荷美爾 (HRL) 2002 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by.

Welcome to the Hormel Foods Corporation fourth quarter earnings conference call.

At this time, all participants' lines have been placed in a listen-only mode.

Following today's presentation, instructions will be given for the Q&A session.

If anyone requires assistance at any time during the conference, please press the star followed by the 0 for an operator.

As a reminder, this conference is being recorded Wednesday, November 27 of 2002.

At this time, I would like to turn the conference over to Fred Halvin, the Director of Investor Relations.

Please go ahead, sir.

Good morning everyone, and happy Thanksgiving.

I would like to welcome you to the Hormel Foods conference call for the fourth quarter of fiscal 2002.

We released our results this morning before the market opened around 7:30 AM central time.

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

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

Mike will provide both the overview of the company's fourth quarter and fiscal 2002 performance as well as detailed financial results.

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

All of the prior year comparisons Mike will be presenting have been adjusted for EITF 14 and 25.

We intend this call for 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 today will be forward looking and made under the private securities litigation reform act of 1995.

Actual results may differ, and factors that cause this are identified on page 26 of the company's annual report to the shareholders for the 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 earnings release, earnings per share for the fourth quarter were 49 cents, which met the street expectations.

It was also in the middle of a guidance range of 44 to 55 cents we provided in August.

The fourth quarter was very challenging as we continued to wrestle with multiple market issues that began in the second quarter.

The issue that had the largest impact on our fourth quarter performance was the protein over supply.

This put pressure on turkey prices and lowered hog prices below our procurement contract floor price, which caused the company to incur a higher cost for hogs compared to the open market.

We saw some moderation in these trends as the quarter progressed, but they remain an issue.

Branded products now account for 79% of our total net sales.

Without the positive margin contributions from these value-added items, our results for the quarter would have been much weaker.

For the year, we experienced good performance at what we call the front end of our business.

That's the products and services that touch our customers.

We reported strong -- stronger market share overall, higher distribution levels, and generally strong new product launches.

These successes helped us withstand the financial pressures from the market issues at the back end of our business, which were the higher-than-market procurement costs I mentioned earlier.

Earnings for fiscal 2002 totaled $189.3m, versus $182.4m a year ago.

EPS were $1.35 compared with $1.30 in fiscal 2001.

FAS 142 would have increased 2001 net earnings by 9 cents per share for the year.

The company attained new dollar sales record for the year totaling $3.9 billion, up 1% from last year.

Sales growth was constrained by lower protein prices, but was offset by higher demand for branded, value-added products, and a particularly strong performance from food service, which has recovered nicely following 9/11.

It was also a record volume year with 3.3 billion pounds, up 2% from fiscal 2001.

This reflected stronger demand for our value-added branded products.

With branded products claiming a larger share of the product mix this year and more favorable raw material prices, we saw GM increase to 24.6% from 23.1% last year.

For the fourth quarter, dollar sales were $1 billion compared with $1.1 billion in fiscal 2001.

Volume was 877 million pounds compared to 863 million pounds a year ago, up 2%.

Net earnings totaled 68 million versus 68.4 million in last year's fourth quarter.

GMs for the quarter were 25.6% compared with 25.1% a year earlier.

Now I'll turn to the profit loss and BS comparisons for the year and the fourth quarter.

Selling and delivery expenses were 11.6% of sales this year compared to 10.8% last year.

For the quarter, selling and delivery was 11.1% compared to 10.6% last year.

Market expenses for the year totaled $106.4m or 2.7% of sales.

This compares with the investment of $84.2m, equal to 2.2% of sales last year.

This is a clear indication of our continued support for our expanded family of brands.

Marketing investments in the fourth quarter totaled 100 or totaled $17.9m or 1.7% of sales compared to $13.5m or 1.3% of sales last year.

As you know, we adopted a new accounting rule for EITF 14 and 25 this year.

This does not change net earnings, but does reclassify various market expenses as a reduction to revenue instead of expense.

Administrative and general expenses were 2.4% of sales this year compared to 2.3% last year.

For the quarter, general administrative expenses were 2.4%, compared to 2.5% last year.

