荷美爾 (HRL) 2004 Q3 法說會逐字稿

Good morning.

My name is Kristy (ph) and I will be your conference facilitator today.

At this time, I would like to welcome everyone to the Hormel Foods' third quarter results conference call.

All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS).

Mr. Halvin, you may begin your conference.

Good morning.

I would like to welcome you to the Hormel Foods' conference call for the third quarter fiscal of 2004.

We released our results this morning before the market opened around 7:30 central time, and 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 Jeff Ettinger, President and Chief Operating Officer, and Mike McCoy, Executive Vice President and Chief Financial Officer.

I'm sure you are aware, effective July 1st, Jeff was elected to President and Chief Operating Officer.

Joel maintained the positions of Chief Executive Officer and Chairman of the Board.

Jeff has been with Hormel Foods since 1989 in various management positions.

His latest responsibility was President and Chief Executive Officer of JENNIE-O TURKEY STORE.

Jeff and Mike will provide an overview of the Company's third quarter performance as well as detailed financial results.

They will then provide the outlook for the fourth quarter.

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 these are identified on Exhibit 99.1 of the 2003 Form 10-K.

Now I will turn the call over to Jeff.

Thank you, Fred, and good morning everyone.

I am glad to speak with you today at this first quarterly conference call, in my new capacity with the company.

At the outset I would like to say that I am fortunate to have such an experienced management team to work with here at Hormel Foods, and this is helping to make my transition a smooth one.

I am also looking forward to getting out on the road with Fred and Mike and meeting with as many of you as possible in the near future.

Let's start by talking about the results of the third-quarter.

Our GAAP earnings per share were 40 cents.

After backing out the 8 cent gain from the Vista sale, our earnings from ongoing operations were 32 cents which is a 28 percent increase compared to last year.

Better market conditions, combined with our strategy to improve the product mix, enabled us to deliver this strong bottom-line growth.

At this segment level, Refrigerated Foods, JENNIE-O TURKEY STORE and Specialty Products each improved both operating profit and sales, while Grocery Products continued to struggle with both volume and profitability.

Our protein businesses, Refrigerated Foods and JENNIE-O TURKEY STORE, both demonstrated a continued ability to deliver significant growth in the sale of branded value-added products.

Growth leaders from the retail meat of refrigerated foods included HORMEL CURE 81 Hams, HORMEL Deli Products, HORMEL ALWAYS TENDER Flavored Meats, HORMEL Fully Cooked Entrees, HORMEL Pre-cooked Bacon and HORMEL Pepperoni.

Retail store growth at the JENNIE-O TURKEY STORE was led by rotisserie products sold through the deli, and by JENNIE-O TURKEY STORE branded bacon, "So Easy" Stuffed Breasts and Marinated Tenderloins.

In addition, both HORMEL and JENNIE-O TURKEY STORE's Foodservice business units were major contributors to the strong results with dollar sales up 19 percent and 27 percent, respectively.

Foodservice items reporting double-digit growth included as FAST 'N EASY Bacon, ALWAYS TENDER Pork, AUSTIN BLUES BBQ, CAFE H products, and JENNIE-O TURKEY STORE's oven roasted and pre-sliced products.

All told, value-added dollar sales at JENNIE-O TURKEY STORE grew 17 percent compared to last year.

One example of how we're adding value to our protein products is our new JENNIE-O TURKEY STORE oven-ready whole turkey that will be rolled out next month.

This new product eliminates the time-consuming shores of defrosting and cleaning the turkey.

It goes directly from the freezer to the oven and is ready in just over three hours.

The product comes in Home Style and Butter, and Garlic and Herb varieties.

A proprietary roasting bag permits even inexperienced cooks to produce a juicy and tender turkey.

This product will be available in supermarket freezer sections of many leading retailers throughout United States starting in September.

The reduction in total pounds sold at JENNIE-O TURKEY STORE continues to reflect our previously announced strategy to scale back production to help balance supply and demand within the industry.

We believe that the strategy is working.

With the production cuts that we and others in the industry made, we have seen commodity turkey markets significantly improve.

On the flip side, higher grain costs have significantly increased our cost of goods within both our protein businesses, and particularly for the JENNIE-O TURKEY STORE segment.

