that we have some firepower to, where necessary, dial back at the tactical level on prices wherever we need it in order to protect our share. That's for 2012. And if I take a longer-term perspective, we will drive growth through continued investment behind our 4 key brands, Hillshire Farm, Jimmy Dean, Ball Park and Sara Lee. We aim to gradually increase MAP spending. Jan has already talked about it. And we're working to skew our portfolio more towards the premium end of the meat spectrum, and the Aidells acquisition was a good example of where we'd like to go.

Now let me then turn to the International Beverage segment, which will largely make up our Coffee and Tea company. The headline, of course, is, again, commodity cost increases. We've made a ton of progress to deal with the situation. In Q4, our price increases were no less than 14.7% on average. That's pretty unprecedented, but still, it wasn't enough. As you see here, we're still one quarter away from offsetting the commodity price increases, and this is on a dollar basis. It will take a while to get back to our percentage gross margins.

Adjusted sales increased by 14% in the quarter, mainly as a result of the price increases but also slightly flattered by the increase of our Brazilian green coffee export. The volume decline in the quarter was 9%, and that needs some explanation. It broadly breaks down into 3 issues. First, an easy one. We stepped out of a private label contract in France, which was loss-making and which we can do without in the longer-term manufacturing plans.

Secondly then, in Brazil, we were ahead of the competition, and that's caused a volume hit. We bit our tongue, and I'm pleased to report that meanwhile this has been corrected, or this has corrected itself, our competition has followed us. And Brazil, of course, has a lot of volume at relatively low prices, so if you have a down quarter, that really moves the needle.

The last item then is the Netherlands, where fourth quarter volume declines breakout into 2 components. Firstly, we had a market decline which is attributed to the weather being unusually warm in the spring and early summer. Now I have to say that I'm always bit wary about weather explanations, but the fact that we saw a reversal coming through in rainy July gives comfort. I guess the jury is still out.

The second issue then is pricing. We're now selling a 500-gram packet close to EUR 5, which is a hard pill to swallow for the frugal Dutch, and hence, we've lost some share to the other game in town, private label.

We have good management in place in the Netherlands, and we're completing our discussions on what the way forward is. We have great innovation and ideas for the medium term, which we're now linking back to more tactical ideas for the short term. An item to watch, but I'm confident that we'll get it fixed.

Meanwhile, our L'Or EspressO continues to perform very well in France, and initial results in the Netherlands, Spain and Belgium reaffirm the growth potential of this product. The product is now available in over 15,000 stores in Europe. In Brazil, the launch of Senseo in São Paulo and Rio is showing promising results, and the integration of Damasco is ahead of plan, with better-than-expected synergies and growth. In Australia, we reached a record high value share in instants behind successful new product launches.

While not on this slide, I'm going to cover that nevertheless. It's one of my personal favorites. The new excellence machine we showed you at CAGNY for the Liquid Foodservice business is doing very well, and with more machines added to our machine product, we're becoming more optimistic about volume prospects in our Liquid business.

These are the financials. And I just call out again the prices which reached 14.7% in the last quarter. Notable is further MAP, which slightly increased for the full year. The fourth quarter, we were down, but remember, in fiscal 2010, we launched L'Or EspressO in France in the last quarter.

Going to the operating income line, we're down, and also, our margins are below what we're used to. Now partially, that's attributable to the currency mark-to-market impact, but that said, it's clear that we have work to do.

Let's now look forward. As I've just done for Meat, let's do it for Coffee. Let me just start again by addressing again the volume price and commodity cost equation. We have to recover commodity cost increases, and we're on track to hit that milestone in the second quarter of fiscal '12. That will help.

Meanwhile, from what we've seen since the start of the new year, we're confident that the fourth quarter volume decline is not an indicator of underlying trend for the reasons explained. And in the short term, we'll continue to get lift from the innovations that were rolling out such as L'Or EspressO, new machines coming through Foodservice, Senseo in Brazil. They're all in place, so we feel okay about the prospects for making a decent step in 2012. But that said, we need a leap, and in that context, let's go back to what discussed in Paris on the occasion of the Deutsche Bank conference. Jan, at that location, talked conceptually about were we needed to go. He talked about reigniting roast and ground, about claiming our fair share in instants, about new technology, about Tea, about Foodservice and all supported by redesigned marketing and R&D organization in process. That was a conceptual conversation. Meanwhile, we've made lots of progress. We're now 2 or 3 months later, and I'm pleased to report that these concepts are now starting to shape up in to plans. Jan and I were present in an output meeting of the Energy in Motion teams, and we're both very excited about what was presented.

Now the trick is to take it to the next level. We've got it from a concept to a plan, and we have to take it from a plan to execution and get it to market. It will take a couple of quarters, and for obvious reasons, we can't show you too much of it ahead of time, but it bodes well.

I'd like to quickly cover the performance of the International Bakery segments. It's a tough patch, and I commend the management teams who are leading these businesses that the decision to exit from our French and Spanish business is the right one. This is not for us. There will be others who will do better.

Operationally, not much has changed since what we shared in May, and you see the tough market conditions in Spain have manifested the declines in adjusted net sales and operating income in the quarter. We consciously decreased prices in Spain in an attempt to reverse or at least slow down our volume declines. We suffered on the bottom line, and I can only take consolation from the fact that competition doesn't seem to have a good time either. The restructuring activities to transform the sales force to independent operators that we've talked to you before has been meanwhile agreed, and we'll provide meaningful benefits. We pushed them through, even though the benefits will accrue to whomever buys the business. I'm pleased to say there are a number of people out there who expressed a strong interest. They understand that while we're going through a rough patch, we've been doing exactly the right things in terms of lowering our cost base and positioning ourselves strategically.

Our French business is doing okay, under some price pressure, but still very profitable, and it, too, has attracted significant interest from parties who have synergy potential. The financials then come as no surprise. You see the pricing impact and the resulting operating income decline.

And with that, we've done all the segments. Let me now hand it over to Mark to walk you through some details of our financials, and I'll be back for closing remarks in a minute.

Mark Garvey

Thank you, Marcel. I would now like to walk you through the fourth quarter and full year results in a little bit more detail.

On this slide, you can see adjusted operating segment income for the fourth quarter and fiscal '11 with comparisons of the same periods in fiscal '10.

Total adjusted operating income was $189 million for the fourth quarter compared to $135 million last year. For the full year, adjusted operating income was $809 million compared to $827 million in fiscal '10.

I want to point out that the $809 million is not directly comparable to our latest guidance due to North American Refrigerated Dough moving to discontinued operations in the fourth quarter. This business contributed $42 million of operating income to discontinued operations in fiscal '11.