Over the years, Hormel Foods has developed a reputation for conservative financial management and reporting policies.

These have been clearly made to our advantage during this difficult year.

In fiscal 2002, cash provided by operating activities was $326.9m, up 2% from last year.

Our ratio of total debt to total capitalization was 28%, and our EBITDA to interest coverage was 12.5 times.

Interest expense for the year totaled $31.4m compared to $28m a year ago.

For the fourth quarter interest expense was $7.3m compared to $8.7m last year.

We have not benefited from lowered interest rates primarily because most of our debt is at a fixed rate.

Depreciation and amortization was $83.2m for the year compared with $90.2m in fiscal 2001.

For the quarter depreciation and amortization amounted to $21m, down from $26.8m a year ago.

EBITDA for the year was $393.7m compared with $390.5m last year.

Fourth quarter EBITDA was $128.9m compared to $140.1 last year.

Our effective tax rate for fiscal 2002 was 35.6%, which was in line with our previous guidance, while the fourth quarter rate was 34.9%.

The change in goodwill amortization skewers the rate lower because now book and tax are closer.

HORMEL also in the fourth quarter made some investments in obtaining some affordable housing credits which also affected the rate in the fourth quarter.

CAPEXs for the year totaled $64.5m versus $77.1m last year.

We estimate our CAPEXs will total approximately $80m in fiscal 2003.

The basic weighted average number of shares outstanding for fiscal 2002 was 138.7 million, the diluted weighted average numbers shares outstanding for the year was 140.3 million.

During the fourth quarter, we repurchased 297 -- 297.3 shares of common stock, which leaves a little over -- a little under 57,000 shares to repurchase under the program that was authorized in 1998.

During the quarter, as announced, the company's board of directors authorized a new repurchase program totaling another 10 million shares.

We processed 7.6 million hogs in fiscal 2002, which is about even with last year.

The fourth quarter numbers were 1.9 million this year compared to 1.9 million last year.

Our refrigerated foods and Jenni-O Turkey store businesses were both significantly impacted by over supply and lower prices within the protein markets.

As you may recall, in the third quarter we projected lifelong prices to be around $32 for live hundred weight in the fourth quarter.

We actually saw an average base price of $31.15 per live hundred weight, which was below our contract price.

This compares with the live average price last year of $47.28.

During the fourth quarter, hog contract losses amounted to $35.2m versus a gain of $9.2m last year.

This $44m before tax swing equals about 21 cents a share.

For the entire year, the hired contract payments totaled $81.1m compared with a gain of $23.7m in fiscal 2001.

On a per-share basis, the pretax swing equates to a negative earnings impact of about 48 cents a share for the year.

Now I would like to turn and discuss the successes and challenges in our businesses.

Grocery products ended the year on a solid footing.

Sales were up 2% for the year and 1% for the fourth quarter.

In fact, fiscal 2002 was grocery products’ 7th consecutive year of record dollar sales.

Operating profits increased 12% for the year and 12% in the fourth quarter.

Volume growth in the segment rose 2% for the year and declined 1% for the fourth quarter.

This segment had market share gains and successful product line extensions particularly in the Dinty Moore and Hormel microwave entree product families.

Double-digit sales growth was reported for our ethnic brands such as Herdez, Doña Maria authentic Mexican foods, Carapelli olive oil, Marrakesh express greens, House of Tsang Asian sauces and oil, and Peloponnese Mediterranean foods.

Strong-selling non-ethnic brands included Hormel bacon bits and Hormel Vienna sausages.

In addition, the new Dinty Moore classic bakes dinner casseroles continue to receive a very positive reception in the marketplace.

Results that the refrigerated foods reflected the challenges in the markets overall.

Sales declined 4% during the year and 6% in the fourth quarter.

Volume in the segment declined 2% for the year but rose 3% for the fourth quarter.

Volume increases were particularly strong for breakfast meats, fully cooked entrees and value-added fresh pork.

For fiscal 2002, operating profits declined 7% from for the year and 27% for the quarter.

The negative impacts of excess protein inventories were partially offset by the higher profitability of our branded products.