While recent grain prices have turned it down, we will not feel the full benefit of lower grain markets until fiscal year 2005 because of the four to five month growing cycle for turkeys.

The Grocery Products segment continues to struggle with high pork and beef raw material costs, and with the continued pattern of sluggishness in volume in certain traditional product such as DINTY MOORE Canned Stew and Mary Kitchen Canned Hash.

As you are aware we put a plan of action in place this quarter to help offset the higher costs by implementing a price increase on all Grocery Products items.

It is worth noting, however, that the price increase may be contributing to the slowdown in volume.

When we have taken price increases in the Grocery Products division in the past, it has not been unusual to see a short-term reduction in volume in the aftermath.

We expect to continue to experience this impact for at least part of Q4, but over time our business has always bounced back and restored itself to full volume at the higher pricing levels following a price increase.

We also are excited about the rollout of a pair of major initiatives aimed at addressing Grocery Products' longer-term value issue.

The third quarter saw the launch of our new packaging concept for HORMEL and STAGG chili items using the Tetra Recart technology.

The new packaging offers a variety of advantages including portability, easy opening and pouring and convenient safe saving storage.

The conversion of the can to the box is going well and the national launch of our STAGG chili is exceeding expectations.

As a result of this, we plan to increase our marketing spending in the fourth quarter to support this initiative.

We will also be providing supplemental marketing support during the fourth quarter for a test market introduction of our new SPAM singles products.

I would also note that our ethnic line of products within the Grocery Products division registered another solid quarter.

Overall the ethnic portfolio of products delivered 8 percent dollar sales growth in the quarter, led by CARAPELLI Olive Oil at a 17 percent growth rate, HERDEZ Mexican products up 18 percent, and PATAK'S Indian Products up 12 percent.

In our Specialty Foods segment operating profit increased by 38 percent, led by a particularly strong contribution from our Diamond Crystal business.

For Diamond Crystal, the sugar substitute category, reported outstanding results with volume up more than double.

Segment results were reduced somewhat by the fact that Century Foods faced record dairy markets which negatively affected their margins.

We should see some relief from these costs in the fourth quarter.

Operating profits for the All Other segment was down 8 percent in the third-quarter.

The reason for this decrease is that Vista only reported two periods of activity since it was sold in the ninth period.

International demand for pork items was very good in the quarter and our Cooked Beef subsidiary, Dan's Prize, also reported strong results.

At this time I would like to turn the call over to Mike McCoy to discuss the financial information.

Thank you, Jeff, and good morning.

Earnings for the fiscal 2004 third quarter totaled $56.3 million, or 40 cents per share, versus $34.7 million or 25 cents per share a year ago.

As Jeff previously mentioned, this year's results include an 8 cent gain from the sale of Vista.

The net result excluding this onetime gain resulted in ongoing earnings of 32 cents per share.

For the nine-months ended July 24th, net earnings were $161.8 million, which includes an $11.5 million gain from the sale of Vista, compared to $115.4 million a year ago.

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

Improved product mix and better market conditions were the key reasons for the strong topline growth.

Dollar sales for the first nine-months totaled $3.4 billion versus $3 billion last year.

Volume for the third quarter was 853 million pounds, up 6 percent from fiscal 2003.

Volume for the first nine months were 2.6 million pounds, which were up 5 percent from last year.

Now, I will turn to the P&L and balance sheet comparisons for the third-quarter.

Selling and delivery expenses for the quarter were 10.7 percent of sales this year, and 11.7 percent last year.

The lower expense ratio was driven by the dilution of fixed selling expenses over rising sales.

Marketing investments in the third quarter equaled 24.9 million or 2.2 percent of sales, compared with 25.8 million were 2.6 percent last year.

Certain marketing expenses are being shifted to the fourth quarter which caused a decrease for the third-quarter.

Administrative and general expenses were 2.8 percent of sales for the quarter, and it was the same last year.

Interest expense for the quarter were $6.6 million compared with $8.3 million last year.

For the full year, we expect interest expense to be approximately $27 million.

Depreciation and amortization for the quarter amounted to $23.4 million versus $21.8 million a year earlier.

