荷美爾 (HRL) 2005 Q4 法說會逐字稿

Good morning.

At this time, I would like to welcome everyone to the Hormel Foods fourth-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 session. (OPERATOR INSTRUCTIONS).

Thank you.

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

Sir, you may begin your conference.

Good morning and happy Thanksgiving.

Welcome to the Hormel Foods conference call for the fourth quarter of fiscal 2005.

We released our results this morning before the market opened around 7 AM Central time.

If you did not receive a copy of the release, you can 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 who was on CNBC's Squawkbox this morning;

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 first quarter and full-year of 2006.

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

An audio replay of this call will be available beginning at 10 AM Central time today, November 23rd, 2005.

The dial-in number is 800-642-1687, and the access code is 2453141.

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

Before we get started with the results of the quarter, I first need to reference 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 those 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 the cost of 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.

It is important to note that the Company's accounting cycle resulted in a 13-week fourth-quarter and 52-week year in fiscal 2005 compared with a 14-week fourth-quarter and 53-week year in 2004.

Now, I will turn the call over to Joel.

Good morning everyone.

Before I discuss the results of the quarter, I want to take this opportunity to express my thanks for your support over the years since this will be my last quarterly earnings conference call before I retire.

It has been an honor to lead this great Company as CEO for the past 12.5 years.

I have enjoyed the many meetings with our shareholders and our analysts.

While I am pleased with the progress the Company has made in this past 12.5 years, I believe that the best years for our Company are in the future.

Hormel Foods is well-staffed and well-equipped to continue its excellent performance.

Now, for our recent results.

We had a strong finish to an outstanding year.

All five segments reported year-over-year improved earnings in the fourth-quarter despite an extra week in last year's quarter.

Earnings per share were $0.59, were an 18% increase compared to last year's earnings of $0.50.

For the full-year, earnings were $1.82, up 17% from adjusted earnings from operations of $1.56 in 2004.

GAAP earnings last year were $1.65 which included a $0.9 per share gain from infrequently occurring transactions.

For the quarter, our topline grew 10% to $1.5 billion which includes acquisitions.

Topline growth for the full-year increased 13%.

The JENNIE-O TURKEY STORE operation led the way with the largest operating profit improvement for both the quarter and full-year.

A combination of higher turkey meat markets, lower feed costs, improved production efficiencies, and growth in our value-added products were key drivers behind the outstanding year recorded by the segment.

We continue to see these benefits as we begin fiscal 2006.

Our other segments also reported strong growth, though not as spectacular as JENNIE-O TURKEY STORE.

The four acquisitions that were made this year continue to meet our expectations and the integrations have gone well.

Earlier this week, we announced an 8% increase to our dividend rate.

The new annual rate will be $0.56 per share.

The previous rate was $0.52.

Hormel Foods has an outstanding history of dividend payments.

Our Company has not missed a dividend since going public in 1928 and has increased the dividend every year over the last four years.

This statistic confirms the strong long-term cash flow of our business.

Now, for the outlook.

All our segments have momentum going into the new year.

We expect somewhat lower hog prices in 2006, which should benefit the Grocery Products segment and many of our value-added products in Refrigerated Foods.

Our exceptional results in the turkey business in 2005 will create difficult comparisons for that segment.

However, this turkey segment has had a good start in 2006.

As we mentioned in the press release, we will be adopting FAS 123R, share-based payment, in the first quarter of 2006.

This non-cash charge will reduce earnings per share by $0.04 in the quarter.

After assessing industry factors and our business plan and prospects, our GAAP earnings guidance for the first quarter of 2006 is in a range of $0.44 to $0.50 per share which includes that $0.04 per share charge for FAS 123R.

On an operating basis, this projects to $0.48 to $0.54, the midpoint of which is 11% up over last year.

For the full-year, we are providing GAAP earnings guidance in the range of $1.86 to $1.96 on an operating basis, this equates to $1.90 to $2.00.

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 fourth-quarter totaled $181.7 million or $0.59 per share versus $69.8 million or $0.50 per share a year ago.

For the full-year, earnings were $253.5 million or $1.82 per share compared with adjusted earnings from operations a year ago of 218.9 million or $1.56 per diluted share.