The meat products business unit, which is part of the refrigerated foods segment, saw market share improvements for its major brands with record levels reported for both bacon and Hormel fully cooked entrees.

In fact, in the bacon category, we reached a 9.4 share for the year which was a record for Hormel foods.

In addition, our fully cooked entrees reached a 13.5 share, redeeming category leadership in the chilled entree category.

Strong growth continued for the Deluso and Georja Hormel premium deli line products.

Value-added fresh pork also gained ground.

Throughout fiscal 2002, meat products significantly increased marketing support for its major brands.

We also continued to shift the product mix between value-added products.

Food service volume increased 6% for the year.

In the fourth quarter -- its fourth quarter volume rose 11% versus 2001.

The food service operation has also made solid progress against these growth initiatives.

Always Tender Meats, Old Smoke House applewood smoked bacon, and Austin Blues all reported double-digit growth versus last year's fourth quarter.

The newly launched Cafe H line of products also contributed late in the year, reflecting strong acceptance from food service operators and patrons.

As we have mentioned before, Cafe H capitalizes on today's revolution in bolder flavors by using familiar proteins and sauces.

Jenni-O Foods Turkey store posted good, solid gains considering that the underlying values for whole birds, breast meat, and dark meat was significantly below normal market levels during the second half of the FY.

Sales grew 12% for the year and 4% in the fourth quarter.

Sales of products introduced within the last two years totaled $45m for the year, including major -- which included major contributions from marinated tenders, Cajun-fried turkey, So-Easy Entrees, and oven roasted turkey breast, flavored ground turkey, corndogs, and flavored deli-style chicken.

Volume for the year rose 8% reflecting growth in food service, retail, and deli businesses.

Fourth quarter volume, however, declined 3% from a year earlier as a result of softer demand related to the poultry over-supply and planned reduction on the part of Jenni-O Turkey Store in non-value-added processing.

Operating profit for the year totaled $69m, which is up 4% from fiscal 2001.

Fourth quarter operating profit was down $20m or 31% from the same period a year ago, largely due to lower poultry markets and the impact of higher grain prices.

However, the shift to a higher proportion of value added products favorably affected the segment’s results.

Despite the tough year, the integration of this business continues to go very well, and further efficiencies in improvements are ahead.

In fact, Jenni-O Turkey Store was highly ranked for operating efficiency and gross sales return in the latest agrometric survey in fiscal 2002.

Sales from the other business segments were down 2% for the year, while operating profit was up 39%.

Fourth quarter sales increased 17% while operating profits increased 6% from the fiscal 2001 level.

Volume for the year grew 9% with gains from most markets including China, Mexico and the Caribbean, Panama, South Korea, and the Philippines.

Overall, Hormel Foods made excellent progress in a very difficult year.

We weathered the storm by focusing on our key growth strategies: grow bigger and stronger brands, add more value to our products, build high-potential businesses, expand the food service business, and exercise financial discipline.

As we saw this -- as we saw this year, this approach contributes to increase the opportunity for us to continue to build shareholder value over time.

Now for a quick recap.

Margins contributions from branded value-added products helped to offset the negative impacts of performance from several market forces.

Operating profit was up 12%, and our grocery products segment was volume up 2% for the FY.

Growth has been particularly strong this year with ethnic brands and the extension of the Dinty Moore brand with the classic baked line of casseroles.

Refrigerated foods battled the protein over supply most of the year, but branded roast products within the meat products and food service businesses helped moderate this impact.

Brand strength, defined as market share, continued to improve for many key brands.

At year end, 32 Hormel Foods brands enjoyed first or second place market share positions in their respective product categories.

As I mentioned earlier, branded products accounted for 39% of our total fiscal 2002 net sales.

We supported these brands with a 26% increase in our marketing investment compared with last year.

The food service business continued its recovery posting volume growth of 11% for the fourth quarter.

[INAUDIBLE] costs from our procurement contracts negatively affected our bottom line for the year, but these contracts have maintained our pork producers through this period of economic pressure.

Jenni-O Turkey Store had a good year overall, although the business was very difficult in the second half.