For the year, we expect depreciation and amortization to be around $93 million.

Our effective tax rate in the third quarter was 36.5 percent versus 35.3 percent in fiscal 2003.

The effective rate for the rest of the year is expected to be 36.5 percent.

Capital expenditures for the quarter totaled $22.9 million versus $15.4 million last year.

We continue to expect 2004 capital expenditures to be around $75 million.

Basic weighted average number of shares outstanding for the third quarter was 138.8 million.

The diluted weighted average number of shares outstanding for the quarter was 140.6 million.

We purchased 147 million -- excuse me -- we purchased 147,000 shares of common stock during the third quarter.

We have approximately 9.3 million shares remaining under our authorization.

During the third quarter, we processed 1.64 million hogs compared to 1.59 million last year or a 3 percent increase.

Strong demand for our value-added pork products caused us to process additional hogs in the third-quarter.

The actual live cost in the third quarter was $57.

This was higher than our earlier guidance from the second quarter.

This compared with an average live base price of $46 in the same period last year.

During the third quarter, our hog contracts paid producers slightly less than market resulting in a benefit of $4 million to the Company.

This compares with a benefit of $4.7 million last year.

We continue to make progress converting our hog contracts away from a grain based formula.

We expect to have only 25 percent of our total hog requirements purchased under a grain formula by the end of our fiscal year, compared to a 65 percent level a year-ago.

The new contract approach is used to reduce our exposure to the grain markets.

We anticipate a live market of $50 per 100 weight for the remainder of the year compared $42 last year.

For the rest of the year, we believe corn and soy will trend down slightly because of the excellent crop that is expected.

Turkey production forecast for the rest of the year indicate lower numbers compared to last year, would should keep markets strong in the turkey industry.

I will now turn it back over to Jeff for our thoughts on the future.

Thank you Mike.

There is nothing we would like more than to build upon the three excellent quarters we have registered thus far this year, with a powerhouse fourth quarter.

Unfortunately, we need to make you aware that our fourth quarter will not be able to sustain this pattern.

Taking into account the plans of each of our business units that are in place for 2004, we are providing earnings guidance today of 40 cents of 46 cents for the fourth quarter, and $1.46 to $1.52 for the year, each of which does not include onetime items.

We will feel pressure in Q4 for three main reasons.

First, higher pork and beef raw material costs are likely to compress margins within our Grocery Products and Refrigerated Foods segments.

Based on what we see today, we estimate our cost could be as much as $15 million to $20 million more than last year, because of raw materials costs increases that are above and beyond what we can pass on to customers through increased pricing.

Second, as I mentioned earlier, we plan to step up marketing spending behind the national rollout of STAGG Chili and the launch of our new Tetra Recart packaging, and also behind our SPAM singles line of products.

We believe these investments which will be in the $10 million to $15 million range of above Q4 of last year, will provide excellent returns in future quarters.

Third, the higher grain prices experienced this summer are continuing to work their way through the cost of goods in the fourth quarter and this will pressure the margins in our turkey business particularly.

Although we clearly would have desired to provide more favorable guidance in the fourth quarter, we do believe that the longer-term view of our business is still very promising.

With the exception of the Grocery Products business, our value-added sales throughout the rest of the Company are showing robust growth and in Grocery Products, we believe that the money spent in the fourth quarter to support the contemporization of our brand will pay dividends in 2005.

I also want to point out that as Mike mentioned, the latest list DA (ph) estimates indicate a potential record corn crop and a very good bean crop.

Although the corn market continues to react to daily updates in terms of yield estimates, the overall outlook for grain is still for markets in 2005 at levels which should be significantly below 2004 prices.

If protein markets continue to be strong in 2005, as forecasters are currently projecting and if we have cheaper grain costs, conditions will be set up very well for Hormel Foods next year.

At this time we will open up the call to questions.

(OPERATOR INSTRUCTIONS).

John McMillin with Prudential Equity Group.

Good morning.

Jeff, congratulations.

I will admit I am one of those inexperienced cooks.

I appreciate your new products.

When you talk in the press release, I guess it was Joel who was talking about making adjustments to the Grocery Products group, I guess I took those comments to mean there might be SKU or divestitures.

Was I right?

