荷美爾 (HRL) 2003 Q4 法說會逐字稿

Good morning my name is Tamara I will be your conference facilitator today.

At this time I'd like to welcome everyone to the Hormel Foods fourth quarter earnings conference call.

All lines are have been placed on mute.

After the speakers' remarks there will be a question-and-answer period.

If you would like to ask a question during this time, simply press star then the Number 1 on your telephone keypad.

If you would like to withdraw your question press the pound key.

I would now like to turn the call over to Mr. Fred Pelvin, Director of Investor Relations.

Good morning and happy Thanksgiving.

I would like to welcome you to the conference call.

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

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

On our call today is Joel Johnson, Chairman of the Board and Mike McCoy, Executive Vice President and Chief Financial Officer.

Joel and Mike will provide an overview of the company's fourth quarter performance as well as detailed financial results.

They will then provide the outlook for the first quarter and full-year of 2004.

You will then have an opportunity to ask questions.

We intend this call 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 today will be forward-looking and are 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 end report to the shareholders for year ending October 26, 2002.

I'll turn the call over to Joel.

Thank you, Fred.

Good morning everyone.

Strong demand for our refrigerated value added products and a faster than expected turn-around in the Turkey markets provided a strong finish to our fiscal year.

Refrigerated Foods was the clear standout with operating profits up 183% in the fourth quarter.

With high contract near break-even for the quarter, the contribution from our value-added products became much more visible.

We continue to see aggressive growth in Hormel fully cooked entrees, breakfast meats and retail ham categories.

Our case-ready sales also reported strong growth, up 27% driven by new sales from our preset foods joint venture.

Food service continued to achieve strong gains in key growth categories, such as always tender boneless pork, Austin Blues barbecue, and our Cafe H line of ethnic products.

Results from our Jennie-O Turkey Store segment were much better than we had earlier expected, but still 15% below last year's results for the quarter.

The breast meat and whole-bird markets have returned to near normal levels while fine meat is actually better than historic markets.

Strong export demand has been an important factor in the fast recovery of these markets.

Freezer inventories for the industry are approaching normal levels and the latest data shows production is down.

This should result in reduced levels of slaughter through at least March of 2004.

We continue to execute our long-term strategy to add value to Turkey and growth here continues to be very encouraging.

Increased sales from products such as our Jennie-O Turkey Store, So Easy entrees, bacon, premium seasoned breast and rotisserie turkey are key contributors to increasing our branded product mix.

This type of new product development and innovation hasn't gone unnoticed.

And Jennie-O Turkey Store leading role in driving innovation was recently recognized by earning Poultry's 2003 industry innovator award.

You may recall that we announced Turkey production cut backs during the last conference call.

These cut backs have begun to roll through out facilities.

As a result, volume should be down in the first quarter of fiscal 2004.

However, we should see a better product mix because of fewer commodity sales.

As part of our strategy to lead the turkey industry in new product innovation, we just opened an R&D pilot plant in northern Minnesota, the headquarters location of the Jennie-O Turkey Store.

It's great to see this industry nearing normality, and we are excited about the future of Jennie-O Turkey Store.

The grocery products segment faced higher pork and beef costs in the quarter, and experienced higher promotion and marketing expense.

This resulted in a 26% decline in operating profits.

Lower sales from Dinty Moore canned products, Chi-Chi sauces and Dinty Moore classic bake products contributed to the 4% decrease in segment sales for the quarter.

Improvements in other pork categories such as the Spam family of products, Hormel Chili, and bacon bits helped partially offset the losses in the quarter.

It's worth mentioning that Dinty Moore Classic Baked performance compares against the pipeline last year.

The Herdez line of authentic Mexican products and the Pataks line of Indian food both contributed double-digit growth and continued to build strength within our ethnic portfolio.

We plan to increase our investment for additional marketing and product development in 2004 within the grocery products segment.

This support will strengthen our brands and our bottom-line results over time.

Specialty products reported a 411% increase in operating profits, including contributions from Diamond Crystal Brands and Century Foods International.

Without the acquisitions, operating profits were up 162%, due to much improved performance from Hormel HealthLabs.

