荷美爾 (HRL) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

And welcome to the Hormel Foods fourth quarter earnings conference call on today, the 24th of November, 2009.

(Operator Instructions)

I will now hand the conference over to our host, Mr.

Kevin Jones.

Please go ahead, sir.

Good morning everyone.

Welcome to the Hormel Foods conference call for the fourth quarter of fiscal 2009.

We released our results this morning before the market opened around 6:30 a.m.

Central time.

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

On our call today is Jeff Ettinger, Chairman of the Board, President and Chief Executive Officer, and Jody Feragen, Senior Vice President and Chief Financial Officer.

Jeff will provide a review of the operating results for the quarter and the year.

Then Jody will provide detailed financial results for the quarter.

The line will then be opened for questions following Jody's remarks.

An audio replay of this call will be available beginning at 10:30 a.m.

Central time today, November 24th, 2009.

The dial-in number is 800-406-7325, and the access code is 4173819.

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

Before we get started with the results of the quarter, I 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 costs and availability of raw materials and market conditions for finished products.

Please refer to pages 28 through 34 in the Company's 10-Q for the quarter ended July 26, 2009, which was filed with the SEC September 4, 2009, for more details.

It can be accessed on our website.

Now, I'll turn the call over to Jeff.

Thank you, Kevin, and good morning everyone.

Our priority in fiscal 2009 coming off just our third down year in 26 years was to get back on track in terms of earnings growth.

We are, therefore, pleased to see that our strong earnings momentum from the past two quarters carried through the fourth quarter as well.

Earnings per share for Q4 increased to $0.77, up a substantial 54% from a year ago, and all five business segments contributed to the results.

Also impacting this result were investment income and nonoperating items which Jody will address later.

For the full year, our earnings per share were $2.53, up 22% from last year.

Total segment operating profit was up 7% from a year ago.

Total Company sales for the quarter were $1.68 billion, down 10% from a year ago.

Part of this substantial decrease is attributable to the planned reduction of turkeys by our Jennie-O Turkey Store segment, decreased sales revenues due to lower commodity prices in our pork and turkey complexes, greater promotional spending, a continuing weak Foodservice sales environment, the loss of Carapelli sales, and some additional, intentional product rationalization.

In addition, our top line was impacted more significantly in Q4 by changes in consumer spending.

For the full-year, sales were $6.53 billion, down 3% from 2008.

I will now take you through each segment.

For our Grocery Products segment, segment operating profit was up 12%, and sales were down 12% for the fourth quarter.

For the year, segment operating profit was up 9%, and sales were down 2%.

Segment profit was aided by lower raw material costs and reduced freight and warehouse expenses.

We also achieved an improved product mix, as certain less profitable sales were rationalized.

Strong sales of Hormel Chili added to the improved results for Grocery Products.

The reduction in sales in this segment resulted in part from the discontinuation of the Carapelli Olive Oil business, and also from continued weakness in the Microwave category, increased promotional spending overall, and some product rationalizations.

On top of this, we experienced flat results for this quarter from such franchises as SPAM luncheon meat, and our Mexican portfolio which generated solid top line growth on a full year basis.

Our Refrigerated Foods segment finished a strong year with an excellent quarter, posting segment operating profit up 23% on sales that declined 9%.

For the full year, segment profit was up 7%, and sales were down 2%.

An improved product mix and lower raw material, freight and warehouse expenses more than offset lower cutout profitability compared to a year ago.

Lower primal values and a continued weak Foodservice environment contributed to lower sales.

Although our Meat Products group posted a sales decline overall for Q4, we did generate strong sales of Hormel Pepperoni, Lloyd's barbecue products, DiLusso Deli Company products and prepared deli foods.

Foodservice sales remained weak during the quarter.

Our Jennie-O Turkey Store segment posted a 6% increase in segment operating profit in the quarter, reflecting lower feed costs due to our planned cuts in turkey production, and the decrease in the cost per ton.