What does Joel mean by this "make adjustments" comment in the press release?

What I think he is talking about, well I know what he is talking about there, and Jeff just referenced it in his call, in his comments, in that we are going to be looking at pushing more marketing dollars in the fourth quarter behind some of these products to see if we can't get some movement through the retailers with these products.

So it is not divestiture --?

No.

When I looked at the quarter, where I guess I was less happy with just in the turkey, I just thought you would get more than the bottom line in the turkey business.

Jeff, did you have some procurements or grain contracts that helped you in the second quarter, and kind of rolled over and didn't help you in the third?

I think what else is going on, John, is that throughout the year the turkey business has been experiencing significant increases in grain costs and thus far, those increases have been pretty much offset by the commodity meat performance and so that allowed the rest of the performance of the business to kind of show through.

Those comparisons are getting harder and harder to cover and even in Q4 that is part of what is going on is that grain is still going to be high, but the year-to-year comparison on commodity meat values is going to be fairly stable with last year's Q4.

Just my last question goes back to that chili business that I mentioned in the third quarter.

Clearly you have two new competitors coming in.

Do you feel like this new product kind of gives you a differential point or something that kind of holds here in this period?

Definitely.

Really the Tetra launch is kind of -- there are two things going on with this launch.

One is just the new packaging.

And the fact that consumers have told us through research that this is going to be a more favorable, more contemporary form for them to experience the product and both the HORMEL Chili line and the STAGG line will utilize that packaging.

But secondly, between the availability of the packaging and the fact that there are other rivals coming into this category, we felt that this was the ideal time to roll the STAGG brand on a nationwide.

Based on the retailer support and distribution gains that we have been able to achieve thus far, it looks like that is working out very well.

Right.

Thanks a lot.

David Nelson of CSFB.

Good morning.

The greater investment in marketing behind these Grocery Products in '04 is falling on to John's questions there.

Does that mean we should expect higher growth, earnings growth otherwise in '05, because that marketing spending is brought forward or does it just mean that the cost of growth has just gotten higher?

I think what really stands out to me Dave when I look at the results page, is what a clear contrast there is from the Grocery Products division to the other three divisions.

And so at this point, we look at the Grocery Products division and see there are some items in the division that still have some solid growth such as the ethnic and microwave items, there are some that are fairly low growth items such as chili or SPAM and there are some frankly that are in a declining stage right now, such as stew and hash.

The added marketing money behind new initiatives against some of those brands is what we feel is necessary to turn the tide in Grocery Products and get growth going again.

Is it necessary just to maintain the prior level of growth or is it something expenditures that added to '04 in (indiscernible) '04 results should make '05 results that much better?

I'm thinking about -- should we expect 15 percent earnings growth in '05 because '04 is maybe less than expected here?

I think there is definitely a timing affect that is going to go on particularly with new product launches, whether right out of the gate in Q1 of '05 you're going to see the full volume and margin benefit of the slotting and marketing expenditures you make up front, probably not.

But we do feel we're planning seeds that are going to bear fruit over the long haul with those new branded initiatives.

Okay.

Mike was commenting that hog slaughter was a little higher, volume was a little higher than you expected.

Do you characterize that as you pulled hogs forward in the market and then therefore we may not have as many, much of a fall run as otherwise?

David, I think the numbers of hogs available are higher than what anybody anticipated.

Earlier this week, you see the numbers too, I think the USDA harvest was close to 400,000 hogs which says there may be a few were hogs out there than what all of the prognosticators think there are.

And I think we saw some of that in the third quarter, but demand for pork has been very strong so far this year.

So you just think the higher hog numbers is just more production?

Yes.

What was your Q4 price estimate, I'm sorry, I missed that?

$50.

Your comment on demand was where I wanted to go next and last.

Cisco made some comments a couple days ago on their conference call that they were starting to -- what they thought they were seeing in results was that the consumers were starting to -- thinking of the words they used -- the higher meat prices were taking a toll on meat consumption at Foodservice.

Are you seeing any of that?

Both our Foodservice businesses were up 15 percent, 20 percent last quarter and we don't see any signs of it slowing down right now.

Great.

Thanks very much.

Jon Feeney of Wachovia.

