荷美爾 (HRL) 2005 Q2 法說會逐字稿

Good morning.

My name is Tanya and I will your conference facilitator today.

At this time I would like to welcome everyone to the Hormel Foods second quarter earnings conference call.

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

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 one on your telephone keypad.

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

Thank you.

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

Please go ahead, sir.

Good morning.

Welcome to the Hormel Foods's conference call for the second quarter fiscal 2005.

We released our results this morning before the market opened around 7 a.m. central time.

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

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

Joel will provide a brief introduction and an outlook for the third quarter and full year of 2005.

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

We intend the question-and-answer session of this call for analysts and shareholders.

If the media has questions, please contact Julie Craven, our Director of Public Relations at 507-437-5345.

An audio replay of this call will be available beginning 10 a.m. central time today, May 26.

The dial-in number is 800-642-1687 and the access code is 6447902.

It will also be posted to our website and archived for one year.

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 materially from these expressed in or implied by the statements we will be making.

Among the factors that may affect the operating results of the Company are fluctuations in costs and availability of raw materials and market conditions for finished products.

Please refer to Exhibit 99.1 of the 2004 Form 10-K for a complete listing.

Now I'll turn the call over to Joel.

Good morning, everyone.

Our second quarter earnings per share of $0.40 fell towards the middle of our guidance range of $0.38 to $0.44 and was a 5% increase compared to last year's GAAP earnings of $0.38.

You should note that last year's GAAP earnings included a $0.01 gain from infrequently occurring events.

Our top-line grew by 15% to $1.3 billion.

Adjusted for acquisitions and divestitures, sales were up 4%.

Our turkey segment was the clear standout in the quarter, with operating profit more than double our fiscal 2004 results.

Grocery products and refrigerated foods both reported top-line growth, but their operating profit was down due to higher pork and beef raw material costs.

The results of the second quarter are good evidence of the strength of a balanced business model that allows us to grow earnings in many different environments.

Each of our segments has an optimal performance environment, and we recognize that they occur at different times.

This year is clearly favorable for Jennie-O Turkey Store.

Our results also demonstrate the leverage inherent in the growth of our value-added products.

As pork and beef markets trend lower, we expect improved profitability from our refrigerated foods and grocery products segments.

Since our last conference call, we announced two strategic acquisitions, and I'd like to discuss them.

Mark-Lynn Foods, a company that manufactures and distributes a wide array of food service items, adds scale to our existing business and broadens our condiment portfolio with wet pack items like ketchup, mustard, salad dressings, and jelly packets.

With half of today's U.S. consumer food dollar being spent outside the home, this acquisition further strengthens the food service focus capabilities of Hormel Foods.

Mark-Lynn generated annual sales of $50 million and reports within our specialty segment.

Second is our purchase of Lloyd's Barbecue Company.

Lloyd's is an excellent addition to the Hormel Foods's family of consumer brands and fits our growing array of high-quality food offerings sought by today's busy families.

Lloyd's offers a wide range of barbecue products.

We expect Lloyd's to add $100 million of sales to our refrigerated segment on an annual basis while providing us with a clear leadership position in the precooked entree category.

These acquisitions fit our strategies to grow the food service business and bring value-added products to the meat case.

Both acquisitions are projected to be accretive in 2005.

As we look forward to the rest of fiscal 2005, we remain optimistic.

We should see accelerating contributions from our acquisitions, and the operating environment for our turkey business looks good.

Based upon this analysis, we're issuing third quarter guidance of $0.34 to $0.40 and maintaining our full year guidance of $1.70 to $1.80.

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

Thank you, Joel, and good morning everyone.

Earnings for fiscal 2005 second quarter totaled $55.8 million or $0.40 per share versus 53.7 million or $0.38 per share a year ago.

Non-GAAP earnings last year were $0.37 resulting in an 8% increase over last year's earnings.

Dollar sales for the second quarter totaled $1.3 billion compared to 1.1 billion last year.

Excluding the acquisitions and divestitures, sales were up 4%.

Acquisitions added $131 million to the top-line in the second quarter.

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

Volume for the second quarter was 1 billion pounds, up 17% from fiscal 2004.

Acquisitions added 126 million pounds to this number.

Selling and delivery expenses for the quarter were 10.6% of sales this year and 11.2% last year.

We expect the full year to be 10.7%, which is lower than our previous guidance.

The reason for the lower rate is the Clougherty Packing Company acquisition.

They have lower selling and delivery expenses compared to the Hormel Foods average.