Therefore, including Refrigerated Dough results, it puts us within our guidance range. As an adjusted operating segment income level, the results for the year were primarily impacted by the commodity costs which were not completely offset by pricing, particularly in the International Beverage segment, as well as volume softness in North American Retail and International Beverage and continued weakness in International Bakery due to price competition in Spain.

If you combine the results for North American Retail and Foodservice, adjusted operating segment income was basically flat in North America versus last year as growth in Foodservice offset a slight decline in Retail.

We are very happy to report that corporate costs, including commodity mark-to-market and intangible amortization, came in $117 million lower than last year. This included a decline in core corporate costs versus fiscal '10 of $94 million, as Marcel referred to earlier.

Core corporate costs are lower primarily due to the impact of headcount reductions, lower employee benefit costs and some smaller items, such as the sale of the company plane during the year and lower franchise taxes.

Now let me turn briefly to currency mark-to-market. Rising green coffee prices continue to be a significant factor impacting the performance of the International Beverage segment during the quarter and full year.

As we have discussed with you previously, our coffee commodity costs do include adjustments for currency mark-to-market each quarter. On this slide, you can see the impact by quarter for fiscal '11 and fiscal '10. The fourth quarter of fiscal '11, we had a currency mark-to-market gain of $7 million compared to a gain of $1 million in the same period of fiscal '10. Therefore, a positive delta of about $6 million. However, in the full year, this delta led to a $55 million drag on the International Beverage results.

The next slide quantifies in more detail the primary drivers of the year-over-year changes in adjusted operating income from fiscal '10. Pricing net of commodities were a negative $25 million in the fourth quarter, including the $6 million benefit from currency mark-to-market I've just discussed. Project Accelerate contributed $29 million in savings, and MAP investment was $44 million lower due to a very heavy investment in last year's fourth quarter behind several new product launches. Lean savings, commodity mark-to-market gains, as well as lower pension costs, drove additional operating income and were somewhat offset by a lower volume mix result and costs for Kansas City and our SAP implementation in North America. A similar theme is evident for the full year results, with pricing net of commodities at a negative $178 million, Project Accelerate contributing $87 million and slightly lower MAP investment of $16 million.

Now let me turn to earnings per share. For the fourth quarter, we reported earnings per share of $0.19 for continuing and discontinued operations. As you are aware, there were a number of events during the quarter as we ramped up the activity for the creation of 2 pure-play companies. Firstly, the completion of the sale of the shoe care business resulted in a gain of $0.22, which is included in our reported earnings under discontinued operations. There were also some tax adjustments in the quarter primarily related to discontinued operations.

In addition, there were costs incurred related to Project Accelerate, spinoff-related activities and exit and severance actions in our business segments as we continue to work down stranded overhead and prepare the businesses for spin. This brings us to adjusted earnings per share of $0.24 for the fourth quarter, $0.20 of which relates to continuing operations and compares to adjusted earnings per share from continuing operations of $0.07 in the fourth quarter of fiscal '10.

For the full year, adjusted EPS was $1.05, with $0.78 from continuing operations, which compares to $0.67 in fiscal '10. Once again, I would like to point out that these figures exclude North American Refrigerated Dough, which contributed $0.01 to EPS for discontinued operations in the quarter and $0.04 for the full year. Again, when you include Refrigerated Dough, that would bring us to the top end of our guidance range for EPS.

Now I would like to give you a different perspective on how the fiscal '11 results break down between what will be the new Coffee and Tea Co. and North American Meat Co. Consistent with our fiscal '12 guidance, International Bakery is excluded from these numbers. In addition, the North American Beverage results are included in the Coffee Co. numbers. The total of both the North American Meat Co. and Coffee Co. results less corporate costs matched the fiscal '11 results that are provided in the guidance table and reconciled at the back of the press release.

As you can see on this slide, on a pro forma basis, the new Coffee and Tea Co. had revenues of approximately $4.1 billion in fiscal '11, and North American Meat Co. had revenues of approximately $3.9 billion.

Additionally, Meat Co. accounted for approximately $418 million of operating segment income, excluding significant items, and Coffee and Tea Co. came in at $481 million. Corporate costs, including amortization of mark-to-market, were approximately $107 million, and this brings the operating segment income on a combined basis to $792 million, which you will recognize from our guidance table.

Now let me turn to cash flow. Cash flow from operations came in at $447 million for the full year, which is at the top end of our guidance range of $400 million to $450 million. We ended fiscal '11 with a gross debt balance of $2.7 billion and a cash balance of $2.1 billion. This, of course, differs to our prior guidance as we had previously assumed that our North American Fresh Bakery transaction would've closed by fiscal year-end. As we have discussed, this is now expected to occur in Q1 of fiscal '12.

I would also like to give you some information on our estimated fiscal '12 year-end cash and debt balances. At this time, we expect the end-of-year cash position to be approximately $300 million and the gross debt to be approximately $2.3 billion.

Now for simplicity, this assumes that the spinoff occurs on the last day of the fiscal year and also assumes the completion of sales related to all announced strategic reviews, the payment of the $3 special dividend and the payment of the repatriation taxes, for which we have already provided. We will provide you with regular updates on our expected year-end cash and gross debt positions as we progress through fiscal '12.

I'm also very happy to share that we had a positive swing of almost $500 million in our pension-funded status. A year ago, we were underfunded by $450 million. As of fiscal '11 year-end, we have a pension surplus of approximately $40 million. And I should point out that the $450 million is restated to exclude Fresh Bakery and North American Refrigerated Dough, which are both now discontinued operations. The improvement in funded status is driven primarily by the strong performance of the plan's assets during the year.

Now I would like to give you an update on Project Accelerate. First, let me point out that consistent with our fiscal '12 guidance, all numbers for Accelerate have been restated to exclude past and future costs and benefits attributable to International Bakery and North American Refrigerated Dough.

On this basis, we now expect cumulative benefits from the project of approximately $250 million by the end of fiscal '12. This includes incremental benefits of $73 million achieved in fiscal '11, which took the cumulative benefits to $190 million. Therefore, incremental fiscal '12 benefits are expected to be approximately $60 million for continuing operations. The fiscal '12 benefits are largely attributable to the implementation of SAP in the North American factories and restructuring and outsourcing in Coffee and Tea. Our cumulative charges through 2011 were $165 million, and there were minimal additional costs in association with Accelerate expenses in fiscal '12. We are very pleased with the success of the Accelerate program, which has enabled us to consistently drive cost efficiencies throughout our business.

Going forward, costs and benefits for Accelerate will no longer be separately disclosed as they partially overlap with the overall cost reduction program referred to earlier by Jan, which I will now discuss.