Sales at Jennie-O Turkey Store declined 10%, reflecting the reduced production levels and lower market pricing.

For the full year, segment operating profit was up 11%, and sales were down 3%.

Industry supplies have continued to decrease, and cold storage levels have begun to decline compared to a year ago.

As a result, we began to see improved commodity turkey prices at the end of the quarter.

Although value-added sales declined overall by 3% during the quarter, we saw strong sales of Jennie-O Turkey Store fresh tray pack products, pan roasts and franks.

The Specialty Foods segment reported a segment operating profit gain of 9%, and a sales decrease of 12% in the quarter.

For the full year, segment operating profit was down 2% and sales were down 9%, down 11% excluding acquisitions.

Improved earnings in the Specialty Foods segment during the year were primarily driven by increased sales of private label products by our Specialty Products business, and decrease in freight and warehouse expenses.

These elements more than offset continued weak sales of nutritional and ready to drink products in our Century Foods business.

Results for Diamond Crystal were flat with a year ago.

Our All Other segment which consists primarily of our international business had a strong finish, reporting segment operating profit of 53%, on sales down 13%.

Our improved earnings in this segment resulted from lower raw material and freight expenses in addition to better currency exchange rates.

Pork exports remain challenging in light of bans resulting from the novel H1N1 virus still in place.

For the full year, segment operating profit was up 2%, and sales were down 2%.

We are clearly pleased with our results from an earnings standpoint during the quarter and for fiscal 2009.

The magnitude of the sales decline in Q4 was greater than we had expected, and represents an area which will receive renewed focus in 2010.

To continue building on the success of our brands in fiscal 2010, we will increase our advertising spend level.

This, in conjunction with enhanced promotional efforts, should allow us to maintain and grow market share.

We are confident in our ability to restore top line growth on an annualized basis in fiscal 2010, over and above the revenue gains which will emanate from our MegaMex expansion.

It may not happen right away, but we expect to see this increase by the second half of the year.

During the first half of the year, we should continue to benefit from more normal input costs, and from reduced freight and warehouse expenses.

In the back half of the year, we recognize we may see higher hog costs.

The turkey industry is seeing a return to balance between supply and demand, which we believe will support improved earnings at our Jennie-O Turkey Store segment.

We also expect improved results from both our Specialty Foods and All Other segments, as improved sales in the former, and more favorable currency exchange rates and improving export markets in the latter should lead to better results.

We will face some difficult comparisons with the higher investment income from our Rabbi Trust results this past year, and we will face higher pension expenses in 2010.

And finally, we recognize and have built into our plans the extra week in fiscal 2010.

After assessing all of these significant factors affecting our business, we are setting our fiscal 2010 earnings guidance range at $2.63 to $2.73 per share.

At this time, I will turn the call over to Jody Feragen to discuss the financial information relating to the fourth quarter and fiscal 2009.

Thank you, Jeff.

Good morning, everyone.

Earnings for the fiscal 2009 fourth quarter totaled $103.9 million, or 70 -- $0.77 per share, compared to $67.8 million or $0.50 per share a year ago.

Earnings for the 12 months of fiscal 2009 totaled $342.8 million, or $2.53 per share, compared to $285.5 million or $2.08 per share a year ago.

Dollar sales for the fourth quarter totaled $1.7 billion, compared to $1.9 billion last year, a 10% decrease.

Year-to-date for 2009, dollar sales were $6.5 billion, a 3% decrease from last year.

Volume for the fourth quarter was 1.2 billion pounds, down 3% from fiscal 2008.

Year-to-date volume was 4.6 billion pounds, down 3% from fiscal 2008.

Selling, general and administrative expenses in the fourth quarter were 8.5% of sales, compared to 7.1% last year.

Year-to-date, SG&A expenses were 8.7% of sales for 2009, compared to 8.2% last year.