Key growth areas included the thickened beverage and high-protein shake categories.

I'm pleased to report the integration of Century Foods International, which was purchased at the end of July, is going well and has made a positive contribution to earnings in its first quarter of operations at Hormel foods.

Diamond Crystal Brands, the business we purchased in December of last year reported its strongest sales quarter this year and continues to meet our expectations.

This has been a great addition to our portfolio.

Century Foods and Diamond crystal brands bring more diversification to our company and provide new opportunities for growth long-term.

Operating profit for the all other segments was up 29% in the fourth quarter.

The international division provided great results.

Driven by strong worldwide sales of the Spam family of products and improved earnings from the China operations.

Our cooked beef subsidiary, Dan's Prize, also reported strong results, despite the pricing complexities of the beef market.

At this time, I'd like to turn the call over to Mike McCoy to discuss our financial information.

Thank you, Joel, and good morning everyone.

Earnings for fiscal 2003 fourth quarter totaled $70.4 million, or 50 cents per share versus $68 million or 49 cents per share a year ago, an increase of 4%.

Earnings for the year totaled $185.8 million, or $1.33 per share, compared to 189.3 million, or $1.35 per share a year ago, a decrease of 2%.

Dollar sales for the fourth quarter totaled $1.2 billion, compared to $1 billion last year.

Four of our five segments reported sales growth.

Sales for the year were a record $4.2 billion compared to 3.9 billion last year.

All five segments reported sales growth.

Volume for the fourth quarter was 906 million pounds up 3% from fiscal 2002.

Overall, the new tonnage from Diamond Crystal and Century Foods acquisitions, was offset by the tonnage lost from closing the Rochelle, Illinois slaughter operation.

Volume for the year was 3.4 billion pounds, up 3% from 2002.

Now, turn to the profit and loss and balance sheet comparisons for the fourth quarter.

Selling and delivery expenses for the quarter were 10.5% of sales this year, and 11.1% last year.

For the year the comparisons were 11.5% versus 11.6 in fiscal 2002.

Marketing investments in the fourth quarter totaled $20.7 million, or 1.8% of sales, compared with 17.9 million, or 1.7% of sales last year.

Higher marketing spending in the grocery products segment is the main reason for this increase.

Year-to-date marketing expenses totaled 102.2 million this year, compared to 106.4 million last year.

This year-to-date reduction reflects adjustments we made earlier in the year as Jennie-O Turkey Store and Refrigerated Foods dealt with the difficult protein markets.

Administrative and general expense was 3% of sales for the quarter, compared with 2.4% last year.

Higher pension costs of $3.2 million, our year-end LIFO inventory value adjustment of $3.1 million, and stock option expense of 1.9 million caused most of the increase.

Year-to-date administrative and general expense was 3%, compared with 2.4 last year.

We expect pension costs to be about $13 million higher in 2004 compared to 2003.

As previously mentioned, the impact of expensing stock options for 2003 are reported in the fourth quarter results.

We expect the impact in 2004 to be about 2 cents per share for the year.

Interest expense for the quarter was $8.5 million compared with 7.3 million last year.

For the year, interest expense was 31.9 million compared with 31.4 million last year.

Depreciation and amortization for the quarter amounted to $23.4 million, versus 21 million a year ago.

For the year, depreciation and amortization expense was 88 million compared with $83.2 million.

Our effective tax rate in the fourth quarter was 36.96%, versus a 34.87 last year.

The effective rate is expected for next year for 2004 to be 36.5%.

Capital expenditures for the quarter totaled $21.5 million versus 26.4 million last year.

Our full-year capital expenditures were 87.1 million compared to 64.5 last year.

We expect 2004 capital expenditures to be around $80 million.

The basic weighted average shares -- of shares outstanding for the fourth quarter was $138.6 million.

The diluted weighted average number of shares outstanding for the quarter was 139.8 million.

We purchased 59,000 shares of common stock during the fourth quarter.

We have approximately 9.8 million shares remaining to be purchased from the 10 million shares that were authorized in the fourth quarter last year.

