荷美爾 (HRL) 2002 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Hormel Foods third quarter earnings conference call.

At this time, all participants are in a listen only mode.

Following today's presentation, instructions will be given for the question-and-answer session.

If anyone needs assistance at any time during today's conference, please press the star followed by the 0.

As a reminder, this call is being recorded, Thursday, August 15, 2002.

I would now like to turn the conference over to Mr. Fred Halvin.

Please go ahead, sir.

Good morning, everyone.

We're pleased to have you join us at Hormel Foods conference call for the third quarter of fiscal 2002.

We released our results this morning around 6:00 a.m.

Central time before the markets opened.

If you did not receive a copy of the release, you can find it on our website at www.Hormel.com.

For those of you that are early risers, you may have seen Joel Johnson, our Chairman, President, and CEO, discuss the quarter this morning on CNBC.

Leading our call today is Michael McCoy, Executive Vice President and Chief Financial Officer.

Michael makes both the overview of the company's third quarter as well as detail the financial results.

He will then provide the outlook for the fourth quarter and give you an opportunity to ask questions.

All of the prior year comparisons that Mike will be presenting have been adjusted for FAS-142 and EITF 0014 and 0025.

I would like to note that our tables attached to our press release don't adjust the prior year information for SFAS-142, so they reflect the same information that is filed on the 10-Q.

I would like to note this call is intended for the communication with our analysts and shareholders.

The media should refrain from asking questions at this time.

First, the Safe Harbor statement.

Some of the comments made will be forward looking and made under the Private Securities Litigation Reform Act of 1995.

Actual results may differ, and factors that may cause this are identified on page 26 of the company's annual report to shareholders for year ending October 27, 2001.

Now I'll turn the call over to Mike.

Thank you, Fred, and good morning, everyone.

As we noted in the press release, third quarter earnings per shear was 27 cents compared with 26 cents last year.

This met consensus expectation.

It was also within our May 16 guidance of 25 to 28 cents.

No question, conditions were tough for our industry in the third quarter, as they were in the second quarter.

The major challenges were the ongoing protein oversupply, which caused low turkey prices and low hog prices, which generated losses within our procurement contracts.

Our third quarter results would have been much weaker without the margin benefits we gained from having more value added, branded products in the sales mix.

The grocery product segments operating profit was particularly strong in the quarter, benefiting from lower raw material costs.

We also have further improvement in the sales mix at the food service and meat products business units within our refrigerated foods operating segment.

Jenni-O Turkey store continued to face industrywide pricing pressure on poultry products.

Earnings per share for the nine months of fiscal 2002 totaled 86 cents compared to 87 cents last year, which includes a six cent adjustment for FAS-142.

Dollar sales for the third quarter were $934 million, down 4% from $977 million a year ago.

Lower pork and Turkey prices were the principle reason for the decline.

Volume was even with last year.

Planned reductions of commodity sales at Jenni-O Turkey store contributed to the flat volume with a year ago.

Dollar sales for the nine months totaled $2.87 billion, up from $2.83 billion in fiscal 2001.

Volume was up 2% from last year's nine months.

Market shares for many of our branded products continue to strengthen during the fourth -- during the third quarter.

We enjoyed volume shared growth for the following grocery product brands: Spam luncheon meat, Hormel microwave brands, Mary Kitchen hash, Hormel chili, Hormel real bacon bits, Chi-Chi salsa, Carapelli Olive oil, steak chili, and Herdez salsa.

Refrigerated foods brand strength leaders in the food service business included Always Tender fast and easy precooked bacon, Old SMoke House premium bacon, and Austin Blues barbecue.

Within the meat products business, [INAUDIBLE] boneless and spiral sliced hams also gained share during the third quarter, as smaller hams for everyday use were introduced.

We have already seen fantastic results from this initiative, and look forward to even more improvement in the next quarter.

Gross margin for the third quarter increased to 24.3% from 21.5% last year.

As we noted in the press release, branded product sales and margins were particularly strong in grocery products, including -- including ethnic foods, and in the foods service and meat products businesses within the refrigerated foods segment.