Advertising expenses were 1.1% of sales for the quarter, compared to 1% in 2008.

Year-to-date, advertising expenses were 1.4% of sales compared to 1.5% in fiscal 2008.

As Jeff stated, we expect to see increased advertising expenses in fiscal 2010.

Interest and investment income was $2.2 million for the fourth quarter, compared to a loss of $20 million in fiscal 2008.

For the full year, interest and investment income was $19.6 million, compared to a loss of $28.1 million in fiscal 2008.

Favorable market returns on our Rabbi Trust investments drove the improvement.

We have transitioned this portfolio into more fixed return investments, to help limit our exposure to market volatility going forward.

Interest expense for the quarter was $6.7 million, compared to $7.4 million last year.

Year-to-date, interest expense was $28 million, even with last year.

We expect interest expense to be approximately $27 million to $29 million for fiscal 2010.

Our effective tax rate in the fourth quarter was 34.1%, versus 41.9% in fiscal 2008.

The year-to-date effective tax rate is 34.7%, compared to 37.6% last year.

The effective tax rate in 2008 was negatively impacted by the non-deductible Rabbi Trust losses.

For fiscal 2010, we expect the effective tax rate to be between 35% and 36%.

The basic weighted average number of shares outstanding for the fourth quarter and full-year was $134 million.

The diluted weighted average number of shares outstanding for the fourth quarter was 136 million shares, and 135 million for the full year.

We repurchased 671,000 shares of common stock during the fourth quarter, and we have 1.1 million shares remaining to be purchased from the 10 million share authorization in place.

Depreciation and amortization for the quarter was $33 million, compared to $31 million last year.

For the full year, depreciation and amortization was $127 million, up about $1 million from last year.

We expect depreciation and amortization to be approximately $127 million to $129 million for fiscal 2010.

Long-term debt at the end of the quarter was $350 million.

Our short-term line of credit was repaid during the fourth quarter.

During the quarter, we also made an additional $45 million contribution to our pension plans, bringing our total contribution to over $100 million in 2009.

Capital expenditures for the quarter totaled $26 million, compared to $30 million last year.

For the full year, capital expenditures totaled $97 million, compared with $126 million last year.

For fiscal 2010, we expect capital expenditures to be approximately $140 million to $150 million.

At this time, I will turn the call back to Kevin.

I would just ask our (inaudible) analysts to please limit your questions to one question, plus one follow up question.

And if you have any further questions to get back at the end of the queue.

I apologize for the inconvenience, but I just want to make sure everybody has an opportunity to ask questions.

Operator, at this time, we will turn this over to the question and answer portion of our call.

Thank you, sir.

(Operator Instructions)

The first question comes from Farha Aslam from Stephens, Incorporated.

Please go ahead with your question.

Hi, good morning.

Hi, Farha.

Congratulations on a great quarter.

Thank you.

Jeff, you had mentioned throughout your commentary that freight and warehousing was lower.

Is that market conditions, or is there something that Hormel is doing that's more structural?

I think it's a combination of both.

We clearly have seen market relief on some of the major fuel-related costs, but we -- our team has done a very nice job at attaining logistics efficiencies in the operation, and those should continue going forward.

And so, if you had to kind of break down the profitability of that piece that's more structural, how much would you say we can translate into future years, roughly?

I really -- I mean, I've never done that, so I would really be having to wing it, so maybe we can follow up with you at a later time to be able to quantify that more precisely.

That would be great.

And one follow-up.

In terms of volumes that you see in your business going into next year, particularly for Refrigerated Foods and your Turkey division, any color on that?

On the question of volumes?

Yes.

We plan to hold to the level of production cuts that we established at Jennie-O.

So I would expect volume to be fairly flat at Jennie-O on an annualized basis in 2010.

For Refrigerated Foods, our expectation is to see a decline in the later part of the year in terms of available supplies, kind of what we had originally thought was going to happen in 2009, so right now, that's what we based our plans on.