In fiscal 2004, GAAP earnings were $231.7 million and $1.65 per share, which includes $12.8 million (technical difficulty) per share of infrequently occurring transactions.

Dollar sales for the fourth-quarter totaled $1.5 billion compared to 1.3 billion last year, a 10% increase.

Acquisitions added $156 million to the topline in the fourth-quarter.

For the year, sales totaled $5.4 billion, up 13% from the 4.8 billion reported last year.

Acquisitions added $489 million to this year's sales.

Volume for the fourth-quarter was 1.1 billion pounds, up 12% from fiscal 2004.

Acquisitions added 138 million pounds to this quarter.

For the year, volume was 4.1 billion pounds, up 14%.

Acquisitions added 450 million pounds to this number.

Selling and delivery expenses for the quarter were 10.6% of sales this year compared with 10.7 last year.

For the year, this was 10.7% compared with 10.9% last year.

Marketing investments in the fourth-quarter totaled $24 million or 1.6% of sales compared with $23 million or 1.7% of sales last year.

For the full-year, marketing expense totaled $115 million compared with 101 million last year.

Both years equated to 2.1% of sales.

Administrative and general expense in the quarter was 3.3% of sales compared to 2.9% last year.

For the full-year, administrative and general expenses were 3.2% of sales this year and 3.1% last year.

Interest expense for the quarter was $7 million for both years.

For the year, interest expense was $28 million this year compared with 27 million last year.

We expect interest expense to be $25 million for 2006.

Total debt at the end of the quarter was $362 million compared with 377 million last year.

Depreciation and amortization for the quarter amounted to $29 million versus 25 million last year.

For the year, depreciation and amortization totaled $115 million compared with 95 million last year.

The new acquisitions caused this year's increase.

We expect depreciation and amortization to be around $125 million next year.

Our effective tax rate in the fourth-quarter was 38.1% versus 36.5% in fiscal 2004.

The higher rate was caused by an increase in both foreign and state income taxes.

The full-year rate was 37.4% this year compared with 36.5% last year.

We expect the 2006 effective tax rate to be 35.6%.

The lower rate is from the manufacturing activities tax credit that is effective for Hormel Foods in 2006.

Capital expenditures for the quarter totaled $29 million versus 23 million last year.

For the full-year, CapEx was 107 million compared with 80 million last year.

We expect 2006 capital expenditures to be around $125 million.

The increase in 2006 is primarily from new equipment that will be installed in our plants to meet consumer demand for our value-added products.

The basic weighted average number of shares outstanding for the fourth-quarter was 138 million shares.

The diluted weighted average number of shares outstanding was 139 million.

We purchased 13,000 shares of common stock during the fourth-quarter at an average price of $29.60 per share.

For the full-year, we purchased 773,000 shares at an average price of $29.72 for a total of $23 million.

We have 7.6 million shares remaining to be purchased under the 10 million share authorization.

We processed 2.3 million hogs in the quarter compared with 1.9 million last year.

Without Clougherty Packing Co., we processed 1.8 million hogs.

For the year, we processed 8.6 million, up from 6.9 million in 2004.

Without Clougherty Packing Co., we processed 7 million hogs.

The actual live hog costs in the fourth-quarter was $51 per live hundredweight.

This compared with an average live base price of $56 in the same period last year.

We expected live prices to be $48 per hundredweight in the fourth-quarter.

We anticipate an average market of $43 per live hundredweight for the first quarter compared to $55 last year.

We expect hog markets to be lower in 2006 when compared with 2005.

We expect grain prices also to be slightly lower in 2006, compared to 2005.

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

Thank you, Mike, and good morning, everyone.

JENNIE-O TURKEY STORE's results were exceptional in the fourth-quarter, delivering operating profits of just over $41 million.

This represents a 31% increase over last year.

Our operating profit margin was 13.2% compared with 9.9% a year ago.

For the full-year, JENNIE-O TURKEY STORE's operating profit was $136 million, up 74%.

Sales for the segment this quarter decreased 2% because of the extra week in last year's quarter.