Grocery products margins benefited from lower raw material costs, a better mix of branded products within the meat products and food service contributed to margin improvements in refrigerated foods.

The branded products mix was also helpful at the Jenni-O Turkey store, but this impact was completely overwhelmed by the impact of the oversupply of poultry and its effect on margins.

Gross margin for the nine months totaled 24.3%, up from 22.3% in the comparable period last year.

Selling and delivery expenses were 11.9% of sales in the third quarter, versus 11% a year ago.

For the nine months, the comparisons were 11.7% this year, and 10.9% in fiscal 2001.

As we have continued to indicate in the past, as we move into a heavier mix of value-added products, the cost to handle these products is slightly higher.

We continued to invest more in marketing programs this year in support of the expanding the array of value-added brands in our product mix.

Third quarter marketing expenses totaled $29.7 million, or 3.2% of sales compared with $21.7 million or 2.2% of sales last year.

Year to date, our marketing expenses totaled $88.6 million, or 3.1% of sales versus $70.7 million or 2.5% of sales in fiscal 2001.

Administrative and general expense was 2.5% of sales in the third quarter compared with 2.6% last year.

Year to date, the comparison was 2.4% of sales versus 2.2% in fiscal 2001.

Given what's transpired in capital markets in the third quarter, it's clearly more important than ever to maintain disciplined financial management.

This sentiment may be new to some firms, but it's been the standard operating procedure at Hormel Foods for decades.

Our bedrock policy is to maintain transparent financial statements, operate the business to produce strong cash generation, and make very prudent use of debt.

In the third quarter, cash provided by operating activities was $63.8 million.

Our total debt to capital ratio was 29.3%, and our Ebitda to interest coverage was 12.4 times, based on a rolling 12 month average.

These measures are clear indicators of the financial stability of our company.

And as Joel referenced this morning in his appearance on CNBC, we were pleased to certify our fiscal 2001 and first half 2002 financial results, without exception or hesitation, on August 1st.

Interest expense in the third quarter was $7.7 million compared to $8.9 million last year.

The lower interest expense is the result of a lower debt balance in the third quarter this year compared to last year.

For the nine months interest expense totaled $24.1 million versus $19.3 million last year.

We have not benefited from lower interest rates because most of our debt, as you know, is at a fixed rate.

Depreciation and amortization was $21 million in the third quarter, compared with $24.9 million last year.

For the nine months, depreciation and amortization was $62.3 million, versus $63.4 million a year ago.

Ebitda for the third quarter totaled $83.5 million compared to $81.4 million a year ago, And year to date Ebitda was $264.8 million, versus $250.4 million in fiscal 2001.

Our effective tax rate for the third quarter was 34.9% compared with 34.8% a year ago.

This brings our year-to-date rate in line with our previous guidance of 36%.

We estimate our effective tax rate to be in the range of 35.75 to 36 1/4 for the fourth quarter and for the entire fiscal 2002.

Capital expenditures for the third quarter were $13.3 million, compared with $16.2 million last year.

We estimate, and this is a revision, that our total capital expenditures for the year will approximate $65 million, down from a previous guidance of $75 million for 2002.

Year to date, we have made capital expenditures totaling $38 million, compared to $56.2 million last year.

The basic weighed average number of shares outstanding for the third quarter was 138.8 million shares.

The diluted weighed average share is outstanding for the quarter was 140.3 million, which is about even with last year.

During the third quarter, we processed 1.82 million hogs, compared with 1.78 million in the same period last year.

At this point, I would like to comment on unusual market conditions facing Hormel Foods in our industry.

The combination of the Russian ban on poultry and the higher supply of protein resulted in a protein glut that continued to restrain prices in the third quarter, with damaging results for both poultry and pork.

Jenni-O Turkey store was especially hard hit in the third quarter.

As was our refrigerated food segment.

Our long term procurement agreements have a negative impact on earnings in the third quarter as a result of lower than expected live hog markets.