Good morning guys.

First a detailed question.

I look at your, Mike mentioned an average hog cost of $57, and I guess a $4 million savings versus the market.

I would have guessed that number, you would have been buying hogs more below-market than that given the precipitous increases.

Could you give a little more detail as to why my calculations, it's about 90 cents per hundred was below-market, why that number wasn't greater?

Is it just rising grain cost?

Yes, grain costs.

Because we haven't got down to that 25 percent level yet John.

We're working towards that.

So, we still have grain impact on our present hog contracts as we move to the new contracts.

We're going to continue to experience that and that is part of the explanation.

How much of a log is there, because going into a period now where grain costs have fallen precipitously since the springtime, are you expecting to see that advantage come through in the next couple quarters?

Remember the drop has to cover over a twelve week period because that is how the contracts are worked.

So, you don't get the immediate relief, it is an averaging effect.

But it is fair to expect that you should see some relief there?

Absolutely.

I guess the final question is, $50 you estimated.

Is that for HORMEL hogs sourcing costs or for market sourcing costs?

HORMEL sourcing cost.

Would you say, I guess that is probably -- you're going to assume that is below the market, right?

Slightly.

Thank you very much.

Bill Chappell of SunTrust Robinson Humphrey.

Good morning.

Just trying to understand I guess going back to the grocery business, what changed over the past three months since the last conference call that kind of changed your outlook, where it lead to the step up of marketing and rollout for this next coming quarter?

Was it competitive pressures, was which is just better than expected acceptance of new products, was it just a poor performance?

I'm just trying to figure out what has changed in the past three months that said, we've got to go ahead and set this up now.

I will give you a couple of answers there.

First of all, there is an element of, you go out and present a product such as the STAGG Chili to customers in the eastern United States with the goal of getting four or five items in, but you make an estimate as to how many of them you think are going to take it, a certain percentage will take the items at all, a certain percentage will take two or three items versus the higher amount.

What we're finding is we're exceeding our expectations there and that is really great news in the long run in terms of being able to build that franchise going into '05.

But that does put a higher burden on upfront marketing costs with the trade.

It also expands the amount of markets we needed to cover with advertising and so that is part of what is driving cost.

The second part of your question really does get back to, frankly this isn't the first quarter of sluggish volume results from Grocery Products.

And so we have been busy all year long looking for initiatives such as Tetra, such as SPAM Singles and some others that we're still working on to really rejuvenate the category.

And as those are ready, we want to roll them out and we want to support them aggressively because in the long-run we need to turn that grocery business back to a positive growth frame.

So is some of it just that the new products in the pipeline, they just popped up faster than you would have expected?

I think in that case of SPAM Singles, I think it may be a quarter ahead of where we had thought those test markets were going to be, in terms of when the advertising support was coming.

I guess maybe a better way to ask this is, if I'm looking at your fourth quarter guidance and seeming to bring it down, is the major reason for bringing the guidance down higher grain prices than expected or is the major reason higher grocery expenses to the rollout?

It is really kind of all three things I think we mentioned earlier on.

Clearly the grain costs are going to continue to filter through in a negative way through much of the fourth quarter and then we should definitely see relief.

Clearly we are spending more money on marketing because we think the time is right to drive these initiatives, and finally at this point, it is still the high hog costs and the high cut out volumes that go into some of those value-added products that are squeezing margins on some of our traditional Meat Products and Grocery Products items.

Got you.

One last follow-up.

On the turkey prices, or the turkey costs, I guess the same kind of question.

Three months ago did something happen in the past three months, just it took longer for the feed costs to work through the system than you had expected?

I think most of us expected them to come down by year end, but were you expecting them to drop sooner?

No, with tom turkeys, which is what you raise for all your meat oriented items, not whole birds but all the items that are going to go onto value-added products, it's a 22 week lifespan and you basically average out whatever the cost of the grain is during those 22 weeks.

And so even though today we definitely are able to buy at lower levels, those first few turkeys we bring in in period 10 and period 11 are going to have the majority of their life under the much higher cost conditions and we only gradually start seeing the affect of that as the average amount of weeks under the lower environment becomes clear.

Thank you.

Tim Ramey of D.A. Davidson.