We processed 1.7 million hogs in the fourth quarter, compared to 1.9 last year, a decrease of approximately 13% due to the discontinuation of the hog processing at the Rochelle, Illinois plant.

The actual live cost of hogs in the fourth quarter was $42, which was the same as the estimate that we provided last quarter.

This compares with an average live base price of $31.50 in the same period last year.

During the fourth quarter, our hog contracts required us to pay $3 million above the market versus $35 million last year.

We expect higher live hog markets in 2004 compared to 2003.

We anticipate an average live market of $43 per hundred weight compared to the average for 2003 of 38 and a quarter.

Over the next year, we will believe corn will trend slightly higher and soy meal will trend slightly lower than today's market.

We anticipate more normal market conditions within the Turkey industry in 2004, for the key parts of the bird--like the breast meat and thigh meat.

We are pleased to report that we renewed a four-year labor agreement covering more than 75% of all represented processing facilities, employees in September, who are a vital part of making Hormel foods a premier food company.

I will now turn it back over to Joel for his thoughts on our -- on the future.

Thanks, Mike.

Before I get to the future, I just want to correct one number that Mike inadvertently misread, our full-year capital expenditures were 67.1 million, not 87.1, compared to 64.5 last year.

Just a little misread there.

With the pork and turkey markets returning to normal conditions, I'm excited about the improvements our value-added products are making, especially in the refrigeratored foods and Jennie-O Turkey Store segments.

A lot of the progress we have made over the last 18 months in these segments has been overshadowed by the protein oversupply.

In going forward, the results should be much more visible.

Taking into account the plans each of our business units has in place for 2004, we're issuing directional earnings guidance of 32 to 36 cents for the first quarter, and $1.44 to $1.60 for the year.

And now I'll open up the floor to questions.

Operator?

QUESTION & ANSWER At this time, I would like to remind everyone, in order to ask a question, please press star then the Number 1 on your telephone keypad.

We'll pause for just a moment to compile the Q&A roster.

Your first question comes from Jan McMillin with Prudential Equity Group.

Good morning, Joel, Mike, and Fred; happy holidays.

Mike, the return, the expected return on plan assets assumption in your pension plan, I think was 9.5.

What are you changing that to?

No, for this last year, John, it was 8.9, for 2003, we're reducing that to 7-point -- excuse me, it was 8.6, we are reducing it to 7.9 for 2004.

Okay.

And the other changes in the discount rate?

The discount rate is going from seven to 6.5.

Okay.

And just, you know, the quarter was very good, Joel, but the grocery products area was much lower than at least I was looking for.

And even if you add the marketing increase back to the earnings level for the fourth quarter, it was much lower.

Do you view these ingredient cost hits as, you know, short term in nature?

And if you could give us some kind of directional guidance for this segment in fiscal '04, clearly it's your most predictable segment, at least I thought it was, and just kind of what your targeting for the '04 year?

Yeah, I don't really have a segment forecast for the year, John.

We had hoped to do better in grocery products in the fourth quarter, and I think the comparisons will be difficult over the next two quarters as well, because we had really great strength in that sector, if you look back in the comparisons for the first two quarters of last year.

It was really very, very strong for Grocery Products, I think there was a lot of -- there was a lot of hoarding going on, I think there was a war-time mentality coming about and people really stockpiled product.

Of course our nonperishable items are key factors in that equation.

We have some exciting initiatives coming in Grocery Products in fiscal 2004.

I'm not going to disclose them at this time, but we continue to put a lot of pressure on the segment in terms of rejuvenating these categories, and adding to our ethnic growth.

And I think just on a turkey subject, I think last quarter you gave some kind of estimated price assumptions that you thought the turkey markets would get to.

I know you might be gunshy because you underestimated it, but where's the market now for breast meat and where do you think it's going to be?

Well, we can tell you where it is now.

But I'm really hesitant to forecast out specifically.

I mean, there has been a lot of volatility.

We expect a dip post-holidays when you look at the seasonal changes historically, that usually happens after the holidays, we think it will back down and then come back quite significantly as the reduced productions throughout the industry works its way and the export markets continue to strengthen.