Marketing investments in the second quarter totaled $29.2 million or 2.2% of sales compared with 27.2 million or 2.4% of sales last year.

For the full year we expect this number to be 2.3%.

Administrative and general expense was 3.1% of sales for the quarter compared to 3.4% last year.

For the full year we expect to deliver 3.1% on this expense category.

Interest expense for the quarter was $6.7 million compared to 6.6 million last year.

For the year we expect interest expense to be $28 million.

Depreciation and amortization for the quarter amounted to $30 million versus 23 million last year.

We expect depreciation and amortization to be around $120 million for the year.

This is higher than our previous guidance due to the acquisitions that have been announced in the last quarter.

Our effective tax rate in the second quarter was 37.3% versus 36.3% in fiscal 2004.

We expect the 2005 effective tax rate to be 37.2%.

Capital expenditures for the quarter totalled $25 million versus 18 million last year.

We expect 2005 capital expenditures to be around $100 million.

The basic weighted average number of shares outstanding for the second quarter was 138.3 million.

The diluted weighted average number of shares outstanding for the quarter was 139.9 million.

We purchased 164,000 shares of common stock during the second quarter at an average price of $29.81.

We have 8.2 million shares remaining to be purchased under the 10 million share authorization.

We processed 2.2 million hogs in the second quarter compared to 1.7 million last year.

Without Clougherty Packing Company we processed 1.8 million hogs.

The actual live hog cost in the second quarter was $52 per live hundred weight.

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

We expected live prices to be $52 per hundred weight in the third quarter.

We anticipate an average market of $51 per live 100 weight for the third quarter compared with 57 last year.

We expect grain prices to be around today's markets for the rest of the year.

Even though we do not provide all the details behind our hedging strategies, I will mention that we have good coverage for the balance of the year.

I will now turn the call over to Jeff Ettinger to discuss the segment results.

Thank you, Mike, and good morning, everyone.

As Joel mentioned, our turkey business reported outstanding performance in the quarter with operating profit up 103% or $17 million.

Sales were up 4%.

A combination of continued value-added sales growth, solid turkey meat markets, lower grain markets, and improved efficiencies in our production facilities all contribute to do this gain.

This quarter is a good example of the earnings power behind our turkey segment.

When we purchased The Turkey Store in 2001 and added it to our existing Jennie-O turkey business, we recognized the growth opportunities in the turkey category.

This year we are seeing big returns from that investment and are excited about the future of our turkey business.

We have established Jennie-O Turkey Store as the clear leader in the turkey industry by building our brand, gaining distribution, and becoming a more efficient operator.

Even though we have made a lot of progress, turkey is still an underdeveloped protein, and we see this as a great opportunity.

We expect to see the same favorable operating environment for the rest of this year.

Our value-added growth in the turkey segment was driven by the deli channel with double-digit growth coming from Jennie-O Turkey Store rotisserie and premium seasoned turkey breast.

Retail growth came from Jennie-O Turkey Store tray pack and marinated tenderloins.

We just kicked off a national introduction of So Easy Sauce breast fillets, Jennie-O Turkey Store premium cooked dinner sausages, and premium white burgers.

Value-added product rollouts like this will help make turkey an every day eating occasion.

Our refrigerated food segment reported top-line growth of 27% and was up 5% excluding the acquisitions, but a 31% lower operating profit.

The lower operating profit was due to higher live hog costs, that we could not fully pass on in our value-added product pricing.

Retail categories with solid growth in the quarter include Hormel fully cooked bacon and fully cooked entrees.

On the fresh meat side of the business, we are excited to see very promising results from a new packaging technology that we began using in our case-ready program under the Precept joint venture.

Our Precept volume was up 30% for the quarter.

Food service sales under the refrigerated segment were up 5%, driven by growth in precooked breakfast sausage, Always Tender pork, Austin Blues barbecue, Applewood smoked bacon, and our Cafe H line of ethnic products.

The integration of Farmer John branded products from Clougherty Packing and of Lloyd's barbecue are both on plan.

And we expect the contributions from these businesses to accelerate in the second half the year.

Both acquisitions have strengthened our branded position in the meat case.

Grocery products reported mixed results.

Operating profit was down 2% while sales were up 2%, though down 2% if you exclude acquisitions.

Our microwave category grew at a double-digit rate during the quarter, and we continued to see growth from our chili category.

The canned stew category, however, was again down compared to last year.

Higher promotional spending in the chili category pressured margins, but we have been able to successfully defend our strong number one position in this category against two new national competitors.