Thank you very much.

Thank you.

And the next question comes from Akshay Jagdale from KeyBanc.

Please go ahead with your question.

Good morning.

Congratulations on a good quarter , and a good

Thank you, Akshay.

Good morning.

Just wanted to just question you a little bit on your guidance, and what it implies for divisional EBIT growth.

I mean, if I run the math and I may be off, but it implies about double-digit earnings growth at the divisional level.

If that's correct, and if I'm not, if you could tell us what you're modeling?

Or sort of give us a sense of what type of growth you're expecting from the divisions, that would be great.

And then just talk to what your expectations are with each of the divisions.

I mean, from my perspective, obviously Turkey we should continue to see earnings growth there, given the numbers we're seeing on the cold storage, et cetera.

But if you could give us a little bit more guidance on what you're expecting on Grocery Products, as it relates to your marketing spend, et cetera, that would be great.

At an operating level, similar to what we discussed at Investor Day, we do expect to have stronger operating results than the total EPS figure will be.

So we're modeling kind of around a 9% increase on a year-over-year basis at the segment level.

Grocery, we kind of look at them versus their peer group, and look at maybe a 6% level as being an appropriate growth rate to task that group with.

The other groups, we look at what we articulated as our long-term guidance, which is kind of our in the ballpark of our 10% goal.

From an advertising standpoint, we did introduce ad campaigns in the later part of 2009, for both Jennie-O Turkey Store and for SPAM.

We're working on a new campaign for the umbrella Hormel brand, which will be hitting the marketplace probably in February.

And on an annualized basis, we expect to increase our ad spending on a year-over-year basis in 2010.

That's great.

Very helpful.

Just one follow-up for Jody.

In terms of the cash, again, I guess a good position to be in with about $3.00 a share in cash on your balance sheet.

Can you just talk about cash allocation?

Are you modeling anything for buybacks for next year?

Or should we assume that the guidance just takes into account the same number of shares outstanding?

Obviously, we intend to use our cash to return to our shareholders.

And certainly, the dividend increase that we announced today starts that process.

I would say that next, we would really like to reinvest back into our businesses to grow them.

Obviously, we would expect to see capital expenditures bump up versus where they were in 2009, as we were very deliberate about trying to put some cash on our balance sheet, given the uncertain credit conditions and the economic conditions overall.

So we'll see those increase, both to do some strategic investments on productivity level in the plants.

As well as just to get caught up on some of the normal repair and maintenance things that we do.

And then certainly we have a group that's very dedicated to looking at possible strategic acquisitions.

I would hope that -- obviously we have nothing to talk about today, but I would hope that in the near future, we would see something come to fruition there.

And then as always, we have available 1.1 million shares to be repurchased, and we will do that in a very strategic way as well.

So I don't know that we specifically modeled a huge share repurchase into the EPS numbers that we've guided towards, but if we have cash, we will deploy it as we should.

Okay.

Thank you very much.

I'll pass it along.

Thank you.

And the next question comes from from Diane Geissler with Alpha.

Please go ahead with your question.

Hi, good morning.

Good morning.

Can we just talk about the sales line a little bit, particularly in the Grocery Products group?

You highlighted several key factors.

And I understand that commodities exposure and what's going on there, but could you talk about the -- what you saw in the Grocery Products group in terms of like what was the impact of Carapelli, what's the impact of Microwave, what was the impact of promotional, if you could maybe give us some sense of the scope and the size there?

Okay.

I mean, those were -- roughly a quarter of the decline was Carapelli, a quarter of the decline was added promo spend.

Overall, we saw some softness in terms of some of the franchises, that earlier in the year had had really strong momentum.

So that clearly is one of our tasks of our team going forward, is to restore momentum in those areas.

And so even beyond those one-time items, there clearly was an effect.

Not just Grocery Products, but the whole Company had very strong sales in Q4 last year.