But right now, we've got breast meat at about $1.55, fresh breast meat, and thigh meat is at about 91.5cents, that compares to 58 cents a year ago.

That's the strength that was seen in the thigh meat segment.

Okay.

Thanks again.

All right.

Your next question comes from Eric Larson with Piper Jaffrey.

Good morning everyone.

Happy holidays.

Good morning, Eric.

Back to -- a quick follow-up on John's question on turkeys.

Ultimately, the sustainability of where the turkey -- the recovery of the turkey prices are today is really how much capacity has maybe come out of the industry, and we know what your actions have been.

Can you give us a little idea of where maybe some of your competitors have taken some capacity, or where your best knowledge is on that?

There have been a couple of announcements but I don't have any more information on that than publicly available information.

The key that's going to drive our future in the turkey business is the use of our raw materials for value added products.

And in this last quarter, Jennie-O Turkey Store was up 82% of its tonnage going out on a value-added basis.

That really continues our significant movement.

I would expect even more growth in that percentage as we look into 2004, because we'll be taking down our harvest levels and we will be continuing to grow these value-added products in the marketplace.

Okay.

Good.

And you may have stated this, and I may have just missed it, but with your change in pension assumptions, is it a negative delta?

What is the negative delta in pension expense projected for 2004 versus 2003?

It will be up $13 million, Eric.

Up 13 million, okay.

Over where it was this year.

Okay.

And then the final question, and again, it's kind of back on the Grocery Products, it seemed that as you went through the year, you lost a little steam, you lost the momentum in that business.

Maybe -- I think that, you know, you did have some hoarding in the first half, is that the primary factor or are there some competitive things taking place that you have to sort of reignite your volume momentum and your, I guess, share of voice in some of your products in that area?

The momentum did drift in Grocery Products through the year, I think that's an accurate observation.

I think the increase in marketing support that we started in the fourth quarter and that's going to continue in -- into and through 2004 is clearly intended to stimulate that.

And we've seen some early successes on that.

For instance, we repositioned our Dinty Moore microwavable trays and--with a significant repackaging, in which we actually put the package much more conspicuously in front of consumers instead of hiding it in a box and we've seen a very nice step up in that business, almost immediately.

There's no pipelining in it, and the most recent -- in Nielson's--and our most recent shipments are very encouraging on this convenient individual meals.

So we're encouraged that the right kind of sometime stimulation can move these businesses, that's what we're going after.

Okay, great.

One final question: Could you give us a little bit of an update on the branded beef program with Excel, and I believe I was in a Cub and I think I saw your product there, I might be mistaken, but is that also true?

That's correct.

The product is in Cub as well as the Super Targets, and we're into active discussion with several other accounts.

I think the beef price volatility and surge in beef prices following the Canadian situation and the reduction in supplies, has caused, I think, a couple customers to maybe slow down their conversion.

And wait for a more equilibrium environment in which to introduce those products.

But we remain extremely bullish on the potential of preset foods, and we remain very pleased with the way the product is moving and with the learnings that we've had in a very complex supply chain management that's necessary to support customers doing this.

This is much more complex than a standard new product introduction where you just put the product on the shelves.

Because the perishability, the localization of consumer preferences, et cetera, et cetera.

A responsiveness to promotion in the fresh meat case.

So there's a lot of learning that's going on right now in preset foods and I think we're going to be able to leverage that very well in the future.

Okay.

Great.

Thanks everyone.

Have a good Thanksgiving.

Thank you.

Your next question comes from David Nelson with CSFB.

Good morning.

Hi, David.

Good morning, David.

On the few housekeeping items first of all, please.

On the stock -- expected stock option expenses, also expect that to be in Q4 next year?

No, it will be --

Spread it out?

Spread it out now under the rules.

Okay.

Interest expense, guidance for next year, expected to plug along at about 8.5 a quarter?

That's about right, it's all fixed, there's not much variable interest there.

Okay.

And then to get to total debt, obviously we have the long-term here, could you provide the short-term debt and the current portion of the long-term, please?

The current maturities, let's see, hang on one second, we'll figure out the number--- current maturities of long term debt are $14.2 million.

And short-term debt?

We have no short-term debt.

Okay.

