Eric Katzman - Deutsche Bank
I try to look at it excluding the upfront costs so I''m getting clearer picture, and not getting the swings from that. And even excluding that, it''s still up significantly. So is that the Venezuela absorption, is that the hit from Russia, which is surprisingly large. I''m not exactly clear why that keeps coming back for such a small acquisition. I don''t understand.
Ronald Dissinger
It doesn''t have anything to do with Venezuela or Russia. It''s really the advertising and the upfront costs that are driving the performance.
John A. Bryant
Eric, I think what''s happening a little bit is the upfront costs this year were – in the fourth quarter, one it was the highest quarter of the year for upfront costs and secondly it was largely in the SG&A line, which is a bit different to prior quarters in prior years. And also the advertising increase year-on-year is significant. It''s about half the increase in the SG&A margin for all SG&A sales for this quarter. Now whatever advertising we spent in the fourth quarter wasn''t so different to any other quarter in the year, but our sales base is lower in the fourth quarter because of seasonality and so it distorts the SG&A margin line.
Eric Katzman - Deutsche Bank
All right. Maybe I''ll follow up, but I''ll pass it on. Thanks.
Kathryn Koessel
Okay, one more question.
Operator
Okay and our last question comes from Chris Growe of Stifel Nicolaus. Please state your question.
Chris Growe - Stifel Nicolaus
Hi, good morning. I just wanted to ask you, looking at a little softer volume picture here for the company, and I''m just curious when you look at 2010, to the extent that you have big increase in advertising that occurred this year and it looks like it will occur again next year, what else is it you''re doing to drive volume growth? The categories look like they''re doing okay, but at the same time, new productivity is a little soft this year in 2009. Is that picking up into 2010? Or perhaps, what are the levers that we should look at to judge your volume growth in 2010?
John A. Bryant
Chris, let me just clarify a little bit on volume in 2009 and then I''ll hand it back over to Dave to talk about 2010, and I think Eric just raised this as well in terms of the impact of Russia. If you look at volume in the fourth quarter we were down slightly, and the three big drivers of that were actually China, Russia and frozen. In both China and Russia we''re trying to move our business to a higher margin or premium packaged foods business from lower margin or bulk business in some of those markets. What that is doing actually means that we are moving away from some pretty big chunks of volume. And then of course, the frozen issue of Eggo disruption impacted our volume. If you could strip those out, our volume was actually very healthy in the quarter. In fact our cereal volume was up 3% to 4% in the course, so we are seeing good volume in the core of our business. There''s some almost around the edges which is distorting volume. So we actually feel good about our volume performance.
A. D. David Mackay
Yeah, I think if you look at 2010, we''ll see volume grow, a little bit of mix, much lower levels of pricing, just as a result of what''s going on with commodity and cost increases, so that''s why when you look at our guidance of 2 to 3 being more in line with our long-term top line it does reflect the fact that the pricing impact is going to be significantly lower, and it''s been for probably the last three to four years.
Chris Growe - Stifel Nicolaus
Okay, that''s helpful. I guess it''s good to get a little bit of perspective on how big those drags on the quarter could have been because that seems like it could have been a bigger driver than many of us expect. |