I mean, we reported I think it was 11%, 12% increase.

So we were up against those sales.

We obviously don't like to get sales from this kind of a situation, but last year there were a couple of significant hurricane incidents in the country that impacted both the Grocery Products sales and our Foodservice sales in a positive way in 2008, which were obviously not repeated in 2009.

Okay, and then I guess just as a follow-up on the promo spending on that piece.

So what would -- what should we be looking for in terms of what you'll have to spend back behind the products in grocery, as you move into the early part of 2010?

Well, the one area that we're clearly still trying to get our footing with is Microwave.

We spent fairly aggressively against that category in the latter half of the year.

And we would anticipate continued effort there, until we find the way to get that franchise growing again.

Excluding that, and excluding any comparable effect from MegaMex, which will have some moving parts with it, in terms of how that is reported, otherwise promotional spending for Grocery Products should be consistent with the traditional franchise.

Okay.

Great.

Thank you.

Thank you.

And the next question comes from Christina McGlone from Deutsche Bank.

Please go ahead with your question.

Good morning.

Congratulations.

Thank you, Christina.

Jeff, I thought that guidance for 2010 was better than kind of your tone at the Investor Day.

Maybe it's just my impression, but I'm wondering if anything improved since then or what -- maybe what changed, if anything changed.

Well, the overall range of both 2009 results and our 2010 guidance shifted upwards since we were talking at Investor Day.

We did finish more strongly here, and feel comfortable in our ability to deliver the $2.63 to $2.73 range, that we've now established for 2010.

I mean, otherwise, I think what we were trying to indicate in the Investor Day is -- clearly our long-term guidance that we've provided is that we wanted to grow our bottom line by 10%, and we recognize even the range we provided doesn't do that at an EPS level.

We come very close to doing that at a segment profit level for 2010.

But with the headwinds of the Rabbi Trust and the added pension expense, as we talked about at Investor Day, we felt that would impact our ability to bring all 9% down to the bottom line in terms of EPS.

Okay.

Thank you.

And then as a follow-up, I was just curious about -- you talked about SPAM and Mexican being flat in the quarter.

Is that more of a comps issue, or what exactly is going on there?

And will it start to ramp up again?

I expect both of those franchises to do well here in 2010.

Mexican, we will have strong efforts as we've now have put the MegaMex venture together.

They have some sales successes that they've already generated.

That won't -- some will shift Q1 and some will shift Q2, but I am expecting big things out of that operation.

The SPAM team has done an excellent job at rejuvenating that brand, and connecting with more consumers.

I'm looking at Q4 as more of an anomaly.

Okay.

Thank you.

Thank you.

The next question comes from Robert Moskow from Credit Suisse.

Please go ahead with your question.

Hi, thanks for the question.

Good morning, Robert.

I guess I've never seen margins so much higher than my expectation, and sales so much lower than my expectation, in a given quarter for Hormel.

And with grocery now just about 20% in the quarter, I remember Hormel used to put 20% margins pretty consistently six years ago or so in grocery.

Can you give us some help here, Jeff, on what -- is there a new margin structure for grocery and -- or not?

I just -- I feel like I'm off now by a factor of 300 bps, and I think this business tends to be more predictable than that.

Maybe it's just me.

I think we've been kind of whip-sawed the last couple years.

Last year was the form of plenty of sales, and not being able to bring it to our own bottom line.

And this year perhaps the pendulum as the year ended swung a little hard the other direction.

I don't expect grocery to maintain the 20% level.

I think we wanted to kind of incrementally increase it from the 16 it had been into, back into the 17 and 18 range.

Clearly, 20 is somewhat a product of a depressed number for that quarter, versus obviously what the earnings number turned out to be.

I'm looking at 2010 as we move into the year, reaching more to that equilibrium, that the cost picture is fairly constant with what we've seen in 2009.

And as we restore growth in the top line, I think it should be hopefully a little easier than follow and model our Company.