For the year, sales were 1.1 billion, up 3% over last year with value-added sales increasing 6% for the year.

Deli products that reported excellent growth for the quarter included JENNIE-O TURKEY STORE Rotisserie Turkey Breast and Premium Season Turkey Breast.

Products in our retail category that reported growth included JENNIE-O TURKEY STORE Tray Pack and turkey burgers.

Our food service volume in the segment was 4%.

Domestic and international demand for turkey was very solid for the quarter and the year.

We believe that part of this demand has been driven by our aggressive new product development.

In 2005, sales of products that have been introduced in the last five years at JENNIE-O TURKEY STORE totaled $124 million.

Many of these products are convenience items that encourage consumers to use turkey products on more occasions.

The outlook for the turkey industry is favorable for at least the next six months.

Current production forecasts show levels similar to 2005 and freezer inventories were down 10% compared to a year ago in the report issued just yesterday.

Refrigerated Foods reported fourth-quarter operating (technical difficulty) million dollars which was even with the year ago.

For the year, operating profit was 130 million, down from their $141 million record last year.

Sales for Refrigerated Foods in the quarter improved 14% to 739 million; and year-to-date sales were up 22%.

Both of which include the benefit of acquisitions.

Areas of growth in the retail channel include HORMEL Bacon, Hams, and Party Trays.

In the food service channel we saw solid growth from precooked breakfast sausage, ALWAYS TENDER pork, AUSTIN BLUES BBQ, APPLEWOOD Smoked Bacon, and the CAFE H line of ethnic products.

The deli channel is an area of opportunity for us and our DI LUSSO deli program reported double-digit growth this year and we expect this success to continue.

The HORMEL NATURAL CHOICE line of luncheon meats which uses our high pressure processing technology is performing well in test markets and we are excited about the potential of this new line.

Grocery Products enjoyed a strong finish to the year with operating profits up 4% to $46 million.

For the full-year, operating profits were up 3% to 132 million.

Grocery Products sales were up 5% for the quarter and for the year.

We continue to experience excellent growth from our HORMEL microwave line of products.

We offer 15 varieties of this item that are ready to eat in 90 seconds.

Our Spam family of products also reported growth in the fourth-quarter helped by the sales of Spam Singles.

Chili volume was down for the quarter due to the extra week in last year's quarter.

Adjusting last year's results to a 13-week quarter, our chili sales actually increased 5%.

The operating profit margins in the Grocery Products segment showed significant improvement in Q4.

Lower pork raw material costs enhanced our margins on the Spam family of products as well as on our Bacon Bit line.

With lower pork market continued to be forecast for 2006, margins should continue to improve compared to 2005.

In the Specialty Food segment, operating profits were up 46% to $8 million in the quarter and improved 6% for the year.

Sales were up 23% in Q4 and up 11% for the year.

All of these numbers include the benefit of the Mark-Lynn Foods acquisition.

The integration of this acquisition was completed at the end of October; and we should see improved efficiencies now that this business has been fully integrated into Specialty Foods.

Operating profit for the All Other segment was up 128% in the fourth-quarter driven by our International business.

Sales were up 20% for the quarter and up 3% for the year.

International sales of the Spam family of products and STAGG chili were key contributors as well as improved results from our China operations.

Export sales of fresh pork were also strong in the quarter.

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

(OPERATOR INSTRUCTIONS).

Farha Aslam.

Congratulations on a great quarter and Joel, congratulations for a great run at HORMEL.

Question.

In your Grocery Products, in 2006, do you look for Spam to continue to be strong and are you looking for chili sales to be up?

Our expectation for both of those product lines would be continued growth.

Spam ended the year both on a domestic and an international base of around 5% which is excellent for a long-standing franchise like that, and both HORMEL chili and STAGG chili ended the year with positive numbers as well.

And our early program and shipments for chili, coming into the chili season, look very solid.

Great.

And how much did pricing help you in 2005?

And is there any residual benefits still in 2006 on your Grocery Products line?

The last Grocery Products price increase was in the summer of fiscal 2004 and so although there was some comparison effects maybe early in the year on a year-to-year basis, by now we're all through all that.