The overall chili category continues to explode, with dollar volume up 33%.

And we have just launched a 15-ounce microwave bowl product for both Hormel and Stagg chili that should continue to drive incremental volume in this category.

The integration of Mexican Accent into the grocery product segment is going well.

This acquisition has broadened our ethnic portfolio and we are excited about the opportunities we see in the fast growing flour tortilla category.

The strength of our sales, marketing, and distribution capabilities will accelerate the growth of this business.

In the specialty foods segment sales were up 6% and up 3% excluding acquisitions with operating profit down 6%.

We experienced weaker sales from industrial ingredients and also saw a negative mix change in our sports nutrition business.

The Splenda business continues to do extremely well for our Diamond Crystal group.

Operating profit for the all other segment was down 31% in the second quarter, primarily due to the divestiture of Vista that occurred in the third quarter of last year.

Sales were down 2%.

Excluding Vista from the prior year, sales would have been up 24%.

Export sales of Stagg Chili and fresh pork were strong in the quarter and we continue to see growth from our operations in China.

At this time I would like to turn the call over to the operator for the question and answer portion of the call.

At this time I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad.

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

Your first question calls from the line of Farha Aslam with Stephens.

Good morning.

Recently we had higher pork inventory in the freezer.

I was wondered if you can comment on your outlook for pork that's in inventory and your outlook for hog costs in greater detail.

Well -- Farha, this is Mike.

I'll start with the answer and Jeff and Joel can jump in here.

Clearly we think that the USDA inventory report that came out last Friday has led to the sharp decrease that we're seeing in the last -- last few days in the market.

And clearly if you're going to move the pork that's in inventory, raw materials costs are going to have to go lower.

And as we look out -- as we look out and we talked in my information that we expect to see lower markets than we saw last year.

We expect to see lower markets than what we saw in the second quarter.

And we think, internally, that we've probably hit the high for the year in hog prices and would probably see markets much lower in the fourth quarter than they were a year ago.

Great.

And do you expect a new triumph(ph) plant to impact your hog costs at all going into the back half of the year and into '06?

I would say no.

You know, it's going to bring -- it's going to bring more production online and more processing capability online.

But I think -- I think with what we've seen in some expansion levels, which are kind of leading to lower prices, you know, the expansion is probably going to be taken up by that plant.

Great.

Thanks.

Your next question comes from the line of Pen Jones with Deutsche Bank.

Thank you.

Question about Jennie-O Turkey Store.

With sales up 4% and volumes up 5, that suggests price mix was down 1% in the quarter.

Is that accurate and are you seeing inability to pass through higher turkey prices, or are you seeing a negative mix shift?

Pen, this is Jeff Ettinger.

Value-added sales at Jennie-O Turkey Store continue to grow, and we've been on a pattern of growth in that arena for two or three years now.

Commodity meat prices, basically, were flat for the quarter and, indeed, commodity breast meat was actually down.

The average quarterly breast value in 2004 was $1.80 a pound, and this year's $1.62.

Decent markets, but clearly there was no gain on the top-line from the commodities side.

And so I think that's what you're seeing there, is a little bit of a dampening affect of the commodity meat sales.

But the value-added sales were still up significantly.

And then I guess further that -- turkey production definitely remains very rational with slaughter levels down and egg sets and poult placements consistently lower.

So I was wondering how much of this is simply disciplined behavior on the part of producers and how much is structural given the amount of capacity that's been taken out of the industry in the past couple of years?

And maybe we eventually see producers begin to ramp up production and take advantage of these above average turkey prices.

Noted, they're down year-over-year, but still that $1.62 is higher than they are historically for your fiscal second quarter.

Or structurally are we in a situation where it will be difficult for producers to ramp up production?

There's been some production taken out of the marketplace, and although egg sets are significantly down, we are seeing some higher weights this year.

So that is one way that the processors, if they choose to, could put more volume through their facility.

So I think it's really more a case of if the market is going to hold it will be -- it will be the former more than the latter.

That there will need to be continued discipline from the players.

And, of course, we can't speak for what other parties are going to do in this marketplace.

We have sufficient meat needs to continue to meet our value-added initiatives.

So we're in a solid position to maintain levels, slight growth that we've been doing the last couple years on a top-line total volume basis.

I think -- Pen, Joel.

You have to remember your issue of industry discipline.

There was a lot of pain in the turkey business back in 2002 and a good bit of 2003 as well.

I think those memories are still recent enough that discipline, as you call it, is probably still present.