Good morning Jeff.

Congratulations.

A couple of questions about the fourth quarter.

Mike, you mentioned that you would get a small benefit from the hog procurement contracts in the 4Q.

As you shift over to these more grain-based contracts are we just losing some of the upside that we thought we might have gotten down the road, this kind of large off balance sheet asset that was once there?

I think as we have talked, Tim, I think the result of what we're trying to get down on the contracts is to move away from a grain based formula to more market-based and cash base.

As we do that, clearly your purchases are going to get to a point where they reflect more of actual market conditions.

As we move and as you look at, we are going to have with what we're trying to get done here with these new contracts, I think it is safe to say that by maintaining a 25 percent mixture of grain-based contracts, and a mixture of cash market hogs, and then under the new contract I think we're trying to put ourselves in a little better hedge position in terms of the composite of all three of those contracts and how they filter through the system.

So, as you go and as we have said all along with these new contracts, we're trying to level out so we don't have these big gains in market conditions and big losses and try to get it more on a steady-state basis.

When you convert someone, do you essentially forgive that ledger balance?

Oh no.

They have to perform just as they always have.

I see.

Jeff, on the conversion to Tetra Pak, the word that you used, conversion, struck me.

Is this really the idea of replacing a lot of the canned SKUs with the Tetra Pak, or is this an additional SKU that you will carry both for the long-term?

No, we are looking at replacement.

At this time, it is only -- used formerly with the 15-ounce size of can, but for the HORMEL chili line throughout Q4 and into next year, we're going to gradually roll into different markets with the Tetra box, and take the 15-ounce size can out.

In the case of STAGG, as we open up new markets clearly out East, the only shipments they're going to get are Tetra.

They will have never seen the canned items, and we will gradually replace the canned items out West as well.

We are looking at other items within the Grocery Products portfolio as being which ones are appropriate for this.

I don't have any announcements at this time as to the next rollout, but clearly we're looking at all ways we can to contemporize our portfolio there, and where appropriate, we will utilize this technology.

Great.

Just with regard to the TURKEY STORE, JENNIE-O TURKEY STORE business that you know so well, do you feel like there is continued good momentum -- we've talked about demand for pork, but I really didn't hear you talk about demand for turkey products with consumers and just the overall protein environment.

Can you give us some color commentary on that, Jeff?

Yes, I think it is really excellent right now.

The value-added volume growth for JENNIE-O TURKEY STORE was in the 9 to 10 percent range last quarter, and dollar sales were at 14 to 15 percent.

So we really haven't seen any signs of a slowdown there.

I was looking back at the full-year results in reference to the earlier question about, gee, were the results in the third quarter in JENNIE-O a little less than we had thought.

Really when you look at the full year, on a year-to-year basis JENNIE-O is up earning 47 million for the segment versus 24 a year ago or a $23 million gain, and the gain during the third quarter was 8 million.

So really, it is right on pace with what it's been doing all along.

I do think in the fourth quarter that will slow down a bit, just because the grain costs have remained high but the comparisons year-to-year on the commodity meats are less favorable in the fourth quarter.

But in terms of that topline growth that you asked about, the trends are all very strong for JENNIE-O right now.

Thanks for your help.

Mike Hamilton of RBC Dain.

Good morning.

I was wondering if you could just take a picture of where we are now in grain, and assuming that we roll it forward the next couple of quarters, give how you would anticipate margin picture to benefit?

In other words, what kind of progression would you think we would see Q4 and then Q1?

If you look at where we think grain prices would be in looking at our numbers, you are looking at grain prices for August to average somewhere around 249, averaging at 236 roughly for September, and about the same number for October.

If you look out, I suspect that people that are much smarter than I would say that that trend will probably continue going into next year.

To the earlier point, as the average on both the hog contracts and the higher cost, because you are coming off of May and June at a 304 roughly number in terms of corn prices, I think that you can see that we expect going into '05 fairly significant improvement in cost.

So given where your cost structure is there, my anticipation would be Q4 would be a relatively flat sequential margin in JENNIE-O TURKEY STORE, with a fairly significant uptick then in Q1.

Given where your cost structure is right now, and again knowing that we don't know where grain is going, is that realistic?