Consumers and retailers responded well to the greatly expanded array of value-added products from this business, driving dollar sales up 12% for the year compared with fiscal 2001.

We continue to make progress on our case-ready nationally branded beef and pork business called Prestep foods, and this will be a top priority for us in fiscal 2003.

Now, our thoughts on the future.

We are cautiously optimistic about our prospects for fiscal 2003.

We expect that the unfavorable market conditions will gradually moderate during the year, but these issues will likely challenge us in the first half.

We anticipate better operating conditions in the second half of the year.

Our fiscal 2003 plans anticipate an average live hundred weight cost for hogs in the first quarter of $31, in the second, $39; third, $44; and fourth, $43.

We believe Hormel Foods is well positioned to improve business as the economy strengthens.

We begin fiscal 2003 with the financial strength necessary to leverage our growth, support our brands, and accommodate additional common share repurchases when appropriate.

We will face a couple of non-operating challenges in 2003.

Our pension cost is expected to rise as a result of the change in our expected rate of return and discount rates.

Likewise, our retiree medical benefits are also expected to rise.

Taking into account the plans each of our business units has developed for fiscal 2003, we are issuing earnings guidance for the first quarter of 35 to 43 cents a share.

We are focusing on the following strategies to increase share holder value in fiscal 2003 and beyond: we will continue increasing our presence in the fast-growing ethnic foods, food service, case-ready, and deli businesses; we will innovate with on-trend value-added products, we will continue to support our brands robustly; we will continue to expand our pork proficiencies to other proteins; we will build our scale and continue to build our scale in global markets; and provide outstanding customer service, and continue our leadership in food safety.

Operator, I will now open the call to questions.

Thank you, sir.

Ladies and gentlemen, at this time we will begin the Q&A session.

If you would like to ask a question, please press the star followed by the 1.

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

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

The questions will be polled in the order they're received.

If you are using speaker equipment, we ask that you please lift the hand set before pressing the numbers.

One moment for our first question.

Our first question comes from John McMillin, please state your company affiliation followed by your question.

Prudential [Securities].

Good morning, Mike, Fred.

Good morning, John.

Happy Thanksgiving.

Thank you, same to you.

Um, the expected, the change in the pension assumptions.

Can you just go through what you're changing your expected return on plan assets to?

We're reducing our returns from our 9.5, which was for this year, John, to 8.6 for next year.

And the discount rate?

Is that changing?

That is going, I think we're dropping it to 9 -- or to 7 1/4.

I think it was 7 1/2.

I had it at 7 1/4. [ Indiscernible ]

We're dropping -- excuse me, we're dropping the discount to 7.

7.

Right.

Um, and your pension fund that you're in, you don't have to make a contribution or anything, do you?

No, in fact, we can't.

At least for the next two years, even with these assumptions.

Okay, um, the -- you're kind of giving the vibes that things are settling down a little bit, um, but at the same time, your first quarter earnings guidance is an extremely wide range.

And, I think normally this time of the year, you do give earnings release – or at least I remember last year you were giving full year earnings guidance, and this year you're giving none.

So, you know, I guess I'm -- I guess I hear on one side, I hear things are maybe settling down.

On the other side, I'm just seeing very wide guidance for the quarter and no guidance for the year.

Can you comment on this?

Yeah, I was anticipating that question.

Um, a couple of things, John, you know, the -- the hog markets, um, and -- and particularly not only the live prices but as you know, the grain markets also impact the contract prices, and there still continues to be a certain amount of fluctuation in those areas, and I gotta be honest with you, you know, in terms of looking out, I think quite honestly the businesses are settling down.

But this first quarter, um, you know, the -- the clean-up in terms of the turkey complex and how that's going to perform here in the first -- in the first quarter is a real question.

I think, you know, the polls that have placed look out the second, third, and fourth quarter, I think, will tell us the market prices should increase, but that's a wild card here in the first quarter in how that complex is going to perform, and the hog complex.

And, so I sit here and we look and we spent a lot of time talking about this in the last couple of days, but, you know, it's a little better than where we were at the third quarter.