The excess supply of protein kept live hog markets below our contract price.

We experienced an average based price of 36 and 3/4 per live hundred weight on hogs in the third quarter, compared with the average of $39 per live hundred weight we anticipated in our forecast in May.

Last year as comparison, our live base price was 58 1/2 in the third quarter.

As we have mentioned before, long -- low hog prices are generally a net positive for Hormel Foods bottom line.

The problem comes when low hog prices are combined with weak retail demand due to protein oversupply.

This phenomena results in margins that aren't strong enough to offset the losses on the procurement contracts.

Without the enhancement that we saw in the impact of value-added products in our sales mix, margins would have been lower as a result of the losses.

The losses on our contracts for the quarter were $13 million, compared to a profit of $19.5 million last year.

This $32.5 million before tax swing in our numbers is about 15 cents a share.

I would like to take a minute to turn to the achievements and challenges in our business.

Third quarter dollar sales from grocery product segments were even with last year.

Buying was 1% ahead of last year.

Operating profits of $27.3 million were 27% ahead of last year.

This reflected the fact that we maintained our sales prices while raw material cost declined.

Growth in the ethnic category continued, led by Herdez brands, Chi-Chi sauces, and Marrakesh Express greens.

As I noted earlier, many of the segments brands posted further gains and market share in dollar sales in the third quarter.

Hormel Foods also introduced a new product line called Dinty Moore Classic Bakes during the quarter.

This is a dinner kit that serves 4 to 5 people.

This is a good example, and another example, of leveraging the Dinty Moore brand equity into a new line of products.

Retailers have responded positively to date with this new introduction.

Refrigerated foods dollar sales totaled $502 million, which is down 5% from $529 million a year ago in the third quarter.

As I mentioned earlier, the lower pork markets caused this decline in revenue.

Volume rose 2%, including a 10% increase at food service.

Operating profit totaled $18.6 million, up 4% from $17.8 million last year.

Despite the significant impact of the protein oversupply on refrigerated foods, branded products made progress in the third quarter.

Meat products saw solid volume growth for processed foods across all geographic areas.

Volumes for two Cure 81 brand products were up double-digit.

Market shares for bacon and pepperoni products strengthened.

Better volume at food service was delivered by continued success in selling key brands such as Hormel Always Tender, Fast and Easy precooked bacon, Old Smokehouse premium bacon, and Austin Blues barbecue.

Food service also launched a new initiative in the third quarter called Cafe-H, which incorporates new ethnic sauces and proteins with established Hormel foods brands such as Herdez, House of Tsang, Peloponnese, [INAUDIBLE] and Carapelli.

This initiative is designed to provide food service operators with new options to attract and retain customers who increasingly desire bolder ethnic flavors.

Conditions in the poultry markets were difficult.

The values for breast meat, whole birds and dark meat have all been significantly below historical normal levels.

Dollar sales and volume declined 5% for the quarter compared to a year ago.

A planned reduction in commodity product sales contributed significantly to this loss volume.

Operating profit declined 26% to $15.4 million compared with $20.9 million in fiscal 2001, third quarter.

Branded sales leaders at Jenni-O Turkey store in the third quarter included Jenni-O Turkey store marinated tenders, corn dogs, So Easy products, oven roasted turkey breasts, flavored chicken deli breast, and Cajun style turkey, and our full line of So Easy fully cooked entrees.

Strong acceptance of the So Easy line resulted in plans to introduce three flavors in the fourth quarter.

Year to date sales of Jenny-O stores branded value-added products are up 4% over last year.

Dollar sales for the all others segment in the third quarter were $44 million, down 11% compared to the same period a year ago.

Volume declined 9%.

Operating profit, however, was up 54% to $6.2 million.

Spam luncheon meat brand strength increased globally during the quarter.

This was aided by a wide distribution of Spam roasted turkey and garlic flavored luncheon meat.

Next month, McDonald's restaurants on Guam will begin offering a new recipe including Spam luncheon meat along with eggs and rice.