As Jan mentioned, we are looking closely at both Meat Co. and Coffee Co. to determine additional cost-saving opportunities as we prepare for the spin. To date, we have identified savings in fiscal -- which will come through in fiscal '12 and 13, incremental to fiscal '11, in the range of $180 million to $200 million. These savings include the additional $60 million of savings from Project Accelerate, which I just discussed. Now these savings will enable both companies to offset stranded costs resulting from the sale of businesses, such as International Bakery and U.S. Refrigerated Dough, of approximately $50 million to $60 million.

In addition, these savings will effectively enable both new companies to absorb any new corporate cost they will require as standalone companies. As Marcel referred to earlier, corporate costs are expected to be approximately $110 million to $120 million for fiscal '12. We fully expect that these costs will either disappear in fiscal '13 or will be absorbed by the 2 new companies and mitigated as a result of the savings achieved. The savings identified include headcount reductions at corporate and the business segments, rationalization of manufacturing capacity and reductions in office space.

In fiscal '12, we expect to incur onetime costs of approximately $425 million, of which approximately $300 million relates to restructuring initiatives, including reductions in force, the recently announced closure of our Paris, Texas plant, downsizing of the North American headquarters and the reset of existing global contracts.

In addition to the restructuring costs, we expect to incur approximately $125 million of transaction-related costs in fiscal '12 as we execute activities in support of the spin.

And with that, I will hand it back to Marcel for some closing remarks.

Marcel Smits

Ladies and gentlemen, let me just keep this real short. When we announced the plan to split the company into 2 separate listed entities in January, we had in mind 2 things. One, unlocking value as a result of going through the process of actually creating 2 separate companies, portfolio reshuffles. And I'm pleased to say that that process of unlocking value is now in full swing. We are fully in execution mode. Execution is going well, and we are anticipating that we will be ready in the early part of calendar 2012.

The other core belief that we had when we announced the split was that we've created 2 better companies than we had before, and that was all about -- not so much about unlocking value but about creating value. And I think the really exciting thing is that we're actually seeing that happening inside the 2 companies, so people are becoming more pragmatic about costs. I think there's more dynamism around innovation. And as I said, we have talked about that conceptually. It's gradually transforming itself into plan. It will take a while before it comes into execution, but we're getting there. So we're doing well and fully executing on the unlocking side of value, and we're very confident that both of the companies will actually create a lot of values that will be more nimble, more focused on their respective market opportunities, and we have every confidence that they'll both do great.

And with that, let me just open it to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Terry Bivens.

Terry Bivens - JP Morgan Chase & Co

I'm from JPMorgan. Two things, really. Marcel and, I guess, Jan as well, as you look into the Coffee business over in Europe, can you give us some indication of how far along you are in securing a senior management team there?

Jan Bennink

We are very close. I would say that in the next 2 months, it will be signed, sealed and, hopefully, delivered.

Terry Bivens - JP Morgan Chase & Co

So you are in pretty active part...

Jan Bennink

I gave myself a little bit of leeway by saying November, but I think it will be earlier.

Marcel Smits

[indiscernible] talk about leeway, we should just give it up.

Jan Bennink

You asked me for it. I feel confident about it.

Terry Bivens - JP Morgan Chase & Co

Okay. And I have one question on the French market, in particular. Who is gaining and losing share there in France, is it Nespresso or your L'Or EspressO?

Jan Bennink

Terry, we are gaining share. We're doing well in the French market. We've lost some volume as a result of the private label contract, but overall, we're doing well, and the reason why we're doing well is because we keep doing well with L'OR EspressO. So that turns up in the market share figures in the retail market. That's not an entirely fair view, of course, because L'Or EspressO is a part of the retail market, but that then sort of ignores the Nestlé sales outside the retail market. If you look at it over a slightly longer-term horizon, then you can see that, let's say, a 3- or 4-year period, and you don't just take the retail market in terms of what goes through supermarket and hypermarkets, you include what we guesstimate to be the sales of Nespresso, then clearly, Nestlé is winning. We're holding share, and others are losing. That is an overall top line picture, and the fact that we're holding share in what would have been the core market for Nespresso is a testament to the fact that we've done well. We've come with Senseo a couple of years back. That's doing well. We've come with L'Or EspressO. That's doing well. We've come with a whole range of innovations beyond our brands. We support our brands, and we've been doing quite well in France.

Terry Bivens - JP Morgan Chase & Co

Nestlé has expressed the view that it's going to be a protracted process settling the legal issue there. What's your view of that? And then I'll pass it along.

Jan Bennink

Yes, that could well be the case, so let me just reiterate what we've said in the past. Before we launched this product, we went through 3 years of preparation. And so far, we see the playbook playing out in line with what we anticipated. That is, if anything, a testament to the fact that people who did the preparation did their homework extremely well because they were accurately predicting what would happen. So we're confident on the fact that we have -- we're not infringing anybody's patents. We're confident about our legal position, and we're also confident that we're on the right side of the consumer. Consumers like the broader availability of the product, and so that makes us confident that in the end, we will prevail. Shall we go on to the next one, Terry?

Operator

Our next one question comes from Ken Zaslow.

Kenneth Zaslow - BMO Capital Markets U.S.

Bank of Montreal. Just a very quick question. When was your pension fund status calculated?

Mark Garvey

At the very end of the fiscal year, Ken. It's always done at the end of the fiscal year, so July 2 or 3, I guess. I'm sure you're asking the question in relation to what's happened to the equity market.

Kenneth Zaslow - BMO Capital Markets U.S.

That is the question, yes. I'm assuming it's not as funded as...

Mark Garvey

Well, I'm sure it's not as good today as it was at the end of the fiscal year, but let me give you a perspective in North America. We have 3 major pension funds in North America, U.K. and Netherlands. We're fairly limited in exposure to equities in our North America funds. It's about 10% to 15%, I think. It's about over 30% in Netherlands and about 15% to 20% in the U.K.

Marcel Smits

Ken, if I can add some color to that, you remember that about a year ago, we added -- or we put another $200 million into the North American funds. We then took a decision to limit our exposure to the downside. We have no benefit from an upside would equity market do extreme well, so there's no reason why we should take exposure on the downside. If you do that, that means that your ongoing pension expense on the GAAP increases a bit. We took that decision nevertheless because we don't want to have the exposure to fluctuations of the equity market as much as we can. We're in full control of that in the U.K. and the U.S., where there's about 2/3 of our pension exposure. In the Netherlands, the trustees are more at arm's length, so we have less control over that, and therefore, in the Netherlands, we have a higher exposure to equities than we have in the U.S. and the U.K. So a lot more granularity. I hope that satisfies your question.

Kenneth Zaslow - BMO Capital Markets U.S.