But some of the same things we talked about in our third quarter earnings release are -- are still there, but maybe not as bad as what they were, and I would -- I would hope that by the time we get to the end of the first quarter, that we can -- that we can tell you where we think the rest of the year will be.

Okay, thanks.

Um, what was the, um, earnings, um, dilution or contribution from turkey store in the year?

Do you have that?

No, I don't.

Could you -- do you think it was lucrative or diluted?

I don't know.

Um, I will have to, um -- we'll have to check on that, and Fred will get back to you.

I don't know the answer to that question.

Okay, thanks again.

Thank you, sir.

Our next question comes from David Nelson.

Please your company affiliation followed by your question.

CS First Boston.

Good morning.

Good morning, David.

On the -- just back to the pension and retiring medical, what is the EPS impact for the next year on those, please?

Well, you have -- you're at 18 -- you're at $18m pre-tax, so that's good to be, um, um, at 11 -- about $11m after-tax.

You're going to be looking at 8 cents, David.

Okay.

Um, on the, um, you got a lot of cash on your BS.

uh, we do.

You going to start a bank or buy something?

What are your plans with that?

Um, we are -- we are, um, actively looking.

And on your last call, you said you weren’t interested in farm land.

That is correct.

Okay.

Um, all right.

You mentioned that you -- your hog slaughter was 7.6 million last year, uh, and you're shutting down the kill at Rochelle, what, in January, um, right?

Right.

Okay.

The first shift.

We already reduced the second shift.

Right.

That was a while ago.

What do you think your slaughter might be over the coming year, please?

Well, we'll do, um, we do 16,000 a day in Austin, and we do, um, 6 -- or 9, 9,000 in Fremont.

So 25,000 a day. 240 days should give you approximate number.

Okay.

And then the -- the new value-added turkey products, pre-cooked and premarinated.

Uh-huh.

How are those getting along?

Sounds like they're doing reasonably well initially.

They're doing reasonably well initially.

Yes.

Okay, thank you very much.

You're welcome.

Our next question comes from Eric Larson.

Please state your company affiliation followed by your question.

Actually it's Mitch Kaiser for Eric Larson.

I was wondering what your average corn costs were on a quarterly basis for '02.

What is your assumption for '03?

Are they going to be higher or lower?

Corn prices for '03 will be higher.

Let me see if I can dig out quick what our corn prices were, we'll shuffle some papers here.

See if I have that for for this call.

I don't know that we have that.

Well, here.

We do have it.

Um, corn prices.

I don't have an average, but corn prices, um, for May of 2001 were $1.91, for 2002, were $1.91, and we're forecasting that they're going to be up, um, in the $2.50 range by February.

Okay.

Thank you.

Okay.

Thank you, sir.

Our next question comes from Eric Katzman.

Please state your company affiliation followed by your question.

It’s Deutsche Banc.

Good morning, everybody.

Good morning.

I guess, um, two questions.

Mike, could you comment on the -- the higher Cap Ex number.

Is that to fund capacity expansion for the value- added, um, products or the case-ready products?

It is.

Yes, it is.

That is -- and as we, we have talked about on our third quarter, um, release and I don't know if you were on, we're -- we're -- we're moving away from harvesting hogs in Rochelle and will be converting Rochelle to a full processing plant.

And that will be strictly value- added products.

So, we're reducing hog slaughter there but expanding and increasing our value-added capabilities.

And the, I guess as one of the more successful companies so far in the case-ready or the value-added, um, part of the business, can you guys give a sense as to where you think we are in terms of maybe, I don't know, endings and percentages, in terms of how the retailers are looking at it and deciding who is going to be their supplier of choice or case category manager?

Well, you know, I don't know how -- how our competition is doing, and -- and we don't get into those conversations, but I will tell you that our case-ready business for the year is up 6% over where it was last year.

Um, so we continue to grow that business.

On the other hand, you know, we're only -- we're only processing, um, about 7%, and that number will go down now with the reduction in slaughter levels that, um, -- in Rochelle.

We're only in the 7% range on hog slaughter if we continue to grow our case-ready business.

So I guess they must like the Hormel brand name on case-ready products.