During the third quarter, Hormel Foods made further progress in forming the [INAUDIBLE] Foods LLC joint venture with the Excel subsidiary of Cargill.

We hope to sign the final agreements in the next two weeks.

Our [INAUDIBLE] Foods strategy is intended to position us to offer Hormel retail customers a complete national line of Hormel Always Tender branded beef and pork products on a case-ready basis.

And -- and do it without a large investment of new capital.

We will continue to keep you posted on the developments with this project.

Clearly 2002 is turning out to be a difficult year for both Hormel and our industry.

We believe this environment demonstrates the real value of our long term growth strategies.

They being build emerging businesses, strengthen existing brands, provide outstanding customer service, and launch new products.

We are competent that this approach, coupled with the firm financial discipline that I spoke of earlier, provides us with the best products -- prospects for creating shareholder value over time.

Now, a quick recap.

Overall, benefits from branded products more than offset the negative impact of protein oversupply during the third quarter.

Operating profit was up 27% in our grocery product segment, with volume up 1% compared to last year.

Growth was particularly strong for many ethnic products.

Refrigerated foods, while it felt the effect of the protein oversupply, contributed, with the contributions arising out of branded products and meat products, and food service, generated a 4% increase in operating profits.

Brand strength defined a share of market continued to improve for many key brands.

We continue to support our brands with $8 million higher marketing investment compared with last year's third quarter.

The food service business delivered strong results growing 10% over last year.

Our procurement contracts negatively effected our bottom line during the third quarter, but these contracts have protected our pork producers through this period of economic pressure.

We continue to seize opportunities to position Hormel Foods to serve the changing marketplace more effectively.

Now, our thoughts on the future.

We expect our industry will continue to wrestle with the excess supply of protein and higher grain prices in the fourth quarter.

Poultry inventories continue to be high, but we have seen improvement recently in pork inventories.

We anticipate the following average live base price per hundred weight for hogs. $32 average for the fourth quarter, $28 for the first quarter of '03, $34 for the second quarter, and $41 for the third quarter of '03.

In light of this environment, we have reviewed the fourth quarter plans for each of our business units.

We are issuing earnings per share guidance in the range of 44 to 55 cents for the fourth quarter, and $1.30 to $1.41 for the full year.

We've based this guidance in part on the following assumptions: Successful conclusion of the export agreements with Russia, and slightly higher grain prices than seen today.

As you know, pricing in our procurement contracts is tied to the green markets.

We have factored into our guidance contract losses in the range of 15 to $24 million for the fourth quarter.

In the fourth quarter, we will continue to execute on our growth strategies, we will take further steps to finalize and move forward with our [INAUDIBLE] Foods joint venture, we will continue to manage our finances conservatively, and leverage our strong financial position to grow the business further.

And, operator, now I'll open up for questions.

Thank you, sir.

Ladies and gentlemen, at this time, we will begin the question-and-answer session.

If you have a question, please pressed star followed by the 1 on your push button phone.

If you would like to decline from the polling process, press the star followed by the 2.

You will hear a 3-tone prompt acknowledging your selection.

Your questions will be answered in the order they are received, and if you are using speaker equipment, you will need to lest the hand set before pressing the numbers.

One moment for our first question.

Our first question is from David Nelson.

Please state your company name followed by your question.

Credit Suisse First Boston.

Good morning.

Good morning, David.

I guess I will start by saying that all things considered, I thought you had a very good quarter.

Congratulations.

Thank you, sir.

Given your underlying strength in this overall natural environment, including the underlying strength of your cash flows, any thoughts on share repurchase these days?

Well, you know, David, we have an outstanding program.

We have, as we speak, about 350,000 shares left.

We bought shares during the third quarter, and we intend on probably filling out that -- what is left of our authorization during the fourth quarter.

Okay.

On the big increase in marketing spending in dollars, could you give any guidance as to where, um, that was spent?

Primarily to support the pork initiative, with our Today's Flavor.

Today's flavor.

A program that you're aware of.

Uh-huh, all right.