Okay great.

There really was no pricing impacts of any significance in 2005.

And with steel prices coming down, is that offsetting your higher cost of resin prices net -- do you look for packaging to be a positive or negative in '06?

Well the whole array costs, obviously, has -- there's challenges and there's opportunities.

I know I look back at '05, clearly, on the grain side, that was a benefit.

But fuel and packaging costs were major hurdles for us to clear and we are very pleased that we were able to generate a very strong year notwithstanding those challenges.

I don't really have an assessment for you of net net of all the different packaging differentials.

Our sense right now is -- our expectation would be some inflation within that area and that we need to run our business accordingly, but I don't have a precise number as to how that would shake out.

Okay great.

And looking at your Refrigerated Foods lines, in the quarter, were your food service sales net up or down?

In the fiscal fourth-quarter '04?

They were definitely up if you compare 13-week to 13-week.

I think by the time you add in that 13- to 14-week, they were close to even.

Okay, and then looking out in the 2006, could you just comment on kind of what you expect your average hog costs to be?

I gave --

I am sorry.

I missed it.

Okay, for the projections, we looked for hog prices to be -- hang on a second.

The numbers here, we had -- we think for '06, it will average about $43 per live hundredweight.

And that's in the first quarter.

But overall, we expect they will be down year-over-year.

Okay.

And do you expect cut out values to improve particularly in the first half because they were very weak last year?

Do you have any read on that?

No real good read other than if you look at where the belly futures are, etc., and using that is a proxy, you would think that they would be improved year-over-year.

Okay.

And would you look for food service sales to be up in fiscal '06 versus 2005?

Absolutely.

Great.

And just my final question to focus on Turkey.

Are you looking for net -- what would you look for net Turkey pricing in your guidance that you gave us for '06?

Well, by pricing, are you referring to sort of the commodity market?

Exactly.

Commodity Turkey market.

Clearly '05 was a very strong year.

It's getting off to an excellent start in '06, but we -- the average for the entirety of '05 was $2.50 breast meat and in Q4 of '05, our expectation would be to have breast meat move down to more normalized levels probably for an average for the year of in the $1.80 to $1.95 range.

So that's part of our conservatism about that segment on the comparisons, particularly in the second half of the year.

Okay.

And then do you think lower grain pricing will offset the lower topline?

Or do you think we should kind of budget in kind of a down operating profit year-over-year off of record levels this year?

Our best assessment is that it's going to be difficult to sustain the 12 and 13% net operating margin that that division has generated.

Great, thanks.

I'll pass it on.

Bill Chappell.

This is actually Sarah Sony for Bill.

Question for you on the margins in Grocery.

I know you anticipate lower hog prices going forward.

But could you maybe give us some idea of what a sustainable margin level would be for this division, as we sort of looked at '06?

Clearly, we dipped into the low teens during the last year or even two years, quarter to quarter, some differentiation.

Our expectation would be to try to get the division on a sustainable basis back up to the 16 to 18% range.

Okay.

Also, I might have missed it, but could you give us an adjusted Turkey volume year-over-year?

For the quarter or for the year?

For both.

Sarah, this is Fred.

The volume was down 5% for the fourth-quarter.

Again that's a 13-week versus a 14-week.

And then for the full-year, for Turkey, the volume was up 2%.

Okay.

Was there a reason the volume was down even on an adjusted basis?

Was there sort of a shift in timing of shipments or a customer-specific issue?

Could you maybe speak to that?

Sure.

When we look at our Turkey business, although clearly total volume and total dollars are relevant and that's what gets reported as a topline for the segment, we focus more of our attention on our value-added sales.

And that does represent about 75% of the dollar sales in the division.

On the commodity side, there are times we make decisions to bring in more turkeys, bring in fewer turkeys, and that can create some variance in that topline number if you add in the commodity.

But on the value-added basis, we had another year of 5 to 6% growth on top of several years in that high single digit range, and so that's the key number to us and we are excited to see the value-added franchise continue to grow at JENNIE-O TURKEY STORE.

Okay.

And final question, could you tell us what the chili category grew for the fourth-quarter?