I haven't seen the mast (ph) on Q1 yet, but the logic you're talking about makes sense.

We see the flat structure for Q4 definitely, and then as those lower grains start filtering through, that should definitely be a benefit.

There's a lot of other moving parts in the business.

We're not sure what the outlook will be after the holiday season for bird markets, for meat markets and so forth, but based on where it is tracking today and what the forecasters are saying today, that should be true.

Thanks, Jeff.

Homer (indiscernible) of Piper Jaffray.

Good morning.

Actually my questions have been answered.

Thank you.

George Askew of Legg Mason.

Good morning.

Jeff, congratulations.

Was there meaningful volume in Grocery Products prior to the pricing effectiveness in mid June, and is that one reason for the volume weakness since the pricing has been taken?

No, I think the head of our grocery division would say that it was actually a surprisingly small volume.

I think that phenomenon with retailers taking on additional inventory and trying to store it somewhere is really more from a bygone day, as least for our business, they just are not willing to do that.

Did I hear you correctly, marketing costs, some marketing costs are being pushed from the third quarter to the fourth quarter?

When I was talking about that, George, I made reference to the fact that the marketing expenses, I believe, were down about $1 million this year over last year as reflected on the income statement for Q3, and really you're looking at about $900,000.

And all of that would be attributed to the fact that we expected in the third quarter a little more promotional on the SPAM Singles than what happened, and really that is rolling into the fourth quarter.

That is all the difference.

One of the other marketing initiatives that I mentioned as a new product, but didn't talk about in terms of the marketing support, was the JENNIE-O TURKEY STORE Oven Ready Turkey, which clearly we are trying to coincide that marketing with the holiday season and so that print and television campaign will roll through Q4.

Okay.

Have we heard about all of the new products for this fall season?

You certainly outlined a number today.

Are there any surprises coming?

I am not aware of any that also would come out in Q4 that has not already been talked about.

Okay.

Let me ask the low carb, high protein Atkin's question.

You mentioned demand remains very strong.

Have you seen any moderation in any of the sub segments that would suggest low carb trends, which have helped you, might be moderating?

I read that, but I don't see in the numbers.

I see continued strong sales of items like bacon, both in the turkey and pork bacon areas.

Both the protein businesses overall still seem to have very robust demand.

The other thing is, we are somewhat insulated from any major risk if it does change in terms of being a trend or a fad.

We did not roll out any new products that were just uniquely based to being a low carb product.

We obviously have touted the high protein benefit that many of our products of always had, but we really don't have any exposure in the sense of an entire productline or a launch that is aimed at the low carb phenomenon.

Right.

Lastly, your cash balance jumped up, I'm sure in part due to the sale of Vista.

Do you anticipate perhaps accelerating your share buyback?

At prices today and where the prices are today, George, you can count on it.

Very good.

Thank you very much,

Tim Ramey of D.A. Davidson.

Jeff, I was following up on George's question there.

If you looked at the entire percentage increases of marketing that is going to occur in the fourth quarter, is most of that slotting, is most of it media, is a lot of it trade spending?

Can you characterize it?

I think it is a mix.

Frankly on the Oven Ready Turkey, I don't think we have paid slotting anywhere for that item.

Clearly STAGG in the grocery trade, slotting is fairly standard and I am sure there is quite a significant expenditure against that.

All three, the SPAM Singles, the STAGG and the Oven Ready all have consumer media campaigns against them and I am sure there are some decent trade support to make sure the retailers have a lot of activity going on in-store against them as well.

Okay.

Thanks.

John McMillin with Prudential.

Hello again.

To follow-up on George's question, or least take a different angle, one big change in the Company in recent years has been the related STUs, the still underleveraged balance sheet can make acquisitions.

Jeff, in your new role, do you think that trend will continue and to the extent you can talk about it, how actively are you looking at things now including perhaps even Oscar Mayer?

I can't comment on any specifics, but I can say we're actively looking at several opportunities, and it will continue to be part of the strategy of the Company to find things that fit our portfolio and that are properly priced and that we can add to the mix and see growth with.

That is a good part of your on a day-to-day or week-to-week activity lately?

Definitely.

I am well aware of the amount of cash we have too.