The food service growth, is that mainly institutional, or could you be more specific there where that's coming from, please.

It's really across the board, David, um, both institutional and in the higher-end restaurants and, um, and -- and it's really our philosophy, as you know, and we have continued to talk about, is working with the end user and the operators.

And working to generate interest through menu a development et cetera, using our chefs, et cetera, working with the operators to, um, to -- to really document and support the strong brand and quality of Hormel products.

All right.

Lastly on turkey.

Given the avian influenza that's in Virginia, obviously not near your flocks, you gave us your hog price outlook.

And while I guess on the overall poultry side, we're seeing egg sets and chicks [INAUDIBLE] come back pretty good on the chicken side.

When do you see the oversupply in turkey becoming more normal?

Probably not until the second or third quarter of next year.

Fiscal?

Yeah.

Okay, thank you very much.

Um-hmm.

Thank you, sir.

Our next question is from John McMillian.

Please state your company name followed by your question.

Prudential.

Good morning, Mike and Fred.

Good morning.

I got up bright and early, I saw Joe.

I wasn't surprised to see him in Minneapolis given the golf tournament going on today.

John, he's working today.

He's not -- he's not playing golf.

Well, he's good enough to be part of the PGA.

I just, um --

[laughter] Yeah, maybe.

My attempt at humor.

Um, just, you know, one question that was not asked on CNBC that I was kind of hoping, given all the Hershey and the interest in, um, in the foundations is to what extent Hormel could see something that just happened to Hershey.

What do you think he would say?

What do I think he would say?

Well --

Well, I'm sure you have been asked the question a lot in the last month and a half.

Well, um, we have -- first off, I can't -- I can't speak for the foundation.

I don't have any relationship with the foundation.

I don't think that the things that Hershey is going through, particularly in line in with -- with the way our foundation is structured, that the facts and circumstances are the same.

Um, because -- because of -- really the way the instruments were set up by the original settlers of the agreements.

Uh-huh.

And so I don't see a Hershey play facing us anytime soon.

Well, thanks for addressing that.

Now, the fourth quarter range is kind of wide enough to maybe satisfy a technology company.

Did you -- did you think about narrowing it?

Are you really, um, um, -- you didn't feel the -- if you kind of take the ups and downs of hog procurements, the range shouldn't be that wide.

You just feel like there is that much going on in the fourth quarter where your range had to be that wide.

Yeah, I think, John, quite honestly, I think we're still looking at the fallout from the USDA crop report that came out on Monday.

You know, we saw -- we saw corn prices up the limit on Monday and Tuesday.

You know, and now we -- now we seem to think that maybe there is going to be some semblance of order coming back into that thing.

The visibility in terms of -- and it's frustration on my part, quite honestly, because I like you would like to see it narrowed somewhat.

But right now on August 15th, it's very difficult for us to see, with the ups and downs, and everything we see going on now, very difficult to pen point where that's going to shake out.

And, you know, even the guide guidance that I'm giving on our hog losses, you know, that's really predicated on these grown prices.

And if that narrows, we get a better handle on it, hopefully we can narrow in a little better.

But right now, um, you know, it's difficult.

When you bought Jenni-O, a lot of us tried to calculate the accretion in 2002 earnings because of the acquisition.

I remember in this conference call, you know, we talked about -- obviously a lot's happened in poultry altogether, but what do you think the impact of Jenni-O will be on this full year?

Well, Jenni-O will continue to be profitable, and -- and I would answer that two ways.

First off the, um, the -- the items that we identified in our conference call regarding the synergies.

Those synergies and rationalization, and I made a comment in my -- in my remarks about the planned reduction of commodity.

You know, a movement -- we have to continue to move Jenni-O Turkey store more into the value added arena like we're doing with Hormel, and doing a good job with Hormel pork products.

But, you know, with -- with the market conditions the way they are today, you know, there is no question that -- that the combined entities are going to deliver results that are going to be less than last year.

I think that's a given at this point.

But, you know, and -- and it's very difficult as you said, to compare apples and apples.