And are you seeing any changes in competitive activity now that we are sort of in the height of the season?

Category data -- you're obviously dealing with standard data that has a little bit of a lag -- a three- to four-week lag, and so the fourth-quarter on our sales basis, (technical difficulty) necessarily equates to the Nielsen numbers.

Our most recent numbers there would be late summer numbers, and so we don't really have a good read yet on the season in terms of what the category growth is.

We know our business continues to perform very solidly.

Okay, great.

Thank you.

Happy holidays.

Jonathan Feeney.

Congratulations.

Joel, congratulations on a great run there.

I think this is going to save me a little money on the golf course too.

Well I'd still like to get back there sometime.

To follow up on something that Farha asked, for Jeff, you mentioned that you expect turkey breast meat to come down to kind of more normal levels.

Could you give us a sense of what you think with the structural kind of value-added improvements, the bigger value-added mix shift in JENNIE-O, what's a median operating margin?

Like for an average year, do you think an average of the next five years for JENNIE-O?

I'd say we hope to get in the 8.5 to 9.5% range and with a kind of long-term goal of improving 25 to 50 basis points normalizing out commodity swings.

And I have to imagine there's a huge variance between the 75% of volume that is value-added and that 25% that's not, right?

In the implicit margin?

Yes, the 75% is pretty consistent and the 25% does have quite a bit variability.

Okay.

Just for -- just so I'm clear, for this year, does that 75%, you did an incredible operating margin across JENNIE-O this year.

Were the value-added margins still considerably higher than the commodity margins or did you just make a lot of money in that commodity business?

They were higher than the commodity margins but the gap shrunk quite a bit this year.

The majority of the margin contribution especially when you factor in the 75%, clearly does still come from the value-added side of the business.

Thank you.

Next question would be acquisition focus, and you had a great year buying companies.

You guys have just done terrific over the past few -- sourcing, inexpensive, sensible acquisitions where maybe some other people aren't.

Where are you looking at right now?

Well, I would answer this with the comment that you've heard us make presentations before.

And we continue to say that our number one use of free cash flow is going to be in the area of acquisitions.

We continue to do that and I think we are going to continue to look at those that we think will bring profitability to our business segments.

And that's going to be our focus.

Jon, I guess I'd add anything we do, and obviously we can't be specific, but you can be assured that they would be close to our knowledge base and experience base.

We'd be looking for businesses that have implicit growth and can work within the segment structure that we have today.

Thank you.

And just finally, for a company that's grown as much as you are and every year that goes by gets more value-added, I'm a little surprised that in a banner year, you didn't take this opportunity to spend a little bit more on the marketing and branding side -- not to say your current spending is not effective, but just kind of turn up the volume a little bit rather than pass so much through to the bottom line in an effort to I guess kind of boost sustainability.

Can you tell me, especially Jeff, how you think about that?

And can we expect marketing investments as a percent of sales to grow in future years?

Our perspective would be that consumer advertising is difficult to turn on a dime John like that.

You really want to have well thought-out, well-planned programs.

You want your sales force to be able to execute and market against your advertising.

And so if you make a hasty change because the year is trending stronger than you had originally anticipated, you might not get the most benefit out of your money.

On a long-term basis, as a lot of other packaged food companies are looking at, our hope would be to continue to drive more money into the consumer side and slow the rate of growth of trade spending and so hopefully, you will see that over time.

If you could -- let me just -- quick follow-up, Jeff, if you had a product line right now that you would get your best return for increasing marketing spending on, or have looked at most closely, you think has most promise for I guess valuable increased brand investments, what would it be?

I guess I'd rather not share that.

There are probably other people on the line other than just you.

Thanks again, have a great quarter.

Talk to you soon.

Tim Ramey.

Good morning and let me add my congratulations to Joel.

It's just been really an honor to work with you over the years and you are a class act and I think the investment community appreciates that a great deal.

Thanks very much, Tim.

It's good to hear that, from you especially.

Thank you.

Just a couple of nitpicks here.

There was a fairly substantial decline in general corporate expense 4Q over 4Q.

In absence of anything else, it amounted to maybe $0.02 a share.

Can you tell us what that was about?