So, for example, out of the, um -- I guess if you had to give a number -- out of the number of major retailers that you have a case-ready program with, how many of them, um, have been designate -- how many have designated a category manager?

And how many of them have you been designated as a category manager, if any?

I don't know the answer to that question, Eric.

That is one I will have to find out about.

Okay, all right, have a good holiday.

Thank you.

Thank you, sir.

The next question comes from Jaine Mehring.

Please state your company affiliation followed by your question.

Ms. Moring, please go ahead with your question now.

Our next question comes from [Eric Bell].

Please state your company affiliation followed by your question.

Kaiser Capital.

Just wondering if the hog prices you forecasted, is that your hedge cost or your estimate of the cash markets in those prospective quarters?

That is our estimate of the cash markets.

We do not hedge our hog prices because our contracts are looked upon as the hedge.

Okay, thanks.

Thank you, sir.

Our next question comes from Jaine Mehring.

Please go ahead with your question and state your company affiliation.

Hi, Solomon Smith Barney.

How are you?

Good, how are you?

Good.

I have a few questions please.

First of all on the, um, -- on the grocery products division, of the 12% profit growth, is there a way of giving us a sense of how much of that came from the lower input cost and what your underlying growth in profitability might be?

Um, I -- I can't right off the top, Jane, but, um, I'll have -- I'll have Fred follow up with you after this call.

Okay.

Um, secondly on the turkey business -- I don't know, I have a harder time tracking the turkey business well independently than I do in the hog in the pork business.

When you talk about turkey, you know, being much below regular, um, or normal levels, you can quantify that for us?

I would say based -- based where you looked at, breast meat and -- and whole birds this year compared to last year, those prices are down probably anywhere from 15 to 30%.

Okay.

And there are -- you have yourself there somewhere?

Well, we hedge the -- we hedge the grain -- the corn costs.

Right.

But that's really all that we can do.

Okay.

Um, on the contract losses in hogs, I thought in the third quarter you suggested those losses in the fourth quarter might be I thought between 15 and 25 million?

Yeah.

You were like 35 or 36.

Yeah.

And actually, the market price was not all that much different.

Nope, the market --

And actually grain prices, to me, looked a little bit more behaved then even I thought might have happened.

So why the 10 plus extra million behind the grain?

That's a good question.

As you said, we predicted -- our prediction of where the live hog market was going to be was pretty close.

Right.

We said $32, we ended up at $31.15 or $31.50.

Yeah.

Damn good work.

I don't get a lot, take a lot of credit for that because we quite honestly, we missed -- we missed the grain prices.

Okay.

And the grain prices -- and those have the basis then of raising the floor price.

Right.

And so we just missed it.

Right, I mean I understand the connection to the hog, nothing more than soymeal and corn on the husk, but what was the average?

It was pretty, I don't know for some reason I actually thought grain costs would be higher on average.

I know for you it's a little more complicated because it’s like a rolling basis or something like that.

How off were you?

Well, what was the average corn and soymeal price in the quarter?

Um, -- well, hang on a second.

We got the sheet out for and then put it back.

If we look at what we averaged in the quarter, um, we averaged -- we averaged -- um, well, we would have been right about $2.54 a bushel.

Right.

How did you miss that?

That's sort of where things were trending three months ago.

You know, you might have said it could have been $2.60 or $2.70.

I think what we -- what has happened, we were talking the 15th of August or whatever, um, the changes in the market conditions, um, really changed after that period of time.

I mean you looked at -- you looked at where July prices were, and I -- and our statisticians talked to us.

We were in July looking at $2.10 to $2.15 a bushel for grain and then -- .

The [inaudible] markets at that time were slightly higher, weren't they?

Not at the $2.50 to $2.60 range.

Oh.

Okay, and going forward, um, I mean prices should actually ease a little bit , not a lot.

Been a little bit of a break, I think, in the corn prices and, um, it looks like you actually just took up your forecast, um, for hog market prices for the next two quarters, versus what you gave us last time.

That is correct.

Okay, so would you like to take a guess at what you think first half and full year contract losses might be?