Good.

Okay.

And then finally, if I may, food service sales were up 5%, which is, obviously, still very good, but not quite as strong as you've been able to post in the past.

I know you had some tough comps, but can you elaborate on what's going on in the food service channel for you guys?

We're still seeing excellent growth in a lot of our higher end branded initiatives.

If anything, there was a little bit of a dampening effect in some of the mid-tier ham markets, which do effect volume significantly but which are a lesser margin return for us.

We would -- our plans for the second half are to get back to more normalized level in that area of the business

Okay, great.

Thank you very much.

Your next question comes from the line of Bill Chappell with the SunTrust Robinson Humphrey.

Good morning.

Two questions.

I guess first, looking at the grocery business, clearly that was a little bit below expectations.

Is there any way to quantify the stew business of how big a part of that was, that is of the total, and kind of what you're doing to improve and when you expect the improvements there?

Well, the stew is something we've had on our radar here for the past few quarters even.

It's a franchise, though, that we've had for 60-plus years and so we don't want to make a precipitous change to it without thoroughly understanding the consumer dynamic.

Rest assured, though, we are studying it very thoroughly.

We can't continue to look at what's been double-digit declines in that canned part of that business and not do anything.

I will add, though, that there -- there has been some transfer of that business over to the microwave part of the category, which is doing quite well.

On the Dinty Moore Stew item within microwave is one of the leading items there.

In terms of a quantification, I mean, it's a significant business for us, but we really don't break it down to exact contribution on a line by line basis that way.

Is it similar in size to the chili business or is it a little bit smaller?

It's a little bit smaller.

Second on the refrigerated foods margins, just trying to understand how this came in line with internal expectations.

Was this a surprise in terms of how high the hog costs were and the input costs, and were there any other input costs beyond hog prices that really impacted that?

Well, there's a general impact across the business on freight costs and on certain packaging costs, but I think in general we've been able to pretty successfully handle and absorb those.

I wouldn't say it was -- I think the market has held up higher longer, maybe, than we thought it was going to, but it's not a big surprise.

The thing we need to bare in mind is just as Jennie-O had the benefit -- is having the benefit this year of the wind at their back.

I mean, our refrigerator had just a blowout year last year.

The now has a little bit less favorable conditions, and so the comps aren't as good.

But, again, it goes back to Joel's comment about our model, that we know that that's going -- things are going to come and go within the segments.

We're satisfied, really, with where refrigerated is.

We'll expect it to do a little better in the second half on a year-over-year.

But it, probably frankly, we'll be down at least for the next quarter on a year-over-year basis going against the comps it's looking at.

Yes, you have to remember that last year's comps in the refrigerated segment were phenomenal.

Very, very difficult to replicate.

They were by far the best periods we've ever experienced in that part of our business.

Okay.

Thanks.

Your next questions comes from the line of Cheryl Getvilla with Prudential.

Good morning.

I was wondering if you could talk a little bit more about some of the larger acquisitions that you've made and what your expectations are for the contribution from those acquisitions but also, specifically, with clarity whether you've looked a little bit more given their location at opportunities for using it as sort of an export location.

Well, this is Mike McCoy.

In terms -- in terms of their performance and to my comments that I made in my section of the presentation, they're selling and delivery expenses are lower than the Hormel average, primarily because of the marketplaces that they service, basically southern California, northern California, and Arizona.

But -- but one of the attractions that we had with the company was they had a pretty good export business.

And we see -- and we see going forward that that -- that that trend will continue.

And we see some nice opportunities with that acquisition not only in growing their brand but also in growing their food service business.

Okay.

Thank you.

Your next question comes from the line of Tim Ramey with D.A. Davidson.

Good morning.

I'm just wondering how hard the ground shook in the town of Austin, Minnesota, when the citizens woke up today to find out turkey was the biggest single business corporation.

They're celebrating in Wilmer, Minnesota

That's what I was thinking.

Is there a risk of the Company headquarters moving down there?

No.

No.

Okay.

Just a couple of more serious questions.

You made a comment on case-ready strong sales growth there.

Can you talk a little bit about where that product is going in terms of customers?

And you also mentioned that it was a packaging innovation.

Can you describe that a little more fully?

The packaging innovation is something that we'll be offering to targeted customers, really, across the country, opportunities that we're pursuing.

We have not announced a new major customer, but we're very optimistic we're going to be attaining one here in the near future.

The main customer that drove the growth during the second quarter would be Super Target and their program has just performed excellently for them.