In the fourth quarter, Tim?

Yes, did I miss that?

It looked like it was down about 5 million.

The decrease in corporate -- I was thinking the G&A, but in terms of the corporate expenses, I think some of it has to do with allocations back to the individual segments.

You're more aggressively allocating back to --?

Yes, and I think we continue to look it that and tried to true up the operations and allocate back where we have the opportunity to allocate back to the segments.

The rest of it had to do with the adjustment in our inventory levels in LIFO, which we had a positive impact this year year-over-year in our LIFO adjustment.

Okay.

And I know I'm getting old and crotchety, but I'm having a hard time remembering how the new -- I think the cutout value contracts for buying hogs probably works to your favor here, but I didn't really hear you explicitly say that you do expect Refrigerated to have a good '06.

Is that your expectation?

It is our expectation that Refrigerated will have a good 2006.

Okay great.

And just a follow-on on that quickly.

Is there anything new to talk about rebranded fresh products and HORMEL brand fresh?

I'm not sure what you limit fresh to.

One of the lines within the Refrigerated segment that we're particularly excited about is this NATURAL CHOICE line.

We've started in a couple of test markets and recently made the decision to launch that on a broader basis.

It utilizes our high pressure pasteurization technology to provide a natural product a lot of consumers are looking forward, so that's one that we're optimistic about.

We also had a very good quarter on our case ready programs -- our joint venture in (indiscernible) has brought on some additional business and better turns in the business they have.

Can you say is that a customer specific addition or is it just an overall rise in the business levels?

A lot of those numbers would be from a strong success we have had that we talked about investor day with the Supertarget Program.

Okay.

Thanks much.

John McMillin.

Happy Thanksgiving.

Joel, keep hitting them down the middle.

Thank you John.

I'd like to do a few again.

When they let Jeff on TV, I'm sure the stock won't be down 2.5 points, so have to give --

You are a New Yorker through and through.

So are you even though you --

What kind of an announcer -- we get a record quarter and a record year and the CEO goes on television and we get --

Well you probably should have told him there was stock option expense in your guidance and there wasn't stock option expense in our numbers.

I agree.

That's what we told them.

It's not what they picked up.

Our operating guidance for next year is $1.90 to $2.00, which is at the midpoint of the range is plus 11% which is one of our long-term objectives.

And that's for sure what they missed.

What I don't understand, Mike, and I guess this is a question for you -- for everyone else that's adopting stock option expense, these expenses are kind of flowing evenly through the fourth quarters.

Maybe I'm ignorant here, but you're getting a penny -- you're getting all $0.04 right up front.

How does that work?

No, a couple of things, John.

Yes, we have -- we continue to flow under our expense and expensing of options is going through on a quarter-by-quarter basis and once we adopted it three years ago, we quit talking about it. 123R, however, is the new proclamation that forces you to true up for all of those individuals who have retired who still have incremental vesting in their options.

So the impact in the fourth quarter is that catch up to bring everybody if they were -- bring all that retiree expense into the first quarter.

Okay, but then you have ongoing expenses that are higher right?

Well, incrementally, in our situation, it's not going to be that much higher, John.

Okay I got it.

And the fourth-quarter volume was up 3%.

I guess what I'm trying to do is take that 3% number, add to it because you had one less week, and then subtract to it because you had acquisition benefits and get some kind of organic volume number for the quarter.

Do you by chance have that?

I think maybe Fred could give you that after.

The other thing obviously, John, to look at on top of that then is to focus in on the value-added volumes in particular within our two supply chain businesses because again we, in some cases in those businesses, we may show a tonnage that's relatively flat yet be doing just what we want to be doing in the value-added side.

Yes.

I guess I'm just trying to get some internal trends just to volume.

But certainly, I understand what Joel has done maybe not all the time, but for 15 years you have been adding value and it's worked.

Congratulations.

David Nelson.

My best wishes to you, too, Joel.

In terms of the '06 guidance, are you -- you talk about JENNIE-O having a good -- for at least the next six months, but then reverting toward 8 to 9% for the year.

Are you expecting JENNIE-O to be down year-over-year?

It could be.