The only thing I can tell you honestly at this point is that our synergies that we identified for the group are being delivered.

In fact, we're, in most cases, ahead of those.

We have rationalized out one plan, and we're looking at other options in terms of some things we might be able to do.

So that process continues, but to be able to quantify in a number, John, I -- I -- I would have difficulty doing that.

Okay, thanks a lot.

Our next question is from Jane Mehring, please state your company name followed by your question.

Solomon Smith Barney.

Good morning.

Good morning, Jane.

Two questions for you.

First, I want to look at the performance of refrigerated foods in a little more depth, and sort of almost in sequential context.

You know, contract losses were $3 million more than you had projected --

Correct.

-- for this quarter.

And even with that, operating profit actually came in better than I was looking for, and just qualitiwise, looks better than the second quarter.

So, you know, you talked about the mix shift making progress in the third quarter, but can you break that down a little bit more so I can really understand how much value added mix changes are helping versus, you know, what's being offset in addition to procurement losses.

Well, I think -- um -- you need to bear with me here a second while I pull -- while I look at what we did on our release.

Um, you know, you look at -- you look at the quality, um, and -- and I -- and I continue to -- and you are right.

From the standpoint that we have -- from a performance measure, with what we're doing in the value-added arena, there is no question that we have moved the numbers up significantly in what we're doing.

If you -- if you look at the major categories and contributors, our pepperoni business improved significantly.

The Hormel fully cooked entrees saw some nice movement in this quarter.

Food services as I mentioned earlier, were up 10%.

Dry sausage was, was -- was a big contributor, and, as I talked about it in my remarks, the Cure-81.

Yeah, I guess I'm just trying to maybe quantify it more.

If I remember correctly, we've had discussions in the past where I think you talked about a goal loosely of maybe sort of translating 10% of your fresh pork volume each year from, you know, more commodity to more value added.

Yeah.

That's kind of -- my sense is maybe you're ahead of that, or is that not the right way to look at it?

Um --

I'm just trying to --

Okay.

All right, I see where you're coming.

Let me get one, let me look here for one number here.

If I could-- see if you I could answer.

If you look at -- if you look at where we are this quarter, we have moved the branded fresh pork arena up to now about 70% of our refrigerated sales.

Up to 70.

Up to 70.

Am I not correct that last year it was like under 60?

Last year it was under 60, at the end of the second quarter, it was like 65%.

At the end of the second quarter this year.

That's correct.

Okay, that puts it in some perspective for me.

And that really is one of the reasons why you're seeing the significant improvement in our gross margin.

Yes, there have been raw materials --

Right.

-- but that movement from -- from commodity branded is really -- is really the crux of what we're trying to get at.

Okay, the second question is on a different topic.

It's one thing to support the concept of -- of having prudent use of debt and financial statement clarity, and we all love you for that.

But it's another thing to have almost an embarrassingly high interest coverage.

So, you know, aside from sort of filling out your authorization, just address the liquidity issue, and, you know, one could say you're somewhat underlevered, and with the stock at 21, you could be a lot more aggressive.

There is -- there is no question, and the answer to that would be an affirmative in all respects.

We -- we will -- we will, as I said, our Board authorization at the present time -- the only thing we have authorized is to fill out the 10 million shares.

There is no question that we will be going back to the Board for authorization to have another share repurchase program.

But, I have to tell you honestly, that that's really the last alternative in terms of -- in terms of how I look at things.

I think the first thing we need to do, and you have talked about it and hit it right on the number, is that we need to continue to look at potential acquisition candidates and options.

We have done, that we continue to do that, but -- but saying all, that we're going to still maintain, and not be aggressive and not overpay, because I don't think our shareholders want us to go out attempting to do a deal that doesn't make sense from a financial standpoint --

But man, Hot Pockets had your name all over it.

what's that?

Hot Pockets had your name all over it.

I know.

I'm joking.

But we have -- and we continue to evaluate and look at options.

So you would rather keep your powder dry.

Absolutely right.

Okay.