We created a -- we teamed up with them to create a new brand structure that's still under Hormel brand but also gives them kind of a proprietary restaurant quality brand and look within their stories that is somewhat unique to Super Target.

I've heard comp store sales -- I won't give you the precise numbers, but they're up very significantly over the prior program.

And Jeff, that's both beef and pork?

Yes.

Okay.

And for Mike, do you know what the total debt was at the end of the quarter?

It just has long-term debt in the press release.

In terms of the total debt?

Yes.

Long-term debt --

I've got that.

But I don't have the current portion.

The current maturities were -- hang on a second.

Looking at current maturities of long-term debt.

You add another 15 -- 16 million on top of that, Tim.

So you're looking at 376 million in round numbers.

Thank you.

And then just a quick question.

Why did you put Lloyd's in refrigerated?

Did you consider putting it in grocery?

What was the logic there?

Not at all.

The refrigerated -- Lloyd's is a refrigerated product, just absolutely directly.

And we are managing it on a category basis with our Hormel and Jennie-O Turkey Store branded precooked entrees.

Most of the Lloyd's products, the tubs, will be in the well right beneath the racks that we have in place for our precooked entrees.

And we see a lot of logistics on marketing and sales opportunities to synergies those.

The distribution elements of the business would also drive it and production and supply chain would also drive it within refrigerated.

So, I'd have to say, we never considered it putting anyplace else

And just one more quick one on turkey.

You kind of addressed this with Pen's question, but I think you listed lower brand prices as the third or fourth most important driver of profitability.

With pricing actually down and -- I have to believe it was a stronger component or a stronger contributor than that.

Can you talk briefly about that?

I think the cost side period may have been a stronger contributor.

But you have to factor in also operating efficiencies.

We've rationalized plants up in the operation, we've focused certain entities on running just certain lines.

And so we've really reduced our operating cost.

But, clearly, grain has been a plus and, realistically, grain will continue to be a plus.

As we talked, I think, in last year's conference call, there's a lag effect when it comes to this feeding of the turkeys and when we bring them to the market.

And so there's an element of these lower feed costs right now that are already in the flocks that are going to come to market here in the third quarter versus last year when we had very high feed costs in the turkeys in the third quarter.

Okay.

Thank you

Jim, I'd like to come back to make one comment.

This is Mike.

I gave -- the number I gave you was the long-term debt plus current maturities.

But we also -- we've also accessed our revolving credit agreement now to the tune of $90 million.

So our total debt is approximately 466 million, in securing debt.

Thank you.

Your next question comes from the line of John McMillin with Prudential.

Good morning, Joel, Jeff, Mike, and Fred.

Just to kind of go back on refrigerated versus expectations, because I'm not sure you fully answered that, Jeff.

Your earnings guidance for the quarter was 38 to 44.

You came in towards the low end.

The refrigerated number that I was using was much higher and, historically, higher hog costs haven't been all bad due to procurement contracts.

I'm just kind of wondering how it works now with the current procurement contracts, and just if you could kind of better answer the question whether these refrigerated numbers were in line with your expectations because it would appear not.

One part of it -- there's high hog costs and then the key for us, obviously, is the relation to that versus the meat values.

In that case we were not able to attain as much in value.

I think I mentioned that in my part of the comments, as we probably had anticipated.

In terms of hog contract impact, there's a lot of changes that went on with the contracts.

I think we described now that we're only on about 15% grain based contracts.

But, clearly in this environment with high values and high cutouts, that is now a factor where the producer shares with us, to some extent, in those higher values.

And so in this kind of environment that we looked at in the second quarter, those costs may have been up a little higher than we would have been in the past.

But as we're starting to see those costs decline right now, that situation should change here in the second half.

And that was really more of our long-term model was to get off of the grain exposure and to get on to more of a market-based scenario for the pricing of our contracts.

In the past you've quantified, or at least Fred's quantified, what hog contracts cost you.

In this case would they have still helped you in the quarter?

And can you quantify that number?

John, yes they did help us a little bit in the quarter.

We made -- we showed a gain on the hog contracts of about $3.6 million.

Okay.

But under the old contracts, and I'm sorry if you went over this earlier, I've just running around with Heinz.

Under the old contracts, I guess, you might have gotten more of a benefit from being over these, you know, -- to being over these floor levels.

Yes.

That -- and that is right.

Under the old contract, if we had everybody on the old contract, we would have seen a much higher gain this quarter than what we're reporting.