I appreciate it. My other question is as you go through the legal structure of the organization, have you found anything in terms of the tax implications, be it the repatriation, anything that you could share with us? I mean, obviously, you've changed the way you're going to spin it, but is there any sort of implication that we should glean from as you guys go through the legal structure of the organization?

Marcel Smits

I think what we have today is, we've said in the press release, we've had extensive discussions with the relevant authorities, in the relevant jurisdictions over the last few months. We now know a lot more, and that has led us to the statement saying we are now confident that we will end up with an effective tax rate for the Coffee business which is going to be below 35%. We have, in the end, decided to put that statement in, but you'll appreciate that we want to conclude the discussions with the relevant authorities before we talk about that in the public domain. If only as a matter of courtesy, we should just go through all of that and pin it all down, and once we have it, we will immediately, at the appropriate timing, inform the market. The other piece of news is that what we have today, as we've said, we recommend the response from the IRS, and the private letter ruling request will come in the fall. So we're sitting on quite of a progress. We're becoming -- on the basis of that progress, we're more bullish, but we want to complete the discussions of the relevant authorities before we update the market.

Kenneth Zaslow - BMO Capital Markets U.S.

And there'd be no change to repatriation as well? I saw it in the press release. I just wanted to confirm.

Marcel Smits

Yes, no change to the repatriation.

Operator

Our next question comes from Jason English.

Jason English - Goldman Sachs Group Inc.

Jason English with Goldman Sachs. Two quick questions. First, I want to make sure I fully understand the amount of earnings power that's been moved out of fiscal '12 income statement with the reclass of the Bakery businesses. Let me walk you through to my math and tell me if and where I'm wrong here. Fiscal '11, looking at the tables you guys have disclosed, it looks like you had $0.07 of earnings power. Looking at Project Accelerate, you previously had a midpoint of around $95 million. You're lowering that to $60 million. That's another $0.04 by my math, and we had a planned amortization step-down of around $20 million that, I think, is assigned to that business. That's $0.02. So I cum them, and I get to $0.13. Am I thinking about it correctly?

Mark Garvey

The Accelerate number is correct. The amortization is correct. The $0.07, I think that's both Bakery and Store Brands you might be including there because I think Store Brands is $0.04 and Bakery is $0.03, I think, Jason.

Jason English - Goldman Sachs Group Inc.

Yes, I'm cuming those. Okay, that's helpful. So $0.13. The next question is regarding the stranded costs and MAP expectations. How much of those costs and when do you think you can work down that $50 million to $60 million? What is assumed to your guidance in terms of MAP step-up for fiscal '12?

Mark Garvey

Well, I mean, I'll speak to the stranded cost. Our expectation is the stranded cost would effectively not be there once we get to '13, okay? So we've got $180 million to $200 million of savings initiatives as you're seeing, Jason. You'd expect that to come through roughly 50-50, I would say, between fiscal '12 and fiscal '13. $60 million is already coming through in '12 because of Accelerate. And then I think on MAP, Marcel, do you want to comment on that?

Marcel Smits

Yes, let me just be precise on the stranded cost there. It's not all going to disappear in 2013, but it's going to be compensated by savings in the system. So we have a gross number of $180 million to $200 million of costs that we're taking out, approximately $50 million to $60 million for that we need in order to offset the stranded costs. And then we have a net benefit of $130 million. Now in terms of MAP spending, yes, what we have said is we -- in the long term, we are strong believers that the MAP spending of both companies should go up. We have built that into our plan. We have, on purpose, not included that in the guidance table, Jason. If things go well, if our volumes do well, then we can afford more than otherwise. And I think as the overriding proviso -- as the year progresses and we see new innovations coming through, I'm sure that we'll all look at them say, hey, is this a stock that is worth putting significant money behind because the overriding proviso continues to be that -- you don't spend any money behind a stock that isn't worth it. So as the year progresses and we're confident that our volumes do well and that we have relevant innovation to advertise behind, we will put significant resources behind them.

Operator

Our next question comes from Eric Serotta.

Eric Serotta - Wells Fargo Securities, LLC

I'm from Wells Fargo. I think Marcel and Jan both mentioned the need for further pricing in Coffee. I'm wondering whether you could provide some detail about the pricing environment in some of your key markets given the pullback in green coffee from, as you pointed out, above $3 to the $2.40 range today.

Jan Bennink

If you look at the pricing, we have implemented and discussed with most of the trade our price increases, so I think we're in the process of fully materializing them. But the price increases needed to cover -- the raw materials are being negotiated or being in place. What do we see in the market? I think we see in the market up until now, and I'm talking up until 2 weeks ago, we see that normally, when we increase our prices, the private labels and others follow us. So there's a clear indication that they follow us. As Marcel said in his discussion, there's 2 elements there's the following us and the price difference in absolute euros. So they're following us. They're doing it. So far, we haven't seen a reverse trend. We don't expect a reverse trend because if you look at margins, there is still some significant opportunity to just go back to the margins we were, so we're looking at some price increase if necessary, or if the green beans prices go down sufficiently, we'll recover our margins as such, but no price decreases. We've seen nothing in that realm, and so far all, the indications are the people follow us.

Marcel Smits

I think, Eric, people are still hurting from the price increases that have come through, so even if the green coffee prices come down a bit -- and they have come down a bit over in recent times. Everybody says, oh, that's fine. But that means that we have a little less hurt, but it doesn't necessarily mean that you all also are saying, we're now starting to make enormous amounts of money. Everybody is still recovering in the market from the price increases as they've gradually came through last year.

Eric Serotta - Wells Fargo Securities, LLC

Okay, that's helpful. And on unrelated note, has any consideration been given to the sale of the North American Frozen Bakery business, sort of the namesake Sara Lee piece?

Jan Bennink

Look, we've gone through a whole range of portfolio choices, and there's considerations as to how strategically well positioned businesses are, how integrated they are with the rest of our business, the complexities of taking things apart. We have a fairly full load of disposition activities. We are shaking up the tree quite violently, so that particular one, we said, let's not touch that one.

Operator

Our next question comes from Akshay Jagdale.

Akshay Jagdale - KeyBanc Capital Markets Inc.

Akshay Jagdale, KeyBanc Capital Markets. My question is for Jan. It's on the Coffee business more longer term. You've been -- you made some comments in the past, and it seems like you're pretty positive on the roast and ground and instant segments. Can you, relative to at least what the rest of, I guess, the analyst side believes and my belief, which is single serves has been growing really fast, gaining share, and you've made comments saying you think your roast and ground business and instant business can grow much faster than what they've done in the past. I'm just trying to get a sense of how do you think that's going to play out over the next 3 to 5 years globally. I mean, do you expect roast and ground to grow faster than single serve? I'm just trying to understand how positive you are about roast and ground and how that's going to play out globally. Why will consumers start -- or go back to roast and ground more so than they have in the last 5 or 10 years?