You've got cash.

We have cash.

All right.

And capex for next year, about the 67?

No, 80.

80.

And you said a shares repurchased number in the call.

I missioned that.

Could you state that again, please?

59.

59,000 shares?

Correct.

Now, how about something fundamental.

In the past you've given a more specific hog price forecast.

Are you looking for anything different than what we're seeing in the futures market right now?

That's probably a pretty good indicator at this time.

Okay.

And then could you update us, please, on where you are in your transition to the new contracts, please?

We are moving along with that, and I think we're right on target in terms of what we wanted to have under the new contract by the end of the year, David.

Does that mean one-third over?

I don't -- we'll have to get back to you on this point.

Okay.

Thank you very much.

Okay.

Thanks, David.

Your next question comes from John Steeney with Wachovia.

Hi, good quarter, guys.

Thanks.

Just a couple of questions.

My first question would be, if you look at the guidance, the width of the guidance range, about 16 cents, $35 million of operating profits, you know, which of the segments do you think is -- if there's any difference between the four, which of the segments is responsible for, you know, the -- what's the biggest swing factor in your opinion as you look at 2004?

I think it would remain in Refrigerated Foods and in the turkey segments, because there still is more commodity exposure there, but to a significant degree than there is in the others in terms of the impact of grain costs on Jennie-O Turkey Store, and the 18% of our volume that still goes out on a commodity basis.

So that's, you know, that's got an upside and downside exposure, and similarly, the pork markets have been pretty volatile over the past several years, we have really benefited from extremely well-executed conversion, continuing conversion into value added products in Refrigerated Foods.

So I think our -- the variation ought to be a lot less than it's been and the previous question about the hog contracts, we're going to be less vulnerable to that kind of exposure going forward as well.

Thank you.

And final question: I know you can't talk too much about it, but your acquisition kind of strategy, where would you focus to the extent you are still looking, considering acquisitions, can you just comment on that?

I think our acquisition focus is on segments and channels where we see consumer demand continuing to grow, and where a convenience in branding and value added products are leveraged and appreciated in the marketplace.

So I would expect them to be more at the marketing and sales end of the equation than back into the production and harvest end of the business.

Okay.

Happy Thanksgiving.

Thank you.

Your next question comes from John Amorage with [indiscernible] Capital.

Thanks, kudos on taking the lead on options expensing;

I think when you combine it with the increased pension strength the '04 guidance speaks to the strength of the underlying businesses.

Quick question: Regarding the pension, was there any contributions in '03 or expected in '04?

We made a $51 million contribution at the end of July.

Okay.

And so the capex guidance was for around 80 in '04, D&A I'm guessing around 90?

That's in the ballpark.

Okay.

So free cash flow before acquisitions and dividends in '04 based on, again, the midpoint of that kind of earnings guidance would be a little over 200 million?

Right on the number.

And then the last question would be: I understand interest expense is fixed, and that's not net the interest income, but am I right that's almost an 8.5% coupon debt you've got sitting out there?

No.

No?

Our coupon is on the 350 is likes a 6.625.

But I don't know -- I'd have -- I don't know how you're getting to an 8.

I looked at 8.5 per million a quarter is what you said, I think, right, in interest expense times four, divided by--you've got no short-term debt, just rounded, you know, 400 million, gets me 8.5%.

We need to probably go through that.

Maybe that's something that Fred can follow through with you on after the call.

Sure.

And the -- that led into thinking whether or not with this balance sheet and this kind of recurring high level of free cash flow there wasn't either a refinancing opportunity or a prepayment opportunity to get that interest expense down, and I can talk about that with Fred off-line.

Thanks.

Okay.

Thanks, John.

Your next question comes from Timothy Ramey with GA Davidson.

Good morning, guys, congratulations.

Good morning, hi Tim.

Question, if memory serves, I think this board meeting is typically the dividend increase year, at least for the last two years you increased, with the November board meeting.

And you didn't do that this time, you know, your payout ratio now looks like it's in the 25 to 30% range based on guidance.

What are your thoughts on that?

And should we take this as significant that you skipped a dividend increase?

No.

No we haven't.