Okay, because I guess I --

I think that will be different in the third quarter with the recent declines in the markets, in which much more of our -- many more of our contracts are now meat-based.

I guess, what I haven't done, analytically, is just adjusted my predictions for the total Company or the segment on the new contracts, you know, because I just had much higher refrigerated margins and higher earnings.

That could have a significant impact, John, and maybe Fred will follow up.

Yes, okay.

Thanks a lot.

Your next question comes from the line of Eric Larson with Piper Jaffray.

Good morning, everyone.

I'd just like to go back to the refrig -- to the grocery section and have you talk about that for just a second.

Putting the canned stew products aside, in the second half of fiscal '04 and now kind of in the first half of '05, you've stepped up pretty significantly on some new products.

I think you did reference sam -- SPAM single serve, the success you're having there.

Can you give us an assessment on how you feel your new product work is going in that business?

And then how long will it might take you to get in national distribution for SPAM singles?

SPAM singles, we have it still in 12 test markets.

It's meeting expectations right now, but it's not a significant contributor to our overall results and probably won't be until we launch it beyond those 12 markets.

We're still looking for certain things in terms of research results before we're going to make that decision to go forward.

One of the keys, frankly, in that segment is we need to ensure that we're not cannibalizing our own franchise.

It's a smaller package and you don't want to trade somebody down from buying a 12 ounce version of your product to a smaller version of your product.

Right now it's looking favorable in that regard, but it's something we need to confirm.

We're pleased with our rollout of Stagg in the Tetra Pak and into the eastern United States.

And the Stagg numbers were very solid during the second quarter.

Otherwise, in new products we did launch a couple new flavors in our microwave entrees and we've re-branded those entrees under Hormel.

And those numbers speak for themselves.

They're up phenomenally in that character -- over 40% just during the quarter and that's over a last year increase that was very solid as well.

So, overall seeing good progress.

And we think there's a lot of opportunities with the managed portfolio in terms of synergies between that and our Chi-Chi's franchise and some of our other items.

And then last but not least, we did rollout a couple new 15-ounce microwave bowl products, the Hormel -- two varieties of Hormel chili and two varieties of Stagg chili that are just right now just getting retailer acceptance.

They haven't gone through to consumers, really, on a big scale yet.

But they're off to a good start.

Okay.

Thanks.

And if you -- if your canned, and maybe you don't have this number, but if your canned stew products were basically flat year-over-year, what kind of volume performance would you have had in grocery?

I really don't have the number, but I will -- I mean, it's pulled us down a couple percent.

I mean, it's a significant volume, but I don't have it fully quantified.

I can maybe follow with you up with that offline.

And then just one other final question, pork exports as an industry.

They still continue to be very strong, do they not, year-over-year?

Yes, Eric.

Okay.

Thank you.

Your next question comes from the line of Linda Huang of Wachovia Securities.

Given the USDA high pork inventories, I was wondering if you've seen any changes in the demand for pork or other meats?

That's a pretty recent set of reports and, really, the answer would be no, we've not seen a change in the demand for it.

That's obviously going to be the key component where values shake out, I mean, even if it looks apparent that there may be a supply expansion.

But right now, no, we're not seeing a decrease in demand.

And for your innovation outlook for the next 12 months, are you expecting pull back on new products due to the end of the low carb phenomenon or lower pricing expectations?

Let me pick up on that.

The end of the low carb phenomenon is really a double tail.

Demand for proteins continues to be very strong.

Where you're seeing the changes in the low carb diet is in some of the analog products, the high carbohydrate products that were reformulated to eliminate the carbohydrates and consumers have largely rejected these on a taste basis.

And they're categories in which we don't play, where we haven't participated, we don't have an portfolio that's in that orientation.

But, demand for fundamental proteins continues quite strong, so I think you really have to look at both sides of that coin.

In terms of our new product development, I can just tell you that we have just recently made a major expansion to our R&D center.

We've just built a new R&D center at Jennie-O Turkey Store.

And we are definitely filling them up with new product initiatives and are going to continue to be very aggressive in that area.

But I'm not going to now disclose what any of those initiatives are.

Okay.

But, they'd be as strong as in 2004?

We have every intention to be as aggressive into the future, right

Okay, great.

Thanks.

Once again, if you would like to ask a question, please press star and then the number one on your telephone keypad.

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

At this time there are no questions.

Okay.

Thank you for attending today's conference call.

If you have any questions feel free to give me a call later in the day.

Thank you.

This concludes today's Hormel Foods's second quarter earnings conference call.

You may now disconnect.