All right, thank you.

uh-huh.

Thank you.

Our next question is from Eric Kappman.

Please state your company name followed by your question.

It's Deutsche Banc.

Hello, Mike

Hello, Eric.

I guess with the commodity markets behaving as tough as they have been, and the specter of higher input, raw material costs loaming if the drought continues, I guess my question is what do you think is the break-even level now for both turkey poultry processors that compete with you and hog processors, to the extent that we can start to feel more comfortable that some of the marginal players are being shaken out, and that that will, you know, help you come through what is a, obviously a -- call it a cyclical or, you know, commodity-driven problem.

Oh, boy, that's a tough question.

Let me answer it in two parts.

First off, um, from the information that we have -- that we have available to us, and I'm talking about the Turkey, Jenni-O Turkey shore, -- store, we use agrometrics.

I think everyone on the call is familiar with what agrometrics does.

We know that our cost structure at Jenni-O Turkey store is either number one or number two in almost every category that we play in, and every margin of measurement that we have in agrometrics.

And -- and I'm not speaking for any of the other -- any of the other people or the so-called marginal players that you referred to, but I will tell you that, while we're disappointed in -- in those -- the results that we have seen at the Turkey store this quarter, I'll tell you honestly that those marginal players have to be having a tough time in this environment, knowing that we're -- that we're the -- that we're the number one player in that industry from a cost structure, et cetera.

I look at -- in looking at the pork side of the business, I got believe that somewhere in the 37, 39 dollar range is a break even on, on live hog production.

And that these forecasted numbers going forward, particularly in the fourth quarter and the first quarter of next year, there is going to be tremendous 59 being felt by people raising hogs right now.

And based on your -- your experience -- obviously we only need to go back what was it, three, four years ago, when live hog prices got down below $10.

You know really hurt a bunch of marginal players.

How long does it need to -- how long does the pain need to last, do you think, before some of these guys go belly up, no pun intended why.

Well, what we're hearing in Minnesota is, the banks are really nervous about extending additional credit to producers.

And -- and what that means -- and their ability to finance operations.

You know, I think you're raising a good question, because I think long term, we're going to see shakeout here, and it already has to a certain extent.

And you said it's on both sides, both turkey and pork?

absolutely.

Okay.

Thank you very much.

Our next question is from Len Teitelbaum.

Please state your company name followed by your question.

Hi, good morning, this is actually Sara Auslum.

Mike, do you hedge your grain costs in Jenni-O Turkey store?

Not in any large extent.

We -- we take care of about three months worth of supply and that's it.

Okay, great.

Thank you.

There are no further questions at this time.

Please continue.

I'm sorry, we have a follow-up question from Jane Mehring.

Please go ahead.

Thanks.

You know, I usually don't ask for guidance out right, but for '03, you really haven't said all that much.

I know the visibility is low for the next four weeks, let alone the next four quarters, but any -- any early thoughts to share?

Well, I think, you know, early thoughts would say that we're not -- we're not really in a position, Jane, to hang our head on anything at this juncture.

I think the last numbers I saw is the street was out at like 165.

That's probably a little aggressive at this juncture.

Uh-huh.

But is it -- is it really aggressive?

I don't know yet.

And basis of are plans, and basis what we're working on presently, I got to tell I honestly, that's probably in the ballpark

Okay.

Or we'll -- let me put it another way.

We'll be in the range.

Okay.

Well, I'll go up and have a big barbecue this weekend to try to help you out.

thanks.

Okay.

Does that answer your question, ma'em?

Oh, my questions are never totally answered, but yes.

Thank you.

Thank you.

There are no further questions at this time.

Please continue, sir.

Well, we certainly appreciate everyone's efforts today, and -- and taking the time to listen to our conference call.

Thank you.

Pardon me, sir?

Yes?

We have -- oh, he just dropped.

Never mind.

That's all I have.

Thank you, sir.

Ladies and gentlemen, this concludes the Hormel Foods third quarter earnings conference call.

Thank you for participating, you may now disconnect.