We're looking at each other quizzically.

The press release on the action of the board is not out yet, Tim.

Oh.

The board -- there will be a dividend increase and the release should be out, I would think it should be out shortly,.

Like imminently.

Okay.

That sounds good.

I guess we should talk about that after the release is out.

Back to Dave Nelson's question on the contracts, or the new structure of the contracts;

I understand you don't want to get pin down on how much has been converted over, but can you talk a little bit about what you think that will do to your hog procurement costs given the environment we're looking at in FY '04?

In other words, you're going more to a cutout value based system.

Okay.

On the new contracts?

Yes.

Uhm --

And the impact that it will have overall for the corporation.

The impact overall is to the point that you're making, the value and what we paid for the hogs will be bases what that value of the primal site is to the total and we will pay a percentage of that total primal value, which then should put our cost more on a market-based valuation model.

Right.

And with the cutout margin relatively high right now, I think it's up around six or seven dollars a head, does that look like it could add to momentum or subtract from momentum for FY04?

I think it will be basically a neutral position.

Okay.

Thanks so much, guys.

Tim, before you go, what kind of wine do you recommend with roast turkey?

I would think Oregon Pinot Noir.

Thank you.

Your next question comes from Penn Jones with Deutsche Banc.

Good morning.

Good morning.

I guess following up on Tim's question real quickly, I was curious, having discontinued the slaughter at the Rochelle plant and converted over to value-added processing, are you now a net buyer of raw materials as you hoped to be or is there more rationalization of hog processing going forward?

I would not expect anymore rationalization of hog production in the foreseeable future.

Our balance right now of internal supply is in pretty good shape, and I think we can manage and grow this business very well going forward off our current mix of internal production and purchase primals where we need them.

Great, okay.

Returning to the turkey business, with the turkey markets improving lately with inventory levels down and production down and you all doing a better job of selling more branded value add value-added turkey items, how quickly do you anticipate Jennie-O Turkey Store can get operating margins back to 7 to 8% level; and years down the line, how high can you think that operating margin can go as you get it as close as you can to 100% of branded value-added sales?

We haven't been managing the business, you know, against that particular quantitative dynamic.

Okay.

Clearly our gross margins are improved and we do far, far better with the value-added when we're out of that exposure to commodities.

But I see the kind of improvement that you have seen in refrigeratored foods, which again is basically our pork operations.

Being transferable to the turkey side of the equation, because there are a lot of parallels in the product development work that we're doing there in terms of precooking, premarinating, preflavoring, adding a lot of convenience for consumers and restaurant operators.

So I would expect that that kind of gross margin enhancement ought to be moving together more closer to lock step.

Okay.

One final question, if I may.

With regard to food service, you reported another impressive quarter within the food service segment.

What are you seeing for the rest of the industry's growth rate currently, and how do you continue to outpace it so significantly?

Well, actually I think we haven't changed strategies really one iota for the past couple years in our approaches to food service, and I think we're playing a winning hand here in terms of the same old value-added initiatives and working as closely with operators as we can in terms of taking labor out of the back rooms and adding diversity and interest to their menus, and delivering, committing a lot of resources to food service.

We have invested in this business, in R&D, in our direct sales force, and in our relationships with the distributors.

So we're going to continue to do more of the same.

I'm encouraged about the potential for food service growth as an industry going forward.

Now Hormel has been outpacing the Food Service industry growth by almost two to one over the past several years.

And we went through a bit of a slowdown in the industry this past year, but I'm really encouraged by the new economic growth figures that we see.

Because in looking at our business, overall, Food Service demand is one of the most volatile -- one of the most discretionary consumer and business purchases.

And it's very easy at the end of the consumer's budget cycle to eat at home if you're running out of money before the next paycheck, and business travel is one of the most discretionary items that tends to get cut back when the cycles are tough.

So as the economy improves, I am personally quite optimistic for what Food Service growth is going to look like next year.

Okay.

Great.

Thank you for your time and have a happy holiday.

Thank you.

Your next question is from George Askew with Legg Mason.

Good morning all, nice quarter.

Good morning, George.