So you think 16 to 18 is the right range, maybe a little bit higher, 17 to 18?

Yes, I think that'ses what we would be comfortable with.

I know a lot of the other packaged food companies have talked about that as kind of a target level.

And clearly when we talked about wanting to increase our ad spending, and grocery is one of the areas that that will come in.

And so we want to make sure we continue to both grow the traditional franchises, and have the ability to sponsor new items as they come out within that portfolio and within our other segments.

Okay.

And lastly, you're not alone in facing challenges in microwaveable meals in this economy.

And I think that the companies that are going to do well for the next year, are going to be the ones that are prepared for a weak consumer spending environment, and are putting money in the right places.

So I was kind of surprised to hear that you dialed up the marketing on microwaveable meals in the back half.

It sounds like it didn't have the intended effect.

Do you feel like you're kind of chasing after a consumer that just isn't ready to pay for items like completes perhaps, and really wants more of the canned Chili, or maybe products that are used as meal enhancements for cooking at home?

Well, I was referencing specifically promotional spending, as we did have a couple of price increases on that line over the last couple of years.

And so, that was one of the things we certainly wanted to explore with our retail partners is, whether there's an optimal promoted price point, or shelf price point that will continue to enhance volume there.

When you get to marketing on a bigger picture basis, I mean, the Hormel brand is going to be our lead item within our advertising portfolio.

And we still believe in Completes as an element of that advertising spend.

And I think we'll feature Natural Choice, we may have something with Hormel Chili.

We may have something with our Party Tray items and our Pepperoni items, but we still view Completes as being very strong, contemporary items that are good value for consumers, and that are worth getting behind.

And maybe I could sneak in one more on the refrigerated section, because that division did do a lot better than I thought and it looks like it's the shift to value add.

What are you seeing in consumer trends in that refrigerated meats kind of category?

Are all the players doing well?

Are you taking a lot of market share?

Seems like we've seen pretty decent results from Smithfield Foods and Kraft, and even Sara Lee, all together.

Is that part of the store -- are grocers very happy with that part of the store?

Or is this really just kind of a margin kind of thing that you guys are all enjoying at the same time?

I think that part of the store has held up in certain areas.

I can't speak to the other companies, but looking at our franchise particularly on an annualized basis, we had an excellent year with Natural Choice.

We had an excellent year with Pepperoni.

We saw a little bit of that softness in our meals segment, in terms of the Hormel refrigerated entrees and Lloyd's.

And so that would be the one area ,kind of to your point earlier about convenience, that maybe there is a little trade down going on there.

But overall we had an excellent year in our Meat Products area, both from a volume and a margin standpoint, and have good momentum heading into the next year.

Okay.

Thank you.

Thank you.

And the next question comes from Eric Lawson from Soleil Securities.

Please go ahead with your question.

Yes, good morning, everyone.

Congratulations.

Hi, Eric.

Thanks.

Could you give us a quick look as to what you think the hog price outlook is for the next six to 12 months?

Obviously cash prices have come up a little bit.

You didn't mention an awful lot about that.

And you gave a very good, thorough review at your Analyst Day.

Can you just give us maybe some incremental thought from what may have changed since then, or what your thoughts are?

Yes, I guess I'm the hog person.

Hi, Jody.

(Laughter)

Hi.

How are you today?

I'm good.

I quit giving specific guidance, even though I was getting fairly good at it for a while there, we've seen about a 2% liquidation.

I think the USDA is calling for something in the range of 4% going forward.

From the discussions I've had with our folks here, a lot of the liquidation in the herd, is being offset by increased productivity.

So I would plan that for the first half of the year, I think we're going to see quite moderate prices on hogs.

Now, obviously they seem to jump around, and we have seen some strengths there lately.

And then in the back half, we're kind of expecting that some of the reductions in the herd will come to roost, and we'll see the prices increase.