Jan Bennink

I think if you look at it, I mean, there is definitely a trend, if you look at the overall consumer trends, that people want to go back to beans. I think beans is the ultimate and good thinking. I mean, there have been some article, I think, also even in the FD somewhere in April, May, about how people are trending back to beans. If you look at our just not the ground part, but the beans part is growing very significantly in our portfolio. If you look at what Starbucks is doing, if you look at what other smaller players actually are doing in the roast and ground market, and I look -- even smaller players like Stumptown in terms of the Coffee business, if I look at Starbucks, what they're launching in terms of their total roast and ground, I think there will be an overall trend that people go back to beans, people will go back to the value of the beans. And it is up to the marketeers and up to the companies who run it to make it work. So far, it's been handled by Starbucks for a great deal, even in the retail. It has been handled by smaller players, and I think if you look at us, definitely in the markets where we will play. I expect the market to start picking up. That will also be for single serve. So both the roast and ground brand of business, as well as the single serve, will continue to grow. Will single serve continue to grow as fast as it is currently? I'm not so sure. I think it will be a mix of both. But just look at the shelves for your roast and ground, how kind of people segment the market, how they market the product. Again, as I said before, for us, it's like a brick pack. We say it is dark roast. That's it. One segment, one variation, nothing else. If you look at the possibilities you can do, just go to Stumptown. If you're in the U.S., just go to Starbucks to a lesser extent, but there are lots and lots of possibilities where we're looking at. And trends are there. Will they grow, how much will they grow and will they grow everywhere? I think is a -- wherever the companies do their work, it will, and where the companies don't do their work, it will be less. But the more I see, the more I'm convinced of what I said in the beginning.

Marcel Smits

If I can add some quantitive perspective on that, conventional wisdom is that single serve grows and roast and ground declines. And you've just alluded to the possibility that roast and ground will grow faster than single serve. We don't see that coming anytime soon, but we do challenge the conventional wisdom that roast and ground is destined to decline. And there are interesting segments, subsegments in all markets that we participate in which actually would support that belief that it's not a given that roast and ground is commodity, and therefore, it can only decline.

Jan Bennink

No, and I think the markets -- coffee market in itself, I think rather than declining, I think you will see an uptick.

Akshay Jagdale - KeyBanc Capital Markets Inc.

And one just follow-up on coffee, what's your view on coffee prices? And how far hedged are you in terms of your $500 million projection for cost increases in 2012?

Jan Bennink

Coffee prices, I mean, I think in terms of what we think, is that they will remain a difficult market. They're currently at $2.40. First, they were at $2.90. They have dipped a little bit. They've gone up a little bit, but we continue to think that the prices will be staying up high. I think Starbucks said exactly the same, and we think the same thing. We are covered, and we've extended our cover of our raw materials prices actually, so we were going a little bit more for security to avoid volatility. And we've covered ourselves at a good level, so we feel comfortable, and we are further up.

Operator

Our next question comes from Tim Ramey.

Timothy Ramey - D.A. Davidson & Co.

It's D.A. Davidson. Jan, you mentioned sort of benchmarking your experience with Sara Lee versus some of the other companies where you served in the past. I find these unit volume gains pretty alarming, and I wonder how you feel about them. I get that it's a tactical decision to protect margin, but we also really don't see that from the other participants in the coffee business, in particular.

Jan Bennink

You see it to a certain extent because if you look at private labels, them have increased their prices, so they have protected their margins as well. So everybody sees and feels the same thing. So do you play a complete volume game? Are we completely kind of out of our mind in terms of do we go and price-up until we kind of have no market share? Of course not. We play it very reasonable. We see -- and since we are the leaders in all the markets where we play, we'll have to guide the market towards where we think it is right. So far, they've followed. If all of a sudden, people start having a decrease in their prices and we're losing things, we will look at that, of course. I think if the other part is it's our task to innovate in the market. So if you have a price which you currently have and you have good margins and, at the same time, you give an additional benefit to the consumer, then I think you can easily keep your prices up and even increase your prices if necessary. We're talking about single serve. If I have a single serve which doesn't look like a private level, which is very different and which helps me give the consumer added benefit, I can price-up for that. So I think that is the whole game. Currently, it is between now and 6 months. It is making sure that we don't make any mistakes. After the 6 months when innovations come in, I think we can have a very, very nice play between innovation -- renovation of our product, relaunches of our product and giving the consumers a benefit. Now it is like playing the game and doing something with promotions and keeping the ship afloat at the best possible way. But it is not -- we're not completely blindfolded in terms of, hey, I'll go for margin, margin, margin, and I'll feel very happy with half the market share and great margins. I mean, we're playing it safely.

Timothy Ramey - D.A. Davidson & Co.

And if I could just follow up quickly. Never argue with the Dutch on a price assumption, but your euro assumption for guidance is $1.44, which is certainly higher than where we're at right now. What can you tell me that you know about the direction of the euro that, perhaps, the market doesn't?

Jan Bennink

That would be an Irish person.

Mark Garvey

Yes. We have seen a lot of volatility, Tim. I think we just picked the rate that we felt was reasonable. Obviously, that's something that's variable, and if it changes after the first quarter, we'll update you, but there's no magic to it.

Jan Bennink

It's when we put the whole [indiscernible]. It's been bumping up and down a bit. So as of this morning, I think we were $0.02 off. [indiscernible]

Operator

Our next question comes from Eric Katzman.

Eric Katzman - Deutsche Bank AG

It's Deutsche Bank. I got a couple of questions. I guess first up, just to kind of bridge the gap here because it seems to me that this is the difference between what the market was expecting versus kind of what your guidance is. You've got this $60 million of Project Accelerate savings, and then you've got the additional corporate overhead kind of moving away. Is that kind of maybe in addition to the discontinued operations not being included in the guidance, the timing is the additional $0.10-plus or so a share depending upon how much standalone companies have to absorb within corporate?

Mark Garvey

I think that's a reasonable way of looking at it, Eric. Obviously, the discontinued operations between Store Brands and assuming International Bakery will be in the first quarter is around $0.07 alone there. And we've adjusted Accelerate because some of those savings were to be with International Bakery, so that's an impact as well. And I think in terms of what you said on the stranded overhead is also reasonably accurate.

Eric Katzman - Deutsche Bank AG

Okay. And so again not to beat this, but Jan, when you say that the standalone entities, the 2 companies will absorb it, do you mean that you think that, that completely goes away or that there's a certain, like, I don't know, maybe 1% of sales of the $8 billion for the 2 companies that, that $80 million is what they need to spend?

Jan Bennink

It will go away. I mean, it will be absorbed by other savings, but they will not be -- these costs of the overhead will be absorbed by the entities, and the cost will not be visible in the P&L.