Um, okay, we're looking at -- we're -- wed be looking at probably in the first quarter.

Uh-huh.

Um, we're going to be looking at hog contract losses of probably 30 to 35 million.

Okay.

And a year ago, I think it was like 18m, right?

That's pretty close.

Yes.

Okay, all right.

And -- , and um, second quarter, we would be looking at somewhere around 20m.

Uh-huh.

Third quarter --

[Inaudible] 15, is that right?

That is correct.

Okay.

Third quarter, we would be looking at a -- a slight positive.

Uh-huh.

A slight positive swing every year or an actual --

Right.

The third quarter we're anticipating right now would be black about $2m.

Okay, versus a loss of, I think, 13m.

That's correct.

Okay.

And then drop back in the fourth quarter to probably, um, a slight loss of $5m.

Okay, minus 35m [inaudible]..

All right.

And would you like to share with us what your grain forecasts are?

Our grain -- well, I can give -- I have not averaged these, but I can tell you that our grain forecast for December are $2.28.

Okay.

Our grain prices for February are --

Corn?

This is corn.

Grain prices for February are $2.46.

Um, for April at $2.40.

Uh-huh.

June at $2.40.

Right.

August at $2.33.

And October at $1.96.

Okay.

I thought before you said, okay, nevermind.

And then soy?

Because that’s also important, soy meal.

So soy meal is not going to change a whole lot.

Okay.

For the year, it's going to be February at $160 and end up, um, basically at a $150.

And, can I just clarify, did I hear you say the second quarter live hog estimate was 29 or 39?

No, 29.

29.

Okay.

You mean on the loss?

No, no, I’m sorry, I’m skipping around, the market, the cash market price per hundred weight.

The cash market price was for the second quarter was 39.

Okay.

And lastly, back on this issue of cash that you asked about before, obviously you have been looking aggressively, just, you know, comment a little bit on what the status, have you been close on things but you’ve been outbid, or are there not properties out there?

Kind of give us a little color because you are going to start running into sort of lethal cash build-up [inaudible] which is, you know, an okay way to die, I guess.

We have been close.

We are -- Well, at this juncture, no cigar.

But, you know, we're seeing some things and I think that something will happen.

Order of magnitude, can you share?

Well, it won't be, um, -- no, I would not.

I don't think I should.

Okay, which would you prefer I have tomorrow, a ham or a turkey?

Well, at best, we'd like to see you have both.

Okay, will do.

Thanks a lot, guys.

Happy Thanksgiving.

Thank you, you, too.

Thank you, ma'am.

Our next question comes from George Askew, please state your company affiliation followed by your question.

Yes, it's Legg Mason.

Morning.

Morning, George.

You indicated that 32 Hormel brands are number one or number two in their categories.

You can give us the dollar sales of those number one or number two, and have you quantified it in that way?

No, I mean, no, we can't do that.

Okay.

Um, in your prepared March-- you addressed share buybacks, I apologize if I’m asking you to repeat yourself, but what was the share buyback activity in the fourth quarter?

We repurchased 297,000 shares.

Okay.

And the price there?

I think you gave the dollar amount?

For an average price?

I didn't give an average price.

No?

But, hang on a second.

We can tell you what that was.

Thanks.

Well, while we dig that out, did you have any other questions?

Well, you indicated that you’d resumed share buybacks when appropriate, how should we think about when appropriate?

Is there?

I mean are you -- I assume you would be free to buy back shares beginning later this week next week, et cetera.

Well, theoretically, once the black-out period expires, we could -- we could repurchase shares at that point in time.

Yeah.

I would tell you honestly that with what some of the things that are ongoing presently that that probably is not going happen.

Okay.

The um, you know.

Backing up a bit, clearly your strategy includes, and I am -- I still want the dollar number if possible -- but your strategy includes an emphasis on grocery products and value-added, which reduces your exposure to commodity price swings.

Can you just review for us the strategies, you know, in place that reduce your exposure of all commodities, versus some of the other players in the industry, and I guess in particular, what new might develop?

You talked a little bit about potential lemon-aid deals.