On the refrigerated foods, the segment operating margin there was a surprise for me in the quarter here, much better than expected.

You know, have we -- it appears to be a record level.

Have we reached sort of a new threshold, a new, you know, sort of range where -- of operating margin we can expect in that segment, or is the traditional kind of five to six percent range a better normalized annual operating margin number?

Yeah, I think it was an exceptional quarter in terms of a lot of dynamics.

You know, I think over time, I think we'll be able to get up to that kind of quarter level on a more consistent basis, but I wouldn't expect it consistently, and right away.

You know, our more normal operating profit margin, as you point out, is closer to 5% but we see this improving at 50 to 100 basis points a year, as we continue to improve our portfolio mix.

Okay.

Is preset foods in that segment operating margin?

Yes.

Okay.

And then a question on Food Service within refrigerated foods, and this kind of gets to the whole low-carb diet phenomena, but we've seen some evidence with restaurant menu changes of more of an emphasis on low-carb.

Have you seen that driving your Food Service business and can you quantify it or even anecdotally comment on it with regard to your entire --

I'm afraid it's really got to be anecdotal more than anything else.

But I think we're benefitting, I think the meat industry is benefitting.

And I think we're benefitting at retail as well as food service.

Clearly there's a phenomena going on, I don't know how to measure it, I don't know if it's worth the time and expense to try to measure it, but we are clearly benefitting and I'm optimistic.

It's taken -- most fads come and go very quickly.

This whole Atkin's diet and the low-carb phenomenon has been a relatively slow movement that's grown, I think, quite deep roots as it's gone forward.

And I suspect -- I hope that there's more commitment to that diet than maybe there have been to previous diets.

So I'd say cautiously optimistic, we are benefitting, but I can't quantify it for you.

Okay.

And then two housekeeping-type matters.

You mentioned before, Joel, I think the value-added in turkey, 82%.

Was that for the quarter or for the fiscal year?

That was for the year.

Okay.

And then Mike on the share repurchases, what was your average cost for the shares repurchased during the quarter?

Hang on a second, George.

For the total paid.

Why don't we have Fred get back to you on that.

Okay.

That's great.

Thanks, have a great holiday, guys.

Thank you.

Your next question comes from Bill Chappell with SunTrust Robinson.

This is Hooper Stevens for Bill.

Most of my questions have been answered but I was hoping you could provide a brief update on the opportunities you're seeing internationally.

I know that's a pretty small portion of your business, but thanks.

Yeah, but it's small but it's importantly growing.

I'm just back from a trip to China and southeast Asia and our business is advancing in Beijing.

We've achieved profitability in both our Shanghai and Beijing joint ventures have quite broad distribution, and trademark awareness with the major customers there, and have built a nice Food Service business over there as well.

And our joint venture in the Philippines continues to go extremely well.

We own 40% of Pure Foods which is the largest meat company in the Philippines, and we are -- in May we will cut the ribbon on a brand-new hot dog-dedicated manufacturing plant that will turn out initially 140 metric tons of hot dogs a day, and eventually growing to maybe 260 metric tons a day.

So we are committed in the right kind of markets where we think our portfolio and our skills add to the competitive mix, and are going after that.

We also have a very healthy export business which tends to skew more toward the grocery side of the business.

That's a growth initiative as well.

All right.

Thank you very much.

Your next question comes from Jan McMillan with Prudential Equity Group.

Just a follow-up on the Atkin's issue, Joel.

Do you feel like the beef side of the meat industry has gotten the better of this?

I do.

I do.

What can you do about it?

I do.

I think beef has benefited more than the other proteins.

If you look at demand in classic economic terms, tonnage times price, it's very clear that demand for beef is quite strong.

And I think that -- I also believe that there are some retailers and Food Service operators who maybe haven't passed through all the beef-cost increases yet and have been operating with somewhat tighter gross margins.

I think that as that becomes more financially onerous we're going to see more pork emphasis on menus and in retail features.

But I would agree with the observation that again in classic economic terms, beef has been the primary beneficiary of the Atkin's low-carb trend.

And just about these contracts, what percent of your hog contracts are rolling over to the extent you can change them, in '04?