Marcel Smits

And I'd be more precise about that. We have $110 million to $120 million. A chunk of that will go away because the people and the support structures are no longer needed because a lot of people are now partially or fully dedicated to the spin work. So that's chunk #1. We're then left with expenses that will be going into the 2 segments. Those expenses will, after the spin -- so if we assume that spin happens in early calendar 2012, those expenses will then, after the spin, be offset by the ongoing savings program. And the net result is that the corporate expenses of $110 million to $120 million in 2012 will go away.

Eric Katzman - Deutsche Bank AG

Got you, okay. Second is I'm not exactly clear on -- I know you set up the liability on the repatriation, but you have $900-plus million still coming in from the Bakery sale. You're now going to get, let's assume, after-tax, I don't know, $400 million, $500 million from the Refrigerated Dough. So the amount of cash that you actually have to repatriate, given that those 2 proceeds are coming into U.S., the amount of cash that you actually have to repatriate is minimal to pay the $1.7 billion special cash dividend. So I'm not exactly sure why we should still assume that much leakage on the repatriation when it seems like you're going to have most of the cash here domestically to fund it?

Marcel Smits

Let me just make a couple of observations. When we talked about the repatriation, we assumed the $3 dividend and we had already the North American Fresh Bakery deal in, so nothing has changed there. What has changed is the proceeds of the Store Brands business, Refrigerated Dough business, we call it Store Brands, which is about $550 million. Then we have restructuring expenses, order of magnitude, $300 million. And then, of course, we have to make sure that we end up with a structure where both companies have a reasonable amount of debt. If we'd leave all the cash in Europe, we'd end up with a Meat Co. which would be heavily indebted and a Coffee Co. which would have very little debt. Now that's not what we're playing for. We want both companies to be solid investment-grade, and that means that we just have to push some money over to -- I mean, we have to bring some money home.

Eric Katzman - Deutsche Bank AG

Okay. And then outlook here is that you've yet to assume any proceeds from the sale of the Bakery operation in any of these numbers?

Mark Garvey

Eric, the year-end cash debt numbers, I have assumed as proceeds for the actual Bakery numbers in there.

Eric Katzman - Deutsche Bank AG

For the International Bakery?

Mark Garvey

The International Bakery, absolutely, for the International Bakery. So basically, what I said was any businesses that are currently under strategic review, I've assumed in just modeling to give you the end-of-year cash debt balances that we have certain proceeds for those. Obviously, we don't want to disclose what we think those are going to be.

Marcel Smits

It's a fiendishly difficult calculation, and in order to save you all a couple of hours of work, we decided we'd give you a year-end debt and cash position. And there is portfolio changes in there. There's restructuring expenses, then there is the operating income. There's taxes both from repatriation and transaction tax, and we've rolled that up in the number.

Eric Katzman - Deutsche Bank AG

Okay. And then of the $450 million in restructuring, that $300 million is cash?

Mark Garvey

I would say $300 million to $350 million will be cash, Eric. It's going to depend on the number of things we're working through.

Marcel Smits

After tax. It's the after-tax number.

Mark Garvey

After tax, around $300 million.

Marcel Smits

So there's 2 components there. One is the tax affecting gross number, and also there is some write-offs inside that gross number. That's why you get the $300 million to $350 million.

Eric Katzman - Deutsche Bank AG

Okay. And then last thing, to Jan, the outlook for the Coffee Co., it sounds like you're pushing, obviously, the top line to get that moving. But at the same time, is it your intention now to try to get -- basically to get back to the percentage margin that the business has historically delivered or the dollar margin, I'm not sure what you're referring to, and then grow from there?

Jan Bennink

I'm always referring to percentages. I'm the man of the percentages, as I'm known here in this business now. So I'm talking to the percentage margin.

Operator

Our next question comes from Robert Moskow.

Robert Moskow - Crédit Suisse AG

Credit Suisse. Just 2 questions. One is I'm still confused about why the guidance is significantly below consensus, maybe about $0.14 or so, $0.15. Half of it, I attribute to the Refrigerated Dough sale, but the other half, I'm trying to understand what you're telling us. Is it because of some stranded overhead, or is it amortization expense, or is it also just because the volumes are coming in lighter than you thought, it's a tougher economic environment? Is there anything fundamentally changing in your outlook for the next 12 months versus where your guidance was before?

Marcel Smits

I think it is a combination. So Mark has gone through the distribution of the Refrigerated Dough business, the Bakery business impact that has on Accelerate. At bottom end of the guidance range, we have taken into account volume risk, so it's a combination of those. I don't necessarily recognize that we would be off $0.15 from where the market was. That's higher than what I have in my head.

Robert Moskow - Crédit Suisse AG

Okay. Well, the census was $1.07, but I don't think people pulled numbers out for Dough.

Mark Garvey

I think, Robert, obviously, that did include around $0.07 for the 2 businesses, International Bakery and Refrigerated Dough. I think we've talked about additional stranded costs that are coming through when you sort of -- add those through a disposition that is around $50 million to $60 million, so that's certainly a hit for us as well. I think we talked about MAP investments. We are planning to have more MAP investment this year. We'll do it the right way, but that's also in our numbers. And Marcel mentioned volumes. I think we're being cautious around volume. We're clearly putting some significant price increasing through, so we're being cautious in terms of our top line and volume as well.

Robert Moskow - Crédit Suisse AG

Okay. And let me ask a follow-up on MAP. If you're really planning for an increase in MAP spending, but it sounds like all the innovation is delayed into fiscal '13 or at least you really do have a different marketing plan for Coffee that's going to take some time, why would you increase MAP this year? Wouldn't you want to wait until those new products are launched in '13?

Marcel Smits

There's a number of new initiatives, so the Energy in Motion teams have been working on new roast and ground propositions. We've looked at Senseo. And a lot of that will hit either the very back end of '12 or '13. Meanwhile, there's innovation going on. We have a pipeline of innovation. We have L'Or EspressO that we're rolling out. We have a pipeline of innovation in the North American business that we've already alluded to. As you'll remember that in the fourth quarter of 2010, we did a number of pressure tests, so we know that for a number of products, we still have penetration gains that we can make in North America as a result of higher support levels. So yes, the plan has been built around to try and get to higher support levels. But obviously, we'll have to see how the year plays out because we also have some volume risk.

Jan Bennink

As Marcel said, L'Or EspressO is something where we see a lot of possibilities, and this is a great innovation for the retail market. And we're pushing that substantially. So I think you will see in the Coffee business some significant increases in MAP behind that innovation.

Marcel Smits

We have L'Or EspressO, we have in Brazil. We have innovations coming...

Jan Bennink

Senseo, I mean, there's innovations, so there's...