We obviously -- we have a much clearer picture of the first six months, given all of the supply indicators that you can rely upon.

For the second six months, we don't have that clarity and then we have to be guided somewhat by more historical levels.

And so that's giving us a sense of caution on the second half.

We don't -- I will say it's not that we know for sure that the second half is going to be poor.

It's just we don't have the clarity at this time to be able to rely on the kind of 12 and 13% net operating numbers that we have been generating the last couple of quarters.

It seems conservative.

Are exports still strong?

Yes they are.

Okay.

And hog prices, they were higher than you had expected.

Where do you think you might have been wrong there?

Were exports of hog stronger?

The shutdown of or lack of start-up at Triumph (ph)?

What do you think you missed there?

I think it just took a little longer for it to fall then we had originally anticipated.

The latter part of the quarter, the numbers were really exactly where we thought they'd be, but that doesn't average us a number that was what we had said.

Okay, maybe for Mike, the tax rate is going down next year.

Do you expect it to stay at the 35-ish rate beyond '06?

With this -- I guess I'd say as long as this manufacturing activities tax credit that goes into effect for us in '06, David, it will have a nice impact for us on our tax rate.

So I'm going to say that -- I am going to expect that at least going forward in the short-term, we should continue to see that.

Cool.

Thank you.

Todd Duvick.

Good morning.

Just a couple of housekeeping questions.

And maybe I missed it earlier.

Did you report a total debt number for the quarter?

We did.

That was $362 million, Todd.

Okay, thank you.

And I guess just drilling down a bit on the acquisition question, as I'm sure you know, Sara Lee has their European packaged meats business for sale and although I don't expect you to comment on that, just kind of generally speaking about geographies, it seems at one time you owned a stake in is it Campeau Frio?

Correct.

And sold out of that a couple of years ago.

Is Europe in general of interest to you?

Or do you already have some operations over there?

Can you speak to that?

Internationally, Asia is an area of greater interest, especially on the processed meat side.

We think there is a much more value-added and a differentiation that we can bring with our skill sets to those markets than we can bring to Europe.

Okay.

All right.

Very good.

Thank you very much.

Eric Larson.

Congratulations and Joel, congratulations as well.

Maybe we can swing at them sometime next summer.

Just one quick question -- I don't know if you gave this information.

What was the impact of the hog contracts in the quarter?

This quarter, Eric, we had a $2 million gain.

And that is compared with approximately $4 million last year.

Okay.

Good.

And then, just generically, either Joel or Jeff can talk about this.

It seems that after several years of sort of -- kind of rough flooding (ph) in your Grocery Products division with volumes, it seems that you're starting to get some more traction on that with new product introductions, capabilities, etc., and Spam Singles.

Can you just talk generically about how you view the momentum in the Grocery side of the business in general?

We've long been pleased with the gross prospect of the ethnic food line of product and our microwave line of products within Grocery Products.

And what we have been disappointed with somewhat over the last couple of years is that the positive effect of those businesses had been kind of washed out by some challenges in some of our more traditional lines (technical difficulty) MARY KITCHEN hash.

We've been able to stabilize those franchises and so now you really kind of -- we're showing through the benefits of the growing parts of the business.

And the stabilization of Dinty Moore and the hash business, is that destabilization (ph) or do you think you can rejuvenate the business?

Well, we're never satisfied -- we're certainly not satisfied with declines and frankly we're never satisfied with the status quo either.

We talked earlier in the call about we're very pleased about we still have 5% growth on Spam, and that is a very long-standing product line, and there's no reason why Dinty Moore has to be condemned to a fate of flat line either.

We would expect to be able to grow that franchise.

Okay.

Great.

Thanks everyone, maybe you ought to send a couple of turkeys to the reporters that reported your numbers this morning.

Oliver Wood.

Last quarter, you mentioned that there's a new turkey processor coming on-line in the Dakotas.

I believe it's early 2006.

Just wondering if that is still on track to your knowledge?

Also, is there any other additional capacity we should expect to see?

And then my other question is regarding the all other segment.

Obviously you had very strong margins this quarter.

Just wondering what the expectations are there for fiscal '06.