'04, John, will be the low end of the contract rollovers because as we've talked, you know, those 90 or five, six, where most of the contracts are going to roll, we're looking at 15 to 20% will roll in '04.

And what rolled in '03 that you were able to change to this new cutout value base?

What we're trying to do is to -- what we've tried to do in the last two months in '03 is to move people who are going to be rolling off in '04 early, on to the new contract.

Okay.

So you basically are in a position now to only change 15 to 20% of your contracts over the next year?

No, that's -- that would be of our total hog needs.

Oh, I got you.

Fifteen of maybe 60 or 70?

That is correct.

And can we just go over this?

Because maybe I'm not as sophisticated as others but before your contracts were based on feed costs, correct?

Correct.

Now feed costs have nothing to do with it?

Feed cost have nothing to do with the new contracts.

The new contracts, and the value we pay to the producer, is based off of the quoted US DA cutout value.

And we pay them a percentage of that.

So there could be times where you're not maybe subsidizing the producer during tough times when cutout values are low to the point of being proceed breakeven?

Well, if we get into that situation, then you've got -- then the window kicks in to where you're going to be splitting.

What do you mean "splitting"?

Well, you have a range and it's probably something that Fred ought to spend some time with you, but you'll have a high and low, as far as the window part of the contract, and if that cutout value dips below that window, then there will be a splitting mechanism.

So we don't take all the loss when cutout values go negative.

Got you.

And I was very impressed that Tim was able to ask for a dividend increase and get it so quickly.

Happy Thanksgiving.

You, too.

That's shareholder responsiveness.

All right.

Your next question is from Steve Tablison with Topville Asset Management.

I'm confused on general and administrative expenses.

You show when you break it down by division, you show general corporate expenses of about $10 million.

But when you break it down with the overall, I'm talking about for the quarter, you have administrative and general of $35 million.

So -- and they went up 10 million for the quarter and $30 million for the year.

I was wondering how one ties in with the other, and how much of the annual increase of $30 million---what makes up the major changes there?

The biggest -- of the annual, the biggest simple increase is pension cost.

How much was that?

That was about $15 million.

Uhm-hmm.

And is that.

And another $5 million was our bad debt that we reported in the second quarter on Fleming.

Uhm-hmm.

And the rest we'll have to have Fred get back to you.

I see.

Now, is the corporate general and administrative expense, corporate general expenses included in this $124 million?

That is correct.

Yes, sir.

Now, would you give the breakdown of profit, operating profit by division on your pension costs allocated there to the different divisions?

What has been charged to the divisions is what we refer to as our normalized pension cost.

The changes in discount rate, et cetera, stay in the corporate.

And switching, on the LIFO adjustment, isn't that normally in the cost of goods sold?

And how much is it for the year?

And it's not been allocated to the different divisions?

It is allocated to the -- the decision on LIFO stays in corporate.

So none of the division operating profit reflects any adjustment in that?

Not in the LIFO adjustment, that is correct.

Okay.

And you say in the fourth quarter you have a LIFO adjustment of 3.1 million, what was it for the year?

3.1.

Oh, that was for the whole year?

Right.

Even though it says fourth quarter there?

Right.

That's why I'm a little confused.

One more question.

You said that China is such a big item in the press these days, and its growth and general economy growing so fast, can you give us any idea of what you have over there in the way of operations, and to how much revenues you--they--produced this past year, and profits and what kind of growth?

We haven't -- we're not going to break it out that fine.

We have joint venture with two separate joint ventures, one in Beijing and one in Shanghai, as I indicated.

We've been there six or seven years, getting our feet on the ground and finding a business model that we are comfortable expanding into the much broader countryside.

We think we're close to that.

But, no, I'm not going to provide the details on that one particular business.

All right.

Well thank you very much and happy holidays.

Thank you.

Again to ask a question, please press star then the Number 1 on your telephone keypad .

At this time, there are no further questions.

Well, thank you, operator.

And thanks to everyone for joining us today.

Have a great Thanksgiving and please eat plenty of Jennie-O Turkey Store.

Thank you.

Thanks.

This concludes today's conference call, you may now disconnect.