Marcel Smits

We have a range of innovations coming through.

Operator

Our next question comes from Bryan Spillane.

Bryan Spillane - BofA Merrill Lynch

It's Bank of America Merrill Lynch. Just one question. In the press release, it indicates just more of the operating profit since fiscal '12 would come in the second half of the fiscal year versus the first half of the fiscal year. And just given how sensitive the market is right now, the expectations, if you could give a little bit more color on A, just maybe some proportions, how much -- sort of what the first half will look like. And then second, just some of the, I guess, some of the pieces that will affect the first half. I'm assuming the MAP spending will be up. It sounds like you're going to absorb some of the higher costs associated with the work you have to do relative to the spin. Just some color in terms of kind of first half, second half, I think, would be really helpful.

Mark Garvey

Bryan, I'll give you a flavor for that. We're not going to give specific by quarter, obviously, but to give you a flavor, I think we talked about pricing a little bit earlier. We feel pretty good in terms of where we are in North America in terms of pricing going into the year. We know we have some catch-up we're still working through in Coffee. We've said by the second quarter, we should be caught up in terms of that. So that's obviously going to have somewhat of a lag effect. The stranded overhead, it will start coming through as soon as we get some of these deals closed, and we expect to close North America Bakery pretty quickly. We should close Refrigerated Dough business, we would hope, in short order as well. And some of the benefits from savings will tend to come toward the back half of the year than the front half. So that is going to have an impact in terms of seeing some of this positive news coming through in the latter half of the year. And from a MAP investment, I don't think we specifically talked when it's going to fall, but I expect more of it as well potentially coming through with some innovations in the front half of the year. But we'll sort of see how it works in the back half.

Bryan Spillane - BofA Merrill Lynch

Okay. So on a year-on-year basis, in the first half, is it potential that your operating profits would be down in the first half?

Marcel Smits

If you don't mind, we have given a signal that people should not -- take the total operating income increase and then divide that by 4 and apply that to every quarter. That's what we've said, and we'd like to leave it at that. Otherwise, I hope you don't mind, but otherwise, we're going to get ourselves into issues of selective disclosure. We have obviously thought about what we want to write in the press release, and I think we should leave it at that.

Bryan Spillane - BofA Merrill Lynch

Yes, I totally understand. And then just one last question, in terms of the cash outlays, I guess, just following up on Eric Katzman's question, how much of the cash outlays that you're expecting in fiscal '12 will occur before the split? And I know some of this is, I guess, going to be linked to the timing of when the special dividend gets paid, how much -- closing some of these deals, the cash taxes, exactly, when they get paid. I'm just trying to get a sense for -- should we expect that a lot of these items will get paid, even the charges associated with, I guess, executing the split? Will a lot of that cash actually get paid out presplit, so by the time we get to the 2 separate companies, being independent companies, a lot of that stuff is behind it, or will some of that get pulled over into the post-split time period?

Mark Garvey

Bryan, again, in terms of the cash-debt number we gave you at the end of fiscal year '12, that assumes, of course, we pay the special dividend, and that assumes that we pay the repatriation tax, et cetera. And we pay, substantially, the cash associated with restructuring charges prior to the spin, and for the most part, we would expect that to hold true.

Jan Bennink

Just in terms of logistics, because I think we have 7 people in line, and if you can keep your questions to the key questions, we'll try to have another 15 minutes until quarter to 11 somewhere.

Marcel Smits

I'm going to be on the road next week, so...

Jan Bennink

Yes. So I think really the key questions, so I would like to talk to as many people as possible, but we'll keep it to the key issues. I know it's a complicated thing, so we're going to try and help you out because there are so many floating parts. That's why we spent more time than we would normally do on a call, and I think it's just to help you out in making your modeling correct.

Operator

Our next question comes from Alexia Howard.

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

It's Sanford Bernstein. Two questions. First of all, private label encroachment in Senseo in the Netherlands, what's the status of that, how is that going and how is it changing your thinking about potentially moving Senseo to more of a closed system rather than a open system? That's question #1. The second thing is the $180 million to $200 million of cost savings next year, could you give us a little bit more detail around that, particularly around the resetting of the global contracts on the outsourcing of the back-office functions, how much is that, how much is attributable and what plans do you have to maybe reducing the size of the corporate headquarters, other plans to rationalize manufacturing space, just a little bit more detail on how that breaks down?

Jan Bennink

Okay. We'll take those 2 questions. I think I'll take the private label one. So far, if you look at private label shares, I mean, private label, and specifically Holland, have not increased. I mean, so yes, there is a pressure in terms of price, but we have not lost market share significantly in our single serve. As I said before, in my -- kind of what we're going to do with the new innovations or with the innovations, it is clear that we are looking for making this a much more attractive single serve business than it currently is. So there will be a significant difference versus private labels in the next 9 to 12 months, and it will be looking different. Can we close it? I mean, who knows. I mean, we're working to make it sure that it is a very, very interesting business going forward. We believe in it, and it's a great business. And on the cost, I think...

Mark Garvey

Alexia, just a flavor of the costs and then some of these amounts, of course, we're estimating at this point because we still have quite a bit work to do just to get to where we need to. So you mentioned a number of areas. First one related to global contracts, and I'm really referring to our primary IT service contracts that we have across the corporation, which are now on Sara Lee contract. We will need, of course, to break those down into separate contracts for the new companies. That's going to take some negotiation to sort of work through that. The objective, of course, is that we end up with lower comps for both companies at the end of the day. But there may be some costs in terms of moving out of what are now long-term contracts. From a cost perspective, we're working through function by function on each corporate department in terms of what we will need in the new companies. As a result of that, we are really taking the approach of being as lean as we need to be. We know now where we actually need to be in both companies for both corporate functions. So I'm building in what I know will be certain costs to restructure those, again, which will give us the ability to mitigate those corporate costs coming through and absorb as we talked about earlier. And on the manufacturing side as well, we are starting to make some decisions. You saw the Paris, Texas plant we just announced, that we continue both in North America and Europe to look across our manufacturing footprint to determine what we need from a long-term perspective. And again, we're probably going to make some calls on that over the next 6 to 9 months as well.

Marcel Smits

And the last item I think is significant cost savings within these segments. The North American business has been making a number of announcements recently as to how they are going to set themselves up, and all of those announcements have led to fairly meaningful FTU [ph] reductions that we're pushing through. So it's corporate center which is partially disappearing. It is infrastructure. That's a big component. Thirdly, then, is within the segments, there are cost savings being pushed through, in particular on the North American side. And then lastly, and that's a smaller item, is cost benefits from manufacturing.

Operator

Our next question comes from Chris Growe.