Thanks.

Sure.

On the turkey side, our understanding is that the Dakota plant is on schedule.

What you never know when a new plant like that opens is what their ramp up schedule is going to be, and so in terms of real market impact, it will be -- that is part of why we're saying the second half is a little bit more uncertain.

Because we don't know what kind of volumes they will be looking at there.

Otherwise, I would say the key within the industry would be what do other players do in terms of increasing or not increasing bird numbers.

And although the current egg set in both placement numbers seem stable, we just keep our eye on that with relatively low grain and high meat cost, there has been a tendency in the past for people to get overly excited about that and to forget that you have to start with demand.

And clearly in our operation with our value-added focus, that is where we start and we will bring in the number of birds needed to satisfy that demand.

On the all other piece, it was a strong quarter.

I think particularly on the International side and we were up against a quarter last year where some of the transfer of raw materials, particularly for again the Spam luncheon meat, were particularly expensive.

I would not anticipate a $4 million gain per quarter going forward, but we would expect a million or two potentially out of all other on a systemic quarterly basis.

Okay, great.

Thank you very much.

George Askew.

And Joel, I'll add my congratulations in what's been a tough sailing in the last decade in the food industry, you have guided HORMEL's ship, obviously, exceptionally well.

On the innovations, clearly you talked a lot about innovation.

Can you give us -- are there things -- when I look at innovation for you guys in the past year, 18 months, been a lot of new products in the Grocery Product side, Spam Singles and on the chili side, packaging innovations in what not.

How much -- should we expect a lot more new innovation within Grocery Products in '06 or is it going to be a blocking and tackling with what we've got kind of year?

Our expectation would be in all our divisions that we expect growth and we expect new product growth to be part of the platform.

We see some exciting prospects in each of the divisions, some that are just starting in market on a test basis, some that are still on our R&D labs.

But I think we're going to end the year -- I think we talked about the billion dollar challenge when the investor community was out for our Investor Day and how our sales through 2005 will be somewhere in the 5 to $600 million range for this last (indiscernible) of products we have introduced in the last five, so we would expect that kind of momentum on a Company-wide basis to continue.

Hopefully knocking off another 100 million a year each year and as we talked about at that meeting, we've really been achieving that by hitting a lot of singles, and we'd love to have more blockbuster product line to roll onto the market as well.

George, let me add to that kind of philosophically.

I think it's important to understand that this Company, that one of the guiding principles around here goes back to our founder, George A. Hormel, which was "innovate don't imitate."

I think we've had just a dogged determination to differentiate our products.

And that's what's led our success, especially on the protein side of the business, and it's more than a strategy year.

It's a philosophy.

And I have high confidence that that's going to continue with the new management team.

Good.

Good.

And then lastly, one of your smaller businesses, the one I have kind of a soft spot for -- HORMEL Health Labs.

Can you give us -- I know there have been challenges there.

What do you see in '06 for the business?

Well, operationally, we've consolidated the health lab operation with our Diamond Crystal operation based out of Savannah, Georgia.

Diamond Crystal always had an element of their business that was in the same line there, so we really don't have broken out separate results.

I can say from a sales standpoint that we had an up year on HORMEL Health Lab and it's part of the mix of -- there's that entity, there's Mark-Lynn that we just bought, and the traditional Diamond Crystal business, all of which are working quite well within the Specialty Food segment right now.

Okay great.

Thanks again.

At this time, there are no further questions.

Great.

We have a summary we would like to -- if we could.

This is Jeff.

I just want to thank everyone for participating in the call and to say that we feel Hormel Foods had a very good finish to an outstanding year.

We have now delivered double-digit topline and bottom line growth, two years in a row, and our Company is executing on its strategies and we believe we have good momentum going into the new year.

To repeat Joel's comments earlier, our guidance for Q1 on an operating basis is $0.48 to $0.54 versus a $0.46 operating result last year and for the full-year, our operating range is $1.90 to $2.00, reflecting some conservatism at this time about the second half of the year.

But all in all, we look forward to another great year in 2006 and we wish you all a happy Thanksgiving.

This concludes today's conference call.

You may now disconnect.