Thanks a lot.

Penn Jones with Deutsche Bank.

Good morning.

Thank you.

I wanted to touch on the grain costs again, if I May.

I am sorry to beat a dead horse here, but with regard to the JENNIE-O TURKEY STORE business, in refrigerated and your hog contracts you're trying to protect yourself moving from grain based contracts to more cut out based contracts.

Is there something similar that you can do in the JENNIE-O TURKEY STORE business to help protect your exposure on the grain side or maybe just trying to hedge grains going forward to try to help smooth the volatility there?

Is that anything you're thinking about?

It's a good question.

Clearly on the latter part of your question we are exploring whether there could be some more aggressive use of hedging tactics to smooth out overall costs.

But, I wanted to also address the first part of your question which was, can we structurally look at turkey contracts and turkey raising similarly to the hog side of the complex.

At least at this point the answer would be no.

First of all, we're partially vertically integrated in turkey.

We own up to 40 percent to 45 percent of our own turkeys and we have another 20 percent to 25 percent that are on growout contracts, where we own the feed, we own the turkey and the farmer provides the labor basically to bring those turkeys to market.

We do have -- the remainder is on an independent, are independent growers and they are on contracts, but one of the strategies that we embarked upon particularly after the merger of JENNIE-O and the TURKEY STORE was to be the feed provider to both our own operations and as many independents as possible.

But the older network had lots of little feed mills in lots of places running quite inefficiently and we felt that by having larger feedmills and taking over that side of the business that we would ultimately lower our costs and we have seen that effect.

But, you do have the flipside that now if it's your grain you own it and you bear the cost swings on that.

Okay.

So, essentially hedging going forward although you might not want to now in this environment with grain prices expected to come down, but that might become a part of your strategy going forward?

We are exploring that.

Great.

A more specific question within Grocery Products, can you quantify how much of the 3 percent decline in volumes was due to the price increase and what kind of volume impact you think it will be over the next few quarters?

We would really be guessing at that.

Just looking at the pattern of sales, clearly there seems to have been accelerated decline that is associated with the price increase in the last couple of weeks.

It now seems to be maybe starting to swing back but it is really too early to tell and I don't have a precise quantification of that.

Finally the salesforce reorganization, how has that been going and might that have contributed to the volume difficulties or is everything going okay with that?

I don't really want to grab that as an excuse.

I think any time you make a major restructuring or a major organization change, people's lives are disrupted and there is always the possibility that could be affecting performance in the marketplace.

I just will say though that in my new role here, that is clearly one of my major priorities is supporting that initial phase of the consumer product sales organization.

In terms of how we manage the company, we are really just three weeks in terms of sales reps managing both the Meat Products and Grocery Products portfolio.

We have coordinated planning that has been going on for months and we will kick off the '05 year with a plan that was always designed on a coordinated basis.

But for the remainder of this year, there is a certain amount of just getting out in the trenches and getting it done and trying to fill out the '04 plan.

Great.

Thank you very much.

Jon Feeney with Wachovia.

Thanks.

Just one quick follow-up.

Looking at the volume decline in Grocery Products, would you say that in light of your price increase, are your competitors using this as an opportunity to take price increases do you think?

I guess could you also comment on the Refrigerated Foods side, what has the competitive landscape been like from a pricing perspective?

I think on Refrigerated we're seeing all the company, all the protein-based businesses have been pushing up prices.

There are certain parts of the portfolio that have always moved more with markets than others.

Your ham and bacon are traded on weekly daily trades, whereas maybe your entrees and pepperoni are much more stable pricing.

On the grocery side, we have seen other companies follow suit in certain cases with pricing.

I don't have a complete list for you (indiscernible) in every category, what each of them have done.

Could you comment, has it been broadly within your expectations though in terms of price increase or have you been maybe a little disappointed with others not following your pricing?

I think more the former.

I think mostly what we have seen, it received quite a bit of coverage for example, and there were other announcements from other companies that compete with us in certain segments, that fairly soon after that they announced an implemented price increase as well.

When we look at the bigger more major players that we compete against in certain categories, it seems to been in most cases there has been, that they have also taken the same reaction.

Excellent.

Thank you Jeff.

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