What new may come about in the next year or two that would further reduce your exposure to commodity price swings?

Boy, that's a multifaceted question.

Yeah.

But, um, let me try to, um, to go after it in a couple of ways.

First off, you know, we talked about in my comments the fact that we're now at about 79% of our net, total net sales of branded.

Yeah.

And we really think that, um, the strength of our company, um, really lies in the strength of our diversified brand portfolio.

Um, you know, you look at -- you look at the segment operating profits that we -- that we are now giving and the grocery product segment was an obvious contributor and an operating profit of, um, um, 12% up this year over last year.

You know, and -- and if you take the time, and I know that you have done a lot of work with your models et cetera, you dig deeper into the refrigerated foods operating results, you know, you can see significant operating profit improvement, um, from our branded processed, branded, processed and fresh meats.

I talked in my comments the fact that we achieved a record share in the baking category with the Hormel brand.

We now have 9.4 market share.

We talked about the refrigerated entrees, you know, the fact that we're now -- we are now the leading processor in that category with a 13.5 share.

This is all -- this is all [inaudible] and data, you know, that people can get.

The fact that, as I mentioned earlier, our case-ready business is up 6% over where it was last year, continues to show a nice growth, um, and -- and, you know, we're moving and we continue to move our business from lower, you know, what I would call our lower margin business to a higher margin value-added business and -- and I think that's really -- that's really the differentiation.

And -- but the thing that you have to remember is that you gotta to move -- you have to take it in steps.

You gotta to move from a commodity business to a, um, a branded business and then once you get that branded business, you will continue to do additional things with marination, flavorings, all of these things that allow us to build, really in my estimation, the strong, diversified brand portfolio that Hormel Foods has.

As you, I mean there are a couple of [inaudible] related questions, obviously, and I assume, you know, any acquisitions you make would be targeted on the, you know, on the grocery product side?

And -- and obviously the value-added side if it’s refrigerated meats.

But I mean, you can give us some granularity there?

Should we look for the grocery products to be the target area for any acquisitions?

Um, no, don't just look there.

I think -- I think that the shelf stable is one area, but we think that there is some -- some great potential in the refrigerated branded foods arena that we might be able to see our way clear to make a purchase in, and so I think that's an area that we can continue to look at.

Okay, I'll follow up with Fred on the share buyback numbers..

Okay.

Great.

Thanks.

Great, thanks.

Thank you, George.

Thank you, sir.

Our next question comes from [[Craig Speed]].

Please state your company affiliation followed by your question.

Speeds, Dorce and Capital.

The margins in the grocery products jumped quite a bit in the fourth quarter year over year.

Is that FASB 142 and, um, is this 28% range sustainable?

Um, it is not, it's not FASB 142, um, related at all, Fred.

Um, do I think it's sustainable?

You know one of the reasons, one of the big reasons and one of the earlier questions addressed it is the fact that -- that products like picnic prices et cetera that go into our stand products, um, were down year over year, um, in the fourth quarter, and contributed somewhat to that -- to that, um, um, improvement that you saw, and I would -- I would hope that we could continue to do that.

Okay.

And there was quite a swing in the corporate income -- $3m swing in the quarter positive, it was a $6m negative.

Can you help me there a little bit?

Well, in the -- in the, um, for the year it’s primarily the relationship of, um, of additional costs in a number of areas that -- that impacted that.

The positive for the quarter, um, is the fact that we have -- we have less, um, amortization affecting us now compared to a year ago.

Okay.

Okay.

In ‘01 you generated about $50m in working capital cash, do you have a number for this year that you’ve done?

Did you generate or consume working capital cash?

We, um, we generated cash.

Um, I don't have -- I don't have the, um, the number -- well, in the -- for the year, um, our net cash for the year is up $123.2m.

Um, positive cash flow, and how that breaks out on working capital, um, we're calculating here.

Let us get back to you on that.

I'll call you back.

Hello?

Thank you, sir.

Ladies and gentlemen, if you have any additional questions at this time, please press the star followed by the one.

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One moment for our next question.

Management, at this time, we have no further questions.

Okay, thank you.

Thank you, sir.

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