But hopefully at a modest level going forward.

Okay.

The follow-up question here from me, is kind of back to the grocery end with a thrifty consumer.

And we've kind of all -- we're kind of beating this horse to death a little bit, but I suspect that in order to create the proper value or incentives for consumers to purchase your products, your promotional spending that would -- your promotional spending rate would probably remain quite high, would they not, Jeff, going into next year, as opposed to a car lot price decrease?

I think that's fair to say that we will steer our efforts to stimulate certain brands in the promotional area.

I just would acknowledge, again, just how choppy it is ought there right now.

And that's what we're trying to deal with.

I mean, just even in Q4, Hormel Chili was still up, SPAM was relatively flat and Dinty Moore was down.

And all three had been these traditional canned franchises that in the early part of the recession, consumers seemed to be gravitating towards.

And now it's a little bit more of a mixed bag.

It's a little harder read.

Could be in part though, the comps we were dealing with from Q4 of last year.

But I think to your general point, I think that's correct, that we will want to try to attain the right feature price for consumers to continue to drive volume for these franchises.

Okay.

Thank you.

Thank you.

And the next question comes from Ann Gurkin from Davenport.

Please go ahead with your question.

Good morning.

Hi, Ann.

Did I hear you say we may hear news of an acquisition in the near term; is that correct?

No, I said we have nothing to announce today, sorry, Ann.

(Laughter)

Okay.

I was just going to ask what the size of it might be.

Okay.

My other question is, what are you including for contribution from export markets in 2010?

Well, I mean, it's been a somewhat troubled situation for us this year, particularly China.

We've made up for that somewhat with quite strong exports to Mexico, and that seems to be still looking fairly favorable.

We hear positive things about China opening up.

We haven't seen a lot of evidence of it yet in our shipments, but we're certainly hopeful of that going forward.

And as always, I mean in the scheme of our total business, that's not a big direct factor, But it certainly can have market effects that would be very significant.

Okay.

So look for some growth, maybe in 2010?

That would -- that's what we would hope to see.

Okay.

Great.

Thank you.

Thank you.

We have a question from Jonathan Feeney from Janney Montgomery Scott.

Please go ahead with your question.

Good morning, everybody.

Thank you.

Hi, John.

Hi.

So I guess if -- you wouldn't mind just giving me a little bit more detail.

And I know this isn't something you've done historically, but on the other hand it's kind of an unusual situation.

When you look at the guidance for next year, I think you've been -- thank you, you've been very clear about the high single digit to -- looks like 8 to 10%ish type range in segment operating profit.

What kind of volume would you need across the segments to drive that, do you think, looking overall?

Can you -- maybe can you give me a sense, what's going to be up and down to sort of get to that range?

Okay.

The first half of the year on an overall basis, we're expecting it to be flat to even potentially slightly down.

That's built into our plan for next year.

Gaining some momentum as the year goes on.

And that is again, as I mentioned earlier, in the earlier part of the call, that's all sort of netting out MegaMex.

I mean, we will see revenue increases, that's $80 million, $90 million, over the course of the year, that that's going to add to the top line, with the new franchises that that group sells that will go through the grocery division.

So we'll see that.

But we also will call that out each quarter, as to how much is effected by that new business, and how much is organic growth.

Overall, though, I mean, to hit the guidance range we're looking for, we need to restore momentum in our top line by the second half of the year.

We're not -- we think the cost environment that we've benefited from, should continue to help us in the early part of the year.

But we recognize that ultimately we have to have robust franchises to hit our long-term objectives.

And I guess specifically, if you could drill down into grocery versus refrigerated, assuming the others are sort of -- I mean, would you say -- would you be looking for that trajectory of growth to be more pronounced in terms of improvement over the course of the year in grocery?

Because of maybe recovery in microwaveables?

Is that what you're looking for, or is it that you're counting on sort of export volumes?