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

I just have 2 quick ones. My first question was just to understand a little better around the pricing you have in place today in relation to the cost inflation in fiscal '12. The cost inflation, the incremental $500 million, is that primarily in Coffee? And then again, related to that, is the pricing in place to offset that full amount of that $500 million of cost inflation, or is there more that needs to come through fiscal '12?

Mark Garvey

Chris, the majority is in Coffee. I'd say maybe about 60% or so, 60%, 65% is in Coffee. The only place where we haven't put the pricing through is Coffee. We still have another quarter. This quarter, we're actually putting our pricing in place for Coffee, so that should be done by the time we finish this quarter, so that's why we said that by Q2, we should have fully priced through what we see right now as commodity inflation.

Marcel Smits

In North America, all of the price increases that we need in order to offset the commodity cost increases as a result of the annualization of the increases that we've seen so far have been announced. So we have no other plans or further announcements in North America.

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

Okay, that's helpful. My last question then was in relation to product mix, and just looking at a few of the businesses like North American Retail that has weakened, I just wanted to get a better sense of what you see for product mix in some of your businesses? Looks like it's still quite strong in Coffee. But if the pricing goes up, is the anticipation that, that would weaken as well?

Marcel Smits

No, in coffee, the mix figure that we've been reporting is function of, in particular, L'Or EspressO because that's very few tons, but lots of value. So that gives us a nice little element of mix improvements. We tend to look at volume and mix combined because frankly, it's fine. If we sell lots of L'Or EspressO, very few tons for lots of value. In North America, yes, it goes up and down a little bit by quarter. That's more coincidental. I don't think there is a real trend line there. There's an overall gradual trend to get out of or to move more to higher-priced products. But that figure, I think, will go up and down a bit. Generally, it should be positive. But it's not sort of a consistent picture which I think you are likely to see from the Coffee business, given the fact that we have a lot of growth in single serve and L'Or EspressO.

Melissa Napier

I'm just going to say this for a quick time check. I think management should have about 5 more minutes, and I think we still have some people in queue. So if there is anyone in queue that we don't get a chance to speak to, Investor Relations will be around all day to take any follow-up questions.

Operator

Next question comes from Robert Dickerson.

Robert Dickerson - Consumer Edge Research, LLC

Consumer Edge Research. Just a couple of very easy, short questions. One, CapEx, we didn't hear any guidance on CapEx. Do you have it?

Mark Garvey

Yes, so CapEx for fiscal '11 came in at $3.55 million, and we haven't given specific guidance, but you could expect it to be a little bit higher than that. Now we're working through some in Energy in Motion projects that may, towards the end of the year, be something you want to invest in before we head to spin. But from a modeling perspective, assume around $3.70 million right now.

Robert Dickerson - Consumer Edge Research, LLC

Okay, perfect. And then it looks like your interest expense guidance is flat year-over-year, and as Eric said earlier going through all the the cash discussion, your year-end cash balance, obviously, seems a bit low. I was just curious, would there be -- if you did see the right opportunity with respect to Meats and bolt-on acquisition, would you consider potentially tapping the debt market even before the spin work to occur, or are there certain restructurings that you can't?

Marcel Smits

We have a limited amount of bandwidth. The problem with acquisitions, of course, is that they never come with timing that is suitable for everyone to buy. So we're very focused on executing the spin at the moment. Do we completely close everything down? No, we wouldn't. More than anything, we're focused on everything that we've announced today in terms of getting it implemented.

Robert Dickerson - Consumer Edge Research, LLC

Okay, perfect. And then just to clarify, the timing of the special dividend, is that -- I mean, that's still online for, I mean, I'm assuming -- is there any additional color around that? Are you thinking basically early calendar '12, or should we expect in kind of late calendar '11?

Marcel Smits

What we have said in the past is that it will come after the closure of the Fresh Bakery transaction. We have noted the preference for everybody to, I think, have that dividend ASAP. There is a small possibility that by putting it a bit later, we can achieve some further structuring benefits, and those structuring benefits would be very much to the benefit of the shareholders. If that were the case, then we'll go down that path, but we have noted the preference from everybody to get that money fast.

Operator

Our next question comes from Gregory Chwatko.

Gregory Chwatko

It's Goldman Sachs. Just had a couple of quick questions of clarification around the year-end gross debt balance and cash balance. Those numbers would be the combined -- each of the separated entities at that point, the combined debt and combined cash of each of those entities?

Marcel Smits

Yes.

Mark Garvey

That's correct, yes.

Gregory Chwatko

And then also, as far as the indications around the intended leverage at each of the entities, I believe you've mentioned 2x as a target area to be pointing towards. Are you looking at that as net leverage, or is that gross leverage for the entities?

Mark Garvey

Okay, just for clarity, again, our goal is for both entities to have solid investment grade ratings. That's what we're working towards, and the actual coverage would be gross debt.

Operator

Our next question comes from John Baumgartner.

John Baumgartner

Telsey Advisory. Jan and Marcel, thinking about International Beverage in Europe, specifically, you called out the weather issues this spring, but was there any volume weakness on the Continent really attributed to the retail price increases, number one. And then secondly, I guess segment volume down 9% in the fourth quarter. Is there any way to parse out how much that decline was attributed specifically to exiting the French private label business?

Jan Bennink

The French private label business is just over a percentage point.

John Baumgartner

And then any color on the overall demand?

Marcel Smits

That's why I was saying the jury is still out, and we have not taken very significant price increases. So far, we don't think that market -- overall market volumes will decline as a result.

Jan Bennink

No, we don't.

Marcel Smits

And so we've seen a decline in the Dutch market, which is a high-consumption market. And you sit there and you think, well, is this now attributable to the fact that prices has gone up a lot, or is this attributable to the fact that it's been very warm. We've had those discussions, and as I said, I'm always a bit -- I'm a bookkeeper, so I'm a bit skeptical by nature about weather explanations. That said, we've seen in July when the weather was warm, that we actually saw market actually came back. So there is a credible story to be told about, yes, that did have an impact.

Jan Bennink

How much? I think it's very difficult to say. It's 50-50. But it's a bad summer, so far in the Northern European countries, and we saw weather has an impact, for sure.

Marcel Smits

I've been in the past associated with ice cream businesses, where it was often, too, used as an excuse. So that's why I tend to be very cautious with that.

Operator

At this time, I am showing no further questions.

Jan Bennink

Thank you very much for your attendance. And if there's any further questions, as Melissa said, you know extremely well where to find her. And we'll be on the road, I think, in the coming 2, 3 weeks and trying to answer as many questions as we potentially can for the future.

Mark Garvey

Thank you.

Marcel Smits

Thank you.

Operator

Thank you. That does conclude today's conference call. Thank you, all, for joining. You may disconnect at this time.

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