Or -- just overall, Foodservice volumes to drive your Refrigerated Foods business, which of those two would be a stronger volume driver next year?

I guess, I don't know that I would pick one over the other.

I think maybe the best guidance I could give you would be -- is our articulated long-term goal for our franchises is 5% growth.

That may be difficult to hit on an annualized basis.

But we certainly expect to be tracking at that kind of pace by the later part of the year.

And we expect to have sales be positive on an annualized basis.

5% you're talking about the sales number; right?

Yes.

Great.

Okay.

Thank you very much.

Yes.

Thank you.

And we have a follow-up question from Diane Geissler from CLSA.

Please go ahead with your question.

Hi.

I guess that's still me.

Can you just tell me what were your realized prices on hogs this quarter?

Did you give that and I missed it?

You know what, we haven't been giving those numbers out, but I would tell you that it was slightly less than last year.

Slightly less than last year.

And what did it look like on a sequential basis?

This quarter versus last.

Oh, man, I don't have last quarter's numbers with me today.

Maybe I can get that from Kevin.

Thanks, Diane, sorry about that.

Thank you anyway.

Thank you.

And we have a follow-up question from Akshay Jagdale from KeyBanc.

Please go ahead with your question.

Hi, thanks for taking the follow-up.

Actually, I wanted to ask something that Diane asked.

But in terms of the -- I was just looking at hog prices this quarter.

And according to spot data, they were at $36 per live weight, which would be down $17 or $18 year-over-year.

But I guess what you're trying to tell us, is that that's not what you realized?

Is that correct?

We realized that they were less, than they were last year, our hog costs.

Okay.

But not as much as I am indicating here?

What was the -- $36 down?

No, I didn't -- we were in the high teens down.

Okay.

Yes, just-- as it relates to that -- I was a little bit -- I guess I just wanted to drill a little bit deeper into the different parts within Refrigerated Foods.

Foodservice and the Meat Products, as well as the commodity side, because what I was seeing was that hog prices were down significantly this quarter at least in the spot market.

And we didn't see the same sort of reaction on the EBIT side or dropdown in terms of savings.

So I just wanted to get a sense of maybe if you could give us a little color on the different moving parts.

I know you talked about Lloyd's a little bit.

bBut just talk a little about the three different parts in Refrigerated Foods for this quarter.

From our standpoint, we thought Refrigerated Foods actually ended the year very strongly.

We were suffering earlier in the year from the kind of week after week of those negative cutout margins, which we recognize as just one of a number of factors that are important to Refrigerated Foods.

Those became more benign as the year went on, and allowed the value-added part of the portfolio to shine through.

Particularly in the retail side, but even in Foodservice, as they featured some of their more value-added items, they were able to be a solid contribute the other the earnings results of Refrigerated Foods as well.

Okay.

That's helpful.

Thanks.

(Operator Instructions)

And we have a follow-up question from Robert Moskow from Credit Suisse.

Please go ahead with your question.

I'm just trying to encourage Tim Ramey to call in with a wine selection for Thanksgiving.

It's a Thanksgiving tradition.

I don't know where Tim is today.

Don't you guys have anything you can throw out our way?

I'm more of a diet Coke fan.

I think just as long as you go with a Jennie-O Turkey, or a Cure 81 ham, we have that part of the meal covered.

Alright, we are left to our own devices.

There you go.

Have a good holiday.

Happy holidays.

(Operator Instructions)

We do not appear to have any further questions.

Please continue with any points you wish to raise.

Thank you.

I'd like to thank everybody for participating on our call today.

And in response to Rob's question, a good new Beaulieu, a Chardonnay, or Pinot Noir will go very well with a Jenny-O turkey, and either a Pinot Grigio or Riesling with the Cure 81 ham.

Hope you all have a great Thanksgiving, safe travels, talk to you later.

Bye-bye.

Ladies and gentlemen, this concludes today's conference call.

Thank you for your participation and